Ray Dalio has repeatedly made the case that gold remains the safest form of money in our ever-evolving globalized landscape of rising debt, unstable currencies and geopolitical risks. Below is an explanation as to why he holds this view and its possible ramifications on your portfolio.
- Gold does not belong to anyone but itself
Dalio often emphasizes that gold, unlike bonds or bank deposits, does not become someone else’s liability. Finbold [+3], acquirersmultiple.com
Gold ownership allows you to escape this dependency. Instead, its value derived from intrinsic factors, unlike paper currencies or bonds which depend on promises that can be broken by inflation or defaults.
- Fiat currencies pose structural risks
Dalio points out large national debts, weak fiscal positions and consequent pressure on fiat currencies as major concerns. (sources). Finbold
As governments borrow more, print more money, or run large deficits, the risk of currency debasement increases. Dalio views this phenomenon as a structural factor which makes gold an attractive hedge or fallback when currency debasement occurs.
- long-term purchasing-power record
Dalio recognizes that history cannot guarantee anything, yet sees gold as having one of the strongest long-term records for maintaining value, particularly during economic or monetary crises. acquirersmultiple.com
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He asserts that when hard asset-backed monetary systems broke down (e.g. in 1933 or 1971), gold fared much better than many fiat currencies.
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Dalio suggests allocating 10-15% of one’s portfolio in gold (or equivalent hard assets) as an insurance against systemic risk, according to The Block and Business Insider.
He contends that gold may not offer the high returns associated with stocks or bonds in general, but provides uncorrelated value and insurance-like protection when other assets falter.
acquirersmultiple.com 5. its relevance can only increase in current context
Dalio has pointed to the current environment – high debt levels, inflationary risks, slowing economic growth, geopolitical tensions – as one where gold becomes particularly significant. Finbold agrees.
He believes that in today’s volatile and unstable economic environment, traditional assets and paper money face greater risks of devaluation or dysfunction; gold offers an alternative investment option with lower risks of decline or disfunction.
- What This Doesn’t Imply
Dalio makes it clear that gold will not outshone all other assets under all circumstances or dominate a portfolio; rather, he sees it as part of an appropriate allocation in an diversified portfolio – for instance alongside inflation-protected securities or even crypto (in moderation) to balance out risk. Throughout this article are several practical takeaways from Dalio’s work which can help. For example: Business Insider has 7 practical takeaways from this article alone!
Consider allocating 10-15 percent of your long-term portfolio towards gold (or similar hard assets). Dalio suggests doing this.
Gold can serve as both short and long-term protection, offering immediate gains without taking risks with currencies or financial systems.
Understanding that gold serves to complement other assets rather than replace them can help ensure an investment strategy with low risks, rather than one based solely on speculation.
Conclusion
Ray Dalio’s contention that gold is the safest money stems from its intersection of economic history, systemic risk, and portfolio engineering. According to him, its combination of high global debt levels, volatile monetary systems, and potential currency breakdown makes gold an exceptionally secure asset – though perhaps not offering outsized returns; nonetheless it offers investors durable hedges during times of uncertainty.
