CapitalTime

Articles on investing and capital management, with a quantitative focus.

#prp - Permanent Risk Parity (how I invest)

Preparing to Update My Asset Allocation

2024-05-29

I have not yet changed my ‘official’ (published) PRP allocations, but am preparing to update my allocations. I am considering minor changes, but this will continue to be a risk parity portfolio which is similar to the Permanent Portfolio.

Since I began using this portfolio, I have been aware that it’s a bit too light on stocks (30%) and quite heavy in bonds (50%). This was, however, consistent with the Permanent Portfolio and the risk parity math.

I wanted to stick with this very conservative allocation until I could experience a market crash, to feel out my comfort level. I got my chance with the 2020 crash and the 2022 weakness in multiple assets.

I have been very happy with the PRP, and now feel comfortable taking a bit more equity risk. I am preparing to change my allocations to:

40% stocks (+10%)
40% bonds (-10%)
20% gold (unchanged)

The asset weights in my portfolio have already moved towards these new levels, due to relative performance between stocks and bonds. I’m currently 43% bonds and might not have to do much rebalancing to get to my allocation targets.

These new allocations are very similar to the Golden Butterfly Portfolio.

— Jem Berkes