Alex Shahidi - Risk Parity: How to Invest for All Market Environments

1. Chapter 1
2. Chapter 3
3. Chapter 4
4. Chapter 5
5. Chapter 6
6. Chapter 7
7. Chapter 8
8. Chapter 9
9. Chapter 11
10. Chapter 13
11. Chapter 14

1. Chapter 1
2. Chapter 3
3. Chapter 4
4. Chapter 5
5. Chapter 6
6. Chapter 9
7. Chapter 10

A mustread for anyone investing in the market who wants to maximize upside return while minimizing downside risk. Alex has skillfully crafted a how to book that spells out, stepbystep, building a balanced portfolio that can generate equitylike returns across a diverse spectrum of asset classes without the concomitant risk of equity securities, a strategy that will deliver in the long run no matter the market or economic environment. His proven, nononsense approach is communicated in such a refreshingly straightforward manner that it can be easily understood and applied in practice by novice investors while simultaneously educating and informing the savviest wealth manager. If you're laboring under the belief that a balanced portfolio is 60% stocks and 40% bonds, then this book is for you. Risk Parity will change your lifeand your wallet!

Lloyd Greif, President and CEO, Greif & Co.; Founder, Lloyd Greif Center for Entrepreneurial Studies at the University of Southern California's Marshall School of Business

Alex has written a book that perfectly encapsulates why his vision and perspective on finances is so deeply respected. I've been lucky enough to have his wisdom and guidance around risk parity investing and now you can, too.

Greg Berlanti, writer, producer, and director

This book is an excellent roadmap for understanding both how, and more importantly why, risk parity strategies work. Alex deftly explains the differences between a 60/40 portfolio and a more balanced strategy.

Bill Lee, former CIO, Kaiser Permanente

When done right, diversification can be the key to producing better investment returns over the long haulyet not enough investors have been paying enough attention. For this reason, I consider Risk Parity one of the best portfolio strategy books for growth investors and money managers.

Daniel Martins, Founder, DM Martins Capital Management; regular contributor to Seeking Alpha

Alex shows that the standard portfolio of stocks and bonds may be a lot riskier than most people realize. This is a terrific critique of conventional thinking on asset allocation.

Brett Arends, MarketWatch columnist

Alex Shahidi

Copyright 2022 by Alex Shahidi. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.
Published simultaneously in Canada.

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Library of Congress CataloginginPublication Data

Names: Shahidi, Alex, author.

Title: Risk parity : how to invest for all market environments / AlexShahidi.

Description: Hoboken, New Jersey : John Wiley & Sons, Inc., [2022] |Includes index.

Identifiers: LCCN 2021031557 (print) | LCCN 2021031558 (ebook) | ISBN 9781119812562 (hardback) | ISBN 9781119812432 (adobe pdf) | ISBN 9781119812425 (epub)

Subjects: LCSH: Risk management. | Portfolio management.

Classification: LCC HD61 .S389 2022 (print) | LCC HD61 (ebook) | DDC 658.15/5dc23

LC record available at https://lccn.loc.gov/2021031557
LC ebook record available at https://lccn.loc.gov/2021031558

Cover Design: Wiley
Cover Image: Dimitri Otis/Getty Images

I dedicate this book to the investors with curiosity to learn and openmindedness to overcome convention.

Alex is doing a great service to the savers and investors of the world and, in particular, those who are responsible for their livelihood in retirement. Statistics show that the average individual investor has substantially underperformed most passively held asset mixes. And the history of markets shows that every asset class in every country over the past 200 years has suffered massive wealth destruction at one time or another, meaning a decline in real purchasing power of 50% to 80% within the course of a decade. Even cash is a very risky asset when you view it through the lens of inflationadjusted returns. Today, cash and bonds are particularly risky, because policy makers have pushed real interest rates into negative territory and are holding them there as a means of reducing the burdens on debtors, shifting that burden to the retirements of savers and asset holders.

In recognition of the risks, we at Bridgewater believe that the most reliable solution is a balanced portfolio. By balanced I mean a portfolio whose risk allocation is distributed across a set of asset classes which have offsetting exposures to shifts in the economic environment. Shifts in economic growth and inflation exert a dominant influence on asset returns. Therefore, you want a mix of assets that neutralizes these influences on returns.

At Bridgewater we refer to this as the All Weather approach: a portfolio that is balanced to the influences of economic growth and inflation, enabling performance across all environments. Many of us have applied this All Weather approach for decades to our own personal portfolios and for the largest and most sophisticated institutional investors in the world. In time, the approach has become known as Risk Parity, and a number of professional asset managers developed their own way of doing it. There are significant differences, but what they all have in common is a balanced allocation of risk across complementary asset classes.