UPDATE: Founder of world's largest hedge fund wants to guide your money and your life
As we go forward, what they're talking about is selling a lot of bonds, something equivalent to 2.5% of GDP in bonds. That's a lot of bonds. In addition, we're going to have budget deficits increasing, which is going to mean selling more bonds. And we're not going to have much of a growth pickup. So this is a time for being cautious (http://www.marketwatch.com/story/the-stock-markets-next-trump-challenge-starts-right-after-labor-day-2017-08-22).
Read: 'Bitcoin is a bubble': Dalio (http://www.marketwatch.com/story/bitcoin-is-a-bubble-says-the-head-of-the-worlds-largest-hedge-fund-2017-09-19)
MarketWatch: What can investors learn from Bridgewater's All Weather fund, which is built to handle any global market scenario?
Dalio: Balance. Knowing how to achieve balance in one's portfolio.
You have to know where neutral is. I break asset classes into four boxes and two influences -- inflation and growth. Either they go up or go down. For example, if the economy goes down and inflation falls, I know bonds will do well. If inflation and growth pick up, I know bonds will do badly. I put 25% of my risk exposure in each of those boxes.
There are four environments: growth/inflation and rising/declining. Now I say, what assets will be best in there? If growth is faster than expected, I know equities will go up. Inflation? Inflation-indexed bonds, some commodities, a bit of gold (http://www.marketwatch.com/story/dalio-urges-investors-to-buy-gold-to-hedge-against-possible-war-with-north-korea-2017-08-10). I'll have bonds, sovereign bonds, if inflation falls and growth falls.
My objective is to achieve balance. One could do it by looking at past correlations (http://www.marketwatch.com/story/low-volatility-correlations-and-other-confounding-market-riddles-2017-09-28). The reason I don't is that correlations happen because of reasons. I don't have an environmental bias. I want to achieve balance.
MarketWatch: Indexing's popularity is soaring and unprecedented. Are index investors exposed to too much market risk?