First, Ray Dalio foresaw the 2008 financial crisis. Then, he predicted years of long-term financial stress on the United States economy due to the Covid pandemic. Now the 72-year-old billionaire investor who made Bridgewater Associates the world’s largest hedge fund has warned of a new economic catastrophe on the horizon, and he wants you to be prepared.
“I think we are at risk of war with China,” Dalio told CNBC Make It during a question and answer session broadcast live on Friday. “Largely due to misunderstandings.”
Dalio pointed out that his predictions are not facts: he, too, has been wrong before. But, he said, future catastrophes are inevitable, by historical patterns of the past 500 years.
If an upcoming conflict between the United States and China doesn’t weaken the economy, something else will.
In other words, if an upcoming conflict between the United States and China doesn’t weaken the economy, something else will. Here’s why you think disaster is on the horizon, and your top two tips for financially preparing for it:
Why Dalio thinks the U.S.-China trade war could get worse
In his most recent book, “Principles for Coping with the Changing World Order,” Dalio wrote that American attempts to make China and its culture “more American” could eventually backfire, sparking conflict.
That could escalate the two nations’ trade war, which was started by the Trump Administration in 2018 and has prompted 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 its first year alone. Last year, a study by the Federal Reserve Bank of New York found that the trade war had cost US companies $ 1.7 trillion in market capitalization.
Dalio’s comments about China have sparked a recent controversy. After telling CNBC last week that China’s human rights policies were similar to those of a “strict father,” he clarified his comments in a LinkedIn post. “I was trying to explain what a Chinese leader told me about how they think about ruling,” Dalio wrote. “I was not expressing my own opinion or endorsing that approach.”
In that post, he also expressed hope that the United States and China can step back from the precipice of conflict.
“What I think and what Bridgewater does is of minuscule importance in relation to the increasing risk of a US war with China,” he wrote. “I hope that a lot of attention will be paid to that issue and that mutual understandings will increase and inclinations to fight diminish.
Your first tip: assess your financial risks
Regardless of what happens, Dalio said Friday that he has a simple principle for dealing with 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 him to take a close look at his own personal risks and encourages him to take action.
One risk, for example, could be “location” – that is, the physical place where you live and work. Dalio’s book contains a “Health Index” that ranks roughly a dozen nations on 18 factors, such as debt burdens, military strength, and economic output. It is intended to be a resource for readers to assess risks and strategize on where to live and invest, and according to Forbes, it plans to launch a website containing real-time versions of the data.
Moving is, of course, often a hassle, but Dalio said it is worth considering in financially troubling circumstances. “Flexibility is key,” he added.
Similarly, he advised, measure your financial risks in inflation-adjusted terms rather than in today’s dollars. If you have cash in a savings account, for example, you are probably building value at a different rate than your other investments, as it is being taxed by inflation.
But that does not mean that you should exclusively choose other investments instead of a savings account, or vice versa. In the midst of chaotic times, Dalio said, he needs his emergency savings to be funded by a secure and well-diversified portfolio.
His second tip: save and diversify your portfolio
Dalio’s first step to a strong portfolio is to evaluate your current investment strategy, if you have one, to determine how many weeks you could survive financially if you lost your job. “It’s always worth figuring out the worst case and covering for it,” Dalio said.
Next, make sure your money isn’t all in one place. “Cash is not a safe investment,” Dalio told CNBC last week, when inflation hit a 31-year high in the US 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 bitcoins, despite years of criticizing cryptocurrencies. The reason, Dalio said Friday: is a hedge gamble, made solely for the purpose of diversification.
“I urge those who like bitcoin, or those who like gold, not to make an all or nothing decision,” he said.
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Ray Dalio believes that another economic disaster is coming and there is a risk of a war between China and the United States.