All Seasons Portfolio - Risk Parity Investing for everyone

• Has the stock market reached a permanently high plateau, or can we expect lower return the coming decade?
• Monthly Update for May 2021 with a fresh set of charts

I hope you are sitting comfortably and have fetched a nice cup of coffee or something more refreshing, because before we get into the monthly development for May 2021 of my portfolio, we have an elaborate analysis of the value of the stock market in front of us.

There has been a couple of things that have been bugging med lately. That is the current high valuation of the stock market regardless of metric used, and the fact that many non-professional investors' inability to understand that an average annual return of 7-8% on the stock market is just an average rather than something you can expect every year to come.

I think that many have been trapped in a recency bias that will catch up with them eventually, unless retail investors choose to diversify from an all-stock portfolio to something more similar to an All Seasons Portfolio.

I will explain why I think so in detail in this article, so let's just dive into it.

I recently bought the book Adaptive Asset Allocation by the team at ReSolve Asset Management. While the main focus of the book was risk parity and a different view thereto than what the more static All Seasons Portfolio strategy offers, there was one part in the background section that really resonated with me, and which I perceive that many investors, and especially non-professional savers, miss.

• How can you become a better investor from understanding how you play chess
• Monthly Update for April 2021 with a fresh set of charts
• Book tip: Adaptive Asset Allocation by Adam Butler, Michael Philbrick and Rodrigo Gordillo (link at the bottom of the post)
• In case you missed it: I've launched a shop for tools and resources (both paid and free) for easy portfolio management, all within the Google Spreadsheets framework

Are you sure if your instincts align with your intended way of investing?

I am asking this because if there is a mismatch between what kind of person you are when it comes to your decision making and acting on new information on the one hand and your investment goals on the other hand, you will not reach your financial goals if you do not know yourself.

How your mind works and how you behave matters more than you think when it comes to investing, as it will impact firstly the investment strategy you chose, and secondly, how you implement and deviate from the strategy in new situations and changed market conditions.

But regardless how good an investor you are or what instincts come naturally to you, if you know who you are as a person and how your mind works, you could prepare your strategy already in advance to be better equipped to face the challenges that financial markets can throw at you. Even an investor with less experience and bad instincts can succeed in tough times by setting up clear and good rules for how to behave and then rigorously stick to those rules, cutting out all emotion.

Rule-based investing with a well-diversified portfolio is an extremely easy way to continuously hit good results without great losses. And if you diversify also between asset classes, choppy markets can even be your friend when you rebalance the portfolio from well-performing assets to assets that are at their relative lows.

But how do you know what mind you posses and what instincts you have?

• We summarize a few key events from March and their potential impact on growth and inflation
• My portfolio: No changes, but a positive month
• Monthly Update for March 2021 with new set of charts
• Book tip: Adaptive Asset Allocation by Adam Butler, Michael Philbrick and Rodrigo Gordillo (link at the bottom of the post)
• In case you missed it: I've launched a shop for tools and resources (both paid and free) for easy portfolio management, all within the Google Spreadsheets framework
• In case you missed it no. 2: Check up my last post with a review of three great books to read for learning more about risk parity investing

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.

• Is the outlook really so dire for bonds after the rally in yields in February and what should you do with your bonds?
• My portfolio: bought TIPS and diversified bonds
• Monthly Update for February 2021
• Book tip: The Permanent Portfolio by Craig Rowland and J.M. Lawson
• In case you missed it: Launched a shop for tools and resources (both paid and free) for easy portfolio management, all within the Google Spreadsheets framework

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.