Ray Dalio: Cash is Trash and Gold is a Diversifier

Speaking to media outside the World Economic Forum in Davos, Switzerland, on Tuesday (January 21), Ray Dalio, founder of investment firm Bridgewater Associates, warned investors about the perils of not having a diversified portfolio, the shortcomings of bitcoin and how “cash is trash.”

The billionaire investor’s key tip for approaching the markets in 2020 is diversification.

“You have to have a well-diversified portfolio,” he said. “First of all you have to be global, and you have to have balance; I think you have to have a certain amount of gold in your portfolio or you have to have something that is hard.”

The yellow metal started strong in 2020, driven by geopolitical tensions in the Middle East and the longstanding trade dispute between China and the US, which reached a phase one agreement last week.

The uncertainty moved gold to a near seven year high in early January of US$1,552 an ounce. Its growth continued after that, and the currency metal went on to surpass US$1,600.

Easing of international tensions has weighed on gold slightly; however, the precious metal has remained above US$1,550 even as the US greenback has begun to recover from its mid-month slip.

Gold’s appeal as a safe haven asset has also helped it retain its gains session after session.

As Dalio noted, the depreciation of the exchange rate and the printing of money will be some of the largest factors impacting markets in the coming years, adding to the allure of the yellow metal.

The founder of Bridgewater Associates, which manages a fund of US$160 billion, was also critical of bitcoin and its role in the market.

“There are two purposes of money, a medium of exchange and store hold of wealth and bitcoin isn’t effective in either of those cases now,” he said.

Last year, the veteran investor referenced a paradigm shift that he dubbed “reflation,” marked by quantitative easing (printing of money) and the devaluing of currency and financial tools.

“In paradigm shifts, most people get caught overextended doing something overly popular and get really hurt,” he wrote on LinkedIn. “On the other hand, if you’re astute enough to understand these shifts, you can navigate them well or at least protect yourself against them.”

He went on to explain, “(Unfortunately,) most investors took the money they got from selling their financial assets to central banks and bought other financial assets, which pushed up financial asset prices and pushed down risk premiums and all asset classes’ expected returns.”

Now, as the world enters a new paradigm, according to Dalio — one in which quantitative easing is no longer sustainable, currencies have been devalued and geopolitical relations are tenuous — investors who want a balanced portfolio should look to precious metals.

“I believe that it would be both risk-reducing and return-enhancing to consider adding gold to one’s portfolio,” Dalio said.

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Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any company mentioned in this article.