Stocks may be dropping like a rock Tuesday, but that doesn’t mean you should increase your cash allocation, says hedge fund legend Ray Dalio, founder of Bridgewater Associates.
“Cash is not a safe investment, is not a safe place because it will be taxed by inflation,” he told CNBC.
Money-market funds yield as little as 0.01%, while consumer prices skyrocketed 6.2% in the 12 months through October, the biggest annual gain in more than 30 years.
What Dalio recommends is a tried-and-true balanced portfolio.
“You can reduce your risk without reducing your returns,” he said. “You will not market-time this. Even if you were a great market timer, the things that are happening can change the world, so it changes what could be priced into the market.”
Recall that things were looking up for stocks before the World Health Organization designated the Covid Omicron strain as a “variant of concern” Friday.
The S&P 500 has dropped 2.2% from its Nov. 18 record closing high, recently standing at 4,598.
Dalio’s concerned about the Federal Reserve’s massive easing.
“You can’t raise living standards by raising the amount of money in credit in the system because that’s just more money chasing the same amount of goods,” he said.
“It will affect financial markets in the ways we’ve seen and it will affect the inflation rate. It won’t raise living standards in an important way.”
Meanwhile, J.P. Morgan analysts remain bullish on stocks, based on fundamentals. They call for the S&P 500 to hit 5,000 by June 30.