The holy grail of investing is finding 15 good uncorrelated return streams, which reduces about 80% of risk without reducing return, achieving the upside without the downside.
Dalio explains that by diversifying across 15 uncorrelated return streams, an investor can reduce risk by roughly 80% without sacrificing returns — multiplying the return-to-risk ratio by a factor of five. ✦ AI generated
Ray Dalio · My First Million · 2026-07-17 · original ↗
starts at this moment · 2:27
Find 15 good uncorrelated return streams. ... if you can get out to 15, you can get down to about reduce about 80% of your risk without reducing your return. That means that you increase your return to risk ratio by something like a factor of five. ... So that means you can get the upside without having the downside.
verbatim transcript · starts at 2:27
2:28didn't have much humility. I'd say I'm right. I'm going to be right and all that. And then I learned how to diversify my bets and substantially reduce my risk without reducing my returns because I didn't want to have reduce the upside. I I knew that I had to reduce the downside. And so um I really learned and taught myself really my mantra. Okay, here's the mantra for
2:55investing. You want to be successful th this will um this is the uh holy grail of investing. Find 15 good uncorrelated return streams. >> How did you come up with 15? >> Well, I just looked at the math of it. Okay. So in other words, what are the marginal benefits of diversification given the different levels of correlation? And I I have that on a chart that keeps reminding me. Okay, if
3:27you can get out to 15, you can get down to about reduce about 80% of your risk without reducing your return. That means that you increase your return to risk ratio by something like a factor of five. Okay? In other words, wow. So that means you can get the upside without having the downside. Okay? And then humility, you know, I wanted people to kick the [ __ ] out of whatever I thought,
3:58you know, to try to do that and then have that. And that change in that approach was the basis of Bridgewater going from, you know, be having to borrow $4,000 from my dad to the largest hedge fund, most successful hedge fund in the world. >> If we wanted to be better investors, what do you think the most common mistake smart guys can make when it comes to investing? They don't have a
4:21game plan. >> So, what's a good game plan look like? How do you know if you have a good game plan? >> Well, the way that I did it was um um every time I would make a decision, but this is the building of all principles I did, but particularly in the markets, every time I would be make a decision, I would go back and study if I made that
- ·Find 15 good uncorrelated return streams
- ·Reduces ~80% of risk without reducing return
- ·Upside achieved without the downside
- ·Return-to-risk ratio increases by ~5x
- ·Risk drops 80% while return stays constant
- ·Diversification across uncorrelated streams is key
- ·Ratio climbs from 1x to 5x
- ·Same return per dollar, fraction of the volatility
- ·Enables leveraged exposure without ruin risk