Obviously, I am fully onboard with Risk Parity, but I do have some lingering doubts, if I may be honest. Since the goal with this blog is to research, test, and share insights about Risk Parity, I thought it best to be upfront about questions I have as I go deeper into the rabbit hole…
In a word: yes! Even though RP principles and portfolios are best suited for investors in the preservation stage of investing, they can still benefit investors in the earlier, accumulation-centered stages. Here are some points to consider, with some caveats…
Okay, lots of disclaimers to read first, but if you are indeed thinking of transforming your portfolio to a Risk Parity-style construction, here are some simple steps to help you along.
To borrow some wisdom from Charlie Munger, sometimes when we want to understand something, what we need to do is invert the question – in this case, what is the dominant idea in portfolio construction that Risk Parity departs from?
If RP has a secret ingredient, it is correlation: the degree to which two assets move in relation to each other. It comes up everywhere in this blog and elsewhere in the Risk Parity literature, so perhaps a step back to officially define and explain it is important.
