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Ray Dalio: Cash Is Trash, But Don't Overdo It on Stocks

Hedge fund manager says that if Bitcoin attains widespread acceptance, regulators will step in to control it, 'killing' the cryptocurrency.

Rising inflation and low interest rates are creating risks for investors, but cash isn’t the answer, says Ray Dalio, founder of Bridgewater Associates, the world’s biggest hedge fund firm.

“Know cash is trash. Don’t keep it in cash,” he told CNBC. “The most important thing that an individual investor can do is know how to diversify well.”

And how should we diversify?

“Diversify across countries, currencies, assets classes and so on, so you have that balance,” Dalio said. “You can take your tactical moves from there. All those assets classes will outperform cash.”

Investors are over-emphasizing stocks, he said.

“I think the stock market is relatively attractive in relationship to the alternatives,” Dalio said. “But that dynamic is going to start to change as monetary policy gets tighter.”

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More restrictive Fed policy often hurts stocks.

Meanwhile, Dalio said that if Bitcoin achieves widespread acceptance, regulators will step in to control it.

“At the end of the day, if it’s really successful, they will kill it, … because they have ways of killing it,” he said.

Given Bitcoin’s lack of intrinsic worth, it’s hard to know what the cryptocurrency’s ultimate fate will be, Dalio said.

“There are so many things in a historical perspective that didn’t have intrinsic value and had perceived value,” he said. “They went hot, and they became cold. [Bitcoin] could be either way.”

Bitcoin has enjoyed a rollercoaster ride since its inception in 2009. It recently traded at $48,040, up 3%. But it has dropped 9% in the last 10 days.