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Rain or Shine: Building an All Weather Portfolio

Many Happy Returns

CHAPTER

How to Choose a Risk Parity Portfolio

Ray Dalio and others take a quite interesting approach, don't they, which is called risk parity? Now, the idea here is kind of interesting, which is you choose a waiting of the portfolio for each asset such that it contributes an equal amount of risk to the portfolio. So with the quadrants, we're not just saying, okay, I'm going to have 25% stocks, 25% bonds, 25% commodities. We're not doing that. We're saying we want equal amounts of risk and volatility of each of those.

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