Entrepreneurs

Billionaire investor Ray Dalio shares his No. 1 tip for new investors 

Ray Dalio
David A.Grogan | CNBC

Many personal finance experts consider investing in the stock market the best way to grow wealth — particularly if you're young. That's because the longer you can leave your money invested, the more it can grow, thanks to compound interest.

For young people who would like to put their money to work in stocks, billionaire investor and Bridgewater Associates hedge fund magnate Ray Dalio's No. 1 piece of advice is simple: just get started.

"Play the game and maximize your learning from your mistakes," Dalio, worth $17.4 billion, tells CNBC Make It.

Deciding to risk your hard-earned cash on investments in the stock market can be confusing and intimidating. Only 37 percent of Americans under 35 owned stocks in 2017 and so far in 2018, according to a May report by Gallup, far fewer than before the 2008 financial crisis.

It can be particularly daunting when the market is in turmoil: As trade negotiations between the Trump administration and China continue, the dropped as much as 496 points Monday while the fell 2 percent and the dipped 2.8 percent before all three regained some ground by the close.

But, Dalio says letting fear impact your decisions isn't a way to grow wealth.

"It's when you're not scared you probably want to sell and when you are scared you probably want to buy," Dalio said in February at the Harvard Kennedy School's Institute of Politics. "The greatest mistake of the individual investor is to think that a market that did well is a good market rather than a more expensive market. And that a market that did badly is a worse market ... rather than a cheaper market."

The key, Dalio says, is to start investing early, make mistakes and learn from them as soon as possible.

"Dive into the markets, have the s--- kicked out of you, and learn how to do things differently," Dalio wrote in a May Reddit "Ask Me Anything " session. "One of my most basic formulas for life is Pain + Reflection = Progress."

And as you begin to discover what works and what doesn't, take note of what you learn. "Write down your criteria for making your decisions ... and back-test them," Dalio explains to CNBC Make It.

Dalio is known for keeping an extensive list of rules and best practices on investing, leadership and management, which he calls "principles." In 2017, Dalio authored a nearly 600-page book titled, "Principles: Life & Work" which outlines these ideas.

The first principle he ever wrote down was about an investment, he says.

"It was about why I made a specific trade in the markets," he tells CNBC Make It. "I did that sort of thing, writing them down regularly when I was in my mid-20s. I did it so that I could compare the outcome with my expectations, especially for the reason of highlighting what was different than I expected when I was wrong."

Of course, there are a few strategies you can implement to limit your risk of losing money. For example, many experts — including legendary investor Warren Buffett — advocate for investing in a broad index fund, like one that mirrors the S&P 500. That way, you're protected from a single stock tanking.

Dalio offers two suggestions to invest your money carefully: "First, know how to balance your portfolio so that you don’t have any systematic bias toward bull or bear markets in anything," he writes on Reddit. Second, "Think about how to rotate your portfolio to buy that which is cheap and sell that which is expensive," he writes.

Dalio founded Bridgewater Associates as a 26-year-old, building it from an upstart in his two-bedroom New York City apartment into the world's largest hedge fund, managing about $160 billion in assets, according to the company's website.

For him, trial, error and reflection is a process that works: "There is no better learning than that which comes from experiences and quality reflections on those experiences," he says.

Don't miss: Billionaire hedge fund founder Ray Dalio: Here's what to do in a volatile stock market

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Warren Buffett is worth $75 billion but says he would be 'very happy' with way less
Ray Dalio
David A.Grogan | CNBC
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