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I just bought into a leveraged risk parity portfolio, as written in Karsten's article here. It's also being discussed on Bogleheads.
About $21k of my porfolio is currently distributed as 40% 3x Equities/ 54% 3x LTT/ 6% VIX
My equities exposure is currently through one MES contract and UPRO, treasuries through TMF, and VIX through VIXY.
I'll switch to all futures once my account is large enough to do so.
I'm wondering if anyone else is using a similar portfolio or has any thoughts to add?
I like the construct and might explore if I wasn't working through Put selling right now.
How often do you rebalance back to 40/54/6 ratio?
I'm also selling puts as well but I wanted to try something else simultaneously.
Granted, I have only just started so I have yet to rebalance but I aim to do it quarterly, likely at the same time as rolling my futures contract.
Any thoughts of the best rebalance frequency?
@bob-jane In the blog post you mention I was assuming monthly rebalancing, which seems to have worked just fine this year. The rebalancing frequency is a tightrope exercise. On the one hand, you don't want to trade too frequently. But not rebalancing at least monthly risks that your target weights go wayyyy off balance (especially with 3x leverage inside the ETFs). So you definitely want to rebalance monthly to take money off the table if one part of the portfolio has done really well, to prepare for a potential pullback.
Would you take into consideration how well each asset has performed? If the target weights haven't changed much in a month, would you rebalance later to save on transaction costs?
Either way, I guess I have my answer now. I will stick to monthly rebalancing.
@bob-jane If the weights are still in line, say within 2 percentage points then there's no big need to rebalance.
@earlyretirementnowcom Thanks Karsten. That makes sense. 🙂
It's early days but so far the VIX position is dragging the whole portfolio down despite being such a small portion.
Want to make sure you saw the new mini-VIX futures under the VXM ticker (e.g. VXMZ20). At current vol you could switch over to those contracts around $50k total value.
I really appreciate the heads up 🙂
I've been keeping track of the Mini-VIX futures but I just need the portfolio size to increase a little bit more before I can switch over.
I can't wait until I can though because it's a bit frustrating when you see the VIX and the VIX ETF move in opposite directions. 🙁
A bit of an update with my portfolio, it is not finally in positive territory however it is lagging the unleveraged 100% SP500 portfolio. It's still early days though!
@bob-jane will be interesting to hear how it plays out! You’ve got the right attitude about not making proclamations mere weeks into a years long strategy.
@earlyretirementnowcom Karsten, if I am rebalancing monthly by adding in more money, do I still keeping buying VIX at the same ratio.
Maybe it's too early days and I won't really feel the benefit of buying more VIX until a spike in vol, but so far it just seems like I'm throwing away money every time I rebalance.
@bob-jane Interested to see his response, but the psychology of sticking to the plan is normally the hard part.
@navypack I am sticking to the plan until I've been told otherwise. The reason I asked was I think the boggleheads portfolio differs on two accounts to mine.
1. They don't have a VIX component
2. The original poster put in $100K and no further additions.
I'm just wondering if it's the same thing rebalancing with additional deposits is the same.
Speaking of which, I have another batch to DCA into this portfolio when the market opens today.
The portfolio is in the red again haha I've never checked a portfolio as much as I've had since starting this adventure. I don't check my vanilla portfolio nor my short put position often at all.
