Getting Started with Risk Parity (A Beginner’s Guide)
If you’re new to Risk Parity—or even just new to DIY investing—this is a simple, practical guide to getting started. Not a full blueprint. Not a final answer. Just a clear place to begin.
There’s an old saying: it’s better to teach someone how to fish than to give them a fish.
This post is about handing you some tips and then the fishing rod & reel, a map, and enough Copper Johns to get you started as a DIY investor, especially one curious about the magical waters of Risk Parity.
A Few Quick Ground Rules
Before we dive in, three quick disclaimers (the useful kind, not the legalese kind):
1. This is education, not advice.
I’m not your financial advisor, and I don’t know your situation. Think of this as a map, not directions.
2. One post won’t cover everything.
Risk Parity is a deep topic. This is your starting point, not the finish line.
3. Go slow. Seriously.
If you ever change your portfolio, do it gradually. Quick to learn is quick to forget, so let things sink in. Especially, don’t rush off and sell a bunch of what you already have to follow a new approach.
Step 1: Do Your Own Research
This isn’t just a cliché—it’s the most important step.
The bigger goal for DIY investors isn’t to land on the “right” portfolio, though of course, that’s a great thing to have happen. The overarching aim is actually to understand why you’re investing the way you are. That ownership matters a lot when markets get rough (and they will) and it will help know if you need to pivot or tweak in the future.
So, read. Then read some more. A few great places to start:
Risk Parity Radio — Listen for a while, especially early episodes for the foundations
Portfolio Charts — The “Insights” section is fantastic for understanding portfolio design
Optimized Portfolio — Especially the “Investing 101” content
This very Substack — I have written a lot that’s meant for people new to all this mambo jumbo. You might want to look for:
Articles in the Risk Parity Library series. I summarize key books & papers, such as this one about Roger Gibson’s Asset Allocation.
Explainers, where I try to demystify some of the investing principles that you’ll run into. Try this, for example, about withdrawal rates and why they matter so much.
Don’t rush this step. The goal is familiarity, not mastery.
Step 2: Study Real Portfolios
Before building your own, look at what already exists.
This helps you see patterns:
What assets show up again and again?
How do different portfolios solve the same problems?
What trade-offs are people making?
Good places to explore:
Portfolio Charts → Has write-ups and analysis of 21 “Famous Portfolios,” some of which are RP-inspired.
Optimized Portfolio → 55 “Lazy Portfolios,” all with explanations
Risk Parity Radio → Eight sample portfolios. You might also want to listen to the early episodes where they are introduced, as well as episode #349 for the breakdown of the OPTRA portfolio, the most recent addition to the slate.
RPC Portfolios → I track ten portfolios, five of which are original and five are more for reference. You might like my deep dives into:
The three Stacks portfolios
You’ll start to notice: most portfolios are just variations on a few core ideas.
Step 3: Learn the Tools
At some point, you have to get your hands dirty… if by getting them dirty you mean pushing buttons on websites.
The main thing is to get comfortable with backtests - reports on how various assets and portfolios have done over different time periods. Backtesting tools let you see how portfolios behave—and that’s where things really click. As a first goal, just see how these tools work and what you can learn by just plugging things in.
I covered the three main backtesters that DIY investors use more in this piece, but briefly:
Testfol.io — My go-to. Powerful but still accessible, and lots available on the free tier.
Portfolio Charts — The most beginner-friendly and most visually appealing. Do need to pay to access some of the really good stuff, but it’s pretty low cost.
Portfolio Visualizer — More advanced, some features now paid.
Don’t worry about exploring every button on the sites. Just start to get a sense of how they work.
Step 4: A Simple Risk Parity “Starter Template”
If you want a rough framework to begin with, here’s a simple version:
The Core: Equities (40–70%)
This is your growth engine.
The base is broad, low-cost index funds (e.g., total market or S&P 500)
Recommended: add small-cap value and international exposure to cover all the bases.
A rough guide is to have equal weights between growth-oriented equities and value, and then a ratio of ~2:1 U.S. to international
The Counterbalance: Bonds (15–25%)
These generally help stabilize the portfolio, and are essentially insurance for whenever the good times stop rolling.
Typically U.S. Treasuries
Longer duration = more diversification, and tends to lead to higher withdrawal rates, all things considered
Short-term = calmer on their own, but less powerful in portfolio construction
For what it’s worth, I personally prefer Extended-Duration Treasuries, and avoid corporate bonds and TIPS.
The Independents: Alternatives (10–30%)
These are asset classes that move differently from stocks and bonds. Ideally, we’d have a whole slew of these, each offering an independent source of returns, but despite looking far and wide, I focus on just two:
Trend-following managed futures. Great for when everything is going pear-shaped, like 2022.
Gold. People try to argue it away, but it continues to have a positive impact on portfolio construction.
My rough guideline is trend and gold held in equal proportions.
Another alternative that I’m experimenting with is carry-strategy managed futures, and I hope soon to report out on that. I used to be a big fan of commodities, but over the past few years, have changed my mind on them and now don’t really hold them.
Step 5: Mess Around (This Is Where You Learn)
This is the fun part. Bring all these steps together and just start experimenting. Perhaps take whatever sample portfolio you’ve found that you like, and then:
Add a bit more equities
Reduce bonds
Increase alternatives
Swap one ETF for another
Then watch what happens.
You’ll quickly see:
What changes matter
What doesn’t matter (this is a big one)
How different pieces interact. It’s all about the recipe, not the ingredients.
One caution:
Don’t take backtests too literally.
They’re not predictions—they’re learning tools. Use them to compare ideas, not to forecast the future.
Final Thought
Most beginners think the hard part is picking the right funds. It’s really not.
The real challenge—and the real opportunity—is:
choosing the right asset mix between the major asset classes
sticking with it
and understanding why it works
Get those right, and the rest is just fine-tuning.
Great article for getting started towards educating yourself and clarifying the big picture.