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Top fund manager Dalio warns investors to stay away from cash

asx shares versus cash represented by man in dinosaur mask withdrawing cash from atm
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Billionaire Ray Dalio is a world-famous investor that many look to for advice, wisdom or just good old-fashioned market commentary. Dalio founded one of the world’s largest hedge funds – Bridgewater Associates – back in 1973. It is perhaps most well known for its performance during the global financial crisis a decade ago. While global markets were tanking, Bridgewater’s Pure Alpha Fund managed to make a motza back then. Today, Bridgewater has more than US$140 billion in assets under management, although Mr. Dalio is no longer playing an active role at the fund.

Even so, he is still out and about, sharing his insights on the current economic climate and market conditions.

Reporting in Business Insider this week shed some light on what Dalio has been telling investors in this current climate. Business Insider quoted Dalio speaking at the Bloomberg New Economy Forum this week. First off, he told the forum that diversification is “one of the most important portfolio strategies” in the current environment. But he caveats this statement by saying that investors shouldn’t be owning bonds (also called ‘fixed-interest investments’) or cash right now:

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.

Dalio instead recommended that investors “diversify between currencies, asset classes, and countries as the best way to reduce risk without reducing opportunity”.

Dalio: Cash is trash

This news might not be as relevant for us Aussie investors, who have never had much of a tradition of investing in bonds. However, a common investing practice over in the United States is the ’60/40 portfolio’, which advocates a 60% allocation to shares and a 40% allocation to bonds. Something to keep in mind.

Beyond diversification, Dalio also told investors that “liquidity and differentiation” should be guiding lights for portfolio construction in today’s environment: “liquidity allows an investor flexibility to change as circumstances change” he said.

Whilst Dalio is bullish on shares in general, he does nudge 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. According to Dalio, 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.” 

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Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.