Almost every investment strategy has its time in the sun. Such seems to be the case with risk-parity mutual funds, which seek to equally distribute risks among stock, bonds and commodities to smooth out performance. Popularized after the 2008 financial crisis, parity funds fell out of favor during the long bull market.
Yet now could be an excellent time to invest in one. To equalize the volatility in each asset class, rather than building the typical 50/50 or, more common, 60/40 stock bond portfolio, risk-parity funds leverage their bonds because bonds historically have been less volatile than stocks. With the stock market tanking, the added bond exposure really helps. Moreover, the risk of interest rates rising—harmful to bonds—in what may become a coronavirus-induced recession is very low...
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