3 January 2026
RAY DALIO ON PREPARATIONS FOR 2026
Quick Summary
History shows that there are moments when keeping money idle stops being “safe” and becomes destructive. We are approaching one of those moments.
Money loses value without your realising it through inflation. Assets preserve value in real terms - Productive companies, Propert, Commodities, Precious metals. Financials - like cash, bank deposits and low-yield bonds eg treasuries - lose purchasing power.
After years of heavy money printing, the system must adjust. That adjustment rarely favours cash.
Inflation is not just rising prices. It is a wealth transfer from savers to asset owners.
Doing nothing feels safe. In inflationary cycles, it is usually the most expensive choice.
The biggest risk ahead is not market volatility, it is complacency.
Longer Summary
1. A Familiar Moment In Economic History
Economic history moves in cycles, not straight lines. Across centuries, societies repeatedly reach a point where what feels financially safe becomes quietly destructive.
We are approaching such a moment again. The significance of 2026 does not lie in prophecy, but in arithmetic. The structural incentives shaping today’s economy make further monetary debasement far more likely than a return to monetary discipline.
In such periods, doing nothing is rarely neutral. It is often the costliest decision of all.
2. Money Is Not Wealth
Money is frequently mistaken for wealth. In reality, it is only a unit of account and a medium of exchange.
The pound or dollar held today does not represent the same purchasing power it did decades ago. Monetary value changes as supply expands relative to real goods and services.
A sum of money can remain intact numerically while losing much of its real value. This is not an anomaly. It is a structural feature of modern monetary systems.
3. The Cycle Of Monetary Debasement
Whenever governments face severe stress, war, recession, pandemics, or demographic pressure, they respond in the same way. They create money.
This occurred during the Great Depression, the Second World War, the inflationary 1970s, the 2008 financial crisis, and on an unprecedented scale after 2020.
Between 2020 and 2022, more money was created than in the entire prior history of the United States. That action postponed adjustment rather than eliminating it.
The adjustment phase is now approaching.
4. How Imbalances Build
The economy functions as a system of interacting forces: productivity, credit, consumption, inflation, and employment.
When credit is artificially cheap, consumption is overstimulated, and liquidity floods asset markets, imbalances accumulate.
In recent years:
• Credit expanded through near-zero interest rates
• Consumption surged via fiscal transfers
• Asset prices inflated through central bank intervention
Eventually, excess liquidity must reconcile with real output. Historically, this process erodes idle money.
5. Real Assets Versus Paper Claims
In periods of adjustment, history shows a consistent pattern.
Real assets preserve purchasing power. Paper claims do not.
Real assets include productive companies, property, commodities, and energy. Their value rests on utility rather than currency units.
Paper claims include cash, bank deposits, and fixed-income instruments without inflation protection. Their value depends entirely on monetary stability.
When money supply expands, this distinction becomes decisive.
6. Inflation As Wealth Transfer
Inflation is not simply rising prices. It is a mechanism of redistribution.
Newly created money enters the economy through banks and financial markets first. Those closest to this process can acquire assets before prices adjust.
Those further away experience inflation only through higher living costs.
This process, known as the Cantillon Effect, ensures that holding idle money during inflationary periods leads to a silent loss of purchasing power.
7. Why 2026 Matters Structurally
Several forces now converge.
Government debt levels are extreme, and interest costs consume an increasing share of public budgets. Demographic ageing drives automatic spending growth. Geopolitical competition necessitates sustained defence and infrastructure investment. Banking systems still carry unrealised losses from the low-rate era.
Each pressure increases the likelihood of further monetary expansion rather than restraint.
8. Lessons From The 1970s
The inflationary decade of the 1970s provides a clear lesson.
Savers who prioritised nominal safety in bank deposits lost purchasing power. Those who diversified into equities, property, and commodities preserved and often increased real wealth.
This was not speculation. It was alignment with economic reality.
9. Extreme Examples Clarify The Principle
Hyperinflationary episodes such as Weimar Germany demonstrate the same mechanics in extreme form.
Cash holders were destroyed. Asset holders survived.
While such extremes are unlikely in developed economies today, the underlying logic remains unchanged. Excess money creation always devalues paper relative to real assets.
10. The Hidden Cost Of Idle Cash
Even moderate inflation imposes a measurable cost.
At 4 percent inflation, £100,000 loses £4,000 of purchasing power each year. Over time, these losses compound into life-changing outcomes.
For those nearing retirement, inflation can determine whether long-term plans succeed or fail.
11. Time Magnifies The Damage
Inflation compounds quietly.
A young household holding cash for decades may see purchasing power fall to a fraction of its original value. Small differences in annual returns become dramatic over long horizons.
Assets that merely outpace inflation modestly compound in the opposite direction.
12. Principles Of Inflation-Resilient Allocation
No single asset provides perfect protection.
However, diversification across assets with different inflation responses materially reduces risk.
A resilient structure typically includes:
• Productive equities with pricing power
• Real estate with scarcity and utility
• Commodities and precious metals
• Inflation-linked securities
• Limited cash for flexibility
Cash remains useful, but excess exposure becomes destructive.
13. Implementation And Behaviour
All-or-nothing decisions introduce unnecessary risk. Gradual adjustment over time reduces timing errors and allows learning.
Regular rebalancing enforces discipline by trimming excess and reinforcing neglected areas.
The greatest obstacle is often psychological. Many delay action in pursuit of certainty. Others over-concentrate in a single perceived hedge.
In inflationary cycles, inertia is rarely neutral.
14. Choosing Which Cost To Pay
Every financial choice has a cost.
Investing brings volatility and uncertainty. Holding cash guarantees long-term erosion.
The question is not how to avoid cost, but which cost is preferable.
15. The Central Lesson
Periods of heavy monetary creation are always followed by wealth redistribution.
This process is mathematical, not political.
Those who understand it adapt. Those who ignore it discover too late that what felt safe was merely familiar.
The greatest risk of the coming years is not market volatility, but complacency.
Glossary Of Key Terms
Monetary debasement – The erosion of purchasing power through money creation.
Cantillon Effect – The advantage gained by those closest to new money creation.
Real assets – Assets with intrinsic utility independent of currency units.
Purchasing power – What money can actually buy in real terms.
RAY DALIO ON PREPARATIONS FOR 2026
1. A Repeating Moment In Economic History
If you look carefully at economic history, you will see a pattern repeated for centuries. There is a specific moment in the economic cycle when keeping money idle is not merely a poor decision, but one that can destroy decades of hard work.
We are rapidly approaching one of those moments in 2026.
This is not a prediction. It is a logical consequence of the cycles that govern modern economies.
Keeping money under the mattress, in traditional savings accounts, or even in certificates of deposit could prove to be one of the worst financial decisions of the next two years. More importantly, there are practical steps that can be taken to avoid this outcome.
History is an excellent teacher. It is issuing a warning that few are hearing.
2. Money As A Practical Illusion
Money is an illusion. Not philosophically, but practically.
The pound or dollar you hold today is not the same unit of value you held in 1980, 2000, or even 2020. Its purchasing power changes over time.
If you had kept $100,000 under the mattress in 1980, today it would have the purchasing power of roughly $30,000. The money did not disappear. Its real value was eroded.
This leads to the first essential cycle to understand.
3. The Cycle Of Monetary Debasement
Whenever governments face major crises, wars, pandemics, or deep recessions, they respond in the same way. They print money.
This occurred during the Great Depression, the Second World War, the 2008 financial crisis, and on an unprecedented scale during the 2020 pandemic.
Between 2020 and 2022, the United States created more money than in its entire previous history combined. Over 240 years of monetary expansion occurred in just two years.
The consequences of this decision are still unfolding. By 2026, they will be impossible to ignore.
4. How The Economic Machine Actually Works
Imagine the economy as a large clock.
Each gear represents a different element. Productivity. Credit. Inflation. Employment.
When the gears move in harmony, growth is stable. When one gear accelerates artificially, the system becomes imbalanced.
In recent years:
• Credit was forced higher through near-zero interest rates.
• Consumption was stimulated by direct cash transfers.
• Liquidity was expanded via central bank asset purchases.
We are now entering the adjustment phase. Historically, this phase follows a simple rule.
5. Real Assets Versus Paper Money
During adjustment periods, real assets preserve value. Paper money does not.
Real assets include:
• Shares in productive companies
• Real estate
• Commodities
• Precious metals
Paper money includes:
• Bank deposits
• Low-yield fixed income securities
• Physical cash
The divergence between these two categories will become increasingly severe.
6. Inflation As Wealth Transfer
Inflation is not simply rising prices.
It is a systematic transfer of wealth from those who hold money to those who own assets.
New money enters the system through banks and financial markets first. Those closest to the source buy assets before prices rise. Those further away experience higher prices without protection.
This process is known as the Cantillon Effect.
When money is kept idle during inflationary periods, purchasing power is quietly transferred elsewhere.
7. The Reality Of Recent Inflation
Official inflation figures understate lived experience.
From 2021 to 2024:
• Housing costs rose roughly 25 percent
• Food prices rose about 20 percent
• Energy prices rose approximately 30 percent
Holding $100,000 idle over this period resulted in a real loss of $20,000 to $25,000 in purchasing power.
The structural forces driving this trend are intensifying.
8. The Incentives Driving 2026
Several powerful incentives point in the same direction.
First, US national debt now exceeds $33 trillion. Interest servicing alone consumes over $1 trillion annually.
Second, demographic ageing is accelerating mandatory spending on pensions and healthcare.
Third, geopolitical competition is driving sustained military and infrastructure investment.
Fourth, the banking system holds significant unrealised losses from low-rate bond portfolios.
Each of these pressures increases the likelihood of further monetary expansion.
9. Lessons From The 1970s
Two families. Same savings. Different outcomes.
In 1970, both the Martinez and Thompson families held $50,000.
The Martinez family kept their money in a savings account earning 5 percent. The Thompsons diversified into stocks, property, and precious metals.
By 1980:
• Martinez family balance: $81,000
• Cumulative inflation: 112 percent
Despite nominal growth, their real wealth declined.
The Thompson family’s assets grew to $195,000 in real terms.
This pattern repeats whenever prolonged inflation occurs.
10. Extreme Example: Weimar Germany
The Weimar Republic illustrates the same principles in extreme form.
Money printing destroyed purchasing power. Those holding cash were ruined. Those holding assets survived.
This is not a forecast of hyperinflation. It is a reminder that monetary excess always follows the same logic.
11. What Idle Cash Really Costs
At 4 percent inflation, $100,000 loses $4,000 per year in real terms.
At 8 percent inflation, the loss rises to $8,000 annually.
Over five years, this equates to $30,000 to $40,000 of lost purchasing power.
For retirees and young families alike, the impact compounds dramatically over time.
12. The Long-Term Consequences
A million pounds exposed to 6 percent inflation loses roughly 25 percent of its real value over 20 to 30 years.
A 35-year-old holding £50,000 idle for 30 years will see its purchasing power fall below £15,000.
Invested prudently, that same sum could grow to £200,000 or more in real terms.
13. A Sensible Inflation-Resilient Structure
This is not personalised advice. These are educational principles.
A broadly balanced structure might include:
• 40–50 percent in quality equities with pricing power
• 20–30 percent in real estate assets
• 10–15 percent in commodities and precious metals
• 5–10 percent in inflation-linked bonds
• 10–15 percent in cash for flexibility
Cash remains useful, but excessive exposure is destructive.
14. Asset Selection Matters
Favour:
• Companies with pricing power
• Essential goods and services
• Utilities with indexed revenues
• Prime-location real estate
Avoid:
• Highly indebted firms
• Purely commoditised businesses
• Fixed income without inflation protection
15. Implementation Principles
• Do not change everything at once
• Phase adjustments over 6 to 12 months
• Maintain higher liquidity for short-term needs
• Rebalance every six months
Rebalancing forces discipline: selling what has risen and buying what has lagged.
16. Common Psychological Traps
• Waiting for perfect certainty
• Concentrating everything in one asset
• Delaying action until inflation “falls”
Doing something imperfect is often better than doing nothing.
17. Preparing For Multiple Scenarios
Possible outcomes include:
• Moderate inflation of 4–6 percent
• Higher inflation of 7–10 percent
• Temporary deflation during recession
• Stagflation combining low growth and inflation
A diversified portfolio performs reasonably across all scenarios.
18. The Real Cost Of Inaction
Every choice has a cost.
• Investing carries volatility
• Holding cash guarantees inflation
Inflation is silent but relentless. Volatility is visible but temporary.
For most people with a medium to long-term horizon, inflation is the greater danger.
19. The Core Lesson From History
Periods of heavy monetary creation always result in wealth redistribution.
This is not political. It is mathematical.
When money grows faster than goods and services, purchasing power shifts from savers to asset owners.
20. The Choice Ahead
True security does not come from avoiding risk. It comes from understanding and managing it.
The greatest risk of 2026 is not market volatility.
It is complacency.
Doing nothing is also a decision. And it may prove to be the most expensive one of all.
Glossary Of Key Terms
Monetary debasement – The reduction of purchasing power through money creation.
Cantillon Effect – The advantage gained by those closest to new money creation.
Real assets – Assets with intrinsic utility that retain value in inflation.
Purchasing power – What money can actually buy, not its nominal amount.
When choosing ETFs to cover an allocation in an asset class, a general rule of thumb, but with exceptions of course, would be:
“If the ETF did not exist, would the asset still exist?”
If yes, it qualifies for the portfolio
