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Ray Dalio Prefers Cash Over Bonds as Interest Rates Rise: Here’s Why

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Billionaire Investor Ray Dalio Prefers Holding Cash Over Bonds

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As concerns grow about rising interest rates and inflation, billionaire investor Ray Dalio has expressed his preference for holding cash instead of bonds.

When asked about his investment strategy in the current environment, Dalio, the founder of Bridgewater Associates, stated, “I don’t want to own debt, you know, bonds and those kinds of things.”

He believes that cash is a good option for now and expects interest rates to change in the future. Speaking at the Milken Institute Asia Summit in Singapore, Dalio stated, “Temporarily, right now, cash I think is good … and the interest rates are fine. I don’t think [it] will be sustained that way.”

These remarks from Dalio come as the yield on the 30-day U.S. Treasury bill climbs above 5%, while investors can earn 4% on certificates of deposit and high-yield savings accounts.

Dalio points out that the biggest mistake made by most investors is believing that past performance indicates the quality of an investment, rather than considering its price.

When asked for advice on capital allocation for new industry watchers, Dalio suggests being in the right geographies, diversifying, paying attention to the implications of disruptions, and investing in asset classes that are leveraging new technologies effectively.

Addressing Rising Debt

Regarding the issue of rising global debt, Dalio highlights that when a country’s debt becomes a significant portion of its economy, the situation tends to compound and accelerate. This is because interest rates need to be high enough for the creditor while not harming the debtor.

Dalio explains, “We’re at that turning point of acceleration. But the real problem comes when individuals or investors don’t hold the bonds, because it becomes a supply-demand issue. One man’s debts are another man’s assets.”

He warns that if investors are not receiving sufficiently high real interest rates, they will sell their bonds. This supply-demand imbalance can cause bond prices to fall, yields to rise, and borrowing costs to increase, leading to inflationary pressure and posing challenges for central banks.

Dalio emphasizes, “When the interest rates go up, the central bank then has to make a choice: Do they let them go up and face the consequences, or do they print money and buy those bonds? And that has inflationary consequences. We’re seeing that dynamic happen now. I personally believe that bonds are not a good long-term investment.”

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