Gyroscopic Investing

I am currently using a risk parity version of the PP:

38% LTT
32% Stock
20% Gold
10% Cash

If i switched out my current TLT ETF for a Zero Coupon ETF such as EDV or ZROZ, how would that affect the risk parity?
I should mention my stocks are all mid and small cap so they are slightly more volatile than a broad market index.

Those of you who are much better at math than I am, could you shed some light on my changes and how they would affect the risk parity?

Portfolio Optimization with Optimization Goal = 'Risk Parity' on portfoliovisualizer.com - doesn't that work ? Link is https://www.portfoliovisualizer.com/examples#riskParity
While I have tried other things from portfolio visualizer, this one personally I haven't tried. Just an idea for you to check whether fits your needs.

Zeros can be a lot more volatile....

My pennies worth

After considering a risk parity PP myself, I found it came down to either optimising diversification (ie 4 x25%) or optimising volatility.
Being retired, I chose the "safe" option of 4x25%. Now you could replace LTTs with zero's or the TSM with small caps if you want to adjust the volatility within the 4x25 framework.

I see the advantage of that approach as limiting the maximum loss in any asset class to 25%.
This link may be useful -> https://web.archive.org/web/20141223024 ... sting.com/

Or you could join the "Sect of Smith" as I did later and implement the GoldSmith Portfolio

mathjak107 wrote: ↑Thu Feb 04, 2021 3:17 am Zeros can be a lot more volatile....

Are more volatile...all the interest is imputed, therefore they will adjust directly with the interest rate move. There are no payment streams that are factored in the reprice which mitigate a small amount of the move as the cash flows are rediscounted to the new rate.

mathjak107 wrote: ↑Thu Feb 04, 2021 3:17 am Zeros can be a lot more volatile....

This is true. Interestingly 18% EDV in the PP is equivalent to 25% TLT, this actually frees up 7% that could be diverted to cash or reits or some other asset not typically found in the PP

perfect_simulation wrote: ↑Mon Feb 08, 2021 10:56 am

mathjak107 wrote: ↑Thu Feb 04, 2021 3:17 am Zeros can be a lot more volatile....

This is true. Interestingly 18% EDV in the PP is equivalent to 25% TLT, this actually frees up 7% that could be diverted to cash or reits or some other asset not typically found in the PP

That was my thought. If i used EDV at 15-20% I could increase stocks and give the prosperity/inflation slice a bit more oomph since I think that is a much more likely scenario than deflation anyway.