The Holy Grail Principle for Risk Parity Investing

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The Holy Grail principle is that our main goal should be to find and combine the least correlated asset classes we can find. If you do this, you can reduce your risk by half or even more without sacrificing much at all in your expected returns. You'll get the most bang for your risk-reducing buck if you have at least four or five. And as Ray Dalio says, you could have a thousand different assets with 60% or better correlation but it's not going to reduce your risk very much.

In this episode we discuss how professionals construct risk-parity style portfolios, what are the basic principles for the do-it-yourself investor, and how to implement them. The three basic principles are (1) the Holy Grail Principle; (2) the Macro-Allocation Principle; and (3) the Simplicity Principle.

Here are the links mentioned in the episode:

March draw-downs for professional risk-parity style portfolios: https://www.markovprocesses.com/blog/risk-parity-funds-in-the-coronavirus-market-rout/

Ray Dalio explains the Holy Grail principle of risk-parity style investing: https://www.youtube.com/watch?v=Nu4lHaSh7D4

Ray Dalio reveals the most basic components of most risk-parity style portfolios:
https://www.youtube.com/watch?v=KA7U8xT_2Dk

Portfolio Visualizer Asset Correlation Calculator: https://www.portfoliovisualizer.com/asset-correlations

Portfolio Charts Master Portfolio Analyzer: https://portfoliocharts.com/portfolios/

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