Asset Allocation Strategies: 60/40, Equal Weight, and Risk Parity

Asset allocation is the single most important decision most investors make. Picking the right mix of stocks, bonds, and alternatives can matter more than picking individual securities.

The Classic 60/40

The 60/40 portfolio, sixty percent equities and forty percent bonds, has been the default allocation for decades. It performs well when stocks and bonds have low correlation and both trend upward. It struggles when both assets fall together, such as during inflation shocks.

Equal Weight and Risk Parity

Equal weight gives every asset the same capital share, avoiding concentration in yesterday's winner. Risk parity goes further by allocating capital based on volatility, so each asset contributes equally to portfolio risk. Both approaches tend to produce more balanced drawdowns than capital-weighted models.

Multi-Asset Backtesting

A good asset allocation backtest spans multiple decades and includes crises, recoveries, and sideways periods. Include realistic costs for rebalancing and use out-of-sample validation to avoid curve fitting.

Build Allocations in NeuroBacktest

With NeuroBacktest, you can backtest multi-asset allocations from a simple prompt. Try: "Backtest a risk-parity allocation of SPY, TLT, GLD, and commodities from 2010 to 2024 with quarterly rebalancing." The engine reports returns, drawdown, Sharpe ratio, and regime breakdown.