What Assets To Invest In When Cash Is Trash

What Assets do you invest in when “Cash Is Trash”?

This is the phrase used by Ray Dalio before and after the market meltdown from the Pandemic.

Ray Dalio is the Billionaire founder of Investment Management Firm Bridgewater Associates.

What does “Cash is Trash” Mean?

First of all, what does “cash is trash” mean?

Looking at what Ray Dalio is referring to, here is an interview he did in April 15, 2020.

Ray Dalio talks about the economy, the monetary system and monetary policy in response to the pandemic, bonds, the stocks market, assets, wealth gaps, and how we will navigate through alleviating the wealth gap through fighting or through peaceful means.

In 27:49 in the video, he discusses the value of bonds.

He says that bonds are a promise to receive currency.

If you get a bond, and it has zero or a very low interest rate, and they are printing currency, then why would you want to hold bonds?

All they are going to do is print more currency to pay off the bond.

How valuable is that currency really going to be if they keep printing it?

He even says you would be pretty crazy to hold bonds.

So basically, “cash is trash” means that U.S. currency is losing it’s value because we keep printing money.

Bonds that have zero or a very small return are the same as cash, as they are a promise for cash in the future.

So cash means cash and bonds and debt instruments relating to U.S. currency.

That has a big effect.

Think about it.

How much wealth is in bonds?

Who has their wealth in bonds?

Bonds are a store holder of wealth.

So what is a good store holder of wealth if bonds are not?

So, What Assets Do You Hold When “Cash is Trash”?

Ray says he looks at a variety of assets, and looks at their cash flow and their balance sheets to see if they are good investments.

For example, he invested a lot in Walmart in 2020, so we will use Walmart as an example.

If you look at Walmart’s cash flow and you see that it has a lot of sales and those sales are stable and they will have sales in any market, and their income is greater than their expenses, then they have good cash flow.

If you look at their balance sheet and they have a lot of cash reserves, buildings, assets, and not too many debts and other liabilities, then they have a good balance sheet.

He also looks at a variety of countries.

He sees whether the country has a lot of income, few expenses, cash reserves or debt.

He also looks to see if the country has people who are peaceful, or if they are fighting all the time.

He also looks at the country’s tax laws. Are they going to raise taxes on corporations?

In the following video interview he did on CNBC before the Pandemic, he said that investing in advanced tech companies that are the cutting edge, and then putting a little bit in gold.

He said to avoid Bitcoin, because it is too volatile. He mentioned Libra though that has not yet been approved by the U.S. Government, and they are not going to launch until they receive approval.

What About The 55% Bond Allocation in Ray Dalio’s All Season Portfolio?

In Tony Robbin’s book Money Master The Game, Ray Dalio recommend the All Season Portfolio.

It is a diversified portfolio that is supposed to reduce the risk, but maximize the gain in overall investment returns for the average investor.

It allocates 15% to Intermediate Term U.S. Treasuries (5-7 years) and 40% to Long Term U.S. Treasuries (30-35 years).

So, a total of 55% is all in U.S. Treasury Bonds.

For more information on the All Season Portfolio check out the following articles:

How To Build an All Seasons Portfolio from Money: Master the Game by Tony Robbins

Investing in S&P vs. All Seasons – See The Shocking Results

How to Make Your Investments Stable in All Economic Conditions

I actually put my more conservative investment accounts in the All Seasons Portfolio allocation, so naturally I was VERY concerned to hear Ray Dalio recently saying that cash is trash and you would be crazy to be in bonds.

When Ray Dalio recommended the All Seasons he said it would be a good investment allocation for the average investor.

Granted, none of us want to be average, but I think it’s true.

It is a good allocation still for the average investor.

I recently started learning more about value investing and also commodities investing.

I’m researching and studying a lot and most people do not have the time to spend to go from average investor to a higher level.

While I’m learning more, I’ve decided for now that I will stick to the All Seasons allocation for my conservative investments until I become sophisticated enough to see a better alternative.

The more that I learn the more that I realize that wealth and markets are very fluid, and if you want to be rich, it’s important to master a portion of the market.

The recent COVID-19 economic climate has shown that the All Seasons did well, and as promised. It delivered a strong and stable showing when the rest of the market tanked.

And it wasn’t just stocks that tanked.

We own 2 properties and if there was no government assistance, we most likely would have sold 1 of them…possibly at a loss.

The cure to selling our property is to have larger cash reserves.

We did have 3 months in cash reserves, but that wasn’t enough for the pandemic (without government assistance).

So it’s important to have assets that do well in deflation, in addition to inflation.

And assets that do well in economic downturns as well as during economic prosperity.

Those are the 4 seasons that Ray Dalio was referring to when he created the All Seasons Portfolio: deflation, inflation, economic growth, economic decline.

Conclusion

Ray Dalio makes sense when he says that cash in countries that are printing it is losing value – “cash is trash”.

If you are going to make it in this type of financial climate you need to adapt and change.

If you don’t have cash this really doesn’t apply to you.

However, for investors like myself, I take what Ray Dalio says seriously.

There are good reasons to have cash, and he himself says he only invests in companies with good balance sheets, which means that they have sufficient cash reserves among other things.

I believe he is saying as a long term investment strategy, don’t keep your money all in cash.

Diversify it, like in his All Seasons Portfolio.

And understand that over time it is eroding in value and if you are serious about keeping your wealth, find other way to allocate your bonds/cash so that you can take advantage of the new investment environment.

I am not taking my wealth for granted, and more article will come as I find better bond/cash alternatives.

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