"I found this 2011 interview with Ray Dalio a healthy reminder of the value of diversification. This might be obvious, but I still found it fresh reading.


"Coming out of the last financial crisis I foolishly thought: there is no such thing as uncorrelated markets and that buy-and-hold was a dead concept. OK, I am retired now and my investments are my primary source of financial security. I have to assume that we are heading into another crisis and only god knows (or does she?) how all of this will unwind? So what Ray Dalio says is VERY appealing: with diversification you get good leverage on returns for the same risk, you don't need to pick great stocks or have great timing.

"OK, here's the catch: Ray says you need 15 uncorrelated markets (he doesn't thing that should be a problem) and that you should regularly (daily) monitor the market to check the macro view that affects correlation.

"I, for one, would be interested to know what such (15) market instruments could be, and then on some regular basis update the correlation trends, maybe even a correlation table or chart.

"I can see that one can diversify by sector, market cap, region, currency, trading/investment strategy, dividend/growth, bonds/equities etc. and that emphasis change with time depending on macro conditions.

"Now I do think that your superb service answers many of these questions. It would be nice to see a regular consolidated view of correlation for15 or so market instruments - especially for an elderly un-coordinated chap like me who still marvels at your sharp mind (and wit).

"Thank you, David."

David Fuller's view Thanks for your witty email and generous comments.

High-profile financial types frequently talk about their own modus operandi. It is part of their PR marketing programme, and I mean no disrespect to Ray Dalio or anyone else. It also attracts people who have similar views.

However, I would be at my wit's end trying to keep up with your interest in this approach, and while 'uncorrelated' markets have a defensive appeal, I worry about "you don't need to pick great stocks or have great timing".

I am all for pursuing one's healthy interests, including in markets, because they help to keep us mentally sharp, enhancing our lives and probably extending them as well.

A degree of diversification makes sense. Also, as "investments are your primary source of financial security", you will appreciate the need to be somewhat more conservative with your portfolio.

I would favour big companies, including Dividend Aristocrats and inform Autonomies. You have technical skills which will certainly help. I would also focus more on value than uncorrelated holdings, which may have an, 'in the eye of the beholder' subjectivity.

You will know that correlation tends to increase in strong markets, as we have seen recently, and especially in weak markets when people are panicking and funds are forced sellers. There are few better strategies than buy-low-sell-high, although this may feel counter intuitive so it is not always easy to do.