Risk Parity Radio Episode 3: A Short History of Risk Parity and Asset Allocation (Part I)
5 snips
Jul 30, 2020 AI Snips
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Episode notes
Ancient Diversification Principles
- Ancient wisdom suggested diversifying wealth into three asset classes: land, business, and cash equivalents.
- This early form of asset allocation showed the value of spreading risk in varied investments.
Foundation of Modern Portfolio Theory
- Modern Portfolio Theory mathematically formalized diversification to reduce risk for given reward levels.
- Equal weighting of assets, a simple rule, can often outperform complex models in practice.
The 60-40 Portfolio Standard
- The 60-40 stock-bond portfolio became a baseline for retirement investing due to its balance of risk and reward.
- It served as a simple, effective approach widely embraced by financial advisors.