Renowned billionaire investor Ray Dalio has expressed a preference for holding cash instead of bonds amidst mounting concerns over escalating interest rates and inflation levels. The founder of Bridgewater Associates emphasized his caution regarding debt-related investments and suggested that cash is a prudent option in the current investment landscape. Speaking at the Milken Institute Asia Summit in Singapore, Dalio highlighted his temporary stance on cash, citing the expectation of interest rates undergoing changes.
Dalio’s comments come at a time when the yield on the 30-day U.S. Treasury bill has exceeded 5%, offering an alternative to investors seeking returns, with certificates of deposit and high-yield savings accounts providing around 4%.
He advised against the misconception of assuming strong-performing markets equate to good investments, emphasizing the importance of being discerning about investment choices. For those entering the investment sphere, Dalio recommended strategic approaches, including focusing on the right geographic markets, diversification, understanding disruptions, and selecting asset classes aligned with innovative technologies.
In addressing the global issue of mounting debt, Dalio underscored the challenges posed when a significant portion of a country’s economy is tied to debt. He noted that striking a balance in interest rates to accommodate both creditors and debtors becomes increasingly complex. The hedge fund manager stressed the current critical juncture in this economic dynamic, cautioning about the repercussions if investors choose to sell bonds due to inadequate real interest rates.
Dalio emphasized that a sell-off in bonds results in price declines and increased yields due to their inverse relationship. This, in turn, leads to elevated borrowing costs and inflationary pressure, placing a burden on central banks. He foresaw potential inflationary consequences if central banks intervene by printing money to buy bonds, expressing a long-term skepticism regarding the viability of bonds as sound investments.