Ray Dalio changes long-held stance on cash

Yahoo Finance's Ines Ferré and Akiko Fujita discuss news that Ray Dalio is stepping back from his hedge fund, Bridgewater Associates, and new outlook on holding cash.

Video Transcript

AKIKO FUJITA: Billionaire investor Ray Dalio is no longer in control of Bridgewater Associates, officially stepping down today after transferring voting rights Friday. Dalio also making another pivot today, changing his mind on cash, saying in a string of tweets, cash is not trash anymore. Let's bring in Yahoo Finance's Ines Ferre. And Ines, we're talking about this pivot because for so long, his end of the argument has been that especially in an inflationary environment, the cash you hold is going to be worth less.

INES FERRE: Exactly, and that's what investors have been talking about since we saw inflation rising. And basically, Ray Dalio has, for a long time, as you said, Akiko, said that, look, you want to not be in cash. You want to have a diversified portfolio. He famously said that back in 2020. And now this is a big U-turn.

And as you said, saying, the facts have changed. I've changed my mind about cash as an asset. I no longer think cash is trash. And he said, at existing interest rates and with the Fed shrinking the balance sheet, it is now about neutral, neither a very good or a very bad deal. So in other words, the short-term interest rate is now about right.

Look, as investors understand that rising rates are going-- that rates are rising, this basically is punishing the borrowers. So rising rates punishes borrowers, and rising rates rewards savers. So now if you are in cash, it also depends on your time horizon.

I mean, I wrote a whole piece on Yahoo Finance about how much cash should investors have. And there's a little bit of a discrepancy among strategists about how much investors should have. But the bottom line is, is that as you're seeing asset prices coming down-- as interest rates are going up, asset prices are coming down. So having dry powder on the side is not bad.

AKIKO FUJITA: Really quickly, though, it feels like a lot of analysts are saying, though, that it's not a bad idea to be holding cash in this environment. I mean, we're-- two-day rally aside--

INES FERRE: Exactly.

AKIKO FUJITA: --it hasn't been good for those who've been holding some of these equity assets.

INES FERRE: No, exactly. As we are seeing, this is a-- yes, a bear market rally that we're seeing right now. But if asset prices continue to go down you will want to have cash on the side because you will want to be able to buy those assets at cheaper prices.

AKIKO FUJITA: OK. Today, a lot of people maybe saying, maybe it's time to buy into the market. Ines Ferre, thanks so much for that.