Ray Dalio: Risks are rising. Allocate 5-10% of your portfolio to gold

Ray Dalio, Chairman and CIO of Bridgewater Associates has released a new memo this morning where he notes that risks are rising and prudent investors should be preparing wisely. The key points of the memo are:

• Recent low volatility is unlikely to persist. “As a rule, periods of lower risk/volatility tend to lead to periods of greater risk/volatility.”
• Most investors don’t get this. “Most people are inclined to assume that the circumstances they have recently encountered will persist. (During) low-volatility periods in which credit is readily available… people to assume that it’s safe to borrow more, which leads them to lever up their positions, which contributes to greater volatility and hurts them when things change.”
• Risks are now rising, especially around the situation in North Korea – which is hard to price. “We are seeing two confrontational, nationalistic, and militaristic leaders playing chicken with each other, while the world is watching to see which one will be caught bluffing, or if there will be a hellacious war.”

What should we do?

• “Stay liquid”
• “Stay diversified”
• “Don’t be overly exposed to any particular economic outcomes”
• Hedge your bets and buy Gold. “If the above things go badly, it would seem that gold (more than other safe haven assets like the dollar, yen, and treasuries) would benefit, so if you don’t have 5-10% of your assets in gold as a hedge, we’d suggest that you relook at this.”

Overall his message is: don’t assume the near future will look like the recent past... and be prepared. (VIEW LINK)