Ray Dalio: "Cash is trash, take diversified investment portfolio"

As an investor, it is better to have a well-diversified investment portfolio than to leave money in the bank. That's according to asset manager Ray Dalio of Bridgewater Associates in an interview with CNBC. He advises clients to build a well-diversified portfolio, because government bonds and savings do not yield anything.

According to Dalio, investors should hold a portion of this well-diversified portfolio in gold, for diversification and as a hedge against currency depreciation.

"We've had three monetary systems. The first was at the time when money had intrinsic value. You had Gold Coins with you. Then came the idea of banks and central banks. They issued certificates that were a claim on gold. But many more certificates were issued than the amount of gold in the bank. It was a linked system.

We moved away from that in 1971, when we had a fiat money system, which means you can print as much money as you want. And that's what governments do. We are now in that phase of the cycle. The depreciation of money and the printing of money will be important themes for the coming years."

'Cash is trash'

According to Dalio, who manages assets of about $160 billion with his mutual fund, money is virtually worthless. Government bonds and savings yield virtually no interest, while purchasing power is eroded by inflation. With a negative interest rate on the safest government bonds, it is therefore much more interesting to convert your assets into, for example, shares and real estate. Gold can play an important role in this as a form of diversification.

Last year Spoke Dalio already talked about gold as one of the best-performing investments for the next few years. In an era of negative interest rates and currency depreciation, both central banks and wealthy individuals want to protect their wealth, among other things by spreading it better. Through negative interest rates, Dalio foresees a paradigm shift, in which people will look differently the role of government bonds as a safe store of value.

Gold or Bitcoin?

Dalio is very positive about gold, but much less so about Bitcoin. According to him, the virtual currency does not meet the most important conditions for money, namely that it must be reasonably stable in value and easy to trade. The volatility of the virtual currency is many times greater than that of the yellow precious metal, which means that its value fluctuates greatly. That's why, according to him, central banks still prefer gold, which has a proven track record of more than a thousand years.

According to Dalio, negative government bond yields are the final phase of the current paradigm. It is not a sustainable system, which means that a new paradigm will take its place:

"There will come a time in the future when we need to think about what constitutes a stable store of value. Because with negative interest rates on government bonds, we are reaching the limit of this current paradigm."

Also Read: Ray Dalio: "This is a dangerous environment for the value of currency"

This contribution was made from Geotrendlines