The Collapse of Monetary Value Behind the Glamorous Rise of U.S. Stocks – Ray Dalio’s 2025 Reflections
Hello! I’m Michael from WStorybook.
As 2025 came to an end, many investors looked at their portfolios and felt satisfied.
“U.S. stocks were unbeatable.”
“AI investments proved once again to be the future.”
But what if those impressive gains were only half of the story?
Today, drawing on insights from Ray Dalio’s My Reflections 2025, I want to explore a deeper question
Were our profits real, or were they simply the result of a collapsing currency?
1. 2025: Profit or Monetary Illusion?
On paper, 2025 looked like a fantastic year for U.S. equities. The S&P 500 delivered strong double-digit returns, and AI-related stocks dominated headlines.
Yet investors must ask a more fundamental question:
Has the purchasing power of our wealth truly increased?
If the value of money itself has fallen, nominal gains may not represent real progress. In 2025, this was exactly what happened. Fiat currencies especially the U.S. dollar lost significant value, while hard assets surged.
What appeared to be asset appreciation was, in many cases, the mirror image of currency debasement.
2. Gold vs. Dollar: The Real Benchmark of 2025
One of the most striking indicators of this shift was the performance of gold.
- The U.S. dollar lost around 39% of its value against gold
- Gold itself rose approximately 65% in dollar terms
When measured in real money rather than paper currency, the picture changes completely.
| Asset | 2025 Return (USD) | Return vs Gold |
|---|---|---|
| Gold | +65% | 0% |
| S&P 500 | +18% | -28% |
| Euro | -12% | – |
| 10Y U.S. Treasury | +9% | -34% |
An investor who earned 18% in the S&P 500 actually lost purchasing power relative to gold. This highlights why Dalio argues that real returns not dollar returns must become the core investment standard.
3. What Really Drove U.S. Stock Gains?
Many believe the 2025 rally was led solely by the Magnificent 7 tech giants. The reality was more nuanced.
S&P 500 Overall
- Profit growth: 12%
- Driven by
- 57% sales growth
- 43% margin improvement
Magnificent 7
- Profit growth: 22%
A large portion of margin expansion came from AI-driven cost efficiency. However, most of these gains flowed to capital owners rather than labor, widening inequality an issue likely to fuel political tension in coming years.
4. Five Big Forces Shaping 2026
Dalio frames today’s environment as part of a long-term Big Cycle. The key forces ahead:
- Debt & Monetary Pressure
Over $10 trillion in U.S. Treasury debt is approaching maturity. Rate cuts may ease the burden, but currency depreciation risk remains high. - Political Conflict
Wealth gaps will intensify redistribution debates ahead of the 2026 elections. - Geopolitical Fragmentation
Protectionism and sanctions will boost demand for safe-haven assets. - Technology & AI Bubble
Productivity is rising but who captures the benefits? - Climate & Energy Costs
Transition expenses will increasingly affect markets.
5. What Investors Should Do Now
Dalio suggests three practical steps:
1) Hedge Currency Risk
Relying on a single currency is dangerous. Notably, European equities outperformed U.S. stocks by 23% in 2025 largely due to currency effects.
2) Rethink Cash and Bonds
Cash becomes the worst asset during monetary debasement. Long-term Treasuries face oversupply and weakening demand.
3) Diversify Beyond the U.S.
Consider allocations to:
- Gold and real assets
- Non-U.S. equities
- Inflation-resilient businesses
Final Insight: Look Beyond Nominal Numbers
Ray Dalio’s 2025 review delivers one clear message:
Positive dollar returns no longer guarantee real wealth growth.
This issue is even more severe in Korea, where the won weakened roughly 6% against the dollar in 2025. High local stock returns can be misleading when the currency itself is melting.
The era of blindly trusting nominal gains is over.
Investors must think in terms of purchasing power, currencies, and the Big Cycle.
Crisis always creates opportunity.
Those who prepare today will be the winners of 2026.
