Ray Dalio Prefers Cash Over Bonds Amid Rising Interest Rates and Inflation Concerns
Renowned billionaire investor Ray Dalio has expressed his preference for holding cash instead of bonds amidst mounting concerns over rising interest rates and inflation levels.
When asked about his capital deployment strategy in today’s investment environment, Dalio, the founder of Bridgewater Associates, stated, “I don’t want to own debt, you know, bonds and those kinds of things.”
He further emphasized, “Temporarily, right now, cash I think is good … and the interest rates are fine. I don’t think [it] will be sustained that way.”
Dalio made these statements during the Milken Institute Asia Summit in Singapore.
Currently, the yield on the 30-day U.S. Treasury bill has surpassed 5%, while investors can obtain 4% returns on certificates of deposit and high-yield savings accounts.
Dalio believes that the biggest mistake made by most investors is assuming that markets that have performed well are good investments, despite their higher prices.
When asked about capital deployment advice for new industry watchers, Dalio recommended being in the right geographies, diversifying investments, paying attention to the implications of disruptions, and selecting asset classes that are utilizing new technologies effectively.
Addressing Rising Global Debt
Regarding the issue of rising global debt, Dalio highlighted that when debt becomes a significant portion of a country’s economy, the situation tends to compound and accelerate. This occurs because interest rates must be high enough for the creditor without harming the debtor.
Dalio further explained, “We’re at that turning point of acceleration. But the real problem comes when individuals or investors don’t hold the bonds, as it creates a supply-demand imbalance.”
He cautioned that if investors are not receiving sufficiently high real interest rates, they are likely to sell their bonds. This selling pressure causes bond prices to fall and yields to rise, leading to increased borrowing costs and inflationary pressures.
Dalio stressed, “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. I personally believe that the bonds longer term are not a good investment.”
