Imagine an investment portfolio that does well during inflation and during deflation. A portfolio that works in times of economic growth and when there is economic stagnation. A portfolio for the best of times and for the worst of times. This is the idea behind Ray Dalio of Bridgewater Associates All Weather Portfolio, the largest and most famous risk parity fund. Let’s try to understand the ideas behind this approach, how they work and if any of these insights might be beneficial to you in managing your own savings in 2020.
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R we talking about them chicken tendies now?? r/WSB 4 life
Would love to see Prof. Boyle doing an AMA on WSB
@@LocoCioco Patrick please make this happen.
@@LocoCioco Yessss
@@LocoCioco That’s like a professional poker player being interviewed by slot-machine addicts who are always broke.
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Patrick Boyle No, thank you! For these excellent videos.
Hi Patrick, is it possible for you to do a video on the Dollar milkshake theory and why Brent Johnson believes there will be short squeeze on the the USD and that we are going into a deflationary environment due to the Fed buying up US treasuries. I’ve tried to listen to him talk about it but some of it goes over my head. Thanks
“Brent Johnson believes […] that we are going into a deflationary environment due to the Fed buying up US treasuries.”
That makes no sense. The Fed basically creates new base money when it buys treasuries. It would be very strange if expanding the money supply were somehow deflationary.
He believes that because he’s an idiot
So the all-weather portfolio is more targetted to those who already have a substantial amount of wealth and are seeking stable safe returns?
Yes. I think he wanted to set something up that his beneficiaries wouldn’t need to mess with.
Well, majority of people would be invested in mutual funds/pension funds or nowadays index funds. So anything above those returns is quite nice.
yep capital movement is one of the main reasons most active managers underperform the market. They can’t do much when the market tanks, people withdraw money and they are forced to sell at the worst possible time. They can stop taking money in when the market is at its peak, everybody wants to get in, and they are forced to buy at the worst possible time. But most don’t. Having a portfolio that people trust can get through the worst possible scenarios makes you avoid people that would get out at the first sign of weakness, and even people that would want irrealistic return and are looking for a hype train. Best of both world for an hedge fund
632 views? You are criminally underrated mate. Checking in before this channel blows up.
I would love to see you make videos reacting to scenes from financial tv shows and movies such as Billions and Margin call. That would be really good to watch and will explode your channel.
Perfect lenght of video, perfectly easy to understand. Please keep them coming in a similar format mate. Good work! 👍
Why anyone would dislike this video is beyond me… whoever you are, REVEAL YOURSELF
Probably some Fake Gurus
Diversification is the only way to invest in my opinion. Personally i hold a cheap globally diversified index fund.
My favourite take away was how a company can hedge against grain prices as an alternative to a chicken futures market. Breaking up risks in production line like that is quite ingenious.
yep, really smart.
Why’s nobody talking about your impressive suit collection
and a watch collection too
He always looks perfect in his fancy suits
Its the kinda style that evokes a sense of ‘if you need to ask’, yet it seems incidental moreso than meticulously planned
I did! Appreciate the look every time 🙂
Lack of cravat ruins suit, but he is Irish, so slovenliness expected.
Hey Patrick,
nice video.
If you are bored… I would be interested in another video on the topic, looking at risk parity applied separately to the stock and bond segments in a 60/40 portfolio. I.e. weighting different stockmarkets proportional to 1/sigma. That is what I see many people doing.
What do you think of that?
Thank you Patrick for this interesting video. To me it seems diversification for the average retail investor gets more and more difficult every day. As you said at the end of your video, it is not guaranteed that bonds will save the day this time. I backtested the Permanent Portfolio which is like a variation of the risk parity idea. In 1946 the seesaw effect of the bond part was gone.
So how do you get diversification in a 0 interest rate environment as an retail investor? Multi asset portfolios? Gold also yields 0. Real estate is correlated to interest rates and demographics. Imagine a Japanese investor in 1989. Off course the risk parity portfolios would have performed relatively well. But also a simple global 60/40 stock portfolio. Maybe that would be the most simple solution with some gold as inflation protection. Of course today things are different because almost all developed countries face the same problems. So maybe meditation 🧘♀️ 🧘♂️ is the solution 😃?
I think the core concepts of diversification still hold true today. The key point is that the different asset classes (say stocks vs bonds) act differently, so they don’t move the same way. There may of course be times where they do align and move in the same direction, but look at the first half of 2021 as an example. Stocks are up strongly, and bonds are down strongly. So clearly they are still moving “differently” which is in fact the point of diversification and Risk Parity.
I looked at the All Weather but decided to use the Coward’s portfolio recommended by William Bernstein because I liked the higher exposure to equities (55%). It actually was up yesterday on a big down day. The only thing I might want to tweak is moving some of the Bond money to Precious Metals and Bitcoin. Just found your website and subscribed, so much to learn so little time.
Thank you so much for this video, Pat. You run the best finance channel on YouTube by miles.
Holy cow, this is the best channel on investing!
Hey Patrick, could you do an episode on Universa funds (4000%) returns during corona & how to implement something similar to a tail risk hedging strategy. Cheers
Cheers for all the videos mate – super well researched, clear, well-delivered!
Very nice video, but it should be noted that one does not have to use an active manager or high fee mutual fund to use a risk parity portfolio. You can easily implement All Weather or the Permanent Portfolio (more or less the same thing) with a handful of low cost index ETFs. This is what I do myself. Just use static asset allocation weights and rebalance once or twice a year — that’s all it takes!
Would have been interesting for you to mention the S&P risk parity indexes – how they are composed and their historical returns.
Very good summary of risk parity. Thank you