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 [0:38]

Thank you, Mary, and welcome to episode 104 of Risk Parity Radio. Today on Risk Parity Radio, it is time for our weekly portfolio reviews of the seven sample portfolios that you can find on the portfolios page at www.riskparityradio.com. Yeah, she is the seventh letter made.

Mostly Voices [1:00]

But, first off, I'm intrigued by this. How you say, emails.

Mostly Uncle Frank [1:09]

And first off, we have an email from Eric. And Eric writes, hi Frank, I just found your podcast and site via Choose FI. I'm now neck deep in listening to the episodes. and thoroughly enjoying them. Could you save me some time and let me know if you have addressed Canadian stocks slash ETFs for those of us with Canadian investments and or discussion of holding assets in multiple currencies? Thanks, Eric. Well, the answer is I've done it here and there, not as a specific episode or anything, but in an answer to a number of questions. If you go to episode 96 in particular, we talked about some Canadian investments there, and you'll see how, I believe the listener was Erin, structured her portfolio and how you can input the Canadian ticker symbols into Portfolio Visualizer and get results out of that there. The other place to look for Canadian funds, if you're looking for or which funds should I choose for small cap value or REITs or something like that. Go to the fund finder at portfolio charts. If you go to my portfolio there and put in a portfolio, it will give you the funds for about 12 different countries. You do need to reset the little country thing there that they've got there to Canada, and then it will pop out recommended funds, low cost funds for Risk Parity Radio, Frank Vasquez, risk parity, risk, parity, Frank, Vasquez in the audio. you'll find an interview of me on a different podcast by a Scottish gentleman in Edinburgh, and he did ask me some of those sorts of questions, so I would give that a listen and maybe that will be helpful for you. But we always need to be careful around Canadians.

Mostly Voices [3:30]

Good day, how's it going? I'm Bob McKenzie, it's my brother Doug.

Mostly Uncle Frank [3:37]

All right, our second email is from Chaz and Chaz writes, Message Frank, you're killing it.

Mostly Voices [3:44]

Every time you lose, you die a little bit. You die inside. A portion of you. Not all of your organs, maybe just your liver.

Mostly Uncle Frank [3:51]

This podcast is such a refreshing outlook in a pretty crowded arena of personal finance. I was highly interested in risk parity a couple years back, but failed to find enough information to feel comfortable with it. Your podcast helps that. Also, I love the shout outs to Money for the Rest of Us. David Stein is incredible.

Mostly Voices [4:10]

You are correct sir, yes.

Mostly Uncle Frank [4:13]

My question, I am looking to construct a risk parity style portfolio, but for an accumulation phase in my late 20s. I've heard some of your episodes on the use of leveraged ETFs to create a slightly leveraged portfolio to simulate that effect. understanding that this is purely for informational purposes, would it be wise to use a golden ratio with the cash portion swapped to something like a preferred stock allocation and then use portfolio margin from M1? It's only about 2% interest currently to potentially simulate or exceed standard S&P returns. Would love to hear your thoughts. Again, your podcast is great. It's going to be a staple in no time. I don't think it means what you think it means. All right, yeah, you can do that if you wanted to. I've done a bit of that myself in a brokerage account, but I would, if you're going to be serious about this, I would do it over at Interactive Brokers. This is when the big dogs come out. Okay, you're right.

Mostly Voices [5:14]

So, the big dogs, stay on the board.

Mostly Uncle Frank [5:18]

And the reason I say that is because their margin rates are the lowest. They're currently Somewhere between 0.8 and 1.6, depending on how much money you have in there. So really for margin investing, there's no substitute or better option than interactive brokers. Even though I know M1 is trying to compete and catch up on this, other brokerages just aren't competitive at all and often have margin rates that are above 5%, which is not conducive to this. Forget about it. But be careful, leverage is dangerous and you don't want to take too much of it.

Mostly Voices [5:57]

You have a gambling problem. But it does work.

Mostly Uncle Frank [6:00]

At least it has worked for me for at least the past six or seven years. Well, you have a gambling problem. And that's not a recommendation, it's just a thought.

Mostly Voices [6:12]

We can put that check in a money market mutual fund.

Mostly Uncle Frank [6:22]

Then we'll reinvest the earnings into foreign currency accounts with compounding interest and All right, next email is from Rick and Rick H writes, Good morning Frank, what a great concept and podcast. I just retired in February age 58 and was curious, what portfolio would you recommend for my retirement that could hopefully last 30 plus years? I was looking at both the golden butterfly and golden ratio, any ideas which would be better suited for my situation? If you have old podcasts which address this, can you furnish their numbers? I just found out about your site and I'm fascinated by the ideas that have caused me to rethink my whole investing thesis. Thanks for your humor and great content. It's an awesome combination. Rick H. All right, Rick, thank you for that nice email.

Mostly Voices [7:10]

Bow to your sensei. Bow to your sensei.

Mostly Uncle Frank [7:13]

I have addressed specific situations for people. I would go back starting with episode 68 where we walked through kind of a process for figuring out how to deal with your portfolios in retirement. And I think you do want to go through that process first evaluating your expenses, then looking at what you already have. and figuring out how you might want to modify that. Both the Golden Butterfly and Golden Ratio are decent portfolios for retirement. I say that because they are designed to have the same risk characteristics as a standard recommended 60/40 portfolio in retirement with just better safe withdrawal rates. Yeah, baby, yeah! essentially is what the goal there was. But those are as a standard base that's a good place to go or start or think about. The other resource that I think you should really take a look at is the retirement spending calculator over at the Portfolio Chart site. I will link to that in the show notes. But that gives you a way of modeling a portfolio and then modeling how you're withdrawing out of it and it gives you a couple of different options in terms of rules on taking, you know, a fixed percentage or doing it the same way as they did it in the Trinity study for the 4% rule and then a couple other variable options. But that will show you a projection then of how often that failed over what period of time if you were to choose a particular withdrawal option for a particular portfolio. And I think that's particularly valuable for retirees.

Mostly Voices [9:07]

We had the tools, we had the talent.

Mostly Uncle Frank [9:11]

Because it takes a lot of the guesswork out of this. Too much of what I see or hear is people just kind of guessing at what might work and taking the 4% rule as if it applies to every portfolio and it just doesn't. It only applies to the portfolios that were analyzed in those studies. So you need to take your specific portfolio, do an analysis now like you can do at Portfolio Charts and Portfolio Visualizer to get a better sense of what your particular situation is going to look like and not just some generic thing that you're kind of grasping at or using fuzzy thinking to get at. That's not an improvement. Hopefully that is helpful and thank you for that email. And our next email comes from Mike B. And Mike B writes, hi Frank, I heard your show on Choose FI a few weeks back and have been binge listening ever since to your older episodes. I am sold on the risk parity portfolio for my retirement, specifically the Golden Ratio portfolio. I am 58, another 58 year old, and hit my 4 million number recently and I'm ready to move my 90% stock portfolio to the golden ratio. I want to be ready to retire at 60 and can comfortably maintain my lifestyle with 4% withdrawal rate. The golden ratio will maintain 5%, so I have a bit of a cushion. I have already made some moves, but still need to move about 1 million from stocks to golden treasuries. That's a lot of money, and I'm curious what you think is the best way to liquidate the stocks and buy the golden treasuries. I am hesitant to do it all at once because both gold and treasuries are pretty high price wise coming off the highs last year. I know I can't try to time the market but I also believe in buying low. Does the data analysis say that it is better to dollar cost average the purchases over a coming year time frame? Thanks for all your information. I have managed my own portfolio my whole life but was not sure what to do when I hit retirement. Mike, all right, Mike, I think it's better to move it all at once or right away in your case. And the reason is this. What you are really afraid of or trying to avoid is a giant stock market crash or downturn now.

Mostly Voices [11:34]

Never underestimate your opponent. Expect the unexpected.

Mostly Uncle Frank [11:39]

Because if that happens before you've adjusted into your retirement portfolio, then you could be facing a much longer, deeper drawdown than you really want to deal with in retirement. So the difference between, say, a 90% stock portfolio or a 60/40 portfolio historically, those have been down as long as 13 years. Danger, Will Robinson, danger! And so you really don't want to be risking that. One of these risk parity style portfolios tends to have drawdowns that last a maximum of three to four years, at least historically. And so that's why you would want to get moved into your retirement style portfolio so you're not risking that big deep drawdown where you are right now. I shall taunt you a second time. Now, if you need to do that psychologically over a period of a year, yeah, you can do it that way, but it would be better given what your risk profile is right now, which is the 90% stock portfolio, to get that adjusted into something that is not likely to have a serious drawdown for a long period of time. You can dodge a wrench, you can dodge a ball. As to how you move it around, it depends on what you have in what accounts. The best way, or the most tax efficient way, is certainly to make the adjustments in your tax advantage accounts, your IRAs or 401 s, because you could make as many transactions in there as you like, without incurring tax liabilities. When you're talking about your taxable accounts, then you have to be thinking about, well, what is the tax consequence of selling this particular asset at this particular time? Do you have anything to tax loss harvest against it? What tax bracket are you in? All of those things play into these decisions. That was weird, wild stuff. and without knowing more, it's difficult for me to tell you what exactly would be the best in your case. I would also go back and start at episode 68, listening to the various shows where we're talking about people's specifics in terms of portfolios, where they are and adjustments made, because we've done a few where people have given very specific details about how much they have and what account it lies in, which is kind of the thing you need to start with whenever you're dealing with making this kind of adjustment. But today is a fine time to do this simply because these portfolios are at or near all-time highs. And that's when you want to make the adjustment. Not when they're falling or we're in some kind of panic or giant downturn. You want to make this adjustment when everything is going just fine.

Mostly Voices [14:52]

Am I right or am I right or am I right? Right, right, right.

Mostly Uncle Frank [14:56]

and I should say, as for gold and treasuries, they are actually down this, this year, this calendar year. If you look at year to dates for the various asset classes that we have in these portfolios, it shows the nice mix and the usual kind of behaviors of these things. So we have gold is down, I don't know, seven or eight percent for the year. Long-term treasury bonds are down about 10% this year, although they've been going back up for the past three months. But then you see that the stocks and the REITs are doing quite well. Small cap value is over 25%. REITs are about 20% pop to the positive. The S&P 500 itself is about 14 or 15%. So we're seeing very typical performance out of these things. And I wouldn't be hesitant to move into Treasuries or gold at this point in time because they could go in either direction really. As long as stocks are doing well and we're in a kind of a Goldilocks kind of situation for that, they will probably not do so well. And then when stocks are having a lot of trouble, you'll see positive action in the treasury bonds in particular. I'm perfectly sane. Everyone else, however, is insane and trying to steal my magic bag. Alright, I think we've got time for one more email today. Last off. And so last off, we have an email from Grant Grant writes, Uncle Frank, your podcast, which I found from the Choose FI guys, is a godsend. As I'm quickly approaching my FI number, we'll be implementing a SEP 72T to begin early retirement at age 40. It's time to rebalance my portfolio, which has been 100% you, pro. Riding that pony. Yeah, baby, yeah!

Mostly Voices [16:44]

Since 2011 and it served me very well in the historic bull market.

Mostly Uncle Frank [16:48]

Yeah, I would imagine so.

Mostly Voices [16:52]

Do I feel lucky? Do I feel lucky?

Mostly Uncle Frank [16:55]

I've been extremely aggressive and have even held that allocation through the March 2020 drop when I saw my account value drop to 30% of its original. It's a trap! It has more than recovered since then. One point I would love for you to elaborate on is the goal of uncorrelated or negative correlation between assets in a portfolio, the goal being a perfect negative 1.0 correlation. If that is so, why not have UPRO and its inverse SPXU in a 50/50 mix or the unleveraged equivalents to avoid volatility drag? I assume the answer is that the combined effect would be no growth and flat or even less counting fees. So I must conclude the portfolios we recommend all have assets with assumed long-term growth, which would be the missing piece of the puzzle for me. So how does one determine if an asset will have long-term growth? Gold and bonds can seem flat for decades. I would love your take as I'm afraid of large crystal balls.

Mostly Voices [17:56]

As you can see, I've got several here. A really big one here. Which is huge.

Mostly Uncle Frank [18:06]

Wishing steady portfolio growth to everyone, Grant from Waco. All right, yeah, this does raise some interesting questions. The goal actually is not to obtain a negative one correlation. The goal is to maximize your safe withdrawal rates, however you do that. Now, choosing negatively correlated assets is going to help you do that. Yes. The problem with using inverse ETFs on the stock market is that their expectation of returns long term is going to be negative. It has to be because the expectation of the stock market is positive long term. So if you're doing a specific inverse of that, it's going to have a negative expectation. And that is a lot of the problems with those kind of funds with volatility funds and some other sorts of funds that they have built into them a negative expectation. And when you have a negative expectation for a fund, you're really only going to be using it as a form of insurance in your portfolio and actually expecting it to drag on your portfolio because your portfolio is still typically going to be driven largely in long-term growth terms by its stock components. So I would not use inverse ETFs in any of these portfolios or inverse stock ETFs in particular. And we're still trying to find that magic ETF that really does capture volatility in a way that doesn't drag too much on a portfolio. All right, how do you determine if an asset will have long-term growth? Well, you look at its history. and you can see whether it has long-term growth. Both gold and bonds do have long-term growth. It comes and goes, but a bond obviously pays an interest rate, and what you're most interested after that is its diversification from stocks. That's an example of something with even a small positive expectation is enough to make it better as a diversifier than something with a negative expectation. like those inverse stock funds. That's why treasury bonds make a much superior diversifier to stocks than some of those negatively expected funds. As for gold, gold is going to keep up with inflation long term, but have very large volatility spikes both up and down along that way. You know that for a fact because the currency that we're using to keep track of our portfolio is the dollar is designed with inflation built into it. So in effect, gold is the opposite of that. And again, knowing it has that positive expectation over time makes it a better diversifier than something that has a negative expectation over time. Assuming the correlation is low or negative and the correlation of gold to Stocks and bonds is essentially zero over long periods of time. But hopefully that answers your question and thank you for that email. Good luck with your severe leverage portfolio. I'm glad that's worked out for you. Fire! Fire! Fire! Fire!

Mostly Voices [21:27]

Enough is something completely different.

Mostly Uncle Frank [21:31]

And the something completely different is our weekly portfolio reviews of the seven sample portfolios you can find at www.riskparityradio.com. riskparadioradio.com and we're also going to talk through our monthly distributions that we've done for July and the fact that we've done now a year's worth of distribution so we can look at a few stats from that. So just for reference, looking at the markets last week, we saw the S&P 500 up 1.67%, the NASDAQ was up 1.94%, Gold was up 0.39%. TLT, the Treasury bonds, long-term Treasury bonds were one of the big winners last week. They were up 2.13%. REITs represented by the fund R E E T were actually down 0.89%. Commodities represented by the fund PDBC were up 2.62% for the week. Preferred shares represented by PFE F were up 0.38% for the week. So we saw some assets kind of all over the map here. What was also interesting is that small cap value stocks represented by VIoV in our portfolios were down 2.05% and this kind of represents a reversal over the past three months of what we saw in the first three months of the year. In the first three months of the year we saw the small cap value being one of the best performers and bonds not doing very well. And now we see bonds are continuing to increase in value as the interest rates fall. Yes, the interest rates are falling despite what you hear on TV. Reality is different from the talking heads.

Mostly Voices [23:25]

You can't handle the crystal ball.

Mostly Uncle Frank [23:28]

and small cap value is falling these days. It has not been doing well over the past few months. So now taking a look at these portfolios themselves, the most conservative one is our All Seasons portfolio. This one's only 30% in stocks. It's got 55% in long and intermediate term treasury bonds. I'm putting you to sleep. And then it's got 7.5% in gold, GLDM, and 7.5% in commodities, PTBC. This one was up 1.6% for the week, a big jump for it. It is up 9.01% since inception last July. We removed or distributed $36 from it for July from VTI, which has been up the most, the stock fund. and we have distributed a total of $379 from it since inception for the past year. I note that this one was up 2. 23% for the month of June, and we put our monthlys up there also on the portfolios page so you can see all the portfolios and how they performed each month over the past year there. And so that was up a considerable amount due both to the bonds and the commodities, which is interesting to see. Now our next portfolio is the Golden Butterfly, and the next three portfolios are kind of our standard portfolios that have similar risk profiles to a 60/40 portfolio. And this one is 40% in stocks divided into a total stock market fund, VTI, and a small cap value fund, VIOV. 20% in long-term Treasuries, TLT, 20% in short-term Treasuries, SHY, and 20% in gold, GLDM. This one was up 0.26% for the week. It is up 20.87% since inception last July. Interestingly though, this was the only one that was down in June. It was down 0.25% for the month of June. and that's mostly due to the small cap value fund not doing as well in June, and that this one has a smaller proportion in Treasuries compared to some of the other portfolios. Nevertheless, it is up 20.87% since inception. We took out $48 from cash from it since it had built up the cash in there for the month of July for the distribution, and that is coming out at a 5% rate annualized. You can see more of the details of that on the portfolios page. We've taken $542 out of it total since inception and for the first year. Our next portfolio is a golden ratio. This one's 42% in stocks, 26% in long-term treasuries, 16% in gold, 10% in REITs, and 6% in cash. Well that's dwindled down to 2% as we've been taking out of it over the course of the year. It was up 0.56% for the week. It is up 20.12% since inception last July, and it was up 1. 02% for the month of June. So you see this one is kind of caught up to the Golden Butterfly and you would expect that that these two portfolios are going to perform very similarly over long periods of time. We're taking $48 from the cash portion of it for the distribution for July and we've taken $537 out of it for the past 12 months on a starting amount of $10,000 which is what all these start at. Our next portfolio is the Risk Parity Ultimate. This one is 40% in various stock funds, 25% in various long-term bond funds, and it's got 10% in gold, 10% in REITs, 12.5% in PFF, FIRT shares fund, and 2.5% in a volatility fund VXX, although that has dwindled down to 0. 25% of the portfolio, and we'll be rebalancing that in another few weeks here. Now this one was up 0.95% for the week. It was actually up 1.88% since inception last July, so it's also catching up to the golden butterfly. So it's up 19.69% since inception. we're taking or distributing out of this portfolio at a rate of 6% since we think it's less volatile than the other two overall. That equates to taking $57 from it out of the cash portion which is built up for July and we've taken $635 out of this total for the year on a starting amount of $10,000. And now we move to our experimental portfolios where we have seen Some action this week. Fire and brimstone coming down from the skies. This was one of those weeks where you saw both stocks and bonds advancing and so you see big advances in these portfolios when that happens. And so this accelerated permanent portfolio is our first experimental one. It has 27.5% in TMF, which is a leveraged treasury bond fund. 25% in UPRO, leveraged stock fund, 25% in PFF preferred shares, and 22.5% in gold GLDM. It was up 3.29% for the week. It is up 20.12% since inception last July. So it's completely caught back up with the more conservative portfolios. We have been distributing out of this at a rate of 8% annualized. So for the month of July, we'll be taking $74 out of the cash that has built up in there. We've taken out $836 since inception last July. And now the big mover for the week, the aggressive 5050. This one is our most leveraged portfolio. It has 33% in the leveraged stock fund, UPRO, 33% in the leveraged bond fund, TMF. Then as a ballast, it has 17% in PFF, the preferred shares fund, and 17% in an intermediate treasury bond fund, VGIT. The aggressive 5050 was up 4.09% for the week, and it is up 25.17% since inception last July. So as our new leader has jumped right out there and had a great June. was actually up 6.86% for the month of June. I should have mentioned the Accelerated Permanent Portfolio was up 3.67% for the month of June. So both of those are benefiting a lot from the falling interest rates and the increased value of the bond funds in these portfolios. So for July we're taking $77 from UPRO from this It's at a 8% rate annualized. We've taken $842 total for the past year. And finally, our new portfolio, our seventh portfolio, the levered golden ratio. Yeah, I'm saying, and G is the seventh letter made. Yeah, G is the seventh letter made. which I described in detail in episode 103. So I won't go over all that again since you just heard it. You can go back and listen to it again. But it's been in existence for two days and it is up 0.71% for its two days in existence. It is up 0.71% since inception two days ago. Don't be saucy with me, Bernaise. And hopefully this will be an interesting portfolio to keep track of since it is leverage, but not nearly as leveraged as those other two experimental portfolios. And now just taking a look at how these six portfolios have performed over the past year since they're about a year old now. We started with portfolios valued at $60,200. We have taken distributions of $3,771 over the past 12 months out of the portfolios. That is an overall rate of distribution of 6.26% and they've all held up quite well with their distributions. Looking at what's in there still now, they have gains of $8,291 so they are up 13.77% besides the distributions that have been taken out. Overall, this has been a good year for the stock market, so it's not surprising that the portfolios have also done well since they are mostly driven by stocks. This will become more interesting when we have some bad times for the stock market, because then you will see that the real advantage in these portfolios is that they will go down less than other standardized stock bond portfolios when there are downturns in the stock market. Now we won't be hoping for that, but I'm sure it will happen sometime, as it always does. And we will look forward to rebalancing four of them which will occur later this month, the ones that are on the calendar rebalancing schedule. But now I see our signal is beginning to fade. Forget about it. If you have questions or comments for me, send them to frank@riskparityradio.com the email is frank@riskparityradio.com or you can go to the website www.riskparityradio.com fill out the contact form and I'll get your message that way. Shirley, you can't be serious. I am serious. And don't call me Shirley. As usual, we are still a couple weeks behind in answering the emails. Hello!

Mostly Voices [34:09]

Hello, anybody home?

Mostly Uncle Frank [34:14]

And so we're just dealing with the ones that we received on June 21. We've got some intricate ones coming up, so we'll probably spend at least one episode totally on emails this week. Ain't nothing wrong with that. If you haven't had a chance to do it, Please go to Apple Podcasts or wherever you get this podcast. Leave it a five star review, like it, subscribe to it, follow it, or whatever they allow you to do there these days. I'm asking you to do that.

Mostly Voices [34:43]

Thank you once again for tuning in.

Mostly Uncle Frank [34:47]

This is Frank Vasquez with Risk Parity Radio signing off.

Mostly Mary [35:09]

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.