Bridgewater Fund founder Dalio sent these two tips, and the family office please open quickly

Introduction:

Dalio, a 72-year-old billionaire who built Bridgewater Associates as the world's largest hedge fund, recently said that some uncertain events could have an impact on the economy, hoping investors would be prepared. This is nothing more than a very good warning for family offices, especially for high-net-worth investors to be prepared for risk hedging.

First tip: Assess your financial risk

Dalio says that no matter what happens, he has a simple principle for future things: "If you're worried, you don't have to worry." If you don't worry, you have to worry. The logic behind this statement is that worry prompts you to take a hard look at your personal risks and encourages you to take action.

Similarly, he suggests measuring your financial risk in an inflation-adjusted currency, rather than using today's dollars. For example, if you have cash in your savings account, its cumulative value may be different from your other investments because it is taxed by inflation.

But that doesn't mean you should just choose other investments over cash savings, and vice versa. Dalio says that in times of uncertainty, you need a safe, diversified portfolio to fund your emergency savings.

In fact, Dalio emphasizes the importance of "risk management" here. Improper risk management can have serious consequences for companies, individuals and the economy. For example, the subprime mortgage crisis of 2007, which in part triggered the financial crisis, was rooted in faulty risk management decisions, such as lenders issuing mortgages to individuals with bad credit; Investment firms that buy, package and resell these mortgages; and funds that over-invest in repackaged but still risky mortgage-backed securities.

How to correctly establish the concept of risk management? We tend to look at risk itself in a reasonable way. In the world of investing, risk is necessary and inseparable from the desired return. Investment risk is usually defined as a deviation from the expected outcome. We can express this bias in absolute terms or relative to something else, such as a market benchmark.

While this bias can be positive or negative, professionals generally agree that this bias means that your investment has the desired outcome to some extent. Therefore, in order to achieve higher returns, people need to take greater risks. At the same time, the increase in risk is in the form of increased volatility. While investment professionals are always looking for ways to reduce this volatility, there is no clear consensus among them on how best to do it.

How much volatility an investor should accept depends entirely on how much risk an individual tolerates, or, in the case of investment professionals, how much tolerance their investment goals allow. One of the most commonly used absolute risk measures is standard deviation, which is a statistical measure of the degree of dispersion around a concentrated trend. You look at the average return on an investment and then calculate its average standard deviation over the same period, which helps investors numerically assess risk. If they believe they can take risk on this basis, they invest.

When investing in assets that produce expected returns above the risk-free rate, the challenge is to properly understand and measure the sources of risk in order to predict low-probability but high-impact events and take steps to manage these risks. Risk can be simply defined as the probability and magnitude of deviations from the expected return on an asset. But how do you model such a fundamentally complex concept? Is it explained by mathematical formulas, or should emphasis be placed on the prediction of uncertainties?

The answer is that both quantitative and qualitative factors are important when assessing risk. Equally important is the framework for assessing and managing risk, as well as the risk management tools available. At this point, it is difficult for individual investors or family offices to have sufficient expertise to deal with it, and our advice is to entrust a professional to assist you in reducing your investment analysis.

The second recommendation is to diversify your portfolio

Dalio believes that building a strong portfolio is about evaluating your current investment strategy and protecting your assets. Dalio recommends making sure your assets aren't all in one place, even in cash.

Cash is not a safe investment, as inflation in many parts of the world has now reached its highest point in decades. Instead, he suggests building portfolios as diverse as possible, such as investing in real assets such as inflation-index-linked bonds, such as gold, but not making that desperate decision.

Diversification is a technique that reduces risk by allocating investments across a variety of financial instruments, sectors, and other categories. Its goal is to maximize returns by investing in different areas that react differently to the same event.

Most investment professionals agree that while diversification is not guaranteed to be loss-free, diversification is the most important component of achieving long-term financial goals while minimizing risk, especially for high-net-worth investors. Here, we take a look at why it's the right thing to do and how to diversify into your portfolio.

Suppose you have a portfolio with only aviation stocks. Once there is bad news, such as an outbreak, the stock price will fall, which means that your portfolio will experience a significant decline in value. But some professional investors will hedge these airline stocks with some railroad stocks, or stocks that have nothing to do with the economic cycle, so that only a portion of your portfolio will be affected. In fact, the price of these non-aviation stocks is likely to rise as passengers look for alternative modes of transportation or safe-haven assets.

But such hedging is not yet the safest, as rail and aviation stocks have a strong correlation. This means that you should diversify across different industries, regions, and even different classes of assets, different industries, and different types of companies, so that the lower the correlation of the stocks in your asset pool, the better. By diversifying, you can be sure you don't put all your eggs in one basket.

Diversifying investments across different asset classes, such as bonds and equities, does not react equally to adverse events. A combination of asset classes such as stocks and bonds can reduce your portfolio's sensitivity to market volatility because they tend to move in the opposite direction. Therefore, if you diversify your investments, the adverse volatility of one market will be offset by the positive results of another market.

Conclusion

Diversification can help investors manage risk and reduce the volatility of asset price fluctuations. However, keep in mind that no matter how diversified your portfolio is, risk can never be completely eliminated. When it comes to things outside of your usual risk control, be sure to let a professional organization advise you. In addition, having the right risk management model and a precise risk management model can make your portfolio more robust in the face of uncertain events.