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Thursday, Apr 18, 2024

Why billionaire Ray Dalio thinks another economic disaster is coming - and how he recommends preparing for it

Why billionaire Ray Dalio thinks another economic disaster is coming - and how he recommends preparing for it

Hedge fund billionaire Ray Dalio gives advice on how to prepare yourself for future financial catastrophes - and what could tank the American economy next.

“First, Ray Dalio foresaw the 2008 financial crisis. Then, he predicted years of long-term financial strain on the U.S. economy from the Covid pandemic.

Now, the 72-year-old billionaire investor who built Bridgewater Associates into the world’s largest hedge fund is warning of a new economic catastrophe on the horizon — and he wants you to be prepared.

“I think we’re at risk of a war with China,” Dalio told CNBC Make It during a live-streamed Q&A on Friday. “Largely due to misunderstandings.”

Dalio noted that his predictions aren’t facts: He’s been wrong before, too. But, he said, future catastrophes are inevitable, according to historical patterns over the last 500 years.

Why Dalio thinks the U.S.-China trade war could get worse


In his newest book, “Principles for Dealing with the Changing World Order,” Dalio wrote that American attempts to make China and its culture “more American” could eventually backfire, prompting a conflict.

That could intensify the two nations’ trade war, which was started by the Trump Administration in 2018 and has led American companies to cut wages, lower profit margins and raise consumer prices.

A Moody’s Analytics study found that the trade war cost Americans at least 300,000 jobs in just its first year. Last year, a Federal Reserve Bank of New York study found that the trade war had cost American companies $1.7 trillion in market capitalization.

Dalio’s comments about China have prompted recent controversy. After telling CNBC last week that China’s human rights policies were akin to those of a “strict parent,” he clarified his comments in a LinkedIn post. “I was attempting to explain what a Chinese leader told me about how they think about governing,” Dalio wrote. “I was not expressing my own opinion or endorsing that approach.”

In that post, he also expressed hope that the U.S. and China could back away from the precipice of conflict.

His first tip: Assess your financial risks


Regardless of what happens, Dalio said on Friday, he has a simple principle for approaching future events: “If you worry, you don’t have to worry. And if you don’t worry, you have to worry.”

Worrying, he said, prompts you to take a close look at your own personal risks — and encourages you to take action on them.

One risk, for example, could be “location,” meaning the physical place where you live and work. Dalio’s book contains a “Health Index” that rates roughly a dozen nations on 18 factors like debt burdens, military strength and economic output. It’s intended as a resource for readers to assess risks and form strategies on where to live and invest, and according to Forbes, he plans to launch a website housing real-time versions of the data.

Moving is, of course, often a hassle — but Dalio said it’s worth considering under financially worrying circumstances. “Flexibility is key,” he added.

Similarly, he advised, measure your financial risks in inflation-adjusted terms instead of today’s dollars. If you have cash in a savings account, for example, it’s probably accruing value at a different rate than your other investments, since it’s being taxed by inflation.

His second tip: Save and diversify your portfolio


Dalio’s first step to a strong portfolio is assessing your current investment strategy — if you have one — to figure out how many weeks you could financially survive if you lost your job. “It always pays to find out whatever the worst-case scenario is and cover yourself from that,” Dalio said.

Then, make sure your money isn’t all in one place. “Cash is not a safe investment,” Dalio told CNBC last week, as inflation hit a 31-year high in the U.S. Instead, he suggested on Friday, build as diverse a portfolio as possible — ranging from inflation index bonds, which Dalio recommended above regular bonds, to physical assets like gold.

Your portfolio could even include digital assets like cryptocurrencies. In May, Dalio told CoinDesk that he personally owns a “small amount” of bitcoin, despite years of criticizing crypto. The reason, Dalio said on Friday: It’s a hedge bet, made solely for the purpose of diversification.

“I urge those who like bitcoin — or those who like gold — to not make it an all-or-none decision,” he said.

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