Investors who seek high returns tend to gravitate towards equities. However, this asset class is susceptible to large and frequent losses. Risk parity is a completely different approach to investing. Rather than concentrating in equities, investors pursue a more consistent return by embracing the power of diversification. The RPAR Risk Parity ETF (ticker: RPAR) is the fullest expression of this investment philosophy. By including additional asset classes that have historically performed differently in varying economic environments, RPAR may have the potential to significantly reduce risk without sacrificing returns. The fund will diversify its allocations amongst four asset classes – equities, commodities, Treasury bonds, and Treasury inflation protected securities (TIPS). Equities tend to do well in a strong economy, while Treasury bonds tend to outperform in a weak economy. Both equities and Treasuries tend to underperform when inflation spikes, so inflation hedging assets, such as commodities and TIPS, should be included to further improve diversification. RPAR then structures each of the four asset classes to target a similar risk and return. By balancing across these exposures, the portfolio mix is designed to potentially produce a less volatile return than any single asset class could on its own. Most portfolios are dangerously positioned today and are at risk of losing significant capital. This book aims to help readers construct better portfolios by introducing them to a logical framework for building a truly balanced asset allocation–
