The Macro Allocation Principle for the Do-It-Yourself Risk Parity Investor

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The risk-reducing effect of this is very pronounced with the first few asset classes and then flattens out as you keep adding more. More than 90% of your portfolio's performance can be explained by its macro asset allocations. A negatively correlated asset class will have an outsized impact on reducing risk, which leads to our second main principle for the do-it-yourself risk parity investor.

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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