Before becoming the billionaire founder of Bridgewater Associates, faced a period of severe financial distress that changed how he approached investing and decision-making.
According to Fortune, Dalio was forced to borrow $4,000 from his father to cover family expenses after a major investment miscalculation in the early 1980s. He later said the experience taught him two important lessons: humility and diversification.
Dalio’s financial setback
Dalio founded what would become 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, believed his position would benefit from the crisis.
But the opposite happened. The stock market rose and monetary policy was eased, leaving Dalio’s prediction badly wrong and causing him significant financial losses.
The setback left him financially devastated. He told Carlyle Group cofounder David Rubenstein in a conversation at New York’s 92nd Street Y in July 2025 that he became “so broke” that he had to borrow $4,000 from his father to pay family bills, Fortune reported.
“That changed my approach to everything,” Dalio said.
Lesson 1: Question your own certainty
The experience taught Dalio the importance of humility and questioning whether he could actually know that he was right.
According to Fortune, this eventually led him to a practice he began roughly 35 to 40 years ago: writing down the specific criteria he would use before making a decision.
He later realised those criteria could be coded and back-tested to assess how effective they were.
This systematic approach became what Dalio calls his “principles”. He has written down thousands of them, and the approach became a foundation of Bridgewater. It also formed the basis of his New York Times bestseller Principles.
Dalio told Rubenstein that the episode gave him the “humility” to balance his “audacity”.
Lesson 2: Diversification can reduce risk
Dalio also said the financial crisis taught him the power of diversification. According to Fortune, he concluded that diversification could reduce risk by up to 80% without reducing returns.
This became a core part of Bridgewater’s investment approach. Dalio’s investment mantra became “15 good uncorrelated return streams” designed to have similar expected returns.
He said this approach dramatically lowered risk and improved the return-to-risk ratio by a factor of five.
Fortune reported that Bridgewater subsequently recorded average returns of roughly 11.8% over more than 30 years, with only minimal annual declines.
What Dalio says about financial risk today
Dalio’s experience with debt continues to influence his views on the economy and investing.
Fortune reported that 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. If income is insufficient to service debt and interest, he said, debt service can build up and squeeze out other spending.
For Dalio, the period when he was forced to borrow money from his father became a turning point. The experience taught him to question his own assumptions and build diversification into his investment strategy.