Al Chahidi, a seasoned portfolio manager and author from Evoke Advisors, discusses the pressing issue of stagflation and its implications for investors. He breaks down how the current economic landscape, marked by slow growth and high inflation, challenges traditional portfolio strategies. Chahidi emphasizes the advantages of risk parity approaches and highlights gold as a superior asset, having historically performed well during stagflation. The conversation urges listeners to reconsider their investment strategies in light of these uncertain conditions.
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insights INSIGHT
Stagflation Risk Explained
Stagflation risk is significant due to slowing growth and persistent inflation.
Tariffs act like a tax, which hurts growth and increases inflation, compounding stagflation risk.
insights INSIGHT
Gold's Historic Performance
Gold has outperformed stocks over the last 25 years and nearly matches global equities since 1971.
Gold’s zero correlation with equities makes it a strong diversifier traditionally shining during stagflationary periods.
insights INSIGHT
True Diversification Strategy
True diversification means owning assets that perform differently in various environments.
Weighting should be risk based, owning less volatile assets more and more volatile assets less.
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The specter of stagflation—sluggish economic growth combined with persistent inflation—looms large in today's uncertain economic landscape. While Federal Reserve Chair Powell once claimed to see "no stag and no flation," current indicators suggest otherwise. Economic growth appears to be slowing after an extended expansion, while inflation remains stubbornly above target levels. Adding to these concerns, potential tariffs could exacerbate stagflationary pressures by simultaneously hampering growth and increasing prices.
Amid this challenging environment, conventional investment wisdom falls short. The standard 60/40 portfolio, commonly touted as "balanced," actually maintains a 90% correlation to an all-stock portfolio—hardly providing true diversification when markets face stagflationary headwinds. This reality underscores the value of risk parity strategies, which distribute risk evenly across assets that perform differently under varying economic conditions.
Gold emerges as a particularly compelling asset in this context. Contrary to popular perception, gold has outperformed stocks over the past 25 years and has nearly matched global equities' returns since 1971, trailing by merely half a percent annually. During the stagflationary 1970s, gold appreciated by approximately 30% annually, highlighting its effectiveness as a portfolio stabilizer during precisely the economic conditions many fear today.
The risk parity approach offers a systematic framework for achieving genuine diversification—not by simply holding numerous securities, but by balancing risk exposure across uncorrelated assets. This means owning more of less volatile assets and less of more volatile ones, ensuring no single economic factor dominates portfolio performance. When implemented within an ETF structure like RPAR, this approach gains additional tax efficiencies while automating the psychologically challenging process of regular rebalancing.
Ready to protect your portfolio against stagflation while maintaining long-term growth potential? Explore how risk parity strategies might complement your existing investments and provide smoother returns through uncertain economic conditions.
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