Ray Dalio: Investors should be 'more defensive' because the upside in stocks looks 'limited'

  • The hedge fund billionaire says investors should be "more defensive" in the current stock market because the "upside looks limited."
  • "As time progresses the risk increases," warns the co-chairman and co-chief investment officer of Bridgewater Associates.
  • The Fed should not get ahead of the market on hiking interest rates, says Dalio, adding the economic cycle right now is in the "seventh inning."

Hedge fund billionaire Ray Dalio told CNBC on Tuesday that he would advise investors to be "more defensive" in the current stock market environment.

"If you look at projected returns relative to cash and bonds, the projected returns look sort of about right. The upside looks limited," said the co-chairman and co-chief investment officer of Bridgewater Associates.

"Whatever your strategic risk is ... I'd be more defensive rather than more aggressive," Dalio said on "Squawk Box," during the 10th anniversary week of the 2008 financial crisis.

Dalio said his concern lies in the next two years. "As time progresses the risk increases," he said, because a lot of cash on the sidelines earlier this year has been deployed and "we had the benefits of the corporate tax cuts behind us."

The current economic cycle is in the "seventh inning," Dalio said, urging the Federal Reserve not to get ahead of the market on hiking interest rates.

Ten years ago this week, Lehman Brothers collapsed, touching off a crisis that sunk the economy and the stock market.

On Monday, Dalio put out a new book, "A Template for Understanding Big Debt Crises," as a free PDF or for purchase as an e-book and printed edition. He hopes that a better grasp of the 2008 crisis will help avoid futures ones.

On the U.S.-China trade war, Dalio said President Donald Trump's tariffs on the world's second biggest economy are not "that big of a deal." China is likely more concerned about its relationship with the United States, he added.

Bridgewater Associates, with about $150 billion in assets under management, is the world's biggest hedge fund.

Dalio, who founded Bridgewater in his two-bedroom apartment in New York City in 1975, now has an estimated net worth of $18.1 billion, according to Forbes.

WATCH: CNBC's full interview with Ray Dalio on lessons from the financial crisis

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