Mostly Voices [0:00]

A foolish consistency is the hobgoblin of little minds, adored by little statesmen and philosophers and divines. If a man does not keep pace with his companions, perhaps it is because he hears a different drummer. A different drummer.

Mostly Mary [0:19]

And now, coming to you from dead center on your dial, welcome to Risk Parity Radio, where we explore alternatives and asset allocations for the do-it-yourself investor. Broadcasting to you now from the comfort of his easy chair, here is your host, Frank Vasquez.

Mostly Uncle Frank [0:42]

Thank you, Mary, and welcome to episode 1 of Risk Parity Radio, a podcast for the do-it-yourself investment manager. And since it's episode number 1, Numero Uno, today we're going to be answering some basic questions. We have five big questions today, five. Count them five. Number one, what is risk parity radio? Number two, who is this podcast for? Number three, gee, Willikers, what does risk parity really mean anyway, Uncle Frank? It sounds so strange. Number four, how will we make this real? Make it actionable, real time and real live? Number five, how can you get involved? First big question, numero uno, what is risk parity radio? Well, it's a podcast with a website, as you may have guessed. That website is found at www.riskparityradio.com. www.riskparityradio.com. That's parity P-A-R-I-T-Y, not parity. This is not a comedy show, although sometimes it might be funny. So it's a personal finance podcast, and we're here to discuss a very specific area of personal finance, a very specific area. Asset allocations. That's what we're here for. Now, what is an asset allocation? Here's the definition：An asset allocation is the implementation of an investment strategy that attempts to balance risk versus reward by adjusting the percentage of each asset in an investment portfolio according to the investor's risk tolerance, goals, and investment timeframe. The focus is on the characteristics of the overall portfolio. So we're going to talk about implementing an investment strategy. We're going to be balancing risks versus rewards. We're going to do that by adjusting the percentages in the portfolio of the assets so that we can match these things and minimize our risk while Maximizing our reward. And we will be focusing on overall portfolios. So what is a portfolio? Well, I'm glad you asked. A portfolio is a collection, a collection of whatever assets you own. You might have some of your portfolio in some funds in a 401 account at work. You might have some of your portfolio in some funds at an IRA, at a brokerage. You might have some of your portfolio in an ordinary brokerage account. You might own some individual stocks or bonds. You might have some of your portfolio in other things. Maybe you own some rental real estate. Maybe you own a business. Maybe you own a residence. Maybe you loaned some money to somebody or hoping they will pay it back. Maybe you're involved in peer-to-peer lending. Maybe you own some cryptocurrency. Maybe you were sold some insurance products as investments. All of these things are part of your overall portfolio. So what kinds of portfolios and asset allocations are we most interested in here? That is also a good question. We are interested in asset allocations and portfolios to live on, portfolios that you are going to access right now or in the next few years and be taking money out of. We are interested in making those portfolios last at least as long as your life, but essentially forever, and getting the most reward we can out of them with the least risk. Second big question, numero dos, who is this podcast for? This podcast is for anyone who has assets to allocate and plans to be relying upon them soon. And for people who want to do it themselves and to do it at a low cost. Low fees, No commissions, no assets under management fees, no contracts, no programs, nothing with a funny or a catchy name like Infinite Speed of Light Banking on youn Mama. None of that. Just you and your money. So maybe you are in retirement or approaching retirement. and you are feeling uncomfortable just owning a bunch of stock funds and a total bond fund. Maybe you just inherited a large sum of money. Maybe you are saving for a medium-term goal. You want to buy a house in five years. You're wondering, how can I invest this money in a sensible way without risking too much of it? Maybe you want a better projected safe withdrawal rate. than that 4% rate you always hear about. Maybe you want to shoot for 5%. Maybe you want to shoot for even 6%. Maybe you always fancied yourself as a hedge fund manager and want to give it a try on a small scale. Maybe you are dissatisfied with what a financial advisor or salesperson has told you. Maybe you are wondering why they all seem to have the same menu. Maybe you're wondering why that menu has limited items on it, and all of them seem to have the same names as the company that Financial Advisor works for. Maybe you're wondering why most of the items on that menu are high commission products with some kind of guarantees attached to them, or something called a 12B-1 fee. Or maybe you've been told you're incapable, that you are a financial infant, that you should get into a financial high chair and pay for a financial nanny to take care of you. And maybe you don't like that. I certainly don't. Maybe you would like to cook and eat for yourself, shop in the supermarket of investments for yourself, find out what's in aisle 13 in those generic white boxes. Or rummage around in the produce section for something fresh. Third big question, numero trace. What does risk parity mean? Risk parity is a theory of asset allocation. A theory of asset allocations. The idea behind risk parity is to hold very diverse assets in your portfolio that perform differently in different economic conditions and to hold them in proportions that reduce your overall risks. And let's be clear here. I'm not talking about Apple versus Google versus Home Depot versus Procter and Gamble. I'm not talking about large cap stocks versus small cap stocks. I'm not talking about growth stocks versus value stocks. I'm not talking about domestic stocks versus international stocks. I'm not talking about stocks that pay dividends versus ones that don't. I'm not even talking about total stock market fund versus total bond market fund. What am I talking about? Another good question. I'm talking about holding assets that have low zero and negative correlations to the stock market to go with your stock market funds. Yes, things like that that seem to go in the opposite direction most of the time or don't seem to care which way the stock market is going. What are those things? You'll see some of them in the Risk Parity Radio logo, which is a star inside of a Pentagon. Things like treasury bonds, long-term treasury bonds for diversification, short-term treasury bonds for stability, things like gold, like commodities, like real estate investment trusts, like preferred shares, like master limited partnerships, like volatility indexes. There's a lot to look at on the menu of choices. Now, where, where did this risk parity theory of investing come from? It has a long history, but the biggest proponent of this idea is a man named Ray Dalio, who founded one of the world's largest hedge funds, if not the largest. This is how he has been investing his family's money since the 1990s. He is one of the most successful investors in her lifetime. In his book Principles, Ray Dalio says, the holy grail of investing is making a handful of good uncorrelated bets. Good uncorrelated bets. It is the surest way to having a lot of upside without being exposed to unacceptable downside. The surest way. So in some of our first episodes we're going to be talking about the history of this idea. Because whenever I think about an idea, I want to know what the history of the idea is. How was it implemented before there were stock markets? What did people invest in then? What were the antecedents to this idea in our lifetimes? What was going on in the 1970s, in the 1980s? What were people doing? And what sort of scholarly research has been done on it? How have these types of portfolios actually performed? What are their strengths? What are their weaknesses? What are the limitations? And how can we use this information for our benefit? All of those will be for further explanation on this podcast. Fourth big question, numero quattro. How will we bring the theoretical topic of risk parity style investing into our real world? into the here and now. We are not just here to talk about theories. We are here to get down to brass tacks. We are here to put our money where our mouth is. To do that, we've set up six risk parity inspired portfolios at Fidelity, which we will be monitoring on our website with weekly updates. We funded them with $10,000 each in July, except we gave an extra $200 to the one that started late. We will have a portfolio review session every weekend, and you can look for that or your favorite podcasts are sold on Sundays or Mondays. What are these portfolios? Two of them are classics in this area. First, there is the All Seasons Portfolio, which is based on Ray Dalio's ideas, as interpreted by Tony Robbins in the book, Money Master the Game. Next is there is the Golden Butterfly, which is the brainchild of Tyler over at PortfolioCharts.com PortfolioCharts.com is a great resource to analyze any portfolio. In fact, I would suggest that you do not try to manage your own investments without analyzing them at portfolio charts. The next two portfolios are ones that I tend to use the most to manage my own money. There is the Golden Ratio portfolio that proportions the most diverse investments in that ancient formula, the golden ratio. This is a very good portfolio for saving for those medium term goals or to hold for your long term goals, but maybe you want to buy a house in five years. That's what our eldest son used it for. And the other one there, the fourth one, is the risk parity ultimate portfolio. which is the most complex and the most diverse. Now, two of the six portfolios and two of the portfolios are experimental portfolios that incorporate leveraged stock and bond funds. So there as portfolio number five, we have the accelerated permanent portfolio. This is a 21st century version of the original permanent portfolio pioneered by Harry Brown in the 1980s that some of you may have heard of and we will be discussing. And the Accelerated 5050 Portfolio, which is a version of the traditional 5050 stock bond portfolio only on steroids. I guarantee you have never seen the likes of these, but they are very interesting and I expect they will perform very well. No guarantees there. Now, what are we going to be doing with these portfolios? We're going to be abusing them monthly by sucking money out of them to buy trinkets, baubles, and libations. Just like you would if you were living off them. We will be removing 4 to 8% annualized. That means 4% a year or 8% a year divided into 12 months. In practice, this will mean taking 0.33% per month from the All Seasons portfolio. We'll be taking about 0.4% per month from the Golden Butterfly and the Golden Ratio portfolios. We'll be taking 0.5% from the Risk Parity Ultimate Portfolio, and we'll be removing a gaudy 0.67% monthly from the Accelerated Permanent Portfolio and the Aggressive 5050 because we want to see if this stuff really works. All of this is laid out on the portfolio page at the Risk Parity Radio website, which again is www.riskparityradio.com. Fifth big question. Numero Cinco. How can you get involved? Well, the first thing you can do is subscribe and listen to it for a few weeks. It may or may not be your cup of tea. We plan to put out two episodes per week, one for these kinds of discussions and one for the portfolio review. If you like it after that, leave it a five-star review. The content will roll out slowly at first, so be patient. We are in for the long haul. The long haul. The second thing you can do is go to the website. No, there's not much there yet. But there, it is there that you will find the weekly portfolio review data, which we'll be discussing in depth across the various asset classes involved. And the third thing you can do is send us messages with your questions. The message system on the website should be working now. Keep my fingers crossed, I'm new at this. And we'll have the ability to leave voicemail messages soon enough to I hope to be answering those questions in these sessions. But now I see our signal is beginning to fade. Thank you for tuning in to episode one of Risk Parity Radio. I know some of what I have said may be unfamiliar to you. Some of it might be cognitively dissonant. It might be inconsistent with what you have been told in the past. But there will be much more explaining in future episodes. This is only a taste, a small taste, of what there is to come. Thank you for tuning in.

Mostly Mary [18:23]

This is Frank Vasquez with Risk Parity Radio, signing off for now. The Risk Parity Radio show is hosted by Frank Vasquez. The content provided is for entertainment and informational purposes only and does not constitute financial, investment, tax, or legal advice. Please consult with your own advisors before taking any actions based on any information you have heard here, making sure to take into account your own personal circumstances.