Could the alternating risk on risk-off portfolio be a way of taming wild volatility, generating income in the twilight of near-zero interest rate policy, and protecting wealth in these uncertain times?

We live in volatile and uncertain times. 

So will the Fed pull the pin, hike rates aggressively to tame inflation, and cause a 2018 fourth-quarter stock market meltdown?

Alternating Risk On Risk Off Portfolio
S&P 500 returns 2019

“Could the alternating risk on risk-off portfolio be a way of taming wild volatility, generating income in the twilight of near-zero interest rate policy, and protecting wealth in these uncertain times?”

WEALTH TRAINING COMPANY

With Russia now putting “peacekeepers” in Ukraine, will China do one better and put peacekeepers in Taiwan?

Is the US empire in its twilight, and are we about to see a global power vacuum playing out?

But who to say that the bald eagle will go quietly in the night, bearing in mind we could be at the cusp of a major conflict. 

What if Uncle Sam has got a secret weapon up his sleeve, bearing in mind the US spent one trillion USD developing the next generation of tactical nuclear weapons. 

In short, geopolitical uncertainties and taper tantrums to tackle inflation are creating wild volatility swings. 

Russia in Ukraine

“With Russia now putting “peacekeepers” in Ukraine, will China do one better and put peacekeepers in Taiwan”

WEALTH TRAINING COMPANY

This is where the alternating risk-on risk-off portfolio could cut it

The risk on risk off portfolio is a strategy based on the analogy of alternating currents in electricity. 

In electrical engineering, engineers can tame electricity and gain utility by using the alternating currents of negative and positive polarity to power loads.

So perhaps the same strategy can be used to tame volatility in financial markets.

“ARK is bullish on disruptive growth technology companies and is an example of risk on asset play” – Wealth Training Company

The risk on risk off portfolio entails owning assets that are polar opposite

Safe haven assets, like treasuries and precious metals, the perfect trade right now, are categorized as risk off assets, and stocks and cryptocurrencies are risks on.

But in a severe risk off environment, such as a stock market panic, even safe-haven asset prices can fall as investors sell everything to raise margin calls.

So, the risk off assets and risk on described above are not entirely polar opposite in that their prices don’t always move in opposite directions.

Are there two alternating risk on risk off assets whose prices move in a perfect opposite direction always?

Yes, let’s take the ARK Innovation ETF (ARKK), which (at least 65% of its assets) in domestic and foreign equity securities of companies that are relevant to the fund’s investment theme of disruptive technology innovation.

In other words, ARK is bullish on disruptive growth technology companies and is an example of risk on asset play.

The near-perfect inverse of ARK or the polar opposite is the SARK Tuttle Capital Short Innovation ETF.

So by having a combination of ARK and SARK two perfectly negatively correlated assets investors could profit from the volatility of the market, irrespective of whether it is bullish or bearish.

ARK and a SARK are examples of alternating risk on risk off portfolio, which could be the strategy of taming volatility and profiting from the wild swings. 

We believe ARK could be a good long term play, but not everyone can wait 5 years for their investment to mature, which is where the alternating risk on risk off assets portfolio strategy could be useful. 

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