The head of the world's biggest hedge fund shares his best advice for the average investor

Ray dalioBusiness InsiderBridgewater Associates founder, chairman, and co-CIO Ray Dalio on ‘The Bottom Line.’

For the average person, buying and selling individual stocks is like trying to get rich in a poker game at a table with the world’s greatest players, Bridgewater Associates founder and co-CIO Ray Dalio explained.

“This is not an easy game,” he said.

In an interview with Business Insider CEO Henry Blodget on “The Bottom Line,” Business Insider’s new weekly business show, Dalio shared his best advice for the common investor.

Dalio oversees the world’s largest hedge fund, which has about $US150 billion in total assets under management. From this, position he’s able to offer some perspective to ordinary professionals saving for their retirement.

“We put hundreds of millions of dollars each year to try to beat the market, to try to understand it,” he told Blodget, adding that many other sophisticated investors and institutions are doing the same thing. “Those are the poker players you have to play against. You’re not going to be able to do that.”

Instead, you should be building a diversified portfolio with assets that are balanced according to their risk, rather than their dollar amounts.

He said there are essentially just two forces influencing returns: growth and inflation. The task, then, is building a portfolio that is able to weather any scenario, regardless of what these two factors are doing.

When Blodget asked Dalio to explain further how to do this, Dalio said that he would have to have a long conversation with individuals to explain how they should invest their money, but that a good starting point would be to take a look at what he told performance coach Tony Robbins for Robbins’ 2014 personal finance book, “Money: Master the Game.”

Here’s the portfolio Dalio recommended to Robbins, which he created according to a balancing of risk:

  • 30% stocks
  • 15% intermediate term bonds (7-10 year Treasuries)
  • 40% long-term bonds (20-25 year Treasuries)
  • 7.5% gold
  • 7.5% commodities

That allotment is highly subjective, and may not be right for everyone. But Dalio presented it to Robbins as a starting point for people looking to build diversified portfolios. Depending on your age and how much you’re investing, you may want to hire a financial adviser.

Dalio also told Robbins that he recommends investors rebalance their portfolio — bring back your assets to their original allocations — on a regular basis (once a year is good). To use an example from Robbins’ second personal finance book, “Unshakeable“: “Imagine you start with 60% in stocks and 40% in bonds; then the stock market plunges, so you find yourself with 45% in stocks and 55% in bonds. You’d rebalance by selling bonds and buying stocks.”

In his conversation with Blodget for “The Bottom Line,” Dalio added that all investors should also be highly aware of all transaction costs and fees when they build their portfolio to ensure they’re not overpaying.

Average investors need to see investing as a long game to endure, not one where they can make quick wins from time to time.

The latter, Dalio said, is “more difficult than trying to compete in the Olympics. If I asked you if you’re going to compete in the Olympics you would say, ‘I won’t do it.’ So many people go in that game and then they lose it. I don’t recommend it. I do recommend that they understand to have a balanced portfolio and hold that portfolio over time.”

You can watch the full second episode of “The Bottom Line” below.

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