Bridgewater: The Biggest Mistake In Investing

Over the years, Bridgewater’s “Daily Observations” research notes have built a reputation for their unparalleled and informative views on the macro economy.

But Bridgewater’s research notes aren’t just focused on economic trends. Occasionally, the firm publishes a document that covers investment strategy.

Indeed, during 2004 (revised during 2006) the fund published a “Daily Observations” note titled, “The Biggest Mistake in Investing“, which discussed the topic of asset allocation and balanced portfolios.

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Bridgewater: The biggest mistake in investing

“The vast majority of investors (that probably means you) are making a huge mistake in their asset allocation. Investors do not have balanced portfolios.” — Bridgewater Daily Observations August 18, 2004.

Bridgewater’s argues that investors’ biggest mistake in investing is an overweight asset allocation towards equities. Over 80% of a typical investor’s risk is in equities. A scattering of bonds and other non-equity instruments does little to balance out a portfolio because they make up such a small amount of risk. According to Bridgewater’s research this over-investment in equities, at the expense of other asset classes, costs investors around 3% per year in expected value, which could alternatively be used for risk reduction and dwarfs all other issues that investors face.