Ray Dalio believes that an increase in portfolio values amid inflation does not translate to purchasing more power or financial health.
According to billionaire hedge fund investor Ray Dalio, rising portfolio values are not an accurate wealth barometer, especially considering inflation. Dalio’s comments come after inflation in the United States surged to its highest-ever level since 1990. In a LinkedIn post, the chief investment officer at Bridgewater Associates, the world’s largest hedge fund, wrote:
“Some people make the mistake of thinking that they are getting richer because they are seeing their assets go up in price without seeing how their buying power is being eroded.”
Dalio further stated that investors most hurt by this are those with cash-based (liquid) assets. The veteran investor is a long-time proponent of investing in more secure, interest-yielding assets over cash investments. This is because he believes that the central bank’s ability to always print more money undermines the actual long-term value of cash. He believes that real wealth depends on the production capacity generated over time. As Dalio put it:
“Printing money and giving it away won’t make us wealthier if the money isn’t directed to raise productivity.”
In fact, Dalio suggests that when general prices are on the rise, it is a good time to tie money down in tangible assets. This will go a long way in securing, preserving, and potentially adding to the value of the money. The world-renowned investor explains that the prevalence of extraneous amounts of money and credit pushes their value down. Therefore, possessing more money does not necessarily translate to higher buying power.
Ray Dalio Forewarns US Government on Devaluation
Ray Dalio issued a note of caution to the United States government about inflation, that history does not favor its current “path.” According to him, every individual, organization, or country throughout the ages that lost its buying power eventually sank. The billionaire investor stated that the US has to counteract its current trend of spending more than it earns – and making up for it by printing more money. This is a sure recipe for devaluation, and “to improve we have to raise productivity and cooperation.”
Prominent Venture Capitalist Also Earlier Forewarned of Inflation
Earlier in the month, Peter Thiel also forewarned of impending inflation in the US. The billionaire venture capitalist suggested that the rising prices of digital currencies was proof that inflation was on the horizon. This is many people see crypto, especially Bitcoin (BTC), as a hedge against inflation. Therefore, several investors were scrambling to secure their assets in BTC, consequently driving up the price due to excess demand.
Thiel criticized the US government and Federal Reserve for dragging its feet on the matter. In his opinion, the government was shortsighted thinking that printing more money would provide a remedy. Thiel is an avowed crypto devotee and previously expressed regret for not investing more in the digital asset. In late October, the Securities and Exchange Commission (SEC) gave its blessings for the operation of BTC futures ETF in the country.
Tolu is a cryptocurrency and blockchain enthusiast based in Lagos. He likes to demystify crypto stories to the bare basics so that anyone anywhere can understand without too much background knowledge.
When he’s not neck-deep in crypto stories, Tolu enjoys music, loves to sing and is an avid movie lover.
