You are currently viewing Portfolio Update – September 2021 – Why The 60/40 Portfolio Is Not Balanced

Portfolio Update – September 2021 – Why The 60/40 Portfolio Is Not Balanced

Contents of this month’s post include:

  • Why the 60/40 Portfolio is not balanced, and how it describes the asset allocations of the All Seasons Portfolio
  • Update on my All Seasons Portfolio on eToro launched on 1 April 2021
  • Monthly Update for September 2021 with a fresh set of charts
  • Book tip: The Psychology of Money (brief review and link at the bottom of the post)

Hi and good to have you back again for a new post on the All Seasons Portfolio strategy. I hope you have found a comfortable spot, a this is a real in-depth article on balanced portfolio fundamentals, which I believe you will have good use of.

When it comes to the All Seasons Portfolio strategy, or any other risk parity strategy for that matter, one of the fundamental ingredients is how to allocate the capital between assets in the portfolio based on risk rather than capital.

Why this is important, or even why bother doing it at all, is a question I get quite often. I think therefore it is time to have a closer look at risk parity portfolio allocation principles. Here I mean the reason for why the allocation to the assets is based on their risk (volatility) rather than equal weight based on capital.

In this article, for a comprehensible description, we will be examining a simple two-asset portfolio to illustrate the importance of weighting assets based on risk rather than capital. For this example, I will be using a 60/40 Portfolio consisting of 60% stocks and 40% bonds, as this is popularly (and erroneously) considered as a “balanced portfolio”, and as this is a portfolio allocation strategy among both retail and institutional investors.

Background of the All Seasons Portfolio asset allocation

But before we go into the analysis, let us first begin with a short recap of what is the main difference between risk parity portfolio strategies such as the All Seasons Portfolio strategy when compared to other types of rules for capital allocation.

It is namely, primarily the act of balancing a portfolio based on risk rather than capital is basically what sets apart an All Seasons Portfolio, and any all-weather portfolio strategy from the forefather of these portfolios, namely Harry Browne’s Permanent Portfolio.

As a recap, the Permanent Portfolio is based on the same four-regime hypothesis as the All Seasons Portfolio, i.e. the understanding that there are only two forces that are driving asset prices. These forces are economic growth and inflation. As there are two potential outcomes for each of these (higher or lower), there is essentially only four possible combinations of these forces, which make up four market regimes.

The Permanent Portfolio included assets that covers all four quadrants of regimes. These assets are stocks, long-term government bonds, gold and cash. How these protect you in each regime, is quite simple. For example, stocks would populate the quadrant of high growth/low inflation, gold would cover the high growth/high inflation slot, and so forth.

In the Permanent Portfolio, the allocation to each asset is very simple to remember, as you divide your capital equally to all assets, i.e. 25% to each.

The main difference between the All Seasons Portfolio strategy, which is the simplified version of Bridgewater’s All-Weather Portfolio, and the Permanent Portfolio is how the capital is allocated between asset classes. The core principles of the four quadrants remains is the same for both, but the capital is not allocated the same way.

Here is a brief summary of how the allocations differ, for a simple overview:

AssetAll Seasons PortfolioPermanent Portfolio
Long-Term Government Bonds40%25%
TIPS/Inflation-Linked Bonds15%0%

Both portfolios have allocations to assets that do well in all market regimes, and from this list, it is quite obvious that the main difference is the weights of each asset in the portfolio.

The next logical question to ask at this stage is therefore: Why is the allocation of the All Seasons Portfolio preferable to the equal-weight approach of the Permanent Portfolio?

About the 60/40 Portfolio

As I alluded to at the beginning of this post, the illustration of the explanations set out herein are done using a 60/40 Portfolio. This is a very common portfolio strategy used by retail investors and institutional investors alike, and the strategy has seen a good track record since the beginning of the 1980s when interest rates began their decline from 12% of the US Treasury Bill toward the 0.05% we see today.

The main selling points for promoting the 60/40 asset allocation are that:

  1. It has a high allocation of 60% to stocks, so you receive exposure to long-term economic growth, whereby you can expect higher returns from riskier assets such as equities
  2. It reduces the overall volatility of the portfolio, 40% of the capital is allocated to bonds with the benefits that a) bonds are much less volatile than stocks, and b) bonds have low to negative correlation with stocks, meaning that the bond portion of the portfolio will pick up the slack when stocks underperform.
  3. The bonds part of the portfolio will contribute with a steady flow of interest payments which provides the investor with positive cash flow. Note, however, that this effect has been negligible, at best, for the past decades as interest rates have reached the zero bound.

In theory, this portfolio should provide you with equity-like returns over time, but with much less volatility, as the bond part helps to smooth out the extreme highs and lows of the stock market. An important part of this is the regular rebalancing where you as an investor would sell the relatively more expensive asset of the pair to buy more of the cheaper one. This is true in theory when only considering changes in expectations of economic growth. Then there is the discussion of inflation protection which is completely missing in this portfolio, but that is not a topic to cover in this article.

But why is the portfolio allocation split 60/40? Founded on a general optimism of economic growth, the portfolio sets out to provide performance similar to the equity risk premium, but with less volatility from the bonds. Economies generally continue to improve efficiency in how we use our resources, the size of economies should be growing over time, which is beneficial for stocks. Hence, it makes sense to have a higher allocation to equities that will rise over time, but that the mountains and canyons are made into hills and valleys with a 40% allocation to bond.

Perhaps the main benefit of this somewhat arbitrary allocation is that a 100% equity portfolio, and even a 90/10 portfolio, is too risky, and thus that it a 60/40 allocation is psychologically beneficial as it creates better balance between return and risk than only stocks, and at the same time is a simple rule for most to live by, and it helps to avoid the temptations of selling at bottoms and buying at tops.

The 60/40 Portfolio’s is highly correlated with stocks

But the question is, however, how balanced is the 60/40 Portfolio, really?

Coming from the risk parity camp of investing, I suspect you already have a sense of where I will be going with this discussion. It is well-known that stocks are much more volatile than bonds. In fact, the ratio of volatility over the long-term (100 years) is about 3:1, meaning that stocks are about 3x as volatiles as bonds.

However, it is not that simple. As you will see from the below image, borrowed from AQR’s article in Financial Analysts Journal named “Stocks vs. Bonds: Explaining the Equity Risk Premium”, the ratio of the volatility of stocks versus bonds is fluctuating over time, and has been in a steady downward-sloping trend. Stocks vs. Bonds: Explaining the Equity Risk Premium (

Figure 1: Development of rolling 20-year volatilities of stocks and 10Y Treasury Bonds

Since the 50s, the ratio has come down from about 8:1 toward 1.5:5 per 1999. This means that the 3:1 historical average might be distorted as the higher ratio further back in time has higher influence than today’s lower ratio. Rather than using 3:1, a slight adjustment to 2.5:1 will be used in the remainder of this article to a more representative figure for recent trends. By “recent”, I mean since the 60s.

Hence, using a longer-term average volatility ratio, you do not really need much more advanced calculations to determine that the stock portion will have a much larger influence on the total portfolio volatility than bonds if the split between the assets is 60/40.

But rather than just throwing such statements out there, let us spend this article with showing you what this means in real life.

In doing so, we will be examining the daily returns of stocks, bonds, and a 60/40 portfolio over the last 4.5 years, i.e. with date from 1 April 2017 to 30 September 2021. Why exactly 4.5 years, you may ask? Well, this is because I did this analysis on the back of another piece of research with the same pieces of data. That research was about the 3TYL 3x levered UST10Y ETF, for which data only was available from early 2017. So piggybacking on that data, to save time, got me with this particular period.

For simplicity’s sake, we will be looking at American assets in the shape of the S&P 500 and American bonds, but we do so with UCITS ETFs available in Europe. For example our proxy for the S&P 500 is VUSD. Through this method, we are able to produce real life data which takes into consideration fees, but excluding transaction costs. The 60/40 Portfolio used in this analysis is rebalanced quarterly from the first day of each quarter based on the prices from the last day of the previous quarter.

The first thing we want to determine is what ETF to use as a proxy for our bond portion of the portfolio, i.e. what part of the bond market shall constitute the bond portion of the portfolio.

Here, there are two common approaches:

  1. You select an Aggregate Bonds ETF that includes Government Bonds, Corporate Bonds, High-Yield Bonds and Asset-Backed Bonds (e.g. Mortgage-Backed Bonds) so that you have a broad basket of fixed income. An example of such an ETF, which I will be looker closer into is SUAG ETF.
  2. You select a Bonds ETF that you know has low correlation with equities, meaning that it would be an ETF that exclude bonds issued by corporates, as these tend to follow the developments of stocks, but with less volatility. Long-Term Government is a common pick, and then preferably bonds with tenors of more than 20 years, so that you are far out on the yield curve. For this, we will be using the popular IS04 ETF.

As we are more interested in the protective characteristics of the bonds portion in the portfolio, we place higher value in lower correlation with stocks. The reason for this is that we want the bonds to offset losses when the stock market is in decline, so that we achieve better smoothening of the portfolio returns.

First, a couple of general data points for our assets that we use for this comparison:

60/40 IS0411,19%10,31%0,94
60/40 SUAG9,49%10,15%0,79

Second, a simple correlation matrix:

CorrelationIS04VUSDSUAG60/40 IS04
60/40 with IS040,3020040,8396090,0325281
60/40 with SUAG-0,133410,9880150,0547650,898028473

The question we want to answer is how much protection each of the bond ETFs provide in a 60/40 Portfolio. We see that an aggregate bond ETF does not do much of a difference, given its low volatility, low return, and higher correlation with the stock market than the long-term government bonds ETF.

But to check this assumption properly, we will construct a 60/40 portfolio using both SUAG and VUSD, and then plot the correlation of each of these 60/40 Portfolios against that of VUSD. Doing so will give us a measure on how much of the portfolio’s daily returns are coming from each of the assets. This is usually measured by squaring the correlation (denoted “R2”, or “R-Squared”), which gives us a number of how much of the fluctuations of the y-axis is explained by the fluctuations of the x-axis.

We’ll include our plots for the two 60/40 Portfolios here below.

Figure 2: Regression Analysis of 60/40 Portfolio with SUAG vs. VUSD
Figure 3: Regression Analysis of 60/40 Portfolio with IS04 vs. VUSD

The first thing that is clear is that the relationship between a 60/40 Portfolio with an Aggregate Bonds ETF (SUAG) is almost perfectly linear, even extraordinarily linear, as you see in figure 2. The correlation of these two portfolios is 0.988, which gives us an R-Squared of 97.6%.

What this means in practice is that 97.6% of the direction of daily returns for a 60/40 Portfolio with SUAG is explained by the direction of the S&P 500 on that day. The bonds portion hence does next to nothing in “deciding” which way the aggregate portfolio will move on any given day. The bonds portion is thus basically a hitchhiker on stocks in this portfolio context, because of a combination of SUAG being too correlated with stocks due to the equity-risk in corporate bonds, and having too little volatility to be able to offset any daily losses in stocks. We will return to this latter point later.

But what was the performance of our 60/40 Portfolio which instead included IS04 as the bonds portion? A bit better, actually. The correlation of this 60/40 Portfolio and VUSD was 0.840, which is still a quite strong positive correlation. R2 for this portfolio against the S&P 500 was 70.5%. That is less than for the portfolio with SUAG, but still more than 2/3 of the direction of daily returns of this portfolio was explained by the sentiment of the stock market.

We know that IS04 has a low correlation on itself with stocks, so what is the reason for these results for a combined portfolio of stocks and bonds? This is a result of the fact that stocks and bonds have different levels of volatility, and this graph is evidence of that a 60/40 Portfolio is not a balanced portfolio, because most of the movements come from stocks. The end result is basically that the only thing that the bonds contribute to the portfolio is a reduction of volatility, but it also reduces return. Hence, the risk-adjusted return, measured as a portfolio’s Sharpe ratio, is similar for the S&P 500 and a 60/40 Portfolio.

Another item to highlight is the red box I added in the top-left corner in the chart with the IS04 60/40 Portfolio. This box includes all days where the bonds portion actually was the contributing factor in the 60/40 Portfolio’s daily direction of returns when the S&P 500 saw negative daily returns. Put simply, this was the few times when the positive daily return of the 40% bond allocation managed to offset the daily losses of the 60% stock allocation, with the result that the portfolio as a whole had a positive return day. As you see from the number of dots in this field, this did not happen often; namely only 23.5% of the times when the S&P 500 was negative.

How to make the 60/40 Portfolio Better Balanced

With the knowledge that the 60/40 Portfolio is imbalanced in terms of risk (volatility), and what consequences that causes for the daily returns, what can be done to remedy this?

As alluded to from the beginning of this article, the answer lies in balancing the risk between the assets.

If we work with the assumption that stocks are about 2.5x as volatile as bonds as we discussed at the beginning of this article, we should, in theory, be able to construct a portfolio with low correlation if we balance the assets based on the risk rather than capital where stocks make up 1/(1+2.5) of the portfolio (that is approximately 30%) and bonds make up 2.5/(2.5+1) of the portfolio (or about 70%).

Basically what we have done is that we have constructed a portfolio with Lego blocks where for each 1% of stocks, we have added 2.5% of bonds. This is the illustrative example given by Alex Shahidi in his book balanced Asset Allocation.

Let us try and see how this works out in practice when making our stock/bond portfolio a balanced one with the weights 30% VUSD and 70% IS04.

Figure 4: Regression Analysis of 30/70 Portfolio with IS04 vs. VUSD

The first thing you notice with this chart is how there is no apparent linear relationship between the 30/70 Portfolio and the S&P 500. The data points are quite evenly distributed around a blob in the middle.

This shows that the correlation between the two investments is very low for the past 4.5 years, namely 0.263, which translates into an R-Squared figure of 6.9%. So for the direction of this portfolio’s daily returns, the daily movements of the stock markets has an explanatory power of just 6.9%.

Take also a look at the red rectangle at the top-left corner, shows days when VUSD was negative but the 30/70 Portfolio was positive. This field houses many more data points than the corresponding field in the 60/40 Portfolio graph. Namely, for the 30/70 Portfolio, when the S&P 500 was negative, the portfolio was still positive more than 45% of the time. For ease of reference, the corresponding number for the 60/40 Portfolio was only 23.5%.

There is of course one important caveat to the 30/70 asset allocation. Recall that I mentioned that over extreme long periods, such as 100 years, the ratio of volatility between stocks and bonds is about 3:1. That stands at contrast to the period we have been examining here, which is only 4.5 years.

This means that for this particular period, since 1 April 2017, the 30/70 Portfolio over-compensates toward bonds. The reason is that for this particular period, the volatility ratio between stocks and bonds has been lower than the historical average, even though we used a volatility ratio of 2.5:1 instead of 3. Much of this is attributable to the volatility in recent years when stock volatility has been unusually low in the year 2019, and for the past year from 1 October 2020 to 30 September 2021.

Figure 5: Regression Analysis of 30/70 Portfolio with IS04 vs. IS04

While the correlation with VUSD is an extremely low 0.15, the correlation with IS04 – the bond component in the portfolio – is a much higher 0.863, with an R-Squared of 74.5%. This plot hence reminds a little bit of the 60/40 Portfolio measured against VUSD.

This is evidence of that neither volatilities or correlations are constant. That means that over time, the exact balance of a portfolio will differ from time to time if you are deciding the weights based on risk rather than capital. This is the changes that are often captured by more dynamic risk parity funds such as those managed by AQR or ReSolve. But if you seek a more hands-off approach where you look to only rebalance a couple times per year at most, and the rest of your days spent with your family or your job, then longer-term averages still make sense.

The 60/40 and 30/70 Balanced Portfolios during Covid-19

 Another aspect worth highlighting is that during the last 4.5 years, we have seen a rather significant market event that has had an impact on our balanced portfolios. During the first half of 2020, volatility increased significantly across asset classes, stock and bonds included.

Let us have a quick look at how this impacted the balanced portfolios. In the below scatterplot, I show the same plot between a 60/40 Portfolio and the VUSD as before, but I have singled out the daily data points that lie in H1 2020. In the chart, these are highlighted in blue.

Figure 6: Regression Analysis of 60/40 Portfolio with IS04 vs. VUSD with H1/2020 highlighted in blue

What becomes evident is that during more stable market environments, the scatter is much more concentrated in the middle, still with a high positive R2 with the stock market. But with an increase in volatility and uncertainty, two things happen:

  1. The data points spread much more, throwing off the concentration.
  2. A greater portion of the daily data points land in the territory where the 60/40 is positive on days when the S&P 500 is negative. On the contrast, there are almost no days where the VUSD was positive in H1 2020 when the 60/40 was negative (lower right corner).

On the last point, the reason for an increased number of blue dots up to the left is a quite natural behavior of stocks and bonds during an environment of increased volatility. For stocks, a jump in volatility is usually a bad thing, as the market takes the escalator up but the elevator down. Government bonds, on the contrary, works the other way around, which is partly explained by the negative correlation with stocks.

When stock market volatility increases, capital allocators and investors tend to sell risk assets, such as stocks, and, in a flight to safety, buy risk-off assets such as treasury bonds. This sudden increase in demand of bonds, will push up prices rapidly, with the consequence that the bonds portion of the 60/40 Portfolio does better.

Remember though, as I have been pointing out throughout this post, that while the bond part in the 60/40 Portfolio did better in H1 2020, it still was not big enough to make any meaningful difference in offsetting losses.

What about our more balanced 30/70 Portfolio? A similar story can be told for this portfolio, where the first half of 2020 causes more scatter to our plot where all other data points are more tightly grouped in the middle (and with a lower R-Squared with VUSD).

Figure 7: Regression Analysis of 30/70 Portfolio with IS04 vs. VUSD with H1/2020 highlighted in blue

Compared to the 60/40 Covid-19 plot, the 70/30 Portfolio had more data points in the highlighted upper left quadrant where the portfolio saw positive daily returns when the stock market was in the reds. Additionally, these dots are deeper up in the corner, showing that the portfolio was more than just barely positive on these days, but saw more significant positive return than the 60/40 Portfolio.

What has been the most balanced stock/bond allocation recently?

As a side-bar, we can just answer the question: “what has been the most efficient stock/bond allocation the last years?”

Clearly, the 30/70 Portfolio has not been the portfolio that has the least correlation with both stocks and bonds. Remember that this particular portfolio had overcompensated and more closely followed the daily returns of IS04. So let me show a couple of charts of a portfolio with an allocation that has actually been uncorrelated with both of its components.

With our used timeframe of 4.5 years from 1 April 2017 until 30 September 2021, the most balanced portfolio without strong correlation to neither VUSD nor IS04 has been a 45/55 allocation, i.e. with 45% stocks and 55% bonds.

I’m including the regression analysis plots against both ETFs here below for reference. As you see, the plots are rather similar with almost identical R-Squared at 35-38%.

Figure 8: Regression Analysis of 45/55 Portfolio with IS04 vs. VUSD
Figure 9: Regression Analysis of 45/55 Portfolio with IS04 vs. IS04

It is worth iterating though, that while this has been the most uncorrelated stock/bonds allocation in this particular period, it is not certain that this will be the case going forward. Instead, volatilities and correlations tend to change over time, why an allocation that has been ideal in the past, will not necessarily be so in the future.

To further illustrate this concept, here below is a chart with rolling 1-month volatility ratio between VUSD and IS04 since 1 April 2017 until 30 September 2021. As you see, this fluctuates quite a bit, especially with the rather short timeframe.

Figure 10 shows the ratio has come down in recent years, compared to the chart we had from AQR at the beginning of this article. The average ratio for this period was about 1.2 with spikes around 3, but remember then that the periods differ in the charts (20 years for AQR’s chart vs 1 month).

Figure 10: Rolling 1M Volatility Ratio between stocks and bonds, illustrated with VUSD and IS04 ETFs.

This short timespan for investing can be valuable if you are going for a dynamic approach to risk parity, as you would be seeking to maximize your risk-adjusted return through regular monitoring and rebalancing. For most retail investors though, a more static approach based on long-term averages might be more suitable, especially if one believes in mean-reversion, which often becomes true.

If you indeed are favouring a more dynamic approach to risk parity portfolio management, I recommend that you also grab the book Adaptive Asset Allocation by Butler, Philbrick, and Gordillo. Here, the authors in a clear way describe important considerations for this way of investing, and I found it most useful, even though I rely more on a static approach.

Historical Returns of 60/40 Portfolio compared to other Balanced Portfolios

Now that we have looked at the theoretical side of asset allocation and the correlation of daily returns, let us also consider how these portfolios have returned.

In the charts below, I have included all discussed assets and portfolios that have been covered earlier in this article. As a reminder, all portfolios are rebalanced quarterly to original allocation.

Figure 11: Historical Return of Balanced Portfolios

It may also be worth zooming in on the end of 2018, when the stock market was put on pressure. This was a time when the Sinoamerican trade war was ramping up, the Fed was increasing interest rates and tightening monetary policy, and tech stocks were in the crosshairs of regulators.

Even though the zoomed in section is not indexed, we can see the difference in drawdowns between the different portfolios. Despite the very different journeys from 1 April 2017, almost all portfolios converged to the same value around Christmas Eve 2018.

Here we can also compare the steepness of the decline, which decreases steadily with higher allocation to bonds. The 30/70 Portfolio, for example, traded almost sideways through 2018, even though it would then continue to grow steadily until today.

Figure 12: Historical Return of Balanced Portfolios, zoomed in at H2/2018-H1/2019

As we have earlier broken out the first half of 2020 when looking at our portfolio correlations, we will do the same for the historical returns. Below is the summary of all mentioned portfolios for the whole 2020.

Figure 13: Historical Return of Balanced Portfolios in 2020

Notably, through the whole year, despite the stock market’s recovery after falling off a cliff in the first quarter, it was outperformed by all balanced portfolios. Here, the long-term bond portion of the portfolio did its job to offset losses during a time of flight to safety.

Over the whole period though, the stats over the analyzed assets are summarized below.

2017/04/01-2021/09/30CAGRSTD DevSharpeMax Drawdown
60/40 Portfolio IS0411,19%10,31%0,941-17,35%
30/70 Portfolio IS047,84%9,78%0,649-16,40%
45/55 Portfolio IS049,61%9,38%0,864-16,20%

With each of the balanced portfolios, the max drawdown was not only about half that of the S&P 500, but also 30% lower than for the bond component. Through diversification to uncorrelated assets and regular rebalancing, the worst setbacks were avoided with all of the analyzed stock/bonds splits.

During this period, of the balanced portfolios, the ones with higher allocation to stocks fared better, as we have been in a regime that is rather equity-friendly, especially since end of March 2020 when the great recovery began. By then, the S&P 500 had fallen down to the same level as it was trading at the beginning of 2017, but has since returned approximately 90% in 18 months. That has been an unusually strong run, and one that is not likely going to repeat any time soon from current valuation levels.

Summary and takeaways

What learnings can we take from this?

Well, firstly, we can see that the 60/40 Portfolio, while it is popular, it is not well balanced when considering risk. The daily performance of the portfolio is heavily impacted by the whims of the stock market. An R-Squared measure of 70.5% for a portfolio with the bond portion into long-term treasury bonds (and 97.6% for a broad fixed income exposure) when compared with the stock market is a high measure.

More or less, the end result with an imbalanced portfolio such as the 60/40 Portfolio where there is one dominant asset class that decides the daily direction of the portfolio, you would get the same risk-adjusted return if you would ignore the subordinate asset all together and just scale the dominant one. In the context of our 60/40 Portfolio, that would mean to perhaps scale down the 60% stocks to 50%, and keep the rest in cash, in which case you would also not need to pay the management fees of a bond ETF.

Instead, for a better risk balance, with less volatility and shallower drawdowns, you should consider the relative volatility of the portfolio assets than just allocating based on capital. Over a long-term a stock/bond allocation of 25/75 or 30/70 makes more sense in this regard as the volatility ratio between stocks and bonds is about 2.5-3:1.

With a shorter lookback period, the ideal allocation has rather been an allocation of around 45/55 to minimize the R-Squared of the portfolio against both stocks and bonds.

Zooming out from a stock/bond portfolio, with this post, I set out to explain why the All Seasons Portfolio’s asset weighting differs from that of a Permanent Portfolio’s equal-weight allocation. The same lessons as we have covered about the risk balance of stock/bond portfolios, can be learned for other static multi-asset balanced portfolios such as the All Seasons Portfolio. Risk-balanced portfolios decrease the total volatility and the max drawdowns, and increase the investor’s chances of avoiding unfavorable outcomes. It is all about continuous growth and not losing money along the way. For retail investors, especially, static portfolio allocations are much easier to handle as you would not need to monitor your investments on a daily basis.

By adding other assets as well that perform well in other market regimes, you add another axis for stable performance than just fluctuations in expectations of economic growth. This is where gold, commodities, and TIPS come into the picture, as inflation-hedges. But instead of just throwing them into the mix based on their capital, it is prudent to balance the risk, as we will never know for sure which market regime will follow next, nor how relative volatilities and correlations will develop, so it is better to always be prepared for every potential outcome.

If you are looking for getting started with your own All Seasons Portfolio and need some inspiration, check out my post on How to get started with the All Seasons Portfolio strategy. While stocks have been a great investment the last decade, there are no guarantees that this trend will last, as their continued success depends on several factors. Instead, consider diversifying your portfolio to include other asset classes, and benefit from the rebalancing period over the long-term, as described in this article.

Poll – Discord channel?

One of the best experiences I have had since starting this blog is coming into contact with so many great people who share the vision for risk parity strategies such as the All Seasons Portfolio strategy or the Golden Butterfly strategy, etc.

I have had may great discussions with people around Europe mainly, given that I have made a clear European tilt, as opposed to much other content on the investment part of the Internet that appear to be aimed for an American clientel.

I’ll therefore repeat the poll from last month, to hear if there would be an interest among you to connect not only with me, but also with other like-minded retail investors who are using these types of strategies.

The benefits, as I see it, is the discussions that arise where ideas and thoughts are shared and commented on, as well as giving and receiving feedback.

At this stage, I am just trying to get a grasp of whether there would be interest in participating in such a community, and I appreciate if you could give me an indication using the poll below and/or commenting on this post. No promises yet to set one up, but if there would be a positive sentiment, I will consider facilitating such a forum.

Would you be interested in participating a Discord channel for discussing Risk Parity investing with other like-minded investors?
15 votes

September 2021 Portfolio Update

September was a month that started well, but ended in tears with most assets declining quite a bit the last few trading sessions of the quarter. This will be very evident from the monthly charts further below, but has also been visible in the graphs above that depicted the historical performance of different balanced portfolios.

While central bank benchmark rates were kept low, the market began expecting earlier rate hikes and tapering from the Fed in the fear of inflation not being as transitory as previously described.

This acted as a wet blanket on both stocks and bonds, but also on commodities as combating inflation naturally is negative for inflation-hedges.

But these fears brushed away rather quickly as soon as we had entered into October and most assets recovered, and so did my portfolios.

For example, because of these tapering fears, my eToro portfolio saw its first negative month since its inception, as it fell -2.82% MoM – a move that has been offset in October which has given strong growth again.

I will to write a more descriptive summary of that portfolio in due course, probably next month, as I have implemented additional layers of Risk Parity into that All Seasons Portfolio. I have done so my adding an Inverse Volatility strategy for the Stock part of the portfolio, where the weights will dynamically shift between geographical regions depending on their relative volatilities. I you cannot wait for a description of this feature, you can already now find a summary on my eToro profile page.

Follow me there by finding user Allseasonsport. And feel free to copy my portfolio there with a small amount of your portfolio if you want a more hands-off approach to risk parity investing. I do all my trading there in a rule-based manner.

As for my “regular” All Seasons Portfolio, the one I am trading on DEGIRO, also saw negative return over the month, but less so than the eToro portfolio. Here, the return came in at -1.70% month-over-month with Commodities and VIX being the best performers.

I have also made a change in this portfolio on the equity-allocation. Instead of the global cap-weighted ETF I have hade previously (VGWL), I have opted for taking in two Multi-Factor UCITS ETFs that follow several trends and factors between industries when they balances the stocks. These are the FLXG issued by Franklin and JPGL from JP Morgan. The former – FLGX – also takes into account social responsibility factors when constructing its investment universe, which is an aspect I consider important. But as it has less assets under management, meaning less liquidity, I have opted to split the equity allocation to JPGL as well.

If you are looking to invest in Bitcoin or other cryptocurrencies directly instead of exchange-traded certificates, consider using Coinbase – the most trusted cryptocurrency exchange with more than 43 million registered users, where you can securely trade more than 30 different cryptocurrencies directly in your own wallet.

I could also point out that while my portfolio was also hit by the fearful market sentiment toward end of September, as you will see from the below comparison with the S&P 500 and a 60/40 Portfolio, my All Seasons Portfolio was more resilient to the decline at first, showing lower volatility. Over the last twelve months also, my returns have been in line with expectations with a volatility of half that of the S&P 500.

Of individual assets, VIX and Bitcoin – quite unexpectedly – remain the most volatile ones, which the least amount of capital is allocation to these assets. Most other assets came in slightly negative at the end of the month, after decent performance halfway through September.

Adding also the 3-month chart here below with BTC being a force on its own, and the other assets a bit more grouped.

Lastly, as usual, here is the table of my ETFs and the changes laid out in table form.

ETFNameAsset Class2021-08-302021-09-30Change
UIMBUBS LFS Bloomberg TIPS 10+ UCI ETF(USD)AdTIPS€644.57€642.85-0.27%
DTLEiShares $ Treasury Bd 20+yr UCITS ETF EUR Hgd DistLong-Term Government Bonds€837.76€811.58-3.13%
IGLEiShares Global Govt Bond UCITS ETF EUR Hedged DistLong-Term Government Bonds€642.42€633.39-1.41%
M9SAMarket Access Rogers Int Com Index UCITS ETFCommodities€469.66€497.265.88%
VGWLVanguard FTSE All-World UCITS ETF USD DisStocks€1,545.60€0.00-100.00%
FLXGFranklin LibertyQ Global Equity SRI UCITS ETFStocks€0.00€733.09#DIV/0!
JPGLJPM Global Equity Multi-Factor UCITS ETF - USD accStocks€0.00€782.14#DIV/0!
VOOLLyxor S&P 500 VIX Futures Enhcd Roll UCITS ETF AVIX€97.73€102.665.04%
Added cash€0.00€0.00

Thank you yet again for following my blog about risk parity investing and the All Seasons Portfolio. If you haven’t done so already, make sure to subscribe to the newsletter via the form in the page footer, and to drop any comments you may have on the content with the comment section or via email to The greatest value I have received from upkeeping this blog is the fantastic conversations with great people, such as yourselves, about ideas on investing and strategies. Thanks for that!

Remember also to check out the Resources page which I will be filling up with useful tools and resources for managing an All Seasons Portfolio. If you have any suggestions for any particular spreadsheet or tool that you are after, let me know in the comments below and I will see what I can do to have it included.

If you wish to support me in alternative ways without donations, you can share the post through social media or with your friends who should invest more responsibly. Alternatively, occasionally click any ads or access Amazon via the links included in the book tip section below any time you are making any purchase from their platform (it does not necessarily have to be the book I am linking to).

We’ll catch up soon for the October update!
Nicholas Ahonen

Book tip: The Psychology of Money by Morgan Housel

Tying back to the topic of what I wrote above about what risks are most important for retail investors and how to mitigate them, I was reminded by this great book by Morgan Housel.

Doing well with money isn’t necessarily about what you know. It’s about how you behave. And behavior is hard to teach, even to really smart people.

Money-investing, personal finance, and business decisions is typically taught as a math-based field, where data and formulas tell us exactly what to do. But in the real world people don’t make financial decisions on a spreadsheet. They make them at the dinner table, or in a meeting room, where personal history, your own unique view of the world, ego, pride, marketing, and odd incentives are scrambled together.

In The Psychology of Money, award-winning author Morgan Housel shares 19 short stories exploring the strange ways people think about money and teaches you how to make better sense of one of life’s most important topics.

This is a book that has quickly gained a huge following and was an overnight success. It belongs in every investor’s book case, and my copy arrived in the mailbox just earlier this summer.

From the stories told in the book, a few directly relate to the risks I discussed today, like how you should allow room for error (chapter 13) or that you should beware of taking cues from people playing a different game than you (chapter 16). Do these sound familiar from the post above?

But then this book includes additional lessons of great value in 16 other chapter, ranging from how we perceive wealth to how to avoid the pitfalls along the way to building wealth.

I have found this book incredibly helpful for my way of investing and as I understand you too have an inclination toward sensible and reasonable investing, I think you would enjoy reading it as well.

Have you already read The Psychology of Money? Let me know what you thought about it in the comments below.

Or check out other great books on the topic on the Book recommendation page.

Buy it today on Amazon (affiliate link):

Buy it on

This Post Has 2 Comments

  1. Jacob

    thanks Nicholas for an interesting blog and portfolio plan. I have 2 questions if you don’t mind 😉

    1) how do you select which of the assets you allocate new funds to (if we for instance think to save monthly 3000 SEK/300 EUR?

    2) would it be feasible to select these 3 bonds for the long term with one of these to allocations below?

    20% IS04 and 10% IBCL and 10% DBXG

    (or alternatively 24% IS04 and 8% IBCL and 8% DBXG).

    thanks again for sharing your ideas.


  2. Jacob Skjödsholm

    Hello Nicholas, Thanks for an inspiring blog. I am contemplating building a portfolio much inspired by yours, but with a Swedish broker. the long-term bonds “IS04”, “IBCL” and “DBXG” are available to me. Do you think it would be a sensitive match to have 20% IS04 and 10% IBCL and 10% DBXG (or perhaps 24% IS04 and 8% IBCL and 8% DBXG respectively)? I have read many of your articles here and enjoyed them, so keep up the good work!

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