Ray Dalio warns of increased risks in the 2026 elections as global funds begin to flee the dollar

Bridgewater founder Ray Dalio issued a clear warning in his 2025 year-end review: the United States is facing multiple risks including political polarization, worsening debt, and a long-term decline of the dollar, which could all converge around the 2026 midterm elections. More concerning is that these issues are not just political; data already reflect actual shifts in global capital flows.

Political Risks Reshaping Global Asset Allocation

Policy Reversal Risks in the 2026 Elections

Ray Dalio points out that if the Republican Party loses control of Congress, current fiscal, tax, and regulatory policies could be swiftly overturned. Such frequent and unpredictable policy changes will directly undermine the long-term planning capabilities of businesses and capital.

Deeper still, the instability in the political environment significantly increases the likelihood of policy reversals. The US economy is not merely experiencing short-term fluctuations but is approaching a deeper structural inflection point. Potential changes in Congress’s power dynamics suggest investor confidence in the stability of the US economic system is wavering.

Capital Flows Are Already Moving

Interestingly, these concerns are not just theoretical. According to Ray Dalio’s observations, more and more capital is already considering allocations outside the US. This shift is not sudden but has been emerging since 2025.

The Truth Behind the Dollar’s Depreciation Data

The 2025 Dollar Depreciation

Data speak louder than opinions. In 2025, the dollar’s depreciation against major currencies was as follows:

Among these, the 39% depreciation against gold is the most striking. This is not short-term volatility but reflects deep structural issues.

Asset Performance Contrasts

What better illustrates the point than the comparison of asset performances? In 2025:

• Gold rose 65 in USD terms
• S&P 500 increased 18
• But when priced in gold, US stocks actually declined 28

This stark contrast reveals a brutal reality: measured in USD, US stocks seem to perform well; but in terms of gold, they have shrunk significantly. Nominal returns for investors have been largely eroded by dollar depreciation.

The Deep Logic Behind the Dollar’s Weakening

Not Just a Rate Cycle Issue

Ray Dalio emphasizes that the dollar’s decline is not solely driven by interest rate cycles. This is crucial because it means that even if the Federal Reserve changes policy, the downward trend of the dollar will be hard to reverse.

The real reasons include:

• High government debt
• Persistent fiscal deficits
• Continually expanding money supply

These are long-term, structural issues that cannot be solved quickly. They are gradually eroding the dollar’s purchasing power, putting assets denominated in USD at risk of declining real returns after inflation.

Rising Relative Attractiveness of Non-US Assets

For this reason, Ray Dalio believes that gold, the renminbi, and other non-dollar assets will be more valuable for allocation in the future. Among them, gold still offers important safe-haven properties in the face of political uncertainty and financial system pressures.

It’s worth noting that he does not advocate abandoning dollar assets entirely but repeatedly stresses the importance of diversification. Over-concentration in a single currency system could bring systemic risks.

Investors’ Response Strategies

Why Immediate Action Is Necessary

Ray Dalio’s core advice is: step out of short-term election emotions and view the changes in the global economic structure over a longer cycle. The political outcome of the 2026 US elections could profoundly impact the monetary system, capital flows, and global asset pricing.

This means waiting and watching is not an option. Political uncertainty and structural economic changes are forward-looking; market reactions often precede actual events. Proactively diversifying assets strategically will be key to managing these uncertainties.

The Meaning of Diversified Allocation

Based on Ray Dalio’s analysis, asset diversification should include:

• Geographic diversification: reduce over-concentration in the US market
• Currency diversification: allocate to non-dollar assets, including renminbi and emerging market currencies
• Asset class diversification: traditional safe-haven assets like gold still hold value

This is not aggressive investment advice but a systematic analysis based on debt cycles, political cycles, and currency cycles.

Summary

Ray Dalio’s 2025 year-end warning has a clear core logic: the US economy is undergoing a structural shift, with political risks, dollar depreciation, and changing global capital flows being three mutually reinforcing factors. Data from 2025 already confirm this trend — gold has significantly outperformed US stocks, the dollar has depreciated against multiple currencies, and capital is flowing toward non-US markets.

The 2026 US midterm elections could intensify these changes. For investors, this is not a risk to be passively managed but a structural shift requiring proactive positioning. Asset diversification is no longer optional but essential.