Portfolio Update – March 2021 – The Madness Is Not Over

Now that we have put the month of March behind us, it marks the one-year anniversary of the coronavirus pandemic and societal restrictions. Hardly, this is something to celebrate, as it has been one of the worst 12-month periods for a very long time, and all we want now is for the madness to end and for us to be able to go back to normality.

We have reached a few months into the vaccination process and hopefully the worst parts of the pandemic should be behinds us. But, it seems like we are not yet over crazy events to surprise us in the markets. Two such impactful evens in March alone were the blockage of the Suez Canal and the blow-up of Archegos Capital Management, both of which were significant events to occur in March. We will look more closely into these events in this article and their potential impact on the economy in the near term.

My point is, that while stock markets are regularly posting ATH marks, there is quite a lot of uncertainty left in the economy, that can be a surprise on the downside for equities. The $1.9tn American stimulus package may help to keep up stock valuations for a little bit longer, but voices are raised that we are witnessing the final exuberant stages of a bubble.

Before we dive into a dissection of three most impactful events of March 2021, I received fantastic feedback on my last post with book recommendations for reading material on risk parity investing, which was published a few weeks ago. I was recommended the book Adaptive Asset Allcation, written by the team behind ReSolve Asset Management, and while I am only half-way through it yet, I think this is a recommendation worth sharing to a broader audience. Check out the description and the bottom of this article for more details of what to expect.

But let us now head straight to a catch-up of what exciting events March 2021 had to offer us.

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3 must-read books for better understanding Risk Parity Investing and the All Seasons Portfolio Strategy

  • Recommendations for the 3 best books to start with for better understanding risk parity investing
    • The Permanent Portfolio by Craig Rowland and J.M. Lawson
    • Balanced Asset Allocation by Alex Shahidi
    • Risk Parity Fundamentals by Edward Qian
  • Reviews of each book below and suggested reading order
  • Which to pick if you are only going to read one

The isolation and restrictions of movement during the Covid-19 pandemic and the lockdowns and curfews have been challenging to say the least. How can you spend your time, in an effort trying to stay sane, when you no longer can travel, barely go to the office, and perhaps not even physically meet friends and family.

Now in March, it becomes one full year of the exceptional circumstances and measures to limit spreading of the virus. It has been a difficult year for all, but even worse for some directly affected by the worst thinkable consequences of the pandemic.

Risk parity investing is an established discipline among institutional investors and family offices. Of these, the most famous are Bridgewater Associates' All Weather fund was a pioneer of the field, and is only accessible to pension funds and high net worth individuals.

But the benefits of risk parity investing reach also retail investors - people who do not get access to Bridgewater's products - as most investors are easily swayed by the most recent developments on the stock markets not to be sufficiently protected against the effects of what changes in expectations of economic growth and inflation can do to a portfolio.

Reading is a pastime of successful investors, not only in quarantine, and if you are keen on setting up your own risk parity portfolio (it is very easy to do with widely available ETFs), you should begin by seeking information on this investment discipline in the form of literature.

To make the getting started phase a bit easier for you, in this article, I highlight three great books about setting up a balanced portfolio. They all describe asset classes included (mainly stocks, bonds, gold, and commodities), and, more importantly, the reason behind why each asset class is needed in a portfolio to protect against the changing seasons of the economy.

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Portfolio Update – February 2021 – Dire Outlook for Bonds?

In the last week of February, the bond market came under scrutiny in a culmination of a rapid hike in yields and a failed US 7Y Treasury Bond auction on Thursday February 26th.

A complete dry-up of risk appetite in fixed-income space briefly pushed the 10Y treasury bond yield above 1.60% in an intra-day posting. This was the crown of a month-long trend throughout February with rising treasury yields. The 10Y yield closed the month at 1.41%, being up 55% YTD.

In this February 2021 Monthly Blog Post, we focus on the recent ripples on the bond markets, the outlook from here, and what you as a risk parity investor should ow do about your bond portion of your portfolio.

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Portfolio Update – January 2021 – What the Gamestop frenzy can teach the sensible investor

It is with a great portion of excitement that I have now sat down to finish up the first monthly portfolio update of 2021!

Good to have you here with me to review the month. In this new year, most of these monthly updates will remain familiar, but I have included some new features. Mainly, I have added a few more graphs in the portfolio review segment, which in more details shows the daily performance of my portfolio (also with comparison against the S&P 500) on a rolling 3-month period. I hope this will be a helpful tool for you when contemplating replicating a risk parity strategy.

The greatest news that has made the most headlines in January (besides the Capitoleum protests) has obviously been the short/gamma squeeze in GME and other heavily short stocks, as constructed by a group of Redditors in the subreddit r/WallStreetBets.

I am confident that you have not missed this, and perhaps you are already tired of that mania, which has already reached beyond its apex. I will not go into detail reviewing the occurrence itself, as that has already been covered by literally everyone - finance media and independent bloggers alike.

But even though the mania is not really related to the All Seasons Portfolio strategy - or even sensible investing at all for that matter - there are still elements that can be useful for the investor who is better at managing risk. I will therefore not ignore the short squeeze all together but I will focus on a few points that I have identified as important reminders for both sensible investors and FOMO traders.

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

  • 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

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.

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Portfolio Update – December 2020 – What is Dynamic Risk Allocation?

Contents of this month's post include:

  • How your risk parity portfolio can benefit from Dynamic Risk Allocation
  • Portfolio changes: Scaled down Bitcoin, switched part of Long-Term Government Bonds currency exposure from USD to EUR
  • Monthly Update for December 2020
  • Book tip: Risk Parity Fundamentals by Edward Qian (link at the bottom of the article)
  • In case you missed it: My latest Insight article about How VIX ETFs can improve portfolio performance and stability in volatile environments

It is official, we have survived 2020. Hopefully, 2021 will be a much better year, but only because the calendar now shows "2021" instead of "2020", it does not automatically mean that the situation has changed. We still face many of the same challenge as we did only a week ago.

On that positive note, I am glad to have you back for a new year with this blog about the All Seasons Portfolio and how retail investors can get access to the benefits from risk parity strategies. I have now been writing this blog for 2 years, and it has been an incredible experience. I have learnt a lot along the way, and I hope you have too! But mostly, I enjoy all the discussions with you readers, both in the comment section and bilaterally through different channels. I think discussions are an even better tool for learning and improving, as triangulation of strategies and analyses are important.

I look forward for a new year with this blog, and if you have any ideas of how to make it even better, I am always open for your input! My plan is to continue with the monthly updates, and mix in Insights post about various relevant topics. I will also try to find the time to create a better library over the key components of risk parity investing as different pages to the blog, to provide a better learning experience. I'll try to find the time to do that as soon as possible.

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