Ray Dalio has reached the part of his life where he is giving back.
Dalio founded Bridgewater Associates out of his apartment in 1975, and now the long-running hedge fund is recognized as the world’s largest by assets under management (AUM) with $122.2 billion, and as the fifth most important private company in the United States by Fortune magazine.
However, since 2011, the billionaire has passed the baton for the role of CEO at Bridgewater – and he’s also been focused on passing on his knowledge as well.
The Knowledge Baton
Most recently, Ray Dalio has been praised for releasing his book entitled Principles: Life and Work, where he outlines the principles that have guided his impressive success with Bridgewater.
Just as timeless, however, is this 30 minute animated video that he and Bridgewater released a few years ago, which gives their unique template for how the global economy works. It’s possible that you may have seen this before – but if not, it can be a useful tool to understand how the pieces fit together.
Dalio starts at the micro level, showing how individual transactions are part of the overall economic machine.
Then, using human nature and history as a guide, Dalio reduces the complex global economy down to just three major forces that must be understood.
Three Major Forces
Dalio says this model has guided Bridgewater for over 30 years, and that there are three major forces that shape the economy:
1. Productivity Growth
Productivity growth, which is measured as a percentage of GDP, grows over time as knowledge, technology, and innovations help to raise our productivity and living standards.
2. Short-Term Debt Cycle
Usually lasting 5-8 years, the short-term debt cycle is a repeating pattern that occurs as credit expands and contracts.
3. Long-Term Debt Cycle
Usually lasting 75-100 years, the long-term debt cycle usually ends in a period of extreme deleveraging, where global debt is unsustainable and asset prices fall.
Based on Dalio’s model and his concerns about the abuse of money printing by central banks, it’s clear why he routinely holds gold for about 5-10% of his personal portfolio, as well.
Rules of Thumb
The video ends with Dalio giving three rules of thumb – takeaways that make sense for individuals, companies, and policymakers.
Rule #1. Don’t have debt rise faster than income
Your debt burdens will eventually crush you.
Rule #2. Don’t have income rise faster than productivity
You’ll eventually become uncompetitive.
Rule #3. Do all that you can to raise productivity
In the long run, that’s what matters the most.
With an estimated net worth of $17 billion, it seems Dalio’s rules could be worth keeping in mind.
Ranked: The World’s 50 Top Countries by GDP, by Sector Breakdown
This graphic shows GDP by country, broken down into three main sectors: services, industry, and agriculture.
Visualized: The Three Pillars of GDP, by Country
Over the last several decades, the service sector has fueled the economic activity of the world’s largest countries. Driving this trend has been changes in consumption, the easing of trade barriers, and rapid advancements in tech.
We can see this in the gross domestic product (GDP) breakdown of each country, which gets divided into three broad sectors: services, industry, and agriculture.
The above graphic from Pranav Gavali shows GDP by country, and how each sector contributes to an economy’s output, with data from the World Bank.
Drivers of GDP, by Country
As the most important and fastest growing component of GDP, services make up almost 60% of GDP in the world’s 50 largest countries. Following this is the industrial sector which includes the production of raw goods.
Below, we show how each sector contributes to GDP by country as of 2021:
|🇰🇷 South Korea||57.0||32.4||1.8||8.8||$1.8|
|🇸🇦 Saudi Arabia||46.5||44.7||2.7||6.1||$0.8|
|🇭🇰 Hong Kong||89.7||6.0||0.1||4.3||$0.4|
|🇿🇦 South Africa||63.0||24.5||2.5||10.0||$0.4|
Industrial sector includes construction. Agriculture sector includes forestry and fishing. *Data as of 2019.
In the U.S., services make up nearly 78% of GDP. Apart from Hong Kong, it comprises the highest share of GDP across the world’s largest economies. Roughly 80% of American jobs in the private sector are in services, spanning from healthcare and entertainment to finance and logistics.
Like America, a growing share of China’s GDP is from services, contributing to almost 54% of total economic output, up from 44% in 2010. This can be attributed to rising incomes and higher productivity in the sector as the economy has grown and matured, among other factors.
In a departure from the top 10 biggest countries globally, agriculture continues to drive a large portion of India’s GDP. India is the world’s second largest producer of wheat and rice, with agriculture accounting for 44% of the country’s employment.
While the services sector has grown in India, it makes up a greater share in other emerging economies such as Brazil (58%), Mexico (59%), and the Philippines (61%).
Services-led growth has risen faster than manufacturing across many developing nations, underpinned by productivity growth.
This structural shift is seen across economies. In many countries in Africa, for instance, jobs have increasingly moved from agriculture to services and trade, where it now accounts for 42% of jobs.
These growth patterns are supported by rising incomes in developing economies, while innovation in tech is lowering barriers to enabling service growth. As the industrial sector makes up a lower share of trade and economic activity, the service sector is projected to make up 77% of global GDP by 2035.
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