Ray Dalio’s Advice is Not For You

Ray Dalio is a Greenwich-based hedge fund manager. I don’t know Ray, but by all accounts he is a very successful operator with excellent performance and a smart guy.

Dalio has recently been playing his hand at making far out comments in order to gain attention. Dalio is generally very discrete and responsible (for example, he did not go on CNBC when Bitcoin hit 19,000 and say it was going to 40,000 like other frequent CNBC guests). Nonetheless, his latest piece of advice is not for you.

You see, Dalio stated to CNBC that saving money in cash is “the worst thing you can do.”

Dalio correctly stated that cash is tax disadvantaged and that you are taxed on interest at ordinary income rates, making cash a less advantaged asset class from a tax perspective than many of other alternatives where income generated has favored treatment (dividends from equities, for example) and where capital gains can be achieved.

But, Dalio overlooks the fact that cash is always going to be there from day to day. You won’t loose 2/3rds of it as you did in 2000 – 2002 or as you did in 2008 – 2009, or as many of his Greenwich-based hedge fund brethren have done in a rising stock market over the last several years. And, if you aren’t old enough to remember those periods or familiar with these types of losses, you can read about the losses people have recently had on bitcoin or look at the market’s fall in just the week after Dalio’s comments.

For those people who aren’t billionaires and who are dependent on maintaining their current asset levels in order to secure the education of their children, cash is a necessary and appropriate place to be and it can be an appropriate place to be with a substantial part of your portfolio for long periods.

To boot, cash doesn’t earn the 0.09% that Dalio assumes that it earns when he says that it doesn’t keep up with inflation. The leading online savings accounts are paying upwards of 2.25% at the moment, and 1-year online CDs can be found at 2.70%. Dalio needs to familiarize himself with the rates on BestCashCow before he makes incorrect statements such as that.

Note to Ray Dalio, as of the date of this article, cash, even if it were only earning 0.09%, has outperformed the stock market, the bond market, EM, bitcoin and real estate in 2018. It is certainly looking like it might outperform these asset classes in 2019 as well.