Are Risk-Parity Funds a Better Strategy for Diversification?

Perhaps risk parity isn’t effective in the current deflationary environment.  Diversifying across asset classes is a sound investment strategy that reduces risk and volatility, but there are periods where bad performance in one of the asset classes will drag down returns.  This should not lead investors to abandon the strategy, only realize that every strategy has cycles of underperformance and sticking to the plan during those times is the difficult part of investing.

“Risk parity” has been touted as a better way to build diversified portfolios because it aims to equalize the risks investors take in asset classes such as stocks, bonds and commodities.But lately, a depressed commodities market and an untiring bull market in stocks are bringing risk-parity mutual funds down.

Source: Are Risk-Parity Funds a Better Strategy for Diversification? – WSJ

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