According to Fortune, Ray Dalio faced severe financial distress in the early 1980s after a major investment miscalculation left him broke. The billionaire founder of Bridgewater Associates was forced to borrow $4,000 from his father to cover family expenses after his prediction about a major debt crisis proved wrong. Dalio founded Bridgewater Associates in 1975, operating initially from his two-bedroom apartment in New York City. Around 1980-81, he predicted that the US had lent more money to other countries than they could repay and anticipated a major debt crisis. When Mexico defaulted on its debt in 1982, Dalio believed his position would benefit from the crisis, but the opposite happened as the stock market rose and monetary policy was eased.
The financial setback taught Dalio the importance of humility and questioning whether he could actually know that he was right. According to Fortune, this experience led him to develop a systematic approach of writing down specific criteria before making decisions. He later realised those criteria could be coded and back-tested to assess their effectiveness. This systematic approach became what Dalio calls his 'principles', which he has written down thousands of, forming the foundation of Bridgewater Associates and the basis of his New York Times bestseller Principles. As reported by Fortune, Dalio told Carlyle Group cofounder David Rubenstein that the episode gave him the 'humility' to balance his 'audacity'. Speaking with Rubenstein at New York's 92nd Street Y in July 2025, Dalio revealed he began this disciplined habit of writing down decision criteria roughly 35 to 40 years ago.
Dalio concluded that diversification could reduce risk by up to 80% without reducing returns, making it a core part of Bridgewater's investment approach. His investment mantra became '15 good uncorrelated return streams' designed to have similar expected returns. According to Fortune, he said this approach dramatically lowered risk and improved the return-to-risk ratio by a factor of five. Bridgewater subsequently recorded average returns of roughly 11.8% over more than 30 years, with only minimal annual declines.
Fortune reported that Dalio's experience continues to influence his views on the economy and investing. He wrote How Countries Go Broke: The Big Cycle partly because he sees the US and other countries heading towards what he described as the equivalent of 'economic heart attacks'. He has also warned on social media about America's national debt. Dalio compares the credit and market system with the human circulatory system, explaining that if income is insufficient to service debt and interest, debt service can build up and squeeze out other spending. His latest book focuses on sovereign debt risks and long-term economic patterns, arguing that recurring large debt cycles are pushing the world toward major change.
