Ray Dalio, the founder of Bridgewater Associates, spoke with David Westin, the anchor of Bloomberg Television’s “Bloomberg Wall Street Week,” at the Greenwich Economic Forum’s annual conference held on 3-4 October 2023.
The 74-year-old American, whose net worth is estimated to be around $15.4 billion (as of 9 October 2023), created the asset management firm Bridgewater Associates from his New York City apartment just two years after receiving his MBA from Harvard Business School.
While speaking at a session titled “Dalio: the State of the Global Economy,” Dalio emphasized the importance of diversification in investment portfolios and discussed the current attractiveness of cash as an asset class.
Dalio began by cautioning investors about the limitations of predicting market trends. He used the adage, “He who lives by the crystal ball is destined to be ground glass,” to stress that what one doesn’t know is often more important than what one does know. He argued that understanding how to balance and diversify a portfolio is crucial for most investors.
According to Dalio, proper diversification involves a mix of countries, currencies, and asset classes. He warned against making tactical decisions based on varying opinions, especially those heard at conferences. Dalio revealed that Bridgewater Associates has invested significant resources, potentially up to a billion dollars, in technology and other means to gain a competitive edge in the market.
Dalio also highlighted the benefits of diversification, stating that it allows investors to reduce their risk by up to 80% without sacrificing expected returns. He urged investors to consider the relative appeal of different asset classes when making investment decisions.
In a notable shift from his previous stance, where he had declared “cash is trash,” Dalio now views cash as a relatively attractive asset class. He explained that cash currently offers a decent real return of approximately 1.5%, making it a viable option for investors.
Moreover, he pointed out that cash doesn’t come with the price risk associated with other asset classes:
“Cash now has a relatively attractive appeal. When I said ‘cash is trash,’ that got a lot of attention. But that’s when cash was nil … Now, when you look at the expected returns for this moment, cash is a relatively attractive asset class at this moment. It’s not just attractive because it has a relatively decent – decent, not great, but decent – in other words, it has something like a 1.5% real return. Not bad. And not bad in comparison to the other things, and it doesn’t have price risk. So it looks relatively attractive.“
In December 2021, during an interview with Yahoo Finance, Dalio said:
“So I’m very big on diversification, and it’s a relatively small part of the portfolio. I would like to say that cash– I’ve been quoted, “cash is trash”– that cash which most investors think is the safest investment is I think, the worst investment. And that it’s important, because it loses buying power. The one thing I would say to investors is don’t judge anything in your returns or your assets in nominal terms, in terms of how many dollars you have. View it in terms of inflation-adjusted dollars. And so cash like this year, you’ll lose 4% or 5% to inflation. And so pay attention to those, because I believe that that’ll be the worst investment.“
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