- Ray Dalio told investors to not own bonds or cash in an interview at the Bloomberg New Economy Forum on Tuesday.
- The Bridgewater Associates founder explained that central bank policy has “changed the economics of borrowing.”
- “In my opinion, don’t own bonds, and don’t own cash because they’re producing a lot of debt and producing a lot of money to fund it, and so that’s changing the nature of capital flows,” said Dalio.
- He told investors to diversify between currencies, asset classes, and countries because it’s the best way to reduce risk without reducing opportunity.
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Billionaire investor Ray Dalio told the Bloomberg New Economy forum on Tuesday that diversification is one of the most important portfolio strategies, but investors shouldn’t own bonds or cash right now.
The Bridgewater Associates founder explained that the capacity of central banks to print money and buy financial assets has “changed the economics of borrowing.”
“In my opinion, don’t own bonds, and don’t own cash because they’re producing a lot of debt and producing a lot of money to fund it, and so that’s changing the nature of capital flows,” added the investor, who claimed back in January that “cash is trash.”
Dalio suggested instead that investors diversify between currencies, asset classes, and countries as the best way to reduce risk without reducing opportunity.
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Dalio’s advice to stay out of bonds comes as interest rates remain at historic lows and investors raise doubts over the traditional 60/40 portfolio composition. According to research from JPMorgan Asset Management, a portfolio with 60% global equities and 40% bonds is projected to provide an annual return of just 4.2% over the next 10 to 15 years. A year earlier, returns on the same portfolio were projected at 5.4%.
Beyond diversification, Dalio said that liquidity and differentiation should guide investor portfolios right now. Liquidity allows an investor flexibility to change as “circumstances change,” he said.
Dalio also guided investors to differentiate between companies and countries that are “orderly and will prosper in this environment” and those that are prone to bankruptcy and disorder. Disorder in a company or country depends on the entity’s income relative to its expenses, and its assets to liabilities. Dalio said differentiation will allow investors to see “radical differences in financial consequences.”