 He said it. He said it. At the World Economic Forum in Davos, Ray Dalio said it. Cash is trash. And in this video, I really want to explain what he means by that. What are the implications for your portfolio, for your investments, for your finances in general. So, to give you enough information that you can make a clear, educated decision on what to do in this economic environment, we'll discuss what's cash, because that's key to know when it comes to discussing what to do, what's going on in the environment, what has been going on historically, and what is the current environment, what are the investment strategies, Warren Buffett's $124 billion in cash, Ray Dalio's hedges, what you can do when it comes to investing, what am I doing, skin in the game, everything transparent here. And then at the end, you will see what can you do, whether you should own cash, bonds, stocks, how much of that in relation to your financial goals and investment risk appetite. Because after all, it is all about you on this channel. And if you care about your finances, please subscribe to this channel and click that notification bell, so that you don't miss the videos that really matter to you. Let's start. What is cash? When it comes to economics, cash are banknotes, coins that we use in daily transactions. However, when it comes to finance, cash and cash equivalents are everything that can be transformed into liquid assets very quickly in a short period of time. Some say it in three months, some see it even as a year, current assets that can be transformed into liquid assets. This can be bonds, treasury bills are liquid, are considered as cash, we'll see later in Warren Buffett, cash at bank, cash on the bank, some receivables that will come soon. So all of that is considered cash. And then the question is how much of that you should hold or you should invest that because as we heard cash is trash. Cash is also closely related to the currency. Currency is a medium of exchange and a store of wealth in the current environment. We are in a fiat currency environment. The currency is backed by the government. So you are owning something, you're holding something that's backed by the government, by your own politicians. And you know what is the trust you have in your own politicians, no matter the country you are living in. And this chart is very telling. This is from Jeremy Siegel, stocks for the long run, very good investing book, even if I might disagree with something that he says. But over the long run, over 200 years, $1 invested in stocks was $755,000 in 2006. That's now is $1.5 million in real returns. $1 held as $1 from 1801 till 2006 was in real value just 6 cents. Thus it means it lost 94% over time. However, the real money value loss, currency loss, the real depreciation of the dollar began in the 1930s, then Bretton Woods 1944 and then the Nixon shock when President Nixon de-packed the dollar from gold when you couldn't exchange the dollar for a set level for a set amount of gold, which was $1.35. And when that was removed, then everything exploded in terms of inflation. $1 of gold was $45 in 1970. Now is $1,550. And this is what historically has happened. The dollar has simply lost value and this is what history tells us. Whatever happens, the dollar, other currencies are made to lose value in relation to real assets as gold, real estate, businesses, investments, etc. What is the current situation? Well, the current situation is very controversial. US gross domestic product growth, economic growth has been the best growth has been the longest period of growth ever recorded in American history and unemployment is also at record. Lows, inflation is low. So everything looks good. And then you think, okay, if everything is good, the government and monetary policy should be restraining, should be slowing down the economy, preventing it from overheating and being ready for the next downturn. However, the opposite is true. The Fed has started increasing interest rates. In this case, the red line from 2015, the end of 2015, did that up to 2019 and then suddenly lowered interest rates from 2.5 percentage points down to 1.5. Also, they have started with the unwinding of the federal balance sheet that was $4.5 trillion, the blue line here. And they did that up till September 2019 when liquidity issues at the repo market forced the Fed to inject another $0.5 trillion into the system. So the current situation with money is that the Fed is keeping interest rates low, same the European Central Bank, even in China. Everybody is also printing money. So they are injecting more and more money into the system. That's the monetary policy. And that might lead to inflation. It leads to inflation in certain parts of the environment, like real estate, like stocks, like healthcare, etc. The government is also doing its part, is stimulating the economy by having huge fiscal deficits. And the US government is spending $1 trillion more than it makes every year. That is huge. That increases the level of debt that has exploded since the dollar left the gold standard and especially exploded since the 2008 financial liquidity crisis. So total public debt doubled, more than doubled since 2007, the blue line, and total corporate debt also more than doubled since 2007. So both businesses and corporations are taking on more and more debt. This is the situation. What do you think is going to happen? Well, when a downturn comes, that always comes, downturns always come. If the Fed is printing money now, if the government is running huge deficits now, same in Europe, same in Japan, same in China, what will happen when there is an actual downturn? Well, they will print more money, helicopter money, monetary policy free, lowering interest rates perhaps even below zero to stimulate the economy because everybody is so scared about a recession that they are postponing it and doing whatever it takes to postpone it. Now, what do you think is going to happen? Are we going to see an inflationary crash where the SAP500 goes from 3,000 points to 5,000 points but nobody is happy about it because inflation grows at a faster rate? Are we going to see a normal stock market crash like the two last crashes of 2002 and 2008? That might happen if the government decides not to intervene. So what do you think? Is the government going to intervene or not? Or we continue on this course, low inflation, money printing, nothing happens for the next 5 to 10 years. I'm looking forward to your comments. Please leave a comment. Let's make it a nice discussion because that is also a valuable source of information. I always love to read your comments. Also, click a like if you enjoy this video and it brings value to you. And now let's see how are you prepared like Buffett or like Dalio, two different styles of investing. But you have to see which one is better for you. Now Warren Buffett, his cash pile is now at $124 billion. That sounds extremely high, but he always likes to have enough cash. And if I put that into a balance sheet perspective, if I look at Berkshire's balance sheet, the cash, yes, is $124 billion. Of that, cash and cash equivalents $70 billion and $53 billion is in short-term investments in US Treasury bills. However, if I look at the total assets, those are $788 billion, which means that the cash is just 15% of the portfolio. So yes, he has a lot of cash, but that might be the safety caution he needs, the buffer that gives him the preparation to take advantage of possible future investing opportunities. Ray Dalio, he's managing the largest hedge fund in the world, is prepared in a different way. He is hedged. He prefers to spend $1.5 billion on put options that will make him money if there is a falling market. I think his options expire in March. So if the market goes up from November when this was released till March, he will simply lose $1.5 billion, but he will make much more money on the other assets that he has hedged with this bet. So to each his own strategy and you have to see which strategy better fits your investment requirements. When it comes to cash versus stocks, yes, stocks are extremely overvalued from a price-to-earnings ratio from a historical perspective. But then again, a price-to-earnings ratio of 25, there will be economic growth of 2%. So you can expect long-term investment returns from let's say index funds between 4% and 6% with the inherent volatility of the stock market. 4% and 6% are much better than the 40-year treasury bond, than the 2-year treasury bond and are definitely much better than what you have on your savings account. However, if you need that money within the next 3-5 years, you cannot bet on the stock market that it will deliver better and better returns and give you protection. So that's always a risk. Each financial asset has its own risks and you have to see how those risks affect you and your financial life. Nothing else matters, only your money. It's your money after all, right? Something else that can happen. If there is a crisis, a crash, nobody wants to see a crash because pension funds are related to the stock market with everything being invested there, bonds, stocks. Practically the whole economy depends on the financial engineering and financial markets today. So governments are not going to allow for crashes. That's one possibility. And that possibility is currently going on in Japan where the Bank of Japan owns 73% of the nation ETF market. So the Bank of Japan, like the Fed in the US, is owning more than 10% of all Japanese stocks on the stock market. That is already going on. So if there is a downturn, a crash, we might see the same in Europe and in the United States. And if one bank does it, then the others might follow because why would I be the stupid one not doing it? So stocks are risky, but cash is certain to lose value. If we compare, again, stocks from $1 to $1.5 million, cash from $1 to 0.6 cents. So you have to put this into your own perspective. If I hold to cash, when do I need that cash? If not, what are other better opportunities? And Ray Dalio says that we have to be diversified globally. And if you look globally, there are good options to invest your money. I was just recently researching the top 25 dividend yields from Hong Kong, traded in Hong Kong. And the dividend yields there are from 6% to 9%. I have to do more research on some stocks. But there are interesting businesses offering 5%, 6%, 7%, 8% returns, especially as there are issues now in Hong Kong. So if you look globally, if you want to have a global portfolio that might lower your volatility, your risk, you might look into Hong Kong stocks, Russia stocks, etc. Just to protect yourself from what might happen in other parts of the world. And the price to book value of these stocks is usually below 1, very interesting. Then on the other hand, cash is about opportunity. And Warren Buffett started buying Apple in 2016 when the price was below 100. So if you have the cash, you can take advantage of those great opportunities. If you don't have the cash, okay, then you hold what you are holding. And over the last years, that should have been really, really good as everything went up. Rising tide increases all assets. But then again, if you hold some cash, you lose opportunities. But you also have the opportunity to buy when something is cheap, like we are seeing that all across the globe. And now in Hong Kong, Russia, two years ago, it was Brazil, etc. Now, what is my situation skin in the game? So for transparency, I have 87% of my stock market money invested in stocks and 30%, 13% in cash that is waiting for opportunities. I'm buying some stocks. I might even buy something more to increase that above 90% of the invested money. Why? Because I have stocks that have low price to book values. So there are real tangible assets that give protection from inflation. If there is high inflation, then the businesses that I own that produce fertilizers, natural gas, copper will see the prices of those commodities increase, especially as governments intervene and start building new infrastructure products, projects, etc. So that is my protection. On the other hand, I have a good dividend yield, some even above 5% to 10%, which is always good to receive new cash that I can later redeploy. I have some more cash because we sold our home in the Netherlands in 2019. We received the cash in September and we are now looking to buy a new home. We are now renting in Slovenia. So that is the reason why I have so much, let's say cash, but we are going to deploy that as soon as we find something suitable in the form of real estate and then even might take on top of that a mortgage so that we are even hedged against inflation with a fixed interest rate. And there are two videos that I made on our sales of a real estate, which was a sale, let's say at fair market price. It was from an investment perspective a hold, but we sold it to have peace of mind and then also about fixed or variable mortgage rates for real estate investments now. So check those videos out. Thanks for watching, looking forward to your comments and don't forget to subscribe and click that notification bell.