Monthly Update

Read more about the article Portfolio Update – December 2020 – What is Dynamic Risk Allocation?

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.

Continue ReadingPortfolio Update – December 2020 – What is Dynamic Risk Allocation?
Read more about the article Which is the Best Commodity Index?

Which is the Best Commodity Index?

  • Monthly portfolio update: Fairly stable month (again): bonds recover, while other assets decrease slightly
  • Book tip: Hot Commodities by Jim Rogers (link at the bottom of the post)
  • In case you missed it: Where does Real Estate fit in the All Seasons Portfolio? (post from 12 September 2020)

Hello, and great to have you back for a new portfolio update.

I know that I am slightly delayed with publishing this post, as I usually spend a few hours over the first weekend of each month to write my thoughts and review the portfolio performance. This weekend, however, I just moved to a new flat, and found it hard to find the necessary time to write the update.

Anyway, in September I made some changes in the portfolio. Not big ones, but mainly moving assets from one exchange to another, from LSE to Xetra, mainly for cost optimisation and to get rid of ETFs denominated in USD.

This move only included my gold and commodities ETFs. The gold exposure remains the same (physically-backed, but only a different issuer: Xetra-Gold), but for my commodities, I have changed the underlying tracked index from Bloomberg Commodity Index (BCOM) to Rogers International Commodity Index (RICI).

As the special topic for this post, let me elaborate a but more on commodities indicies before reviewing my portfolio. It turned out to a slightly longer text than first anticipated, but well worth the read, so buckle up.

Continue ReadingWhich is the Best Commodity Index?
Read more about the article Portfolio Update – August 2020 – How downgraded credit ratings may impact your portfolio

Portfolio Update – August 2020 – How downgraded credit ratings may impact your portfolio

  • Monthly portfolio update: Fairly stable month: bonds down on Fed policy shift, but offset by K-shaped recovery in stocks and commodities
  • Book tip: The Everything Bubble: The Endgame For Central Bank Policy by Graham Summers (link at the bottom of the post)
  • In case you missed it: I have ditched all intermediate-term bonds (post from 3 August 2020)
  • Coming soon: a post on real estate investing and how it fits in the All Seasons Portfolio. Stay tuned, and subscribe to newsletter for notifications!

Buongiorno!

I hope you have had a great summer under the circumstances, and are ready for the next (non-economical) season!

When posting this article, I have just come home to Sweden after a few weeks of visiting my girlfriend's family in Italy. For sure, the virus has put a great strain on the country, but it is good to see that things are moving in the right direction with society opening up. With few exceptions, new cases have been declining in Italy and Europe, which has bolstered investors with renewed confidence the past months.

Our vacation this year was not as we had initially planned (beaches in Sicily), but of a less touristy, and much more responsible, sort. Instead, we have stayed with her family and taken a few day trips to selected non-crowded destination (Venice has not been this empty for centuries). While more and more flights are opening up across Europe, it is still important to be cautious and not take unnecessary risks. One should not think that the danger is over, just because travelling is again somewhat possible. We can just hope for a full recovery as soon as possible.

But this is not a travel blog, but a financial blog, even though I wish to one day be able to sustain a life abroad thanks to my finances.

In this light, I have lately been thinking about how Covid-19 has affected the financial stability of countries, and how that in turn will impact sovereign credit ratings. For example, if debt-to-GDP would increase too much, if the affordability of the debt would fall, or if the economic outlook or stability of a nation would decrease, it will impact the country's ability to service its debt.

The ability to service debt - or a sovereign state's credit worthiness - is what the credit rating agencies Fitch, Moody's and Standard & Poor, are all analysing and rating. If a sovereign state has a good credit rating (AAA, Aaa etc.), this gives great comfort to the investors who purchase the country's bonds that there is a low risk of that the state defaults on its debt.

Continue ReadingPortfolio Update – August 2020 – How downgraded credit ratings may impact your portfolio
Read more about the article Portfolio Update – July 2020 – The value of currency hedging

Portfolio Update – July 2020 – The value of currency hedging

  • Worst month for the US Dollar in more than a decade: how it impacts European investors and how to protect against currency risk
  • Monthly portfolio update: Fairly stable month: impacted by negative currency movements
  • Book tip: Principles for Navigating Big Debt Crises by Ray Dalio (link at the bottom of the post)
  • In case you missed it: I have ditched all intermediate-term bonds

Hope you are having a good summer so far, even though I am guessing it is spent quite close to home this year. Unlike others here in the Nordics, I have worked through July, and will have my vacation from mid-August instead. Looking forward to get some time off to read about investing.

I am really pleased to see that there seems to be great interest out there for low-volatility investing and balanced asset portfolio allocations. I strongly believe that the past decade has made stock investing feel easy, but there are more risk in it that you might have thought. Over the long term, the economy, and thus the financial markets, experiences big shifts in the long-term cycle. Now, total debt levels to GDP are at extreme levels not seen since the Great Depression.

This ratio is enhanced by decreasing GDP world-wide due to lockdowns and increased debt to cope with the effects of the coronavirus. Are we nearing the end of the long term debt cycle and are nearing a great deleveraging that must ensue thereafter? According to Ray Dalio, we were nearing the end of the long-term debt cycle even a year before the Covid-19 outbreak hit the markets, as he describes in a video posted by Yahoo Finance from early 2019.

That is quite scary when you think of it, and if I was heavily invested in stocks, I would be terrified. Luckily, several assets in the All Seasons Portfolio and a balanced portfolio will protect against such downturn. You will find a link to Ray Dalio's book Principles for Navigating Big Debt Crises (2018) at the end of this post. If you have not read this already - it is now more relevant than ever.

Even though it is interesting, that is not the main topic for the day. Instead, we will be discussing EUR Hedged investing.

Continue ReadingPortfolio Update – July 2020 – The value of currency hedging