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 [0:18]

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 [0:36]

Thank you, Mary, and welcome to episode 103 of Risk Parity Radio. Today on Risk Parity Radio, we are announcing the rolling out of a new sample portfolio. Real wrath of God type stuff.

Mostly Voices [0:52]

You have a gambling problem.

Mostly Uncle Frank [0:56]

The seventh Sample portfolio, lucky number seven. Do I feel lucky? Do I feel lucky? So what is this portfolio? Well, the genesis for this is we had reviewed a leveraged fund called NTSX back in episodes 59 and 61, and then we had additional questions relating to that in episodes 94 and 96 and had constructed some sample portfolios related to that. If you recall, what that is, is a combination of an S&P 500 fund or the S&P 500 itself rather and options on Treasuries. And so it functions like a 90/10 portfolio that is 90% S&P 500, 20% long-term treasuries, 20% medium-term or intermediate-term treasuries, and 20% short-term treasuries. So I wanted to use that and construct a risk parity style portfolio and take a little more leverage in it, but not nearly as much leverage as we are taking in our experimental portfolios. And so what I did here is construct this portfolio and then I'll tell you how this breaks down as a golden ratio portfolio. We're going to call it the levered golden ratio portfolio. I'll drive that tanker. And it is 35% in T-SX, that leveraged fund, it is 10% TNA, which is a leveraged Russell 2000 fund that follows IWM if you're familiar with that ETF. I don't think it means what you think it means. 10% in TMF, which is a leveraged long-term bond fund. 25% in GLDM, which is gold. 15% in a REIT O, where you're using for this. And then there was 5% left over for this. And we could have done that in cash if we wanted to make it conservative. However, I thought it'd be more interesting to put in some speculative elements that are relatively uncorrelated. So I took 3% in VXIM, which is a volatility fund of intermediate duration, and then we put 2% in cryptocurrency funds, one in BITQ, which is a new fund that's kind of like BLOK, but it basically has 30 different companies that are involved in crypto assets in it. Rivers and seas boiling. 40 years of darkness, earthquakes, volcanoes. And then we put 1% in BITW, which is a cryptocurrency index fund that is mostly Bitcoin and Ethereum. Human sacrifice, dogs and cats living together, mass hysteria. And so that adds up to 100%. I think that 5% is just for fun, really. But we'll see how it all works out. I'm funny how, I mean funny like I'm a clown, I amuse you. When you break this thing apart though, into the asset classes, because NTSX is a mixed asset class. So what this really plays like is having 61% in stocks divided into two funds, 31% in SPY, an S&P 500 fund, and 30% in IWM, which is a small cap fund. So basically you have half of that in large cap and half of it in small cap, both blended. Yeah, baby, yeah. And then it's got 37% in long-term treasury bonds, which are similar to TLT, 25% in gold, that's GLDM, 15% in REITs, that's the O, and then it's got 7% in intermediate treasuries. which is equivalent to a fund like VGIT, 7% in short-term treasuries, which is equivalent to a fund like SHY, and then this 5% in other assets that is 3% volatility and 2% crypto related. So if you look at the ratio between those allocations... You are talking about the nonsensical ravings of a lunatic mind. 61% to 37 is close to the golden ratio, 37 to 25 is also close to the golden ratio, 25 to 15, same thing. But then when you get down lower, it kind of breaks down. It would be 15 going down to 10 or nine, and we have two things that are at seven. But there's not a whole lot we can do about that simply because of the way NTSX is constructed. You can't handle the dogs and cats living together. Now, overall this portfolio has leverage so it performs as if it has 157.5% of an ordinary portfolio and that is also roughly the golden ratio, kiddies, which would be 1.61.

Mostly Voices [6:16]

What we do is if we need that extra push over the cliff, you know what we do? Put it up to 11. Exactly.

Mostly Uncle Frank [6:24]

So it will have leverage that is not nearly as much as the aggressive 5050 or the accelerated permanent portfolio, but obviously significant enough to make a difference. Yes. So the way it is designed is to have a return that is greater than the S&P 500, but a much lower expected volatility. it's designed to straddle that idea. And we did back test it. Unfortunately, you can't back test it very far because NTSX just hasn't been around that long. But when we did that for the about the three-year period it's been around, and I will link to this in the show notes, and it's also linked to on the new page, the portfolio's page at www.riskparityradio.com, we see over the last few years that had a compounded annual growth rate of 20.91% versus a Vanguard 500 Index Fund that would have a compounded annual growth rate of 6.86%. But the standard deviation for this portfolio is 16%, which is lower than the standard deviation for the stock market, which was 19% for that period. And that plays into the worst year. This portfolio had a worst year of only -6.86%. 31% versus 13% for the total stock market fund. And that gets you into sharp ratios of 1.2 for the levered golden ratio versus 0.85 for the stock market in this last three-year period. It is about 0.87 correlated with the stock market. Now what else can I tell you about this newfangled contraption Think McFly, think! Well, when I ran it on portfolio charts back to 1970, a simulation of portfolio charts, it said that it would have a safe withdrawal rate in the 8 to 9% range and a similar permanent withdrawal rate. Now we need to take that with a grain of salt because it does not account for the cost of the leverage in portfolio charts. and obviously did not include any of the volatility or crypto funds, but we just substituted cash for that just to see how the portfolio would run with those parameters in it. So based on that, we are going to use a withdrawal rate of 7% annualized for this portfolio. And so when we take out each month, the effect of that is dividing the end of the monthly balance by 170 and then distributing that much on the first trading date of the next month along with all the other portfolios. And we'll start that the 1st of August. Surely you can't be serious. I am serious. And don't call me Shirley. We also instituted some rebalancing rules for this that are a little bit different than the other portfolios. I wanted also to use the band structure as opposed to a calendar rebalancing for this with these volatile funds in it. That makes a little bit more sense. And so what we're using is a nominal 5% deviation for these funds that are there. So, for instance, if NTSX were to get up to 40% of the portfolio or down to 30% of the portfolio, we would rebalance the entire portfolio. Similarly for gold, if it went to 30% from 25% or down to 20% or less, we would rebalance the whole portfolio. In practice over the past few years, the only things that have actually made it to those 5% boundary lines were the two triple leveraged funds in it, the TNA and the TMF, and those are at 10% right now. So those go up to 15% or down below 5% that also triggers a rebalancing in the portfolio. And we will be looking at those every 15th of the month, like we look at the other experimental portfolios. Well, you have a gambling problem. So I went ahead and opened another Fidelity account. It's called the Levered Golden Ratio. It's on the website right now and bought all the components this morning at about 10 a.m. and as of about 2：30 in the afternoon, it is up $12.85 already from starting value of $10,000. Cool.

Mostly Voices [10:57]

Fire, fire, fire, fire, fire.

Mostly Uncle Frank [11:01]

But I think this will be a useful and interesting experiment and may help some of you who are looking for something with some leverage but not overly leveraged. Shut it up, you. because I know that had been a subject of interest. One funny or interesting thing that came up this past week while I was putting this thing together is the same author on Seeking Alpha who had written the article I talked about last time about not buying TLT came out with an article yesterday basically saying here's some risk parity style portfolios that you should try that look really good. And one of them was using NTSX to construct, which I thought was funny. Funny how? Another one uses a ETF called Swan, which is a black swan ETF. That is interesting, and we may analyze it at some point. What's in that thing is mostly treasury bonds of short, intermediate, and long-term duration designed to average out to a 10-year Treasury Bond allocation. But it's also got some long-term call options on stocks, and that's how it simulates a portfolio. It's kind of the mirror image, I believe, of NTSX, although I haven't determined exactly what it plays like in terms of a stock bond mix. It looks like it maps out to something like a 3070 stock bond mix, I haven't really determined that yet. But I thought it was funny that the same author who was deriding the use of treasury bonds came up with risk parity style portfolios that lo and behold have lots and lots of treasury bonds in them, even if they're not directly selected, but are part of these funds that he's used to construct his risk parity style portfolio. But we're getting the cognoscente to come around here. Slowly but surely. Everything is proceeding as I have foreseen. But now I see our signal is beginning to fade. I'm putting you to sleep. All of the information that I just gave you about this new portfolio you can find on the portfolios page on the website www.riskparadioradio.com Yeah, baby, yeah! If you have comments or questions for me, you can send them to frank@riskparityradio.com that email is frank@riskparityradio.com or you can go to the website www.riskparityradio.com and fill out the contact form there. I'll get your message that way. We will be picking up this Fourth of July weekend with our Weekly Portfolio Reviews. We also have our monthly reviews and distributions.

Mostly Voices [14:00]

And then of course, I'm intrigued by this, how you say, emails.

Mostly Uncle Frank [14:09]

If you haven't had a chance to do it, please go to Apple Podcast or you pick this up and leave it a five-star rating and a nice comment and follow it and like it and subscribe to it or Whatever they let you do there these days. That would be great. Okay. Thank you once again for tuning in.

Mostly Voices [14:31]

This is Frank Vasquez with Risk Parity Radio signing off. Yeah, you know what I'm saying? And G is the seventh letter made. Yeah, G is the seventh letter made. Yeah.

Mostly Mary [14:45]

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.