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2020 Year in Review – Never Let A Good Crisis Go To Waste

Contents of this article include:

  • List of 3 best lessons from 2020 and the Covid-19 stock market crisis
  • Summary of the most popular articles in 2020 from the All Seasons Portfolio blog
  • Some predictions for 2021
  • My portfolio development and stats

Happy New Year my friends and fellow risk parity investors!

I hope you have had a brilliant start to 2021, and that you are proceeding with caution considering the rally on the stock markets in the first few weeks of the year. I would have had a bit of vertigo by now, would I have been a stock investor, but by employing a risk parity strategy, I feel quite confident that I will not be loosing any nights’ sleep going forward either.

I rather enjoy the time around the Christmas holidays, as you get a few more days off work to spend with family (albeit in a very different manner this year), but also you get some time to reflect of the year that has passed.

It was during one such break that I first launched this blog, and that is a decision I have cherished ever since, as it has helped me find a focused way of articulating my thoughts, and (more importantly) to bring me into contact with some great people who share similar views on investing and risk!

So before we dive into this annual review, which is a bit different this year due to 2020 having been a rather different kind of year, I would like to pause for a bit and thank you – the read -very much for taking your time to read my content, and for all discussions in the comments or directly by email, Twitter, Facebook, or any other medium om correspondence. It makes it all worthwhile to continue to produce content, and I hope to establish new great contacts, and maintain the existing ones, also in 2021!

Without further ado, let us begin the 2020 review, by summarizing the 3 most important lessons that we can take with us from the crisis this year, to make sure we are better prepared for any future crises.

Lessons from the Covid-19 Crisis of 2020

This past year has been nothing like we imagined a year ago. Luckily for me, in my summary post of 2019, I was not bold enough to make any public predictions. But while I may have saved face, this past year has in many ways been a complete train wreck.

There are many negative memories that we will take with us from 2020, whereof most can be traced back Covid-19 and its impact on families, the elderly, employees, and businesses. Let us remember that the year has not only brought distress to financial markets and investors, but too many have experienced hardships in the form of personal losses like loss of a family member, loss of income, or have been severely ill in the virus.

Maintaining an investor perspective, as this is a blog about personal finance and risk parity investing, a famous quote by Winston Churchill comes to mind that I think should shape our mindsets and outlooks for 2021. After World War II, in connection to the forming of what would become United Nations, Churchill proclaimed, “Never let a good crisis go to waste”.

While our reality has been dire looking the past 12 months, and at times many things have seemed hopeless, there are still many lessons to be learned from the Covid-19 pandemic. Here, I will focus on such lessons from a personal finance and investing perspective.

Hence, before I review my portfolio, let me summarize three key lessons that I have identified from 2020 that are important to take away to the future. This way, we will be much more prepared for the next crises.

I remain a strong believer in that modern financial markets and macro settings are too complex for anyone to have a complete edge and make accurate predictions. Therefore, it is always much more important to admit to oneself that we cannot predict what will happen, but we can prepare.

The three key lessons are 1) why it is important to save and invest, to have a safety net in tough times, 2) why risk on risk off approach and trying to time the markets will do more harm than good, and 3) why risk parity investing is the golden strategy for also retail investors and not only wealth managers.

2020 Lesson no. 1: The importance of Investing

The past decades, the number of retail investors has been steadily growing. The availability of information and learning resources have sparked an interest among the general public to take more responsibility of personal finances. It is a great sign of improving financial literacy and it is a trend that we must maintain.

The coronavirus crisis has served as a practical example of why it is important for every private person to have set aside part of one’s income. An investment portfolio not only promises prosperity and wealth in the future, but at the same time functions as a safety net in case of unexpected and disastrous events.

In the spring of March, while the pandemic spread across the globe, a record number of employees were laid off or furloughed in an astonishing short period of time. The magnitude of the impact on labour markets has been unprecedented. Only in the United States, 33 million people had lost their jobs and incomes in Q2. That is a staggering number of unemployed.

Europe, with better social safety nets and labour laws that better protect employees, fared better. However, many have still seen reduced or lost income from employment. In particular, the self-employed have been especially hard hit as social security systems are designed for the old-fashioned labour market. Regardless, social security systems are temporary solutions and will not cover all of the salaries that are lost.

Loss of income will hit people differently depending on how prepared you are. If you have built a buffer by setting money aside during good times, you have something to fall back on when the bad times – such as the Covid-19 pandemic – hit. With money in your investment account, if the shit hits the fan, you would not need to go into panic over how next month’s rent or mortgage payment will be made or how to put food on your table. You will have your own safety net for when life serves you with bad news.

The most important lesson of 2020 is therefore that it is extremely important to invest, not only to hopefully become wealthy someday, but as a first step, to not be so dependent on one’s salary. Even if your sector may not have been one of those worst affected by this particular crisis, there are no guarantees that you will be able to escape the next one. This year hospitality and travel, and to some extent physical shopping, sectors have been worst hit, but the next crisis may hit differently.

The lesson is therefore that it is always better to prepare for any eventuality. In addition, if your position in the job market would not be affected in the future either, the worst thing that has happened is that you have a pile of money to fall back on come retirement.

2020 Lesson no. 2: Risk on/Risk off and attempting to time markets

Since the 2008 financial crisis and the Great Recession, one of the trendiest expressions among the investor collective has been “risk on risk off”. What this means in short is that the expression describes the market sentiment and tries to explain increases and decreases in values of risk assets depending of capital flows and changes in risk appetite among investors.

For example, during high growth environments investors tend to allocate more funds to riskier assets such as equities, corporate bonds, and commodities while selling safe assets such as government bonds and gold. This is a “risk on” sentiment. Conversely, during market turbulence and risk off sentiment, investors will steer their capital from stocks and commodities to safer assets.

When the pendulum changes direction and the sentiment switches from, for example, risk on to risk off, correlation of risk assets often get closer to 1. This is what happened in the spring of 2020 when the market became very risk averse, selling off stocks and commodities, which both fell sharply, even though these assets in the long term show little correlation to each other.

It may be tempting for an investor to try to improve one’s return by attempting to time the switches between risk on and risk off sentiments. Surely, there would be huge profits to make if you sold before the bottom of a dip and bought again on the way up.

In reality, the changes in sentiment are very difficult to time right. You may therefore end up losing out on your position by selling in a dip and getting back in too late. Do not underestimate the psychology involved in turbulent markets.

To use the Covid-19 crisis as an example, the deep dip in mid-March was a reaction to risk off sentiment. Here, many investors were contemplating to build up their cash reserves to decrease risk during an unusually uncertain time. The crash then became self-reinforcing, as second-guessing investors started to think: “I knew I should have sold already, and now values are even lower”, causing more downward pressure when they sold in the second stage. Fear was driving down the markets.

Then, not long after the crash, equity valuations began their journeys upward again in April. The fundamentals hadn’t changed, but investors’ confidence had: the outlook was no longer as dire as they were just a few weeks ago. In this phase, many investors with cash on the sidelines began eyeing an opportunity to get back into the markets again. However, there was no big simultaneous jump back in, as the fundamentals were, as I said, not that good yet.

But, as valuations crept upward in a quite impressive pace, considering the state of the world economy, many investors now became worried that they would be left at the station when the train had departed. A fear of missing out settled in and began deploying their liquidity into risk assets again. Hence, the quickest stock market collapse in history had turned into the quickest recovery in history. It only took 3 trading days between 24 and 26 March for the S&P 500 to rally 17.6% in a sudden retracement of the deep fall.

However, worried investors who were still not confident in the fundamentals got back in the game too late, and many came in at a higher price than what they sold at. Fearing to miss out on the rally and getting a very negative timing effect, many hurried to get back into the market, further pushing up stock prices through the summer and fall of 2020.

The take away is that a great number of investors, both professional and retail investors, made losses in the Covid-19 crash, not only due to bad investments, but also in trying to time the market and failing to do so. Remember that it only took less than one month s for the stock market from the peak in end February to shed more than 30% of its value, and by end of June, almost the whole dip had been recovered. Considering the chaos in the economy by then, few had enough strong guts to press the buy button at the bottom, or even during the slow crawl back.

The lesson is therefore: instead of failing trying to capitalize on changes in risk appetite, it is better to avoid attempting to time the markets, and instead build a risk balanced portfolio that is set up to perform decently regardless of the environment. Sure, there may come times when all assets, including safe assets such as gold and bonds will decline together with stocks, just as they did in March 2020 when cash was the best asset to hold, but these events are usually very short-lived – usually only a week or two, before either risk assets or safe assets bounce back. Few are good at guessing the directions of the market, and especially in a panic, the shifts in direction can be very sudden. Make sure to stay calm during such times and never act out of fear (or greed for that matter).

2020 Lesson no. 3: Why risk parity investing and the All Seasons Portfolio is the better choice

This third lesson somewhat ties back to both previous lessons. March 2020 gave us a gentle reminder that volatility is not at all dead. There will come dramatic and traumatic slumps for most asset classes, but especially so for risk assets such as stocks.

The take-away is therefore twofold: a) all your eggs cannot be in the same basket, and b) you should seek more stability and balance in your portfolio, especially if you look for security nearing your pension, or if you want a safety net in case you would lose your income. This rules out investing in only the stock market, or even a traditional 60/40 portfolio, which has a high correlation with the stock market.

Five Stocks ETFs through H1 2020 (4 UCITS ETFs and 1 ETF traded in the U.S. (black dots))

Stock investors had a rough first half of 2020. Even if valuations have recovered in the fall, fueled by extreme Central Bank stimulus, volatility has been high. Regardless which market you examine, the story is the same.

The U.S. stock market has performed better in 2020 than European and Global markets – a difference which is mainly attributed to the difference composition between the markets in terms of value vs. growth companies. The Big Tech companies in the U.S. have been able to recover much quicker than manufacturing companies in Europe, which is shown in the performance of the respective indices.

Consider you were only invested in the stock market in March 2020. Let us say you would find yourself in a situation where you need to a) withdraw funds from your portfolio to cover lost income, or b) you rely on your portfolio on a monthly basis to provide for your retirement. How much in trouble would you have been in if your portfolio suddenly dropped more than 30%?

Many have been in this situation, and without any doubt what so ever, the same situation will present itself in the future again in the next crisis.

What about a more traditional 60/40 portfolio (with 60% stocks and 40% bonds)? These are portfolio strategies that are unbalanced risk parity portfolios and will therefore behave accordingly. Of the two asset classes in that portfolio, stocks, which also make up the majority of the portfolio, are more volatile than bonds. The portfolio performance will therefore follow the development of the stock market, as the bond portion is too weak to offset any losses of stocks. The 60/40 portfolio’s correlation with stocks is about 98%.

Five 60/40 portfolios with different geographical exposure through H1 2020 (4 UCITS ETFs and 1 ETF traded in the U.S. (black dots))

Hence, the performance of 60/40 portfolio through the Covid-19 crisis has been better than a 100% stock portfolio, but still with dampened performance. The most important difference is that volatility has been lower, meaning that the dip by mid-March was not as deep as if you would have only invested in the stock market, as bonds were able to offset parts of the losses.

More importantly, the 60/40 portfolio lacks any inflation protection. If inflation would pick up through 2021 and 2022, these conservative portfolios will underperform.

The performance of a balanced risk parity portfolio, has been better from three core perspectives: a) absolute return has been better, b) volatility has been lower, leading to c) risk-adjusted return has been vastly better.

The All Seasons Portfolio strategy is a simplified risk parity strategy that is easy for any retail investor to replicate, while still achieving the benefits of risk parity.

What is the most important benefit of the All Seasons Portfolio is the added diversification, and thus increased portfolio stability. You would be able to collect the risk premiums above the cash rate from each asset over time, while each asset classes inherit volatility is offset through the changes of economic environments.

Used All Seasons Portfolio Asset Allocation in this exercise

During the Covid-19 crisis, an abrupt swing from high expected economic growth to lower expected economic growth had swift and severe consequences for risk assets such as stocks and commodities. However, these falls were offset by safe assets being bonds and gold, when investors decreased their risk exposure (see lesson 2 above).

Aside from the wider shock affecting all asets in mid-March, the All Seasons Portfolio was much more stable when liquidity returned to bonds and gold after initial sell-off of everything. But with the increased diversification, the drawdown was much lower, and the recovery of the portfolio was much quicker than for a 100% stocks portfolio or a 60/40 portfolio with the same geographical exposure.

Broken down into its components, the American All Seasons Portfolio built with UCITS ETFs (named “Portfolio 1” above), each asset class have performed as shown in the below graph:

Performance of components in an All Seasons Portfolio

The last graph of this segment included here below shows a comparison between an All Seasons Portfolio (thick black line), the S&P 500 (dotted) and a 60/40 portfolio (gray line), all with exposure to American assets.

Here it becomes clear that a risk parity approach provides better risk-adjusted return for investors through turbulent times.

Comparison through H1 2020 between an All Seasons Portfolio, a 60/40 Portfolio and an S&P 500 UCITS, all with same geographical exposure and traded in EUR

What is the bottom line? Consider your reasons for investing. Do you save for retirement, for an economic buffer in case of emergencies, or to be able to FIRE? In either case, portfolio stability is key, as great volatility may have dire consequences down the road.

It is a common belief that if you are young, you can afford more risk and can therefore invest heavily in growth companies and the stock market, because you have plenty of time to recover. I saw this advice as late as yesterday on Reddit, only 10 months after the quickest drawdown in history. That is terrible advice in my opinion, because if the alternative is steady growth over a longer period of time, due to the effect of compound interest, you can never catch up if you lose most of your wealth in a few years and have to start over, when compared to steady compounding already from day 1.

If the 2010s have been a perfect environment for stocks, I don’t believe we will see the same thing repeating for the 2020s. Valuations are decoupled from both earnings and sales, economic growth in developed countries is stagnant, and the risk for inflation is increasing by the week. These factors are not ideal for stocks, meaning that best returns will be founds elsewhere.

Either way, it is best to diversify and prepare for any eventuality, why it is my strong belief that more investors – also younger ones – should adopt a risk parity approach. And if you are young and want more risk, then the best option is to investing with an All Seasons Portfolio approach, but increasing leverage.

The three lessons I have presented here are my most important key take-aways from 2020. Do you agree on these or have any other suggestions, let us know in the comments below.

Insight Articles and Good Topics From 2020

During 2020, most likely due to having worked from home most of the year, I have found more time for writing and researching about investing. Hence, I am pleased to have been able to produce more and better content on this blog through the year.

Here is the list of my most popular articles from 2020:

Which was your favourite article of this year? And more importantly, what would you like to read more about during 2021? Drop me a message in the comments below, or send me an email on I look forward to hearing from you!

Predictions for 2021

In a minute, I will give you an annual update to my portfolio. But first, here are some predictions that I have for 2021. Take them as you like, as the beauty with the All Seasons Portfolio strategy is that you are prepared regardless if predictions come true or not. But it is a fun sport to partake in.

My first prediction, and the one that I believe has the strongest case, is that inflation will return in 2021. If this is true, this will be beneficial for gold, commodities, and inflation-linked bonds. If you look at broad commodity prices, many have began rising already in the first few weeks of 2021. Before end of 2021, my prediction is that gold will have surpassed USD 2,500/oz (compared with today’s level of around USD 1,850/oz).

There is also mega trend factors, in the shape of an ageing population, that can drive inflation further, as discussed by Olli Rhen (governor of the Bank of Finland) in an article published on 13 January 2020. The authors he refers to, believe that inflation in 2021 could reach between 5-10%, which is not at all unlikely considering the amount of stimulus from global central banks, as well as government treasuries.

Another indicator for increased inflation is the breakeven rate, i.e. the difference in yield between nominal bonds and inflation-linked bonds with the same term. The breakeven rate between the 10Y US Treasury bond yield and 10Y IL Bond yield reached above 2.00% in early January 2021 for the first time in more than 24 months, indicating the market’s anticipation for higher inflation.

U.S. Breakeven rates; source:

In Europe, a slower growth will mean that inflation will not be driven by wages any time soon. However, as prices on commodities increase, the costs of retail products are likely to increase also on this side of the Atlantic. Moreover, the ECB’s stimulus program is driving inflation, and its balance sheet now equals more than 64% of Eurozone GDP, compared to Fed’s 36.4% (numbers from November 2020) (source: the Tradable). The currency war, as I described in the December monthly portfolio update post, will also be a challenge for the ECB to fend off. Hence, in Europe, deflation in the near term is probable, considering the currency effects, but may turn into stagflation with higher commodity global prices and lack of growth. The ongoing effects of the Covid-19 pandemic and vaccinations will be decisive for the road ahead.

The stock market will continue up for a while, as long as stimulus continues. However, a rally of this magnitude can’t last forever. Some voices have been raised that the stock market has reached “a permanently higher plateau”. That is a dangerous and bold conviction, that can come back to haunt us. Thus, I strongly believe that while the rally may continue for a little while longer, a retracement will follow sometime in 2021. But the longer the ecstatic sentiment persists, the higher the risk for a nasty surprise at the end of it. The recovery in GDP has not followed the recovery in the stock market.

As for bonds, I believe a rate hike remains in the future. Even if inflation would follow, it will take a while for central banks to raise interests in an effort to keep inflation low. Here, one needs to take into consideration the statement from the Fed in August 2020 that the inflation goal is around 2% on average, meaning that inflation can be let to run above 2% for some time before any action is taken. Moreover, considering the high increases in government debt, governments cannot afford high interest rates on their bonds. Hence, I believe yields on UST 10Y bonds will be at 1.50% at the top over 2021, but most most likely, they will drop below 1.00% again.

Hence, best performing asset classes, will be commodities and gold. Stocks will struggle and post a negative return over the year. Bitcoin is a wild card to me, and could end up in a wide range of anywhere between USD 10,000 and USD 50,000.

Which season do you think will be best describing 2021? Not to influence your thinking, but summarizing my text below, I believe the characterizing environment for the year will be low growth, and high inflation, and I have voted accordingly. Cast your vote below!

This poll is no longer accepting votes

Which will be the dominant season characterizing 2021?
11 votes

My Portfolio In 2020

During the year, I have made several changes to my portfolio to improve the risk balance. These changes include:

  • Ditching Intermediate-Term Bonds
  • Adding Bitcoin (3%)
  • Adding VIX (3%)
  • Adding more currency hedged assets (mainly on bonds portion)
  • Switching long-term bonds from global to American

I have thus ended up with a portfolio with the aimed asset allocation shown in the below pie charts, with ETFs to the right.

I am very confident with this allocation and strongly believe that it will bring me good risk-adjusted return. At least for the most volatile components (VIX and Crypto), I will need to be more nimble and quick to rebalance to ensure risk is kept at a balanced level, as well as capturing risk benefits. Risk parity investing is about mean-reversion, i.e. that excess return is gained through selling assets at their highs and buying at their highs.

My current portfolio splits are, however, not that exact. This is mainly due to two reasons: a) ETF unit prices may affect exact allocation, and b) I currently have a bet for increasing inflation.

Hence, the actual splits are as shown in the table below. The annualized return, volatility and Sharpe ratios are for each asset (except for the Total row, which is based on current allocation). With this portfolio, over the past 12 months, the annualized return would have been around 12%.

TickerAllocation PercentageAnnualize Returns Annualized StdDev (Volatility)Sharpe Ratio

Moreover, an important aspect of risk parity investing is that you build a portfolio of assets with low correlation to each other. I therefore built the below matrix, calculating the correlations for the past 12 months. I am quite pleased with the fact that no correlation is above 50% (closest is commodities and global stocks at 48%, due to the Covid-19 crisis’ impact on growth assets), while the rest are substantially below that level.


Would I have had this portfolio at the beginning of 2020, the annual return would have been around 12%. However, as my portfolio looked somewhat differently (and back trading is the easiest occupation there is in the finance industry), my returns have been somewhat lower for the year.

The most important thing we can take with us from such a challenging year as 2020 has been, is to learn from it and improve our strategies to be better prepared for the future. I do not guarantee that this is the final form of my portfolio for the next 40 years, but I expect any deviations to be of limited magnitude and data-driven.

I hope you have found this annual review useful, and we can finally put the year of 2020 to the history books. How has your portfolio performed over the year, and what are your expectations for the year to come?

I am very much looking forward for a new year with exploring and writing about risk parity investing, and I hope to see you continue with me on this journey.

I have also set up a Patreon site, to cover hosting costs, which reach a couple hundred euros annually. If you find any content here at all useful and feel that you can treat me for the equivalent of an espresso, read more about what this means on the Support page here on the website. I have a hosting bill of around EUR 140 falling due in November, so any support is extremely helpful, as the monetization of this blog is very limited.

Remember to subscribe to the newsletter at the footer of this page, to make sure you receive notifications when a new article is posted (no spamming of other unwanted content).

Best of luck for your investments in 2021, and I am looking forward to keeping in touch!

Best wishes,
Nicholas Ahonen

This Post Has 4 Comments

  1. Michiel

    Hey Nicholas,

    Great update again! Your all-seasons updates keep me triggered on the balanced portfolios (which is not really my specialism or background…). I am very interested to see how your portfolio after adjustments will develop compared to my ‘basic’ all seasons portfolio (without BTC and VIX).

    Annualized return on my portfolios with monthly rebalancing are:
    – 13,45% XIRR on the 60/40 portfolio VWRL/IBGL
    – 7,42% XIRR on the “all seasons portfolio” VWRL/IWDA/EXXY/PHAU/IBGL/DTLE/IUS5:

    Since the start- and rebalancing moments are not the same (in this way I have a sort of bi-weekly rebalancing/purchase of VWRL) the two are not yet exactly comparable so let us see how this year develops! (ps, let me know when your interested in my purchasing/rebalancing data.)

    1. Nicholas

      Hi Michiel!
      Many thanks for the kind words! I too am excited for 2021 now that I have my portfolio composition in good shape for the new year, and I look forward to hearing your progress as well! Both BTC and VIX are pretty volatile asset classes, but should have low correlation so that they will not go the same way at the same time. I think it is prudent for any investor to at least try to get a fundamental understanding of balanced portfolios, as it will be helpful when attempting to navigate through years and potentially decades when stocks are not doing so well. Kudos to you for trying it out!
      Nice to see you have had a good year in both your portfolios! Do you also keep track on the Sharpe ratio for these so that you have a measure on your performance vs. the risk you’ve taken?
      For the purposes of your overall personal finances, it may be a good thing that you spread out the purchase/rebalancing times. I will follow the performance of your two portfolios with great interest, as it will be a good case study between return over time between risk parity portfolios with and without inflation hedging! All data is always of great interest, feel free to drop me an email on when you have time to spare. 🙂
      By the way, as a new feature I have implemented on the site (in the footer and on the right hand side of the page) I have included a graph over 3M performance as well as performance and volatility of my portfolio. I’ll look into expanding this feature as well, to facilitate tracking of my performance. Hope you find this interesting!
      Rolling 3M performance per 20 January 2021
      Best wishes,

  2. Michiel

    Hey Nicholas, I have dropped you an email with my ‘raw data’. Unfortunately I have not had the time yet to build a detailed investment tracker yet and/or keep track on f.i. sharpe ratio; I hope to find some in a few months to work on this…!

    1. Nicholas

      Thanks Michiel! I have seen the mail and responded last night!

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