Markets are sitting near record highs, yet the signals underneath the surface remain anything but calm. Leadership has narrowed, inflation risks remain unresolved, and diversification across portfolios appears to be shrinking rather than expanding.
On a recent episode of Lead-Lag Live, Melanie Schaffer sat down with Alex Shahidi, Co-Chief Investment Officer at Evoke Advisors and one of the architects behind the RPAR risk parity framework, to revisit a deceptively simple question: What does a truly balanced portfolio actually look like?
The answer, as Shahidi explains, challenges some of the most deeply ingrained assumptions in modern portfolio construction.
Why 60/40 Isn’t Really Balanced
The traditional 60/40 stock-bond portfolio is often described as “diversified,” but Shahidi argues that label doesn’t hold up under scrutiny. A typical 60/40 portfolio remains overwhelmingly driven by equity risk, with returns that are highly correlated to stocks. When equities struggle, the portfolio struggles with them.
History offers several reminders of how costly that concentration can be. Extended periods such as the 1930s-40s, the inflationary 1970s, and the 2000s all saw stocks underperform cash for years at a time. In those environments, relying solely on stocks and nominal bonds proved insufficient.
A portfolio that moves almost lockstep with equities is not diversified in any meaningful sense.
Growth, Inflation, and the Missing Dimensions of Risk
At the heart of Shahidi’s framework is the idea that asset returns are driven primarily by growth and inflation surprises, not just time in the market. Stocks tend to perform best when growth exceeds expectations and inflation remains contained. When inflation runs hot or growth disappoints, other assets take the lead.
That insight leads to a broader opportunity set. Beyond equities, Shahidi highlights the role of:
High-quality sovereign bonds for growth shocks
Inflation-linked bonds for rising price regimes
Commodities and gold as inflation-sensitive assets
Each of these behaves differently across economic environments. The challenge is not simply owning them, but owning them in the right proportions.
Equal Risk, Not Equal Dollars
Risk parity shifts the focus from capital weights to risk contribution. More volatile assets require smaller allocations, while less volatile assets play a larger role. The goal is a portfolio where no single asset class dominates outcomes.
This approach, Shahidi notes, is often misunderstood as “levering bonds.” In reality, risk parity can be implemented without leverage at all. Leverage, when used, is applied to the entire balanced portfolio, not a single asset class, allowing investors to scale return targets without sacrificing diversification.
Importantly, Shahidi challenges the belief that diversification necessarily lowers long-term returns. A well-constructed, risk-balanced portfolio can remain competitive over full market cycles while reducing reliance on any one macro outcome.
Why This Matters Now
Today’s portfolios are more concentrated than they were a decade ago, with heavier exposure to U.S. equities and an increasing dependence on a small group of mega-cap stocks. At the same time, inflation has remained above target for years, and the next growth shock is unlikely to arrive with advance warning.
Against that backdrop, Shahidi argues that the case for broader diversification is stronger than ever, even if it feels uncomfortable during equity-led bull markets.
Diversification rarely looks necessary at market highs. It becomes essential when expectations break.
Watch the full Lead-Lag Live episode for a deeper discussion on risk parity, inflation protection, and what it really means to build a resilient portfolio across cycles.
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DISCLAIMER – PLEASE READ: This is a sponsored episode for which Lead-Lag Publishing, LLC has been paid a fee. Lead-Lag Publishing, LLC does not guarantee the accuracy or completeness of the information provided in the episode or make any representation as to its quality. All statements and expressions provided in this episode are the sole opinion of Evoke Advisors and Lead-Lag Publishing, LLC expressly disclaims any responsibility for action taken in connection with the information provided in the discussion. The content in this program is for informational purposes only. You should not construe any information or other material as investment, financial, tax, or other advice. The views expressed by the participants are solely their own. A participant may have taken or recommended any investment position discussed, but may close such position or alter its recommendation at any time without notice. Nothing contained in this program constitutes a solicitation, recommendation, endorsement, or offer to buy or sell any securities or other financial instruments in any jurisdiction. Please consult your own investment or financial advisor for advice related to all investment decisions.
