Mostly Voices [0:01]

A foolish consistency is the hub goblin 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 1 0 8 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 at www dot Risk Parity Radio dot com, the portfolios page.

Mostly Voices [1:01]

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

Mostly Uncle Frank [1:06]

And our first email of the day comes from Eric and Eric writes message, I just recently started listening to your podcast and I'm really enjoying it. I'm listening to the new episodes that come out and I'm binging on the older ones to try to catch up.

Mostly Voices [1:23]

Groovy baby.

Mostly Uncle Frank [1:25]

I have heard you state a couple of times that during the accumulation phase you should be higher in stocks and then when you start to dec accumulate, you should switch to a risk parity pro profile. In my case, I'm still in the accumulation phase as I'm only about one third of the way to my retirement goal number. I have a high savings rate and even if I have a R rate of return of 0%, I'll reach my retirement goal within eight years. Obviously, the higher the return, the quicker that will happen. In this scenario, do you think it would make sense to switch to a risk parity profile that has a shorter drawdown period so I don't get stuck in a prolonged period of drawdowns that ends up making me push my retirement date back a significant amount? Should I slowly glide into something a little more conservative or risk parody ish? When does it make sense for someone to start gliding into something a little more conservative? Thanks for a great podcast, Eric.

Mostly Voices [2:22]

What a strange person.

Mostly Uncle Frank [2:24]

Alright, thank you for this email. Well, you have a different situation than most people because your savings rate is so high. If you are going to reach it in eight years, most of your accumulation obviously is going to come out of savings in your case, since we're talking two thirds of it, to go with a high savings rate in eight years, that that represents a steep savings rate. So I think you could probably start building out your risk parity style portfolio now with your new contributions, which would probably make the most sense. And when you think about it, one third of the way there to a retirement goal is about halfway there in terms of years due to the way compounding works. Because if you figure on average a portfolio, an all stock portfolio is going to double in about seven or eight years, you can see that that last doubling from half to one only takes seven or eight years, whereas the first part of it takes much longer. In your case, your savings rate is kind of dominating this whole process. So I I, I would, if you want to sort of be there in eight years, I would start building out your other assets as you go with your new contributions. And in that way you won't have issues with having to sell a bunch of stuff or incurring tax liabilities. I'm not sure what kind of accounts you're putting this in, but it seems to me if your time period is that short, that compressed and it's really based mostly on your savings, you might as well start moving this portfolio towards what you eventually want to have when you retire or when you stop working.

Mostly Voices [4:28]

Am I right or am I right or am I right? I, I I,

Mostly Uncle Frank [4:32]

And thank you for that email. Alright, second off, second off, we have an email from Gareth and Gareth writes Message, hi Frank, find your excellent podcast via Choose Fi and have now listened to every episode. Thank you for the extensive research that has gone into the podcast. Quick question, how do you measure the accuracy of the information contained in the website's portfolio visualizer and portfolio charts? Don't get me wrong, I think both are excellent resources. However, wondered if there information verified to any recogni nice data standard, keep up the great work Gareth. Well that is the kind of question that is usually asked by somebody who's suffering cognitive dis dissonance. They don't want to believe the results of the data analysis and therefore they question the data attempting to shoot the messenger. You say you're not doing that, I will take you at your word. But for anybody who is doing that, there's a very simple way to figure out what these data sets are coming from, which is to go to the websites themselves. How about that? And if you go to the FAQ at Portfolio visualizer, I'll link to it in the show notes. You will see under the tab of data sources data for us and Canadian Securities, mutual funds and ETFs is provided by Morningstar Inc. And Commodity Systems Inc. Fund distributions for mutual funds are typically reflected within two business days of the X dividend date and for ETFs and stocks on the X dividend date. If you identify a potential data error, please use the contact form two report it a reference list of additional market data sources provided. It includes Morningstar CSI, professor, Kenneth Frenches, data Library Professor Aswath, the Motor On's Data Library Professor Robert Schiller's Data Library. The A QR data sets Federal Reserve interest rates data, London AM Gold Price, London pm Gold Price, Canada inflation rates, Canada treasury interest rates, Schiller PE ratio site, and Fred Exchange rates data. So I don't think you'd have any trouble with that data, forget about it, but if somebody wants to look at that, they can go look at that. Um, as for portfolio charts, I will also link to a search in the show notes. He discusses the data sources periodically on his blog and they started with a set from bogleheads and he is expanded out from there over the years but is constantly working to improve his data sets there. I can tell you they are just very similar to what our portfolio visualizer. They yield the same kind of results of the same kind of things and the same kind of timeframes.

Mostly Voices [7:34]

So there you go, Tossing with

Mostly Uncle Frank [7:34]

Talent. And our next email comes from Jeff and Jeff writes message. Frank, you briefly mentioned Chinese A shares is an equity investment that is remarkably uncorrelated to other US equities.

Mostly Voices [7:56]

I was anticipating that we'd see something about this in the seventh portfolio you unveil last week, Seventh letter made.

Mostly Uncle Frank [7:59]

Can you speak more about this type of investment in both the context of your retirement portfolio and also an accumulation portfolio? Perhaps you can do an analysis of A SHR, that's an ETF on a future episode. Appreciate all the topics you cover and I know a lot of us are rethinking what it means to be diversified. Thanks again.

Mostly Voices [8:19]

Oh, contraire.

Mostly Uncle Frank [8:20]

Okay. Yeah. What we are adding to is going to be the risk parody ultimate portfolio, which we will during the rebalancing this week make some tweaks to it to make it even more diversified. And so what we will be adding to that portfolio is an ETF called KBA, which is Crane shares Boer A shares from China as a terrible long name. It is almost the same thing as A-S-H-R-K-B-A is older, has been around for longer and has a slightly lower expense ratio of around 0.6 versus 0.65 for A SHR. Uh, I will put a correlation analysis for you in the show notes for this podcast. It'll show that these funds tend to have a correlation between like 0.4 and 0. 6 with the US stock funds, total market funds or growth funds or small cap value funds. And so do make a nice addition to your stock component of a portfolio for diversification purposes. Ain't nothing wrong with that. And they are much better than standard international funds, which seem to have correlations that are 0.8 0.

Mostly Voices [9:54]

9 and really are not that well diversified anymore from US stocks, at least the big index funds, Which is huge

Mostly Uncle Frank [9:56]

In theory. This kind of allocation by making some kind of allocation to a fund like this should improve both the returns and the diversification of the stock portion of your portfolio because this does have a higher return historically than US stocks. Now whether that's going to continue or not is a good question because the Chinese stock market is just not that old hasn't been around that long and the idea of being able to invest in these ahas hasn't been around that long either.

Mostly Voices [10:29]

You've gotta ask yourself a question, do I feel lucky? Do I feel lucky?

Mostly Uncle Frank [10:36]

But I think it's worth considering a 5% allocation certainly to any stock portfolio. It's kind of a optional thing I would say. That's why I'm not so gung-ho about it to be putting in all of my portfolios. I do want to experiment with it. So we're going to put 5% into the risk parity ultimate portfolio as part of that stock portion in that portfolio.

Mostly Voices [11:01]

Cool.

Mostly Uncle Frank [11:03]

But thank you for that very timely email. Yes. And we will just have one more email today because we have a few more things to do on the portfolio review side. Last stuff, and this one comes from Randy b message, Frank. He said you were willing to do sessions at $300 an hour. I'd love to take you up on this. I'm struggling to find, to figure out how to move from my current stock bond portfolio to something closer to a golden butterfly. The biggest issue I have is that a large portion of my portfolio is in taxable accounts and some of my stocks have done rather well. Good problem to have, but capital gains will kill me.

Mostly Voices [11:46]

If You can dodge a wrench, you can dodge a ball,

Mostly Uncle Frank [11:49]

Especially as I'm in a high tax bracket person. Would love to get some of your thoughts. Thank you Randy. Well, yes, this can be challenging in a portfolio that has a lot on the taxable side with substantial capital gains. Usually what you try to do is make the main adjustments on the tax defer your 4 0 1 Ks, your IRAs on that side of the ledger to minimize the taxable gains and then also not do that until you are or not touch the taxable side until you actually stop working. And then your cap capital gains tax rate may be lower. But yes, I know we've been in email contact and uh, if you'd like to take me up on my services, you can do that. And so can anyone else? Uh, I hope there are not too many. I've had just enough to make it interesting but not too many to make it onerous. So I'm very happy with a number of people that have taken me up on that both in quality and in the quantity.

Mostly Voices [13:00]

Well I like to do the job right

Mostly Uncle Frank [13:03]

And thank you for that email.

Mostly Voices [13:06]

And now for something completely different

Mostly Uncle Frank [13:09]

And that's something different is our weekly portfolio reviews

Mostly Voices [13:13]

The Inquisition. Let's begin the Inquisition.

Mostly Uncle Frank [13:19]

Look out Sam, You can hear some theme music building in the background. Very common these days, these weeks we've been having. But anyway, looking at the markets last week before we get to the portfolios themselves, we saw the s and p 500 be down 0.97%. The NASDAQ was even worse. It was down 1.87%. Gold was actually up last week up 0.19%.

Mostly Voices [13:47]

It's gold, Jerry

Mostly Uncle Frank [13:47]

Gold. And then our winner for the week. Our only really star for the week was the long-term treasury bonds represented by TLT we're up 1.23% for the week and they've been climbing steadily for weeks on end now.

Mostly Voices [14:10]

Yeah, baby. Yeah.

Mostly Uncle Frank [14:13]

And then we go to the REITs represented by REET. Those were down 0.24%, not as bad as the rest of the market. PDBC was down 0.25%. That represents commodities. PFF, the preferred shares were down 0.48%, which is consistent with their correlation to the overall stock market. They're about half as volatile. And then just for one other reference VIOV, our small cap value fund we use in some of these portfolios was down to 4.72% for the week. By far the worst performer of any of the funds that we have in our portfolios.

Mostly Voices [14:56]

Geez.

Mostly Uncle Frank [14:58]

Which is interesting to note because that was the one that was doing the best earlier than the in the year. But you never know when things are gonna change.

Mostly Voices [15:07]

Forget about it

Mostly Uncle Frank [15:07]

And that's why we have diversified portfolios.

Mostly Voices [15:11]

You're correct sir. Yes.

Mostly Uncle Frank [15:15]

Now looking at the portfolios first we have the All Seasons. This is our most conservative portfolio. It only has 30% in stocks represented by VTI. It's got 55% in treasury bonds, mostly long term represented by TLT at 40% intermediate term VGIT at 15%. Then it's also got 7.5% in gold GLDM and 7.5% in commodities PDBC. This one was down 0.23% for the week, mostly on the stocks and some on the commodities. It is up 9.27% since inception last July. So is doing what it needs to do but not much more. And now we move to our three main portfolios that are designed to have the same risk characteristics as a 60 40 portfolio. Our first one is the golden butterfly. This one is 40% in stocks divided into a small cap value fund, VIOV and a total market fund VTI. It's got 40% in bonds divided into short term SHY and long term TLT equally weighted. And then it has 20% in gold GLDM. This one suffered having all that VIOV in it, it was down 1.45% for the week. It is still up 19.32% since inception last July. Interestingly, this used to be the portfolio that was doing the best and now it is doing the worst of the main portfolios, not including the All seasons, but the returns are very similar to the other ones. And it's just a matter of a little bit different tweaking in what's doing well for each one at various times. Now if we go to the golden ratio, this one is 42% stocks. We've divided that into a large cap growth fund, VUGA small cap value fund, VIOV and a low volatility fund USMV that mimics the s and p 500. And then we also have 26% in treasury bonds, TLT 16% in gold GLDM and 10% in REITs REET. And the rest of it is in cash. The remaining 6%, well that's down to less than 2% now until we rebalance it this week. And so this one was down to 0.91% for the week. It is up 19.83% since inception last July. And now we go to the risk parity ultimate. This one is 40% in stocks. It is about 25% in long-term treasury bond funds. Then it's got 10% in gold GLDM, 10% in REITs, REET, 12.5% in PFFA preferred shares fund and 2.5% in a volatility fund. VXX is actually down to near zero these days having lost money all year down 78% for the year, 76% for the year. Fortunately things like U PRO that are enter up 132% for the year. So it's balanced out. Anyway, it was down 0.77% for the week. It is up 19.75% since inception last July. And so you can see all three of those base portfolios are performing almost the same after a year. And we go now to the accelerated permanent portfolio. This one was down 0.16% for the week. I should tell you what's in it. It's got 27.5% in TMF. That's a leveraged treasury bond fund, 25% in U Pro. That's a leveraged stock fund at 25% in PFF preferred shares and 22.5% in gold. It actually had a rebalancing this past week. And the reason it had a rebalancing is we look at this fund on the 15th of every month and if the original allocations have moved by over seven, 5.5% in any of the components, then we rebalance the whole thing we happened was the U Pro, the leveraged stock fund was about 32.6% of the portfolio on the 15th and therefore it triggered a rebalancing. So what we did for that rebalancing is we sold $865 in the U Pro and then we bought $450 worth of TMF $125 worth of PFF and $300 worth of GLDM. So it's back to its original allocation. But anyway, it's been doing well with its bonds in there. And so it was only down a little bit this week and is up 21.51% since inception in July. That's July, 2020. Alright, looking at our next portfolio, one of our leveraged ones, this is our most volatile one. It's called the aggressive 50 50. This was the only one that was up this past week and it is comprised of 33% in ATM F, the leveraged bond fund, 33% in U pro, the leveraged stock fund. And then it's got 17% in PFF, the preferred shares fund and 17% in in the VGIT, the intermediate treasury bond fund. So it was up 0.05% for the week. It is up 27.05% since inception last July. And finally our last portfolio, our new one that we just started this month, this is the levered golden ratio and this one is comprised of 35% in a mixed leverage fund called NTSX. It's got s and p 500 and treasury bonds in it. It's got 10% in a leveraged bond fund TMF 10% in a leveraged small cap fund TNA 25% in gold GLDM, 15% in the REIT O. And then for the remaining 5% we've put 3% in a volatility fund of VIXM and 2% in Bitcoin funds, BITQ and BITW, which have promptly been doing terrible since we bought them. But anyway, it was down 1.13% for the week. It is still up 0.35% since inception on this past July 1st. So not much going on there.

Mostly Voices [22:02]

I'm putting you to sleep.

Mostly Uncle Frank [22:04]

Oh, a couple more thoughts, notes and plans. So it's interesting of the fall of treasury bond rates and corresponding rise of these bond funds over the past several months is really driving the financial press and services industry. Crazy.

Mostly Voices [22:25]

You can't handle the crystal Ball

Mostly Uncle Frank [22:28]

Because they were all looking in their crystal balls a few months ago and deciding that the interest rates had to be going up and they're wrong. And so now we're seeing headlines like this one from CNBC this past week on their website, which says the mystifying bond market behavior could last all summer.

Mostly Voices [22:47]

You can't handle the dogs and cats living together.

Mostly Uncle Frank [22:51]

And it says the bond market is not following the script many had expected this summer.

Mostly Voices [22:56]

That's Not how it works. That's not how any of this works.

Mostly Uncle Frank [23:00]

Imagine that crystal balls are wrong. Instead yields on long dated treasuries are falling. I wonder why. I wonder why the crystal balls are wrong.

Mostly Voices [23:13]

Now, you can also use the ball to connect to the spirit world.

Mostly Uncle Frank [23:16]

Well, a couple people not in this article, I'll tell you, I, I heard one guy say he lost a lot of money on this and he attributed to tax receipts being higher this year than expected. And I had to say, well, if that's a factor in your crystal ball, how come your crystal ball couldn't account for it? Because it's not like it's a secret that's publicly available information. It is just an example of why these crystal balls don't work. 'cause they're based on a couple of data points and in story, they're not actually based on analyses of all the available data that could affect something.

Mostly Voices [23:58]

Everyone in this room is now dumber for having listened to

Mostly Uncle Frank [24:02]

It. So then they, then they're wrong. And then somebody backtracks and say, oh, well that was because such and such happened. Well, if that was important, how come it wasn't accounted for in your crystal ball to begin with?

Mostly Voices [24:13]

And may God have mercy on your soul.

Mostly Uncle Frank [24:15]

Another person out there who's famous as the bond king said there was greater demand for bonds than we thought. Well, that begs another question. How are you measuring the demand for bonds? The worldwide demand for bonds?

Mostly Voices [24:32]

You need somebody watching your back at all times.

Mostly Uncle Frank [24:35]

I don't know anybody who actually knows how to do that. And if you can't do it, then what good is having a crystal ball that can't do it? If you're only measuring supply by looking at some data from the treasury and you're not measuring demand from all of the places the worldwide, that would be interested in buying bonds from central banks to foreign people who need dollars to speculators, to pension funds. If you can't measure that, then what's the point? What's the point of having a crystal ball that can't measure what it needs to measure to make any prediction at all?

Mostly Voices [25:13]

You can't handle The crystal ball.

Mostly Uncle Frank [25:16]

There's no point to it.

Mostly Voices [25:18]

Forget about it.

Mostly Uncle Frank [25:20]

And the CNBC article has a, you know, another heading and it says yield decline, surprising has been, has been deeper and longer than initially expected. Well, what was, what was the expectations based on expect the unexpected people are saying things. Well, the fed's talking about tightening. Maybe that's it. China's economic numbers weren't that good. Maybe that's it. There's the delta variant COVID, maybe that's it.

Mostly Voices [25:49]

It's, And it's through the candle that you will see the images into the crystal.

Mostly Uncle Frank [25:55]

If you coming up with these things why you were wrong later on and you didn't account for the possibility of them, your crystal ball can't do that, then there's no point in having the crystal ball. Your crystal ball doesn't work. It can't work.

Mostly Voices [26:13]

In fact, drunk and stupid is no way to go through lifestyle.

Mostly Uncle Frank [26:16]

The best it can do is get a random prediction, right?

Mostly Voices [26:20]

You can actually feel the energy from your ball by just putting your hands in and out.

Mostly Uncle Frank [26:25]

Then you see, uh, hand wringing Bank of America's swiper says she expects yields to move higher later in the year forecast the 10 year will reach 1.9%. Well that's, that's what you were forecasting before and you're, and you're wrong. You didn't forecast that it was going to go down to 1.3% or lower. Now why didn't you forecast that six months ago? What was wrong with your crystal ball that it couldn't do that? I'll tell you what's wrong with it. It is wrong with it is you're just guessing. You're taking a few data points out there that are easy to get at. The Fed says this, the deficits this, there were this many bonds at the auction last month. If that's all the data you have, it's obviously not enough to make a prediction.

Mostly Voices [27:17]

So why don't you just stop trying to predict it? Admit you can't do it, Forget about it.

Mostly Uncle Frank [27:19]

And then somebody else, Jim Carrin, head of global Macro Strategy at Morgan Stanley. He says, this is a technical in the treasury market, whatever that means. I think we're in the eighth inning of it, , and now we're playing baseball with our crystal balls. What does it sound like when you hit a crystal ball with a baseball bat? Anyway, this just goes to show you how misguided the idea that these people on TV can predict anything about interest rates or the stock market or anything. They can't do it. They just can't do it. And they get proved wrong over and over and over again and they make a few excuses and try to make up for it. But the fact of the matter is, if they had crystal balls that worked, they would've been predicting the interest rates to go where they are now.

Mostly Voices [28:21]

You're correct.

Mostly Uncle Frank [28:24]

Say yes, The crystal balls don't work.

Mostly Voices [28:28]

They never have and they never will Forget about it.

Mostly Uncle Frank [28:30]

Now enough for that mini rant, bow

Mostly Voices [28:32]

Your sensei, bow your sensei.

Mostly Uncle Frank [28:35]

You'll notice I've made some changes to the website on the portfolios page. I was able to pull up the little graphs that Fidelity provides for each of the portfolios showing the performance over the past year. That performance does include the drawdowns, so it is inclusive of taking the money out of the portfolios. So it will not reflect the total return, but you'll see the differences in each of the portfolios, which ones are more volatile and how they've performed over time. From that, I'll probably be updating that once a month.

Mostly Voices [29:15]

These go to 11.

Mostly Uncle Frank [29:17]

We will also be doing the annual rebalancing for four of the portfolios this week. The all seasons, the Golden Butterfly, the Golden Ratio, and the Risk Parody Ultimate. We are also changing the composition of the risk parity ultimate slightly to make it even more diversified because I did want to include sort of all of the reasonably available asset classes in that portfolio. Since I don't want to have 15 different portfolios. I'm using that one as kind of a kitchen sink to give people an idea of what it's like to have even more asset classes in these portfolios than some of the other ones. So we'll be adding that China a shares fund and we'll be adding a little bit of crypto like our levered golden ratio and we'll be adding some commodity fund and then just rejiggering it slightly. It should have the same kinds of general risk characteristics that it has right now though. If you want to hear more about rebalancing, you can go back and listen to episode 32. And I will also link again to my favorite article about that in the show notes from Michael Kitsis about optimized rebalancing, whether using uh, calendar or rebalancing bands. But now I see our signal is beginning to fade.

Mostly Voices [30:46]

Shut it up you.

Mostly Uncle Frank [30:48]

We will be picking up on Wednesday with our rebalancing episode, but then after that I'm going on hiatus. I'm going on a vacation. I'm actually going on a 450 mile bike ride with some friends of mine. And assuming I survive that, I will come back and make more episodes at some point in the future.

Mostly Voices [31:17]

But you may not hear from me for a couple of weeks just in case you're wondering, Bring out your dad. He just want nine infant. I'm not dead. What? Nothing. Here's your nine infant. I'm not dead. Yeah, he says he is not dead. Yes he is. I'm not. He isn't. Well, he will be soon. He is very I. I'm getting better. No, you're not.

Mostly Uncle Frank [31:34]

You'll be stone dead in a moment And I still will try to update the website while that is going on, but I make no promises there either. If you have comments or questions for me, they're welcome. You can send them to Frank at Risk Parity Radio dot com. That's frank at Risk Parity Radio dot com. Or you can go to the website, www dot Risk Parity Radio dot com and fill out the contact form and I'll get your message that way. If you haven't had a chance to do it, please go like, subscribe, follow whatever you do at Apple Podcast, wherever you get this podcast to get the word out to more people. I'd like to thank all of our listeners. We have over a thousand regular listeners now and this podcast should go over a hundred thousand downloads.

Mostly Voices [32:25]

Yeah, baby.

Mostly Uncle Frank [32:27]

Yeah, For the first year. It was started last year on about July 25th and after I released this episode, a few hundred downloads will put it over that a hundred thousand.

Mostly Voices [32:39]

Ain't nothing wrong with that.

Mostly Uncle Frank [32:41]

I wanna thank each and every one of you for making that happen. Thank you once again for tuning in.

Mostly Voices [32:57]

This is Frank Vasquez with Risk Parity Radio signing off The Inion Show, the acquisition. Here we go. We know you.

Mostly Mary [33:37]

Wishing 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.