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Flaws in 60/40 Portfolio Balance
- A traditional 60/40 portfolio is not truly balanced because equity risk dominates due to higher volatility.
- As a result, the portfolio's direction largely follows stocks, undermining diversification benefits.
Balance by Risk, Not Dollars
- Investment balance must consider risk contribution, not just dollar allocation.
- Equal risk contribution across asset classes allows them to express unique diversification traits effectively.
Diversity Plus Balanced Risk
- True diversification requires diversity in asset responses plus balanced risk allocation.
- Holding assets in equal risk amounts lets each asset's unique features shine, creating a robust portfolio.