Ray Dalio (Part 1): Turning His Investing Principles Into a $150 Billion Hedge Fund

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2:53Otherwise, 1.00 % APY applies. No min balance required. Chime card on-time payment history may have a positive impact on your credit score. Results may vary. See Chime.com for details and applicable terms. I'm Nicole Lappin, the only financial expert you don't need a dictionary to understand. It's time for some Money Rehab.

3:15Well, today's guest is going to teach you how to be a world-class investor, and I'll tell you why. If you started investing any time within the last five years, you've probably felt like you've been in shark-infested, unchartered waters in a riptide. I mean, as an investor, you've had to adapt to a lot. A pandemic, ZERP, the zero interest rate policy that kept the economy running during said pandemic, then interest rates climbing back up, inflation, war, elections, supply chain disruptions, recession fears. It has probably felt like you're watching one dramatic TV series with a new plot twist every single week.

3:50But you know what? We're actually just watching one movie, and we're watching it over and over again. In other words, economic conditions are never really new. It's all happened before, and it will happen again. And if you can master the principles of these conditions, you can master investing. And today's guest wrote the book on these principles. And I don't mean that as a cliche. I mean that literally. Because today's guest is Ray Dalio. Ray is the founder of Bridgewater Associates, the largest hedge fund in the world with over$150 billion in assets under management. He built Bridgewater from a two-bedroom apartment into the financial powerhouse that it is today.

4:33It's managed money for governments, central banks, and some of the wealthiest families on the planet. He's also the author of Principles, the number one New York Times bestseller that's been translated into 28 languages and is required reading at companies from Silicon Valley to Wall Street. His work has been used by the U.S. Treasury, it's been studied by the Federal Reserve, and it has been bookmarked many, many times by yours truly. If you're an OG listener, you've probably already brushed up against Ray's ideas before because I talk a lot about the all-weather portfolio. This is a portfolio strategy that Ray developed with one simple idea.

5:09If you can't predict the future, an unfortunate truth, you can prepare for it based on historical patterns and smart fundamentals. The all-weather portfolio is built to stand whatever economic storm comes your way. Inflation, deflation, growth, recession, it's designed to perform through it all through a carefully constructed mix of U.S. long-term bonds, intermediate-term bonds, stocks, commodities, and gold. So yes, having Ray Dalio on the show is a really big deal and I could not be more excited. I flew to New York to do this interview with Ray in person, which we actually had to move a few days because Ray was asked to join President Trump in Saudi Arabia.

5:50I know, casual. And the conversation is so full of gems. I'm going to split it into two parts. So today you'll hear Ray dissect what's happening in the economy right now and his investing principles, the biggest risks on the horizon, where interest rates are headed, and how Ray sees this next chapter in the global financial story unfolding. Tomorrow, you're going to hear about how the biggest tragedy of Ray's life, the death of his oldest son, changed his money mindset forever and the principles he's learned to help him lead a rich life in every sense of the word. But first, here's part one. Ray Dalio, welcome to Money Rehab.

6:31Oh, I'm so glad to be here. I'm so glad to have you. We moved this interview because you went to the Middle East with the president. I suppose I'll allow it. How was it? It was wonderful to see, really, to see Saudi Arabia, which has transformed itself or transformed because of the leader of Saudi Arabia, MBS, and to see the president and those together working together to do deals that are mutually beneficial and to have a relationship. It was harmony. It was in some ways very contrasting with the chaos that we saw before. So it was it was good. It was comforting and good. Well, the chaos we saw before you went on Meet the Press and said that if it wasn't handled in the right way, we could not only potentially see a recession, but maybe something worse like a depression.

7:23Do you still feel that way? Yeah, we have difficult fundamentals to deal with. Most all buying power comes from credit. Credit produces debt. If you don't earn enough money to pay back the debt, you're going to have a debt problem. And that's true for countries as a whole, but they can print money. So sometimes they print money to deal with the debt problem, but it still means the value of money goes down. You have inflation. You have a problem. We have that kind of problem. This is not a new situation. This is something that's built up over a generation of the credit market system. the capital market system, is like the circulatory system in our bodies because it brings nutrients, spending power, to be able to then produce things.

8:12But if you let the debts build up, it's like plaque. And what happens with that is that plaque begins to squeeze out other spending and problems can occur. Okay, if we think of it like a doctor looking at a patient and I'm looking at the country, I would say we have, you've accumulated a lot of plaque and you are at risk. So this is the lay of the land. Okay. Now the question is, how is that handled? And the most important thing is that these issues, these difficult issues are handled well with people dealing well with each other rather than dealing badly. So when you ask about the Saudi trip.

8:58And yes, I was lucky enough. I know people on both sides intimately. And I was happy to be there to see a good trip, something in which there's elements of harmony, rather than chaotic chaos and fighting. So you're more encouraged than you were last month. Well, these factors are going to be with us for a long, long time. And so I felt better. Yes. But it's like somebody has a disease. Are we going to have a heart attack? We are very exposed to a heart attack. So on that first factor, I just wrote this book. You know, I'm a global macro investor, have been for 50 years, actually longer than that, but had my business and so on professionally for 50 years.

9:41And I thought it was very, very important for people to understand the mechanics of debt because it's not understood. So I did that and also how individuals should deal with it. That's why I did this study. So this is, in a nutshell, if we don't cut the budget deficit down to 3 % of GDP, which is now, it's now probably going to be about 6.5 % of GDP. If we don't cut it there, we will have a heart attack. That's everything. In other words, money and debt. Money is debt and debt is money. And what happens is if we don't deal with that and get it's we're very serious shape. Yes, we are likely to have a heart attack, an economic heart attack.

10:30And that looks like a depression. Here's how it would go. We have to sell a lot of debt. There's not enough buyers of the debt. And then the buyers are not adequately there. What happens? Either interest rates have to go up and constrict the demand, what you can sell, or the Federal Reserve has to come in and print money and buy all this debt, which is inflationary. In either case, it has the effect of reducing buying power. It produces one type of a problem or another type of a problem. The inflationary problem that we experienced before was because of all of the debt and money that was handed out.

11:14And so you can see a big version of that, something that could be worse than that if this isn't handled well. And think about it. Our buying power all around the world is very much connected to the value of our money. So this is a very, very big issue. Yes, you can have that kind of a problem. Yeah, because you talk about the 30s and you say you have this prescription for Washington. Take the 3 percent pledge that you mentioned. So cut, tax and then invest. And so on this trip, you're with these decision makers from Washington. Were you more encouraged that they would get on board with that plan?

11:54I think that there's a real recognition of the circumstances. There may not be as much public discussion about how serious the situation is. But we have all of these coming together. We have the debt issue. We have the internal fight of how the countries run. Think about the budget cuts and how they're taking place. That's a two-edged sword. And think about the conflict internally. And it's coming with conflict externally. So they're being dealt with. But think of it like a patient that is not in good shape. You cannot change some of these things. You can only try to deal with them at their stage in the best possible way.

12:37But for so long, we were this patient and we kept giving morphine in the form of ZERP, zero interest rate policy, and people got really addicted to that. Of course. It's so much better. Like, who doesn't like spending? You give credit. It's the paying back that's the problem, right? I mean, I think a lot of new investors who started in 2021 love the ZERP days and want zero interest rates. Of course, it all comes from credit. Give you credit. Are we getting back to those days? The government is deeply in that. We are in an environment that's similar to zero interest rate that can be measured by how much debt is the government getting into?

13:19How much credit? We love credit. But we can't have it all the time. We can't have morphine all the time. I think the important thing to understand is the mechanics by that I mean that it works the same for governments as it works for people with two differences. One difference is the government can print money, but you don't increase wealth by printing money. You just lessen the value of money. So you make it easier to pay back, but you experience it through inflation. And the second difference is the government can take your money so they can tax you. Those are the differences. But it works the same for individuals.

13:59So, yes, if you keep getting deeper and deeper into debt, you have debt payments problems. Yeah. It's$1 trillion is the interest bill, which is greater than the amount of money we're spending on defense,$1 trillion. And then because of expiring debt, we have to sell to replace that debt another$9 trillion. And then we have to borrow new money. So it's a lot of money. Are you worried about the president asking for lower interest rates or pressuring the Fed to lower interest rates more? Yes. I'm just a mechanic, and the way I look at it is as you create lower interest rates, you create problems for those who are lenders.

14:50One man's debt is another man's asset. Or woman. Or woman. And so when you're holding that asset and you're getting a lower interest rate, there is a problem, and you reduce the demand for that. And so that is a problem, yes. So net-net, you were more optimistic. I'm more pleased that it is happening in a harmonious, mutual, that there are exchanges, deals being made that are productive. It'll bring capital into the country. It's being done more analytically, which means that there are smarter decisions being made. And it's also less disruptive because the uncertainties and the turbulence combined with if you're not making the good, difficult decision, well, you're going to have a problem.

15:46I think people are worried about that volatility. Oh, by the way, did you see the plane? Or they have to retrofit it for all the security and whatnot. No, I've seen pictures of it, but I wasn't on the plane. Do you think that's a problem? I'm sorry. Such a big present? That's a question for others to answer. I hear both sides of the argument on it, and I don't have a particular expertise, so I wouldn't be presumptuous enough to say whether or not it's a problem or not.

16:14Hold on to your wallets. Money Rehab will be right back. And now for some more Money Rehab.

16:26You've looked at history and you found these general principles. So you look back, we've seen this movie before, and you can tell us how this movie is going to end or what movie we're going to see next. The reason I'm here on your show is that I'm at a phase in my life that the most important thing I can do is to pass along to people principles that I've learned that were helpful for me. I think people pay too much attention to what is happening and each thing coming at them, and they're following it. But they don't step back as much and think, how does it all work? And what are my principles for dealing with that decision?

17:16if I could do anything, is to teach the man how to fish, help to pass along principles. Principles are guiding. You have to know what are you doing? What are you going after? What will make a successful life for you? What are the most important investment principles? What are the most important principles to deal with? And how does reality work? That's really what I'm here to pass along, I hope. Well, let's do it. Yes. When we talked on the phone yesterday, you wanted to teach us how to financially fish. So can you show us how to do that based on what we're seeing in the environment right now?

17:56Does history repeat itself in the financial world? As the saying goes, history rhymes. The same things happen over and over again because there are fundamental cause-effect relationships. Like if you borrow, you'll have to pay back. If a government borrows, it'll have to pay back, but it has a printing press. Okay, that's mechanics. Okay. So for the individual, what are you going after? There was a time when I was starting out where I would think, how many weeks can I live if no money comes in? How many weeks, months, then years? So I went through the calculations. How much money do I have and what are that spending?

18:41So I think when we start with money, the important thing is, okay, what's the money for? How much money do I need? What am I going after? I think that success is not based on the amount of money that you have or the amount of status that you have. And so what are you going after? But then the key is to start off to know I have an amount of money that if it doesn't come in, my family and I are going to be okay. We're going to be good. Do you know what that amount is? When looking at the amount of money that you have, you have to think of how much it returns after inflation because you're storing buying power.

19:33How much buying power do I have? So you must look at your returns after inflation. Inflation eating about 3 % every year. And it changes. But let's you could play with that number of 3%. And then you imagine that portfolio, it's X number of dollars today. But those assets can go up or down. So now the calculation you should say is, and let's say in a worst case, after inflation, and maybe in buying power, that was to go down 50%. So what I'm saying is, do you have, first and foremost, enough money that you're good, that you know you're good? Once you have that, you can move on from that to do other things, to take more chances and so on to do that.

20:28You will have freedom and security. There is nothing more important than that. Because if you know what your worst case scenario is and you know you're good and you know your family's good, then you have peace of mind and you have power. And then you can take risk. So the first thing I would say when I'm looking at investors or when I'm looking at people is know what that number is and then know how to build a diversified portfolio so that that operates well. I put out information on courses and things, but the most important thing, I think, is to be in that position. Once you are there, then have a second portfolio.

21:13Have that first base portfolio that way, and then you go on to take risk. So you created the all-weather portfolio to help people do that. So once they get to a place where they want to start investing, this is a portfolio that has weathered storms over decades. Yes, and whether it goes up or down, you don't lose return in order to reduce risk. That's the most important thing because that one of the great things about investing is what I call the holy grail of investing. The holy grail of investing means that you can reduce risk without reducing returns by knowing how to diversify well. In other words, if you take two equally good investments and they move differently, you will have the same return because they're equally good, but you will have less risk because they diversify each other.

22:14And my mantra is 10 to 15 good uncorrelated investments produces a risk reduction by almost five times. In other words, you can have the same return with one-fifth the risk. That's a mantra of investing. So my main point here, because it can get complicated as to how exactly you do that, is know your number, achieve that, have that well diversified, and be humble. Competing in the markets is more difficult than competing in the Olympics. You wouldn't think I'm going to go compete in the Olympics. It's a zero-sum game. In other words, in order for somebody to make a better return, somebody's going to have to have a worse return.

23:05So that's the challenge of active management, for example. And so you have to appreciate that with your humility. Take an asset class, any asset class, stocks. It regularly goes down 50 % to 70 % in real dollars. So the power of diversification is something that I want to convey. Yeah, so part of the all-weather portfolio, it's less of equities, more bonds, gold, commodities. Yes, it makes the risks comparable. What happens is it's the nature of investment markets that less volatile investments have less returns over that period. So what happens is if you do certain things to increase their risk or decrease their risk, you can risk balance them.

23:58So the principle of having gold there is the store of value. Would you say with everything that we've seen in 2025 so far, would you tweak that at all or would you replace crypto with gold? Most financial markets do well when the credit system is normal. and when the credit system is not normal, when there's too much debt and there are big problems, gold is an effective diversifier. In other words, what's the value of money? And when it's too much debt, there's a problem. So gold, it should be part of a portfolio as a diversifier. Now, what's that amount? Between 10 % and 15%. If you have a traditional portfolio and you have about 10 or 15 percent in gold and that kind of bad time happens, you will be well diversified.

24:52So whether you expect a good time or a bad time, it's a good thing to have between 10 and 15 percent in the portfolio. So crypto couldn't be a replacement. And then there's the question of crypto. There are pros and cons to crypto. OK, here's how I look at crypto. During very difficult times, there is a desire to have privacy for ownership. Gold is an investment that has been held by central banks that they can securely hold because it's in their hands. There's a saying that gold is the only asset that you can have, investment asset, that is not dependent on somebody giving you something. And so central banks, I don't believe, are going to hold crypto in the same way because it can be monitored, who's owning it, what is being done with it, and also it can be taken in various ways legally.

25:54So crypto is less appealing to me than gold. But I have some crypto, a smaller amount, a much smaller amount than gold. But I think the important thing is to have, whether it's gold and or crypto, to have some non-traditional money type of investments because of the diversification. If the credit system and the debt problems become real and there's a significant chance that they can become real problems, I think that it's very important to have that as a diversifier. Stick to Bitcoin. I have Bitcoin, but I'm not going to get into the particulars. You are a legendary investor. You've invested since you're 12 years old.

26:41Was there ever a time that you needed money rehab? Oh, I went broke. I want to tell you an enlightening, what I would say is my best experience that was my worst experience. You had to borrow money from your dad, right? Yeah. In 1982, I had calculated that Americans had lent more money to foreigners than those foreigners were going to be able to pay back. Very controversial point of view. It got a lot of attention. And then in August of 82, Mexico defaults on its debt. And then other countries start defaulting. I saw a lot of these problems. And I thought we were going to have an economic collapse.

27:23I was interviewed on Wall Street week. I was interviewed in Congress and I couldn't have been more wrong I Lost money for myself. I lost money from family I was so broke that I had to borrow four thousand dollars from my dad to help pay family bills and Very publicly wrong and that was the best experience of my life. It changed my life. Why first? First, I started to ask myself, how do I know I'm right? What do I do with that? So it gave me a humility that I needed to deal with my arrogance. I learned how to diversify better. The secret of my having done extremely well, built the largest hedge fund, made more money for investors than any other hedge fund in existence, the secret of that came out of that experience.

28:23And that secret was to know how to build a diversified portfolio, to be aggressive while being able to control risk. And so from that point of view, never had any significant down years and had great returns because of learning diversification, how to do that well, and also learning humility. Like I wanted to find the smartest people I could find who disagreed with me. And I wanted them to stress test my thinking. The power of open-mindedness and stress testing and diversification, I learned as a result of that. I would never have the success I had if I didn't learn those things from that experience.