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 [0:41]

Thank you, Mary, and welcome to episode 124 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.riskparityradio.com on the portfolios page. But before we get to that, we have two other items on the agenda. First off, the emails, as usual. And we are finally finishing up with September's emails. And then second, second off, we have a special announcement just in time for Halloween.

Mostly Voices [1:17]

Hi everyone, Count Floyd here. We got a scary one for you this week. We have some Risk Parity Radio.

Mostly Uncle Frank [1:25]

Non-fungible tokens or NFTs to tell you about that some of you may be interested in. And most of you are probably not, but we're gonna talk about them anyway. I'll show them.

Mostly Voices [1:37]

I'll show them all. So first, I'm intrigued by these how you say, emails.

Mostly Uncle Frank [1:49]

And first off, we have an email from Melanie.

Mostly Mary [1:53]

And Melanie writes, If holding a brokerage and other tax-advantaged retirement accounts at Schwab, would using VTI, VIoV, SHY, TLT, or GLDM be cost effective, or should I look for the same type of funds offered at Schwab? How does one find investments at Schwab that replicate those found in the GB portfolio? I recently dumped some cash into a golden butterfly portfolio with the same funds used for this podcast in my brokerage account as it was the only place I could park it. I now wonder if I could have been a bit smarter saving on fees if I had bought into similar Schwab funds. I plan to transfer current investments in my Roth and traditional IRA to a GB portfolio, hence my asking for your expertise. As always, your podcast is stellar. I have much to learn, green but growing. Mary is a great addition to the podcast and the sound bites crack me up. Mary, Mary, why you buggin'? Hope all is well, Mel. Well, I wholeheartedly agree.

Mostly Uncle Frank [3:04]

Mary is a great addition to the podcast.

Mostly Voices [3:08]

Mary, Mary, I need your hug.

Mostly Uncle Frank [3:12]

I should thank my friend Jim who suggested that she make more of a presence on this podcast. I think everybody's thankful for that. Yes!

Mostly Voices [3:24]

As for your question about Schwab funds, yes there are some that correspond

Mostly Uncle Frank [3:29]

to the funds we use in our sample portfolio and some with actually lower expense ratios. In particular, you can use SCHQ instead of TLT and you can use SCH-O instead of SHY. And both of those are essentially the same type of fund with a lower expense ratio. For VTI, I don't think you really need to change that, but you could use ITOT as another option in terms of a total market fund. I would stick with ETFs and not use mutual funds unless you are already invested in mutual funds simply because they are easier to move, easier to manage, and generally more tax efficient forms of funds. Now as for GLDM, you could also use SGOL or Iaum Iaum seems to be the lowest cost gold fund these days at 0.15%. I think SGOL is the same as DDL M in terms of expense fees, but they are all very similar. The good thing about using ETFs at a place where they have no fee trading, of course, is the fact that you can use anybody's ETFs at anybody's brokerage. so you can use Vanguard ETFs at Schwab or you can use Schwab ETFs at Vanguard or Fidelity. Whereas if you're using the mutual funds you better stick to the same kinds of funds that the brokerage itself provides because chances are they're going to charge extra fees for trading in somebody else's mutual funds. It's just the way things are. In any event, the fees we're talking about in these funds are all on the lower end of the scale and none of them should be an impediment to what you are doing. I would not trade out of funds if you're going to have tax liabilities just to get into something that's slightly lower expense fees. But everybody's situation is a little bit different there. I hope that helps and thank you for that email. Second off. And our next email is from David. And David writes, hello.

Mostly Mary [6:07]

A few months ago, I started listening from episode one and have finally caught up. Unfortunately for me, you are currently on vacation and this has left me with a gaping hole in my podcast listening. I hope you have a nice vacation and I look forward to your next episode. While you've been relaxing, I've been trying to find other fire risk parity podcasts. So far, I haven't found any which I trust or enjoy listening to. This got me hoping you could make some recommendations. What podcasts and financial websites do you trust and enjoy? Also, a references tab would be a nice addition to your website. You didn't ask, but when you first started the sound clips, I found them a bit irritating. However, I've since changed my mind and really enjoy them. Thank you for all of the time and effort you put into this podcast, David.

Mostly Uncle Frank [6:56]

Well, I'm glad you're enjoying the podcast and that I was missed, or we were missed while we were gone on vacation. Well, let's see here. As for a references tab, well, I am retired and that sounds like too much work. So, I'm unlikely to do that. However, there is a way to get around this. If you go to the podcast page, you can actually search the podcast, word search them, and it also searches the show notes when you do that so that you could bring up then older podcasts that talk about various things, look in those show notes and see those references there. So hopefully that's at least a partial solution for you. And I'm glad you've grown into like the sound clips. I know that Many people like to play guess the sound clip or guess where it came from or guess which sound clip you're likely to hear next given the content of an email. Bow to your sensei. It still is the most controversial part of this podcast, which is probably saying something good if that's the most controversy that I raise on this podcast. But it's interesting of the reviews I've gotten on Apple Podcasts there. Uniformly, almost all five star or one star, depending on whether somebody likes the sound clips or not. Thankfully, they still run about eight or nine to one in liking the sound clips. You can't handle the dogs and cats living together. But that simply may be a confirmation bias that somebody who doesn't like them doesn't come back after listening to one of the episodes. I don't think it means what you think it means. So be it.

Mostly Voices [8:41]

You are talking about the nonsensical ravings of a lunatic mind.

Mostly Uncle Frank [8:50]

You can't handle As for other podcasts, I am not aware of any other podcast that focuses on this particular issue. And by this particular issue, I mean applying risk parity principles or what we call the Holy Grail principle to do it yourself investing. That was part of the reason I created this podcast because it didn't exist. I'll show them all. You will find that the concept of risk parity comes up from time to time in various financial podcasts and sometimes it is well discussed and sometimes it is really not. But I thought I would add this to the podcast landscape. I've attracted a very small but loyal following of at least about a thousand people who listen to this regularly. And I greatly appreciate each and every one of you, but I would rather be creating something that is of a lot of value to a small number of people than something that is of little value to a lot of people. Now, as for other podcasts... I want you to be nice. I am an inveterate podcast junkie and have them playing in the background of my life most of the time, like some people listen to the radio. So I will give you a whole pile of them that may or may not be of interest to you. What I usually do is look and see what the topic is for a particular one and decide whether I want to listen to it or not. So here we go as to a, believe it or not, incomplete list of financial podcasts I listen to. If you are looking for investments in theory about investments, I think the two best ones that I listen to these days are Money for the Rest of Us by J. David Stein, who is also the person who came up with the 10 questions to master successful investing that we use to analyze investments here. He is a former institutional fund manager and has decades of experience in the area, but also is willing to explore new kinds of investments and always presents things in a very informative way. So if you're Wondering about things like say closed end funds, you will find a podcast that he has done that will explain to you what those things are and how they work and those sorts of things. I also do recommend his book which is also called Money for the Rest of Us. Another good investments in theory kind of podcast is the Rational Reminder podcast which is put out by a couple of Canadians. and they tend to focus on a lot of the academic research that is behind investing and interview a number of interesting guests who have done research into things like inverted yield curves and why these CAPE ratios don't seem to be predictive of the way markets behave and all sorts of other issues, some of them quite technical. But very interesting. Be aware that they are Canadian, so the tax advice they give is often only suited to Canadians and not suited to Americans. But that's also a very excellent podcast. Now, there's a number of podcasts I listen to that are a lot of interviews of famous investors and other people. One of those is called the Investors Podcast or TIP, and they have several podcasts on their platform. Including a nice recent series on crypto currencies and crypto assets. If you want to understand those, you'll find that there. I've listened to Masters in Business by Barry Ritholtz for years, who has interviewed all kinds of famous investors and other people like Ray Dalio and Jack Bogle and Danny Kahneman. That one seems to be less interesting these days. I don't know why, but it is certainly out there and the back catalog is tremendous. I listen to the Long View by Morningstar, which is usually Christine Benz, and that can be hit or miss. That's more of a, what I would call an industry podcast. They're never gonna say anything that's too controversial or too opposed to how the financial services industry works. I listen to the Meb Faber Show, and he is a person that runs a funder to and also interviews a lot of interesting guests. Rick Ferri has a podcast that's worth listening to. It's called Bogleheads on Investing and he interviews a number of people on there. A couple of other ones that interview people are Grant's Current Yield Investing with Jim Grant and the Intellectual Investor with Vitaliy Katsenelson, although that one is more reading of articles. Vitaliy Katsenelson is a Register an investment advisor who specializes in value investing in the financial independence and personal finance category. Of course, one of my favorites, my all-time favorites is Choose FI with Jonathan and Brad who have had me on their podcast, which makes it the best one, of course. Forget about it. I think they've done a really good job at bringing the concepts of financial independence to the masses and make making people feel more comfortable applying those principles to their everyday lives because you listen to a podcast like this one and it can get kind of engineering nerdy sorts of things and they are able to avoid that sort of thing and make something that is appealing to a wide audience and I appreciate that. I listen to Optimal Finance Daily, which is my friend Diana Merriam reading articles and blog posts from various people. I listen to Everyday Courage with Jillian Johns-Rood. She's also in the Choose FI umbrella loosely. A Ford Anything with Paula Pant. She also has some excellent interviews in addition to answering questions. I listen to Stacking Benjamins, although to save time, I usually skip the trivia portion, which takes them a good 10 minutes sometimes of their podcast. Bigger Pockets Money with Scott and Mindy has a lot of not only interviews, but also essentially test cases or test studies of people coming on talking about their personal finances. Journey to Launch with Jamila Souffrant has interesting perspectives and guests that you don't hear from elsewhere. Sound Investing with Paul Merriman talks largely about his theories of investing and his particular portfolio constructions and is very informative and insightful. Marriage, Kids, and Money has a variety of family-related topics. The Money Guy Show is almost always worth listening. It is put out by a registered investment advisor who has adopted what I think should be the kind of business model for financial advisors going forward, in which case they are offering lots of free advice to beginning investors to get people investing to make things simple and not claiming that everybody needs a financial advisor right away. In fact, that's not what they say. They say, go do these simple things. Accumulate a lot of money and then when you have a complicated situation, then go talk to financial advisors about what you really need to do. To me, they are much more in alignment with their clients than the typical retail sales operation that you would hear from retail financial advisors and insurance companies. Tell me, have you ever heard of single premium life? Because I think that really could be the ticket for you. So on and so forth who are trying to get you in the door and get you paying fees from the get-go.

Mostly Voices [17:17]

Because only one thing counts in this life. Get them to sign on the line which is dotted.

Mostly Uncle Frank [17:25]

And finally, there is the new entry into the personal finance area from Ramit Sethi. I will teach you to be rich. And this one is actually interviewing couples. So it ends up being kind of reality TV or Dr. Phil meets personal finance. but he does a very good job with that. And I'm not done yet. In the what I would call the retail financial journalism area with current topics and related topics like that, I would put so Money with Farnoosh Torabi. She has a journalism background and so presents like a journalist. I'd also put in Money Life with Chuck Jaffe, who has decades of experience first as a columnist and now as a podcaster who interviews a lot of people in the industry, essentially, fund managers. And that one is much more like a show you might hear on CNBC, where people are essentially commenting about current events and what they might mean for markets. So you should really take that for entertainment purposes only, for the most part. But it does have a lot of interesting sound drops that I really like. The best Jerry, the best. In this category, I'd also include the Motley Fool podcast. They have a weekly one where they talk about markets, and then they have another one where they largely answer questions. And then you also have Animal Spirits. Those are two guys that are affiliated with Barry Ritholtz. Ritholz and his operation. And they are also largely talking about current things in the news and what impact they might have on environments. They do some personal finance on there. And then the Venerable Money Girl podcast is also interesting for basic information. It's a very short podcast, but if you are not familiar with how financial markets work? How do you open accounts? What are insurance available? All of these very basic questions, that's a good place for somebody who is unfamiliar with just all the lingo and how stuff works to go and listen to and learn some of the basics, if you will. And that is with Laura D. Adams. Now, a few more here. These go to 11. In the category of retirement and high net worth individual type podcasts, I would listen to the retire answer man, retirement answer man, excuse me, with Roger Whitney. And that is all about retirement issues, ranging from portfolios to social security and other issues that pertain to retirement itself. I'd also put the white coat investor in this category. as it is directed at doctors and high net worth individuals and has everything from talking to specific individuals about their finances, how they succeeded, but then also giving advice to in particular people with high W-2 type salaries who are planning, you know, on retiring either early or later but need to know how to manage that and how to avoid all of the pitfalls of the financial services industry.

Mostly Voices [20:53]

I drink your milkshake.

Mostly Uncle Frank [20:57]

I drink it up. They do a really good job at going after the bad practices of the financial services industry and telling you about the problems that People like doctors and lawyers often faced because they are like chum in the water for insurance salespeople and other kinds of salespeople.

Mostly Voices [21:21]

They're sitting out there waiting to give you their money or you're gonna take it. And so he does a good job addressing all that stuff.

Mostly Uncle Frank [21:28]

And then in this category, I will throw Millionaires Unveiled, which is simply a show where they interview a different millionaire or sometimes multimillionaire or sometimes not quite millionaire person. to see how they got there. What is their financial story? And that has varieties of people with varieties of backstories and discussions as to what sort of things they invested in to get them to where they were. And if you listen to enough of them, you will find people on there that are in similar situations to you. And so you can feel like you can learn something from them as to what what might be good choices for your situation. I like that because it's very real world. This is a person who became wealthy. This is how they did it. And finally, a couple podcasts that I don't really have a category for. One is Radical Personal Finance with Joshua Sheats, which might be discussing anything from prepping for the apocalypse to living in another country, to insurance. And so that one is something that you do need to look at what the topic is to decide whether it's something that's relevant to your situation or not. And then sometimes I also listen to the Michael Kitces Financial Advisors Podcast. It's a podcast that is specifically addressed to people in the financial services industry who are trying to run their practice or figure out how to run a financial services practice. and I like listening to that to get a sense for what is going on in that industry that I am so critical of.

Mostly Voices [23:13]

Do you think anybody wants a roundhouse kick to the face while I'm wearing these bad boys? Forget about it.

Mostly Uncle Frank [23:21]

I feel like people like Michael Kitces are trying to make things better in terms of the reputation of their industry and how they operate. So if you are interested in being a financial advisor, that's where I would go and that's what I would start listening to. right away because you'll learn a lot as to how the real world of that works. But now I am sure that list I just gave is more than anyone wants to hear.

Mostly Voices [23:45]

You are talking about the nonsensical ravings of a lunatic mind.

Mostly Uncle Frank [23:49]

Or listen to and wonders how I do anything else with my time. But I am very judicious about actually what I listen to from these. I will Subscribe to all of them and then just pick and choose which ones I think are worth listening to that particular day. But thank you for that email and sorry for the long-winded answer.

Mostly Voices [24:09]

Everyone in this room is now dumber for having listened to it. Guy wouldn't no majesty if it came up and bit him in the face.

Mostly Uncle Frank [24:21]

Now next we have an email from Jeffrey and Jeffrey writes：Frank, in any risk parity portfolio, do you see any

Mostly Mary [24:29]

reason to deviate from basic market cap weighted ETFs for the stock portion? Given that the S&P 500 is so concentrated in the top five stocks, would you ever recommend an equal weighted fund like GSEW? Also, how about supplementing the market index funds with some sector funds that you may think will outperform in the future? Maybe a cybersecurity ETF or medical device ETF, for example. A basic index fund tends to give you small exposure to certain sectors. Thanks, Jeffrey.

Mostly Uncle Frank [25:04]

Well, thank you for this email. What you are getting at actually goes to a couple of our core principles here, namely the Holy Grail principle and the macro allocation principle. Now let's talk about how the Holy Grail principle fits in here. It is King Arthur and these are my knights of the round table. We have been charged by God with a sacred quest. The Holy Grail principle says that when selecting funds, in this case we're just focused on the stock portion of the portfolio, one of our priorities is to find things that have lower correlations with each other. And so we don't really want to hold two funds that are highly correlated with each other. We don't need to have a total stock market fund and a large cap growth fund because they're largely the same thing. It's not wrong to have both of them, but you shouldn't pretend that there's something significantly different about them. So what are the things that are least correlated with those? Because typically somebody will have a total stock market or large cap growth section of their portfolio. The things that are the least correlated with those are going to be first small cap value funds. So the way to get that diversification is not to worry about an equal weight fund, which is just going to cost you more money, but just actually hold something that's on the other end of the spectrum, small cap value. And so that would be kind of the simplest diversified stock portfolio that you might want to hold that you'll see in the Golden Butterfly or the Golden Ratio Portfolio has a component that is total market or large cap growth and then has a component that is small cap value. And believe it or not, just having those two things is probably going to make you more diversified than most other people's three, four, five fund portfolios. because they really haven't looked at the correlations and done this analysis and applied the Holy Grail principle. Now what other things tend to be uncorrelated with total stock market portfolios? There are two particular things that you might want to consider, and those are REITs and utilities. Because both of those tend to have a much lower correlation to the overall stock market than some of the other sectors which are very much overlapping. For example, a technology fund and a large cap growth fund are really highly correlated, so there really isn't a point of holding both of those. There's no diversification there. The other thing that you might have some use for might be an energy sector fund like XLE, because that is going to perform well in an inflationary environment. Unfortunately, it's not really as diverse from overall stock market funds as something else. So it's kind of hard to decide whether you really need that or not. One really positive and important thing about small cap value funds and REIT funds is they tend to perform well in inflationary environments like you had in the 1970s. And that's why you want this balance, because if you have an environment like the 1970s, you'll have large cap growth funds not doing that well. They don't do as well in that kind of environment, whereas small cap value funds and re funds in particular and energy in that circumstance or people that produce energy or commodities tend to do well in that kind of environment. Whereas if you have an environment like we've had for the past 10 years or so, which has been a low inflationary environment, Large cap growth tends to do a little better in that kind of environment. And so that plays into our holy grail principle of trying to match up different funds to deal with different kinds of, say, weather in the portfolio. Utilities are kind of an oddball thing as they perform a little bit bond-like, so they do well in deflationary environments or low growth environments. but probably not well enough that you would, for instance, substitute them for a bond fund. Because they're still stock funds, they're still positively correlated with the stock market. So you can use them, but it's hard to fit them in. Okay, as to selecting things that you might think will outperform in the future, that would violate what we call the macro allocation principle. That's really not what I do, Peter. What the macro allocation principle says, and it comes from the book of Jack Bogle's Common Sense Investing, chapters 18 and 19, goes over a bunch of research that basically says over long periods of time, any reasonably well diversified stock portfolio is likely to perform 90%, I think he says 94%, or more the same as any other reasonably diversified stock portfolio. which means trying to figure out which is going to be better in the future is probably a fool's errand. Because in reality, you're not really going to know, except in hindsight. So, for instance, in the 2000s, you had a lot of people saying, well, you should be in the value stocks, you should be in the international stocks, see how these things are growing, see how well they're doing, See how much better they are than large cap growth stocks. And then what happened for the next 10 years? You saw large cap growth stocks go crazy, and those other two popular things do poorly. And almost nobody predicted that at the time. So what we're really trying to do here is just come up with a mix of assets that will do reasonably well in all kinds of environments, without trying to predict which environment we are going to have and which of the asset classes is going to do the best in that future environment. Man's got to know his limitations. And we take that as a limitation on our abilities to predict the future. Man's got to know his limitations. This does not mean that I'm discouraging you or anyone else from deciding that certain stocks, sectors or whatever will perform better in the future and investing some of their money into those things. If you can do that, more power to you. You should go and do that then. What I'm saying is we shouldn't have to be able to do that in order to have successful portfolios, particularly successful drawdown portfolios, which is what we're trying to do here.

Mostly Voices [32:04]

The good news is, I think I can help you.

Mostly Uncle Frank [32:08]

And finally, just getting back to the diversification issue, that is something that we measure with numbers in a correlation matrix. So in order to decide whether something's diversified, we don't look at the names, we don't really look at what's in it. That's of narrative use. But it's not of practical use for portfolio construction. For the practical nuts and bolts of portfolio construction, you really do want to put these things in a correlation analysis and use that as the basis for deciding whether they are sufficiently diversified or not and not rely on casual differences between things. Forget about it. Because what you care about is the difference in performance in different kinds of economic environments. But thank you for that email because it allows us to go back and clarify and talk about the application of these principles that are at the basis of portfolio construction. You need somebody watching your back at all times. And I will link to the podcast. I think it was number nine or 11. where we went through these three principles and where they came from and why we use them.

Mostly Voices [33:27]

Am I right or am I right or am I right? Right, right, right. And our last email of the day.

Mostly Uncle Frank [33:31]

Last off. Our last email of the day comes from Richard and Richard writes.

Mostly Mary [33:39]

Frank, always looking forward to new episodes. Regarding the use of leveraged bond funds in a portfolio, although I suppose technically my question applies to all leveraged funds, From what I can tell, these typically pay out little to no income. In an environment where yields are low, I can see why this might not be a big deal. But would it start to significantly impact your overall portfolio performance as yields get higher relative to holding regular bond funds? Maybe the leverage aspect outweighs the lack of income. I'm just not sure how to think about this or to evaluate it historically. Thanks for any insight. Well, yeah, this is a very interesting question.

Mostly Uncle Frank [34:19]

The real purpose of the bonds that we hold in these portfolios is to be diverse from stocks, to be inversely correlated, to actually increase in capital value when stocks are declining. And so what kind of bonds do that the best? That's what we're most focused on. We're not focused on the income at all. The kinds of bonds that do that the best are the long-term treasury bonds. And so what do these leveraged bond funds do? They just take that or the impact of that and multiply it. But the leverage does obviously affect the overall impact something like this is going to have in your portfolio. And where that is solved or where that ends up going is how much, what is the appropriate allocation to a bond fund, whether it's a leveraged one or not a leveraged one, and that needs to be done in relation to what else is in the portfolio. In particular, remember that these portfolios are still primarily stock-based portfolios. That is where the long-term Frank Vasquez：Make sure to boost the words Risk Parity Radio, Frank Vasquez, risk parity, risk, parity, Frank, Vasquez in the audio.

Mostly Voices [35:53]

Frank Vasquez：Make sure to boost the words Risk Parity Radio, Frank Vasquez, risk parity, risk, parity, Frank, Vasquez in the audio.

Mostly Uncle Frank [35:57]

Frank Vasquez：Make sure to boost the words Risk Parity Radio, Frank Vasquez, risk parity, risk, parity, Frank, Vasquez in the audio. Frank Vasquez：Make sure when the stock market fell off the cliff and we had that to boost the words Risk Parity Radio, Frank Vasquez, crash, we saw an ordinary long-term risk parity, risk, parity, Frank, bond fund go up 25% to 30% in capital value, in which case you could Vasquez in the audio. Frank Vasquez：Make sure have rebalanced out of that, bought more stocks when they were low, and then to boost the words Risk Parity Radio, Frank Vasquez, risk parity, risk, parity, Frank, profited from that rebalancing. Now, a leveraged bond fund like TMF Vasquez in the audio. Frank Vasquez：Make didn't go up 25% or 30%. It went up 65 to sure to boost the words Risk Parity Radio, 70%, 65 to 70% in Frank Vasquez, risk parity, risk, parity, a two or three month time period while your stocks were crashing. Frank, Vasquez in the audio. Frank Vasquez：Exactly when you needed to have something performing well. Make sure to boost the words Risk Parity Radio, And so that is why you would hold that fund. You don't hold it for Frank Vasquez, risk parity, risk, parity, Frank, any income coming off of it. Makes no sense. The volatility Vasquez in the audio. Frank Vasquez：Make of it and its impact in a stock market crash environment is sure to boost the words Risk Parity Radio, what you're looking for. Now, the next criticism that I hear is, well, I heard that bonds are now becoming positively correlated with stocks and doesn't that mean that everything is different and everything that ever happened in the past is never going to be the same? Lighten up, Francis. This time is different. Well, you can go with that, but recognize that you are going against about a hundred years of history. Fat, drunk and stupid is no way to go through life, son. Because even when stocks and bonds were positively correlated in good times, like say in the 1980s, when you got to a crash like 1987, the stocks went down, the treasury bonds went up in value.

Mostly Voices [37:36]

Yeah, baby, yeah.

Mostly Uncle Frank [37:40]

It is a flight to safety feature of treasury bonds that does this. And I'll link to another paper in the show notes. This one just came out in 2021, confirming yet again that this is a feature, this flight to safety feature. So regardless of whether you think bonds and stocks are going to be positively correlated in mediocre or good times, this flight to safety feature of treasury bonds has held and we believe will continue to hold in the future. And there's no evidence to suggest that it won't. Forget about it.

Mostly Voices [38:16]

And that paper is called Flights to Safety

Mostly Uncle Frank [38:20]

and Volatility Pricing from some researchers at Duke University. Now just to follow this up, as I said, the reason we're holding these kinds of bonds is for their diversification and this feature of flight safety during stock market crashes. You could also hold bonds for income, although these days you're not going to get much income out of them. So you're probably better off holding something like preferred shares fund, like PFF, which will give you an income and it'll give it to you in a qualified dividend as opposed to ordinary income. And so your taxes on it will be lower in a taxable account. The other reason to hold bonds is simply safety or security, in which case we're talking about holding short-term bonds. You're not going to expect they're going to make a whole lot of income. They're essentially a cash substitute. They're kind of like having a savings account. Those are fine for a little bit of your portfolio, but if you have too much of that in your portfolio, it will drag the returns down. in the same proportion that it'll drag the volatility down, which is not what you want. You want to have your returns stay higher and still have a lower volatility. Now, you only get that by selecting bonds that are the most inversely correlated to your stocks, because that's how diversification works. It's not only the direction, but also the volatility of it. and you want something that is more volatile and inversely correlated than something that is less volatile and inversely correlated when you're talking about diversification. And that's why the characteristic you have of these risk parity style portfolios is you're only giving up between 15 and 20% of the return, but what you're getting in terms of lower volatility is lowering the volatility by about half. And so you can see that's a much better benefit than having something that is, say, 70% stocks and 30% short-term bonds. Yeah, that'll have 30% less volatility, but it'll also have 30% less returns. But thank you for that email. It's good to talk about that issue because it comes up frequently and is one of the most confusing for people to absorb and appreciate largely because they've never heard it before or they have an idea or some misinformation of their mind because somebody was comparing different kinds of bonds, say corporate bonds to stocks, and not making the right comparisons in the right way. Am I right or am I right? Am I right? Am I right? Am I right? But now for the fun portion of the program, or the scary portion of the program. We got a scary 140 this week. We are going to talk about our latest fundraising experiment for charity, which is Risk Parity Radio NFTs. Shirley, you can't be serious. I am serious. And don't call me Shirley. I've been kind of intrigued by the possibility of creating non-fungible tokens. These are electronic things, artwork, music, or other things that are uniquely identified on a blockchain. And so they are part of the crypto universe. And I thought it might be interesting to make some. And so I have made some NFTs. Tony Stark was able to build this in a cave.

Mostly Voices [42:12]

With a bunch of scraps!

Mostly Uncle Frank [42:15]

And what they are, if you look at them physically on your screen, is each one is a representation of the Risk Parity Radio logo, the trademark logo, but they're also signed and numbered, signed by me and numbered, so you can see on their face that they're different in addition to having the coding differences. And I put all these out at open seas.io and if you want one, I'm curious to see whether there's any demand for them at all.

Mostly Voices [42:50]

You're not going to amount to jack squat! you!

Mostly Uncle Frank [42:53]

can go and buy one or you can buy up to 20 of them. There are 20 of them there right now. And I will link to this on the support page at the website www.riskparityradio.com. Go to the support page and you'll see the link there to the NFTs. Now, unfortunately, because they're in crypto space, you can't buy them with dollars. You need to use Ethereum to buy them, and I'm very sorry about that. They are priced at the equivalent of about $20 each, or at this point, 0.005 Ethereum.

Mostly Voices [43:27]

So be sure you send 27 bucks, $27 to me, Count Floyd.

Mostly Uncle Frank [43:34]

So if you want one and you have the crypto wallet to do it, you can go and buy that thing and you can own it. And then you can resell it if you want to or do anything else you want with it. Just so you know that these will be scarce. The first 20 will go out at approximately $20. If they all get sold, the next batch will be at $30 and then we will go up the Fibonacci sequence to 30, 50, 80, 130, 210, and so on and so forth. So in theory they will be scarce and valuable, whether a lot of people want them or not.

Mostly Voices [44:10]

Would you like to see my dinky? Yeah, what? My little cat dinky.

Mostly Uncle Frank [44:14]

The money that is raised for this will also go to the Father McKenna Center. And I am on the board of the Father McKenna Center. It serves homeless men in downtown Washington, DC. And it is the same place that the Patreon money is going to. It really has nothing to do with risk parity per se, but I thought it would be something interesting to try. I'll show them. I'll show them all. And there at least might be some entertainment value out of it, even if there is no financial value out of it. I will be mentioning it infrequently on the podcast, but it is always there. if you're interested. And now for something completely different. And that's something completely different is our weekly portfolio reviews of the seven sample portfolios that you can find at www.riskparityradio.com and we are also doing our monthly reviews and talking about the distributions that we will be handing out from these portfolios in November. But since this has been a long podcast, we will whip through this as efficiently as possible. The markets for reference, the S&P 500 was up 1.33% for the week. NASDAQ was up 2.7% for the week. Gold was down. I think you've made your point, Goldfinger. Thank you for the demonstration. Not loving gold, it was down 0.51% for the week. Long-term treasury bonds represented by the ETF TLT were up 2.36% for the week. This is a rare week where we had positive spikes in both the bond and the stock market. REITs represented by the fund REET were up a mere 0.07% for the week. Commodities were down this week. PDBC was down 0.36% for the week, but preferred shares represented by the fund PFF were up 0.79% for the week. Overall, what you saw this past month is the total reversal that September was bad and October was excellent and so over the past two months everything's ahead a little bit for the most part. But looking at the portfolio starting with our most conservative portfolio, the All Seasons portfolio, that's only 30% in stocks and mostly in bonds with some commodities and gold in it. It was up 1.16% for the week. It is up 12.05% since inception in July 2020. We are distributing out of this portfolio at the rate of 4% per year of variable rate. So that translates into $36 that we will be distributing out of this portfolio for November. We will take it out of VTI, which is the best performer these days, and is the stock fund in there. And so since inception, we'll have removed $522 out of this total. 35 from gold, 33 from intermediate term treasuries, 248 from the stock fund, $70 from commodities, $139 in accumulated cash. And it is well over its original starting amount, even though it is very conservative. Now moving to our next portfolio, these next three are kind of our bread and butter portfolios that are designed to be like, or have the risk characteristics of a 60/40 portfolio. The first one is the Golden Butterfly. This one's 40% in stocks, 40% in treasury bonds, and 20% in gold. It was up a mere 0.3, 0% for the week because the small cap value fund was not up that much. And it is up 21.87% since inception in July 2020. We will be distributing out of this and are distributing out of it at a rate of 5% annualized. So we take 5% of the total, divide it by 12, and we get $48 for this portfolio. We'll be taking it out of the stock fund VTI. Since inception, we have taken out $733 total, which is 43 from gold, 548 from small cap value fund. $96 from the total stock market fund and $136 from cash. And it still has $11,500 in it. It started at $10,000. Our next portfolio is the golden ratio. This one's 42% in stock funds, 26% in long-term treasuries, 16% in gold, 10% in REITs, and 6% in cash, where we take our distributions from. It was up 0.69% for the week. It is up 22.91% since inception in July 2020. We are also distributing out of this at a rate of 5% annualized, which translates into $48 from cash coming out this month for November. And we have distributed $733 from it since inception and it has $11,606 in it. Still right now after the distributions. Our next portfolio is the Risk Parity Ultimate. I won't go through all of the funds in this. There's about 14 of them that include stock funds, long-term treasury funds, gold, REITs, commodities, a little bit of cryptocurrency, and a volatility fund. It was up 1.04% for the week. It is up 23.27% since inception in July 2020. We will be distributing $58 from this, which is coming out at a annualized distribution rate of 6%, so higher than the other two, and we'll be taking it out of the Leverage Stock Fund, UPRO this month, which has been the best performer. We will have taken out $863 total since inception in July 2020, $52 from gold, $374 from Small cap value, 108 from large cap growth, 116 from the leveraged stock fund, and 213 from accumulated cash from dividends. And it still has $11,522 in it having started off at $10,000. And now we move to our experimental portfolios. The first one is our accelerated permanent portfolio. And these ones were up fairly violently this past week as they had been down fairly violently in September. So this one is comprised of about one quarter leveraged stock fund, UPRO, one quarter leveraged bond fund, TMF, and the remaining two quarters in preferred shares and gold. It was up 3.11% for the week. It is up 26.36% since inception in July 2020. We are distributing out of this at a rate of 8% annualized. and we will be taking $77 from the Leverage Stock Fund, UPRO for the month of November. We've distributed $1,140 total out of this portfolio. $71 from the Bond Fund, $715 from the Stock Fund, $137 from the Preferred Shares Fund, and $217 from cash over time. And it still has $11,573 in it. despite the distributions. And now we move to our most volatile portfolio, the aggressive 5050, which is one third leveraged stock fund, one third leveraged bond fund, and then the remaining third is divided into preferred shares fund, PFF, and an intermediate treasury bond fund, VTIT, which act as ballast in this fund. And this one was up 4.15% for the week. It is up 34.1% since inception in July 2020. It is going to be distributing out $82 from the Leveraged Stock Fund, UPRO, that is also at an 8% annualized rate. Since inception, we've distributed $1,163 total, $70 from the Leveraged Bond Fund, $817 from the Leveraged Stock Fund, $63 from preferred shares on PFF, and $213 from cash from dividends. and it still has $12,329 in it even after the distributions. And our newest fund that's only been around since July of this year is our leveraged Golden Ratio Fund portfolio, I should say, just 35% in a composite fund called NTSX as leveraged stocks and bonds. 25% in gold, GLDM, 15% in O-A REIT, 10% each in leveraged small cap fund TNA and leveraged bond fund TMF. For the remaining 5%, 3% of it's in a volatility fund VIXM and 2% in cryptocurrency related funds. It was up 1.04% for the week. It is up 4.13% since inception in July. We are distributing out of this at the rate of 7% annualized. And so it'll be $60 for November. We'll take that from the REIT fund O, which was the best performer in the past month. And total we have taken out $238. $118 from NTSX, $60 from the Leveraged Bond Fund, TMF and 60 from the REIT fund O. and it has $10,235 remaining in it, having started with $10,000 in July of this year. But now I see our signal is beginning to fade, and it's been a very long episode. Real wrath of God type stuff. I think we'll be picking up this week with more emails. We're finally getting to the emails for October. Maybe I'll do more than one episode to get through More of them. I do want to go through each and every one of them because people took the time to write them and they do raise a lot of interesting questions that I'm sure more than a couple people have about various things. If you have comments or questions for me, please send them by email 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, and I should get your message that way, although I notice that some of them do get dropped for some unknown reason. If you haven't had a chance to do it, please go to your podcast provider, like this podcast, subscribe to it, give it some stars and a review, and that would be greatly appreciated. That would be great. Okay. Thank you once again for tuning in. This is Frank Vasquez with Risk Parity Radio signing off.

Mostly Mary [55:37]

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.