Risk Parity: How to Invest for All Market Environments

Length: 208 pages
Edition: 1
Language: English
Publisher: Wiley
Publication Date: 2021-12-29
ISBN-10: 1119812569
ISBN-13: 9781119812562
Sales Rank: #396956 (See Top 100 Books)

Target high returns and greater consistency with this insightful guide from a leading investor

The market volatility exacerbated by the COVID-19 pandemic has led many to question their exposure to risk in their own portfolios. But what should one do about it?

In Risk Parity: How to Invest for All Market Environments, accomplished investment consultant Alex Shahidi delivers a powerful approach to portfolio management that reduces the potential for significant capital loss while maintaining an attractive expected return.

The book focuses on allocating capital amongst four diverse asset classes: equities, commodities, Treasury bonds, and Treasury Inflation Protected Securities. You’ll learn about:

The nature of risk and why traditional approaches to risk management unnecessarily give up potential returns or inadequately protect against catastrophic market events
Why proper risk management is more important now than ever
How to efficiently implement a risk parity approach

Perfect for both individual and professional investors, Risk Parity is a must-have resource for anyone seeking to increase consistency in their portfolio by building a truly balanced asset allocation.

Cover
Table of Contents
Praise for Risk Parity
Title Page
Copyright
Dedication
Foreword
Preface
Acknowledgments
About the Author
Introduction
    NOTE
CHAPTER ONE: What Is Risk Parity?
    RISK PARITY IS ALL ABOUT BALANCE
    THE SOURCE OF RETURNS
    WHAT IS RISK?
    THE 60/40 PORTFOLIO IS NOT WELL‐BALANCED
    RISK PARITY FRAMEWORK OVERVIEW
    PEER GROUP RISK
CHAPTER TWO: Two Steps to Build a Well‐Balanced Portfolio
    STEP 1: WHICH ASSET CLASSES TO REDUCE RISK?
    STEP 2: HOW TO STRUCTURE EACH ASSET CLASS TO HAVE EQUITY‐LIKE RETURNS
CHAPTER THREE: Equities
    WHAT ARE STOCKS?
    HOW DO STOCKS PERFORM ACROSS DIFFERENT ENVIRONMENTS?
    WHAT IS THE BEST WAY TO INVEST IN EQUITIES?
    STOCK MARKET CYCLES
    ARE THERE EXTRAORDINARY ENVIRONMENTS TO CONSIDER?
    SUMMARY
    NOTE
CHAPTER FOUR: Treasuries
    WHAT ARE TREASURIES?
    HOW DO TREASURIES PERFORM ACROSS DIFFERENT ENVIRONMENTS?
    WHAT IS THE BEST WAY TO INVEST IN TREASURIES?
    ARE THERE EXTRAORDINARY ENVIRONMENTS TO CONSIDER?
    SUMMARY
CHAPTER FIVE: TIPS
    WHAT ARE TIPS?
    HOW DO TIPS PERFORM ACROSS DIFFERENT ENVIRONMENTS?
    WHAT IS THE BEST WAY TO INVEST IN TIPS?
    ARE THERE EXTRAORDINARY ENVIRONMENTS TO CONSIDER?
    SUMMARY
    NOTES
CHAPTER SIX: Commodities
    WHAT ARE COMMODITIES?
    HOW DO COMMODITIES PERFORM ACROSS DIFFERENT ENVIRONMENTS?
    WHAT IS THE BEST WAY TO INVEST IN COMMODITIES?
    OTHER CONSIDERATIONS
    SUMMARY
CHAPTER SEVEN: Other Asset Classes
    EQUITY SUBGROUPS
    NON‐US BONDS
    CORPORATE BONDS
    MUNICIPAL BONDS
    COMMERCIAL REAL ESTATE
    PRIVATE EQUITY
    HEDGE FUNDS
    CRYPTOCURRENCIES
    CASH
    SUMMARY
CHAPTER EIGHT: Risk Parity Portfolio Summary
    CONCEPTUAL FRAMEWORK
    TARGET ALLOCATION
    RISK PARITY WITHOUT LEVERAGE OR WITH MORE LEVERAGE
    SUMMARY
    NOTE
CHAPTER NINE: Risk Parity Portfolio Historical Returns
    RETURNS SINCE 1998 (TIPS INCEPTION)
    RETURNS SINCE 1970
    RETURNS SINCE 1926
    SUMMARY
    NOTES
CHAPTER TEN: The Timeliness of Risk Parity
    THE CENTRAL BANK
    THE DELEVERAGING HEADWIND
    RISE OF POPULISM
    THE NET OUTCOME OF MAJOR HEADWINDS AND TAILWINDS IS HIGHLY UNCERTAIN
    THE NEED FOR LIQUIDITY, LOW FEES, AND TAX EFFICIENCY
CHAPTER ELEVEN: The Rebalancing Boost
    CONCEPTUAL FRAMEWORK: BUY LOW, SELL HIGH
    LOW CORRELATION AND HIGH VOLATILITY
    THE REBALANCING BOOST APPLIED TO THE RISK PARITY PORTFOLIO
    SUMMARY
CHAPTER TWELVE: Efficient Implementation
    SIMPLICITY
    HIDDEN LINE ITEMS
    LOW COST
    HIGH LIQUIDITY
    LOW TAXES
    TRANSPARENCY
    LEVERAGE
    SUMMARY
    NOTES
CHAPTER THIRTEEN: When Does Risk Parity Underperform?
    BREAK GLASS IN CASE OF EMERGENCY
    RISKY ASSETS VERSUS CASH
    CASH IS KING DURING TWO ENVIRONMENTS
    RARE AND SHORT‐LIVED PERIODS
    CONCEPTUALLY NETTING THE IMPACT TO ASSET‐CLASS PRICES
    ABSOLUTE VERSUS RELATIVE UNDERPERFORMANCE
    SUMMARY
CHAPTER FOURTEEN: FAQs
    DOES IT MAKE SENSE TO OWN LONG DURATION BONDS WITH LOW INTEREST RATES?
    HOW DOES RISK PARITY FIT WITHIN THE TOTAL PORTFOLIO?
    DOES DIVERSIFICATION WORK DURING A CRISIS?
    IF RISK PARITY IS SO OBVIOUS, WHY ISN'T EVERYONE INVESTING THIS WAY?
    DOES REBALANCING MORE OR LESS FREQUENTLY MAKE A BIG DIFFERENCE?
CHAPTER FIFTEEN: Conclusion
Index
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