Ray Dalio began investing at the age of 12 when he spent $300 to purchase 60 shares of Northeast Airlines. Soon after, the airline merged with another, and Dalio doubled his money. Today, Ray Dalio is a billionaire hedge fund manager and co-chief investment officer, as well as the founder of Bridgewater Associates.

Ray Dalio is a realist who is reserved about the challenges faced by amateur investors. As he sees it, the market is crowded, competitive, and filled with uncertainty, which can tempt individual investors to make mistakes. However, do not assume that this means you should not enter the market. On the contrary, because Dalio has also said: "Cash is almost always the worst investment."

The cold hard truth is that most people must put their money into the stock market. Investing can be complex and fraught with risks, but it is nearly impossible for individuals to accumulate enough wealth to retire without investing. So, what should amateur investors do? Dalio offers some simple and understandable advice that anyone can follow.

1. Diversify Risk, Above All Else

Diversifying your investments is the most important thing you need to do to make good investments.

- Dalio

Diversification spreads your risk across a variety of assets.

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This is the practical application of not putting all your eggs in one basket.

The benefits are clear: if you only have a few positions, one stock or a single mutual fund can financially devastate you. However, if you have 20 or more different investments, the impact of one failure on your overall wealth is much less significant.Therefore, diversification can reduce your reliance on the performance of any single security.

If done correctly, diversification can also protect you from the impact of extreme market fluctuations.

To reap these benefits, you must hold securities that perform differently under similar market conditions: for example, stocks and bonds.

Stocks appreciate over time, while bonds generate stable income.

An investment portfolio that has both growth and stability is exactly what you, as an investor, would hope for.

Dalio suggests diversifying across industries, asset classes, and even currencies.

You can achieve this by manually selecting a variety of securities.

However, it is easier and more effective to invest in a few low-cost mutual funds, each representing a specific asset class or geographic location.

2. Past performance does not guarantee future results.

Do not mistakenly assume that what goes up will get better, rather than more expensive.The price of any investment should represent the ability of that investment to create value in the future.

Unfortunately, the stock market does not always operate this way.

When investors get excited about a particular industry or company, the stock price goes up.

The excitement of investors and the resulting increase in stock prices may or may not be accompanied by improvements in fundamentals.

Do you remember the dot-com bubble of the late 1990s? Investors went crazy for internet stocks, which drove up prices and intensified the frenzy.

All this growth made it seem as if people could get rich by investing in technology.

But sadly, the bubble burst in 2000, at which point it became clear that many tech stocks were grossly overvalued.

Do not assume that stocks that have performed well recently still have room to rise.

Such performance may indicate that the stocks are simply overvalued, which means you may have missed the opportunity.3. Ignore Your Intuition

Do the opposite of what your intuition tells you.

- Dalio

Even seasoned investors struggle with this issue.

Our instinct is to go with the flow, rather than against the trend.

For instance, when the market is in free fall, the urge to sell can be overwhelming.

It is this impulse that lures you into the market bottom or near the bottom.

Then, because you are frightened, you exit the market until signs of recovery are visible, which means you will be watching those early recovery gains instead of benefiting from them.

As an investor, you have two choices for market timing.

A simple approach is to ignore all market fluctuations and hold positions long-term.Alternatively, you can operate on the bandwagon—buy low when everyone else is selling, and sell high when everyone else is buying.

However, one approach you cannot adopt is that of a trend follower. Doing so will ultimately lead you to buy high and sell low every time.

Respect for Risk

Dalio has a deep respect for the inherent risks of stock market investing. He suggests managing this risk through diversification and a great deal of independent thinking.

This independent thinking can prevent you from making the worst investment mistakes, which occur when you chase trends, follow the crowd, or allow market cycles to force you into making trading decisions.

(Buffett and Dalio are both renowned investors, but they have starkly different views on whether to put all your eggs in one basket)