Who am I, or any of my team for that matter, to tell you the best place for your money? Not anybody really.
How about Ray Dalio...? Well, he’s:
- the founder of Bridgewater Associates, known for successful investing on a global scale.
- student of economics and history, particularly the rise and fall of empires, and warns that the US is in trouble.
- also enthusiastic about keeping balanced, such as taking inflation into account, and holding little cash.
While Warren Buffett:
- will probably go down as the greatest investor in history
- has run Berkshire Hathaway as CEO, since 1965.
- gave his fund members annualised returns of 20% over the last 50+ years.
Both have a lot to say on the topic. So without further ado. In this guide, we’ll cover what masters like Buffet advise as the best place for your money.
Table of Contents:
Our Top Pick Best Place for Your Money in 2023 🇬🇧
Not sure what the safest place to put your money is? The world today is crazy and growing crazier. So you’re not alone. However, those who operate from sound and intelligent principles have a much better chance of doing well regardless of where things go. There is always the element of luck. And sometimes there is a time to break principles and take risks.
Overall, who knows? But here are the basics of growing money: have a read of How to Budget.
1. Avoid Cash?
Ray Dalio Money Advice 2023
Seeing as nobody knows the future, let’s use question-marks for each section. And let’s tell a story rather than giving forward financial advice. You can let the words flow in one ear and out of the other. Hopefully, by the end of the article, something useful will be illuminated in you.
So as the story goes…
Nearly 50 years ago, Ray read the news of the US cancelling its gold standard — no longer swapping dollars for gold. He was convinced this would be a disaster for markets. But heading to work the following morning at the stock exchange, every exchange had rocketed despite the currency being devalued. The Dow Jones Industrial Average saw its biggest point gain ever.
Dalio understood he needed to investigate history more in order to make sense of this happening — to see whether he was mistaken in his analysis. “I learned to go back to past cases,” Dalio said to one source. He learned a lot from his studies — for instance, investigating the Great Depression let him foresee the 2008 Financial Crisis and make profitable investments. While everyone else lost money, Dalio made a significant amount.
Ray is both founder and co CEO for Bridgewater Associates, the world’s second-biggest hedge fund, and he has expanded his historical research to investigate deeper matters than currencies being devalued and recessions in order to explore questions such as why empires rise and fall and reasons for nations going to war.
This is also the topic of his recent book, “Principles for Dealing with the Changing World Order.”
The book explores the histories of the British, British and US empires across the past 500 years, focusing heavily on their currencies seeing as these nations were at some point the reserve currencies for the world. He also looks into China as well as German, Indian, French, Japanese, and Russian empires.
Dalio believes that each of these nations displayed relatively predictable economic, political, financial and debt cycles, taking the view that these empires indeed usually decline after roughly 250 years. He says the mixture of growing asymmetric wealth, immense national debt, and a corrupt political system, in addition to the boom of China as a competitor, all mean problems for the US.
He believes that more of us need to be aware of these historic cycles and need to know the trouble that many western nations, including Britain, are in.
He calls this a “critical juncture” where such countries will either overcome social and political lines of division and work together, or enter into one of the following: a civil war or an external war, or both. Dalio isn’t the only economist to conclude this.
Another way of phrasing this is that the most important factors that dictate a country’s health are to do with its economic strength, its social order, the growth of a competing nation, unpredictable natural events, and the human creativity to innovate — that last part is the only thing Dalio says is capable of overcoming these challenges.
Elon Musk purchasing Twitter is possibly one such sign that America and Britain alike could overcome (read more).
Ray argues that these difficulties are worsening particularly for the US while China is steadily rising, with its citizens seeing booming and longer life expectancy than ever before.
Ray himself looks for countries where there is strong income and balance sheets. This is where he invests his money. He seeks countries where people are behaving well and treating each other well and being productive. And wherever there is less risk of war. Countries with great civil order are able to slice the “pie” appropriately, so that many people get a slice, and therefore feel they want to add to productivity as a whole. Which is a cycle of benefiting everyone.
The scope of economic hazards today means diversifying is more important than it normally would be. Ray says investors should take great care to ensure their portfolios are balanced and so can continue to reap stable gains despite inflation and taxes — these two issues are becoming more pressing today .
The reason to balance your portfolio is that it brings low risk without lowering returns. Ray says he developed Bridgewater’s All Weather Fund in order to do the impossible in economics, which is to get a “free lunch.” According to Ray, “diversification is the free lunch.”
Most interesting of all, Ray actually recommends people keep fully invested and avoid cash.
He views cash as a “very bad asset.” Most people see cash as one of the safest assets. However, Ray believes that it has too much negative yield against inflation. Which means that buyers lose a ton of buying power… Ray explains that, for the U.S. the Federal Reserve will need to keep interest rates low just to keep printing money which will keep producing debt, and so people need to invest.
He says you should keep a strong eye on inflation and don’t just think you’re safe because you have cash. Rather, keep yourself diversified as well as liquid by investing into a diverse portfolio of assets.
What do you think? Leave us a comment… And check out our top index funds.
2. How Much Savings?
Ray Dalio Money Advice 2023
Let’s continue with more Dalio financial wisdom. Before you can invest sensibly, Ray says you first need to study your savings and calculate what amount needs to be “safe and free.”
Consider the number of months or years of cash you need to get by, based on how much you currently have saved and consider your lifestyle.
Another way of saying this: you should clearly know your typical, standard expenses — everything from utilities or mortgage payments to eating and other key bills that are essential or can’t be reduced — so that you know exactly how much money you would require to survive losing a large source of income.
Dalio says you should save enough so that you know “you’re okay for ‘X’ amount of time,” and this could be a couple of months up to a year.
Keep in mind, you don’t need a luxurious lifestyle. Just think of the basics. Also, whatever number you come up with, double that amount of savings, which is a way to stay conservative. A combination of taxes, inflation and even losing in your portfolio, could cut these savings by half.
This is the key rule: when you do your calculations, consider what would happen if everything went wrong that could go wrong (Moore’s Law), but you and your family would still be okay.
Now that you have this amount for your portfolio set aside that is conservatively safe, Dalio suggests you should make a plan for how to invest the surplus cash that isn’t needed for expenses in the event of losing a major source of income: how can you put this extra money to work?
He says you should visualise the largest worst-case scenario that could happen which you would be okay with. This is your risk tolerance. Having this already accepted means that you can have peace of mind even if that event arises and you’ll be able to invest without resistance. But if you keep things vague, then you’ll need to start this visualisation process as soon as possible.
3. Diversify Investments?
Ray Dalio & Warren Buffett Money Advice 2023
Which leads to a third piece of money advice that both Buffett and Dalio agree on (but which many other notable economists object to, in terms of gold). Ray’s advice is to take the money that you feel okay with really trying to grow and “diversify that portfolio well.” Which means portioning it across several asset classes that usually do well regardless of the economic conditions.
He says you should diversify by holding assets that perform well even if the market takes a downswing. And assets that do well even in a high inflation environment. You should also diversify by holding global as well as local European asset classes.
For example, the billionaire manager urges investors to bet on “both horses in the race” which is his way to hedge — and he’s referring to the U.S. and China trade war that has seen the two superpowers grow as competitors for GDP in recent years.
Ray thinks Chinese first are competitors to US businesses as well as British businesses and others around the world, which means that the only way to be diversified is to have bets on all of these horses in the race.
You’re not seeking to win big on one bet. You’re seeking to not lose big by being too over-invested in one sector or economic market. Dalio also believes that cash and government bonds are a terrible idea in current conditions. There is no telling how currency inflation will damage the value of these assets over time. Cash is no longer a good investment, he thinks. He believes inflation will mean you’ll lose 2% a year and possibly more.
Some economists think the only real assets are real-estate and farmland!
Dalio meanwhile believes that gold is a better asset than cash. Once again, diversification is the goal so don’t go crazy with gold. But he advises to have a “little bit of gold in your portfolio.” While many investors, including billionaire Warren Buffett, tend to see gold as pretty safe and stable in times of crisis, others disagree.
4. Avoid Trying to Time the Market?
Finally, Ray strongly urges against trying to time the market.
He says this is “really important.” Today, it’s all the rave to invest in disrupter stocks and to chase a crypto coin to the moon then evacuate before it explodes… This is possibly one diverse way to invest a tiny bit of your capital.
For the most part, Dalio says that he views the “biggest mistake that most people make” as trying to discern what will do well according to how it has performed recently. People try to study the stock market based on recent performance and use this to ‘time’ when the best time to buy is.
This is mostly ego. Attempting to time the market is very hard to do perfectly and “even some professionals can’t always manage” this. Compared to a pro, the average person will have an extremely hard time trying to do this, Dalio says.
In fact, you'll need to outperform professionals — who themselves “typically can’t” can’t perform very well. Rather, it’s a better bet for non-professional investors to think of their investment as a long-term thing and make positions in a diversified way that can pay dividends across time. The danger of not doing this is ending up entangled in an historical cycle and patterns that tend to move the economy and stock markets.
The pattern tends to be a bubble that eventually bursts, and vice versa, Ray believes that these economic cycles have a tendency to repeat and so investors should learn to stop thinking in terms of having to deal with a “bad market.” Instead, there is always opportunity. In fact, being in a bearish market may be the best opportunity to get bargain prices on some stocks.
Keep in mind that Amazon itself once lost the bulk of its stock price due to the tech bubble burst that happened in the early millennium, but a few of the firm’s long-term investors (the ones who held onto the stock despite the burst, or purchased at the lowest point) saw massive profits because they ignored the bearish times and looked ahead to long-term roads and this approach in fact is why Amazon itself is now worth multiple times more than it was even just a decade ago.
Best Place for Your Money – How to See 📊
These strategies come from Ray Dalio on how to handle your money, so that you can actually have enough awareness to discern what’s the best place for your money.
How to See 1: Pain & Reflection Lead to Progress.
You’re not alone if you don’t enjoy pain. It's a natural human response to avoid this feeling. For instance, some people avoid arguments because they’re emotionally painful, while others thrive on conflict. But if you avoid any communications about key topics because you’re scared of pain, then you may work against having a peaceful and honest life.
So the first key mental tip from Dalio is that life will always involve emotional pain, and therefore you should embrace it if you want to progress properly. Painful honesty is better than pleasant delusion. The latter will eventually turn around to bite us.
The great news is that Pain with Reflection leads to Making Progress, and progress is its own reward. We can develop ourselves to have a habit of reflecting on emotional pain and personal challenges. After reflection, we should take responsibility for whatever is in our power to be more aware of rather than moaning about things being beyond our control. By having faith that we can grow in wisdom, we can enter a path to success and happiness.
How to See 2: Consider the Bigger Picture Beyond Yourself and the World.
Ray Dalio believes that reality can be viewed as a machine. You have your aims, and you need to work the machine of reality in order to let these aims become reality. But to go beyond your scale of awareness, you need to come outside of yourself and view how that machine (reality) works itself, which will naturally show you the pathway to walking through the machine.
One interesting way of viewing this is that humans are trapped in their minds. They are characters in a game being played by emotional impulses, with limited unique responses. But say you went outside of first-person view into the bird’s eye view of your character (third-person view)...
Now you are aware of yourself and the first-hand view experience of the game. Rather than moaning about something “bad” that happens, you can see the game playing itself out and reasons why things happen. Things become interesting rather than emotional. You reflect on why things happened to your character, rather than taking it personally.
Ray’s actual analogy however considers the “higher perspective” as being overall less emotional and thinking more logically so that you can evaluate life. Without this greater perspective, people live inside their minds, always reacting rather than seeing. By having this higher perspective, you’re better able to see the cause-and-effect relationships that govern outcomes rather than being miserable about them. In addition, you can even see your weaknesses without thinking bad of yourself, and being able instead to improve on them.
How to See 3: Overcome the Ego.
This could be the number 1 tip. Even the more egotistical competitors know how to sacrifice their ego in training, in order to develop the skills and practice to an inhuman degree. And their longevity will depend on not making reactive ego-driven decisions that destroy everything they’ve built, such as unprotected sex with someone very untrustworthy.
Ray views this scientifically. He says we should consider the two barriers as being rooted in the biology of the human brain.
The ego barrier comes from our primitive brain. It has contempt for errors and weakness, and it carries all of your deepest-seated needs and fears. This is the amygdala, responsible for processing emotions but this can’t be accessed by your conscious mind, so it’s tricky for you to see how it’s influencing you. By comparison, we have our rational brain, found in the pre-frontal cortex.
The primitive brain is so powerful that it can control your logical mind. For instance, if someone humiliates you, your heart rate speeds, your hands get clammy, and so on. This is a fight-or-flight response similar to encountering a hungry tiger. Even though your logical brain says the criticism is useful and not a tiger, the primitive brain has contempt and overrides this response.
When someone “gets angry with himself”, this is also the pre-frontal cortex struggling with the amygdala. If someone says, “Why did I allow myself to repeat that mistake”, it’s because the amygdala won over the pre-frontal cortex.
Overcoming the ego barrier takes conscious awareness and patience. You can begin this journey by growing awareness of what the primitive brain and the rational brain are doing. The next step is to evaluate how helpful any of what the primitive brain says. If there isn’t any help, then choose to overlook it and instead go with the rational brain. This becomes easier the more you practice and can boost productivity.
And to work against delusion, you should address your blind spot barriers; which Ray describes as “areas where your way of thinking prevents you from seeing things accurately.” This he believes happens because each of our brains have different writing. A few examples of this are as follows:
A “big picture” thinker can be more blinded to the smaller details. And vice versa.
- A very logical thinker can overlook people’s emotional cues. And vice versa.
- A very pragmatic viewer of reality can have poor imagination. And vice versa.
- Someone with tons of spontaneity can be weak at following instructions and routines. And vice versa.
None of these personality traits is necessarily bad or good, they’re just different, and so one could be better suited to one environment than another. The key to addressing these blind spots is as follows (choosing one of the following 3):
- ☑️ Learn to get your brain to act in ways that are not natural to it (for instance, being creative if you’re naturally logical).
- ☑️ Remind yourself or have another compensating mechanism.
- ☑️ Work as part of a team where others shore up your weaknesses.
The first approach is the most difficult one. While the last is the most traditional and efficient, most people don’t use this approach.