21 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
22 CHAPTER TWELVE: Efficient Implementation SIMPLICITY HIDDEN LINE ITEMS LOW COST HIGH LIQUIDITY LOW TAXES TRANSPARENCY LEVERAGE SUMMARY NOTES
23 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
24 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?
25 CHAPTER FIFTEEN: Conclusion
26 Index
List of Tables
1 Chapter 1Table 1.1 Portfolios of High Returning, Uncorrelated Investments
2 Chapter 3Table 3.1 Asset‐Class Economic BiasesTable 3.2 Equity Excess Returns by DecadeTable 3.3 Long‐Term Equity Cycles (1926–2021)Table 3.4 10‐Year Rolling Equity Excess Returns (1926–2021)
3 Chapter 4Table 4.1 Asset‐Class Economic BiasesTable 4.2 Equities and Treasuries During Recent Bear MarketsTable 4.3 Starting and Ending 10‐Year Treasury Yield During Recent Bear Markets...Table 4.4 Equities and Treasuries During Recent Bull Markets
4 Chapter 5Table 5.1 Asset‐Class Economic Biases
5 Chapter 6Table 6.1 Asset‐Class Economic BiasesTable 6.2 Asset‐Class Economic Biases
6 Chapter 7Table 7.1 The Economic Bias of Four Major Asset ClassesTable 7.2 The Economic Bias of Major Asset Classes (Expanded List)
7 Chapter 8Table 8.1 Average Standard Deviation of Equities, Treasuries, TIPS, and Commodit...Table 8.2 Equal Capital Allocation to Each Asset ClassTable 8.3 Equal Risk Allocation to Each Asset ClassTable 8.4 The Risk Parity PortfolioTable 8.5 An Unlevered Risk Parity PortfolioTable 8.6 More Levered Risk Parity PortfolioTable 8.7 Summary of Three Risk Parity Portfolios with Different Leverage Amount...
8 Chapter 9Table 9.1 Risk Parity Portfolio versus Global Equities and 60/40 – April 1998 to...Table 9.2 Risk Parity Portfolio versus Global Equities and 60/40 – by Decade*...Table 9.3 Risk Parity Portfolio versus Global Equities and 60/40 – by Calendar Y...Table 9.4 Asset‐Class Returns During Major Equity Down YearsTable 9.5 Asset‐Class Returns – April 1998 to March 2021Table 9.6 Risk Parity Portfolio versus Global Equities and 60/40 – January 1970 ...Table 9.7 Risk Parity Portfolio versus Global Equities and 60/40 – by Decade*...Table 9.8 Asset‐Class Returns by Decade*Table 9.9 Risk Parity During Historical Bear MarketsTable 9.10 Risk Parity Bear MarketsTable 9.11 Risk Parity Portfolio versus Global Equities and 60/40 – by Calendar ...Table 9.12 Equities and Unlevered Treasuries – January 1926 to March 2021*...Table 9.13 Equities, Treasuries, and 50/50 Mix – January 1926 to March 2021*...Table 9.14 Equities, Treasuries, and 50/50 Risk Balanced Mix – by Decade*...Table 9.15 Risk Balanced Mix during Equity Bear Markets pre‐1970
9 Chapter 11Table 11.1 Rebalancing After Year 1Table 11.2 Ending Value After Year 2Table 11.3 Rebalancing After Year 1 – More Volatile AssetsTable 11.4 Ending Value After Year 2 – More Volatile AssetsTable 11.5 Risk Parity Portfolio Asset‐Class Returns – April 1998 to March 2021...
10 Chapter 13Table 13.1 Negative Calendar‐Year Excess Returns for Risk Parity – Since January...Table 13.2 Factors That Impacted Asset‐Class Returns – First Quarter 2020...Table 13.3 Percentage of Time Risk Parity Portfolio Beat Global Equities – Janua...Table 13.4 Percentage of Time Risk Parity Portfolio Beat 60/40 – January 1970 to...Table 13.5 Percentage of Time Risk Parity Portfolio Beat Cash – January 1970 to ...
11 Chapter 14Table 14.1 Asset‐Class Returns During Rising Interest Rates – March 1971 to Sept...Table 14.2 Various Asset‐Class Cumulative Returns During Last Four Bear Markets...Table 14.3 Risk Parity Portfolio Results with Various Rebalancing Frequencies
List of Illustrations
1 Chapter 1Figure 1.1 Building a Smoother Path
2 Chapter 3Figure 3.1 Annualized Global Equity Excess Returns by Economic Environment –...
3 Chapter 4Figure 4.1 Annualized Long‐Term Treasury Excess Returns by Economic Environm...
4 Chapter 5Figure 5.1 Annualized Long‐Term TIPS Excess Returns by Economic Environment ...
5 Chapter