Ray Dalio: Why He Prefers Cash Over Bonds

Introduction

In this article, we will discuss billionaire investor Ray Dalio’s preference for holding cash instead of bonds in today’s investment environment. Dalio, the founder of Bridgewater Associates, believes that cash is a better option due to rising interest rates and inflation concerns.

Dalio’s Perspective

Dalio stated that he doesn’t want to own debt, such as bonds, at the moment. He believes that cash is a favorable choice temporarily and that the current interest rates are satisfactory. However, he expressed doubt about the sustainability of these rates in the long term. Speaking at the Milken Institute Asia Summit in Singapore, Dalio shared his thoughts on asset allocation amidst the current economic climate.

The Rising Yield

Dalio’s comments coincide with the increasing yield on the 30-day U.S. Treasury bill, which has climbed above 5%. As an alternative, investors can get a 4% return on certificates of deposit and high-yield savings accounts. These figures highlight the attractiveness of cash as an investment option in comparison to bonds.

Dalio’s Investment Advice

Dalio believes that many investors make a common mistake by considering high-performing markets as good investments solely based on their past success. Instead, he suggests focusing on value and price, prioritizing investments that are not overly expensive.

Additionally, when asked about deploying capital as a new industry watcher, Dalio advises individuals to pay attention to the right geographies, diversify their portfolios, and select asset classes that employ new technologies effectively.

Addressing Global Debt

Dalio also discusses the challenges posed by rising global debt. When a substantial portion of a country’s economy is debt-dependent, the situation tends to worsen as it requires interest rates high enough to satisfy creditors without harming debtors. Dalio emphasizes that we are at a turning point where this issue is accelerating, particularly when investors start selling bonds if they are not receiving adequate interest rates.

The Supply-Demand Imbalance

If investors choose to sell their bonds due to low interest rates, there will be a sell-off, causing bond prices to drop and yields to rise. This inverse relationship will result in higher borrowing costs and inflationary pressure, creating challenges for central banks. Dalio explains that central banks face a choice of allowing rates to rise with the associated consequences or printing money to purchase bonds, which carries its own inflationary risks. He firmly believes that bonds are not a good long-term investment due to these dynamics.

Overall, Dalio’s preference for cash over bonds exemplifies his cautious approach amid rising interest rates and concerns over inflation. By prioritizing cash and considering value and price in investments, individuals can align with Dalio’s strategy in today’s investment landscape.