Hedge fund luminary Ray Dalio has 3 financial recommendations for millennials.

By Julia La Roche.
Hedge fund titan Ray Dalio, the founder of $160 billion Bridgewater Associates, outlined three financial recommendations for Millennials.

1) Save.
“The first recommendation is to think about your savings and how much money you have for savings,” Dalio said. “The best way to think about that is to think ‘How much money do I spend each month, and how much money do I have saved. How many months I’m I going to be OK without that?'”

It seems like obvious advice, but it’s easily forgotten and taken for granted when the paychecks are coming in.

“Value savings and calculate it because savings is freedom and security,” Dalio stressed.

That said, it’s important to allocate your savings wisely.

2) Cash is the worst investment.
“The second thing is, ‘How do I save well? What should I put my savings in?'” Dalio said. “When thinking about what you should put your savings in, realize that the least risk investment that you think from volatility – which is cash – is the worst investment over a period of time.”

Cash may appear stable, but it actually loses value in a world where inflation is increasing the price of goods and services. Dalio says it’s important to think about investing in and saving in the context of inflation and after-tax income. That’s why it’s essential to not think of cash as a good investment option.

“You have to move into assets that are going to do better over a period of time,” Dalio said.

With that in mind, Dalio pointed out that investments that offer better rewards also come with greater risks.

“The most important thing I can convey to you is to diversify well because I can guarantee you that one of those assets —and you won’t be able to pick the right one — will be disastrous in your lifetime. [You] will lose half of that savings if you’re in the wrong one and you won’t know what the right one is. And so pick different countries, pick different asset classes.”

Dalio also takes a nuanced view of debt.

“When you’re thinking about debt, think, ‘Is that debt going to help my savings or is it going to produce an income?’ Sometimes debt, like buying a house or buying an apartment or buying an asset, produces forced savings. Forced savings is a good thing,” Dalio said. “Or if you’re taking on debt and you’re thinking, ‘Am I going to have that debt in an asset?’ That asset better produce more income than the cost of your debt. If you’re using debt for consumption, that’s not a good thing to do, OK, you’re giving up that that safety.”

3) Don’t follow your instincts.
The third thing is to “do the opposite of what your instincts are.”

“If you’re going to play the game, it has to be the opposite of what your instincts and what the crowd says because the market reflects the crowd,” he said. “So if you want to buy when no one wants to buy, and you want to sell when no one wants to sell, right. And that’s emotionally difficult, and probably you’re not going to play that game well, because it takes a lot of resources to play.”

The financial markets often appear to offer obvious and easy investing opportunities. The markets, particularly in the short term, will often do the opposite of what you expect. And if investing were easy, everyone would be rich. With that in mind, Dalio notes that there are players in the markets like hedge funds with extensive resources competing with small-time investors for short-term opportunities.

“We spend hundreds of millions of dollars each year to try to play that game well, and it’s a tough game to play well. So I would caution you about the market timing game,” Dalio said. “But I would say that if you’re going to do it do it in the ways that are uncomfortable because they’re opposite your instincts.”