Symmetrical investments refer to investment strategies that aim to create balanced portfolios across different asset classes. The goal is to optimize risk-adjusted returns by diversifying into varied investments that complement each other. This introductory article will provide an overview of key concepts, strategies, and benefits of utilizing symmetrical investment approaches when constructing investment portfolios.
Core principles behind symmetrical investment strategies
The core rationale behind symmetrical investing is to counterbalance risks by combining investments with opposing risk profiles. For example, pairing safe assets like bonds with more volatile assets like stocks. Other complementary pairings include growth stocks with value stocks, domestic market equities with international market equities, etc. The proportions allocated to each side of these pairings is kept relatively equal to maintain overall balance.
Common symmetrical allocation approaches
Some common symmetrical allocation strategies include: 1) 60/40 stock/bond portfolio – historically one of the most popular balanced investments. 2) Risk parity – balances risk contributions across assets instead of capital allocations. 3) All weather portfolio – holds uncorrelated assets like stocks, bonds, gold and commodities. 4) Core-satellite – blends passive indexing for core with active satellite picks.
Benefits of symmetrical investing
Key advantages of symmetrical investment approaches include: 1) Diversification – combining varied assets reduces portfolio volatility and drawdowns. 2) Lower costs – passive indexed investments keep expenses minimized. 3) Easier rebalancing – pairs of assets are reallocated to original ratios when drift happens. 4) Improved risk-adjusting returns – balancing complementary assets enhances the portfolio’s Sharpe ratio performance.
In summary, symmetrical investment strategies aim to construct balanced portfolios that optimize risk and return profiles. Pairing complementary assets and keeping allocation ratios equalized are key principles. Benefits include diversification, lower costs, easier rebalancing and better risk-adjusted returns.