Mostly Voices [0:00]

A foolish consistency is the hobgoblin of little minds, adored by little statesmen and philosophers and divines.

Mostly Mary [0:15]

If a man does not keep pace with his companions, perhaps it is because he hears a different drummer. A different drummer. 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 13 of Risk Parity Radio. It is time for our weekly portfolio review. And then we're going to take a closer look at our portfolio of the week, the All Seasons portfolio. You can find the six portfolios that we're reviewing at www.riskparityradio.com. that's www.riskparadioradio.com and if you go to the portfolios page they are all there with this information. Just for some background for this week it was a tumultuous week in the markets the S&P was down 2.2% the NASDAQ was down 3.3% bonds were flat although long-term treasury bonds were up 0.7% and gold was down 1.5%. You'll see how these statistics impact our risk parity portfolios because it shows that our risk parity portfolios are much less volatile than the stock market, which is why we hold them and why they are good for drawing down. We'll also discuss the drawdowns that were taken out for September for each of the portfolios. So let's get into it looking at the All Seasons portfolio to start with. This portfolio was down a whopping 0.7% this past week and it had a $35 distribution from it which is 4% annualized. We took the total and divided it by 300 and that's how much we took out. If you look at how much we've taken out past two months It is $70 total, and it was taken out of the gold the first month and the stock market fund, the VTI, the second month. And that is a good indication of how this works. For each month something is going to perform better than the other components of the portfolio, and you'll have different drawdowns coming out of different segments of the portfolio. over time. So this portfolio is still up 0.82% since inception in July. Moving to the Golden Butterfly portfolio, it was down 1.0% last week. And you'll see that these main conservative risk parity portfolios are all down less than half of what the stock market was declining. And that is an indication that they are much less volatile and you'll see that every week, particularly when the stock market is declining, you'll see these portfolios not decline as much or not decline at all. So the distributions for this portfolio, we took out $44 for September, and that was taken out of the small cap value fund, VIOV, which had a good August and therefore was the most likely candidate it is still up 10.51% since inception in July. So for the total so far we've taken $87 out of this portfolio. It's coming out at a rate of 5% per annum. We take the total and divide it by 240. The money came out of the gold fund, GLDM in July and came out of the small cap value fund in August. And it is still up Continues to be up 4.49% since July so it's having no trouble servicing the drawdowns we were imposing upon it. The next portfolio is the Golden Ratio Portfolio and that was down 1.1% this past week. Now that portfolio has a 6% starting allocation in cash so we've been taking the distributions out of that. which should sustain us the entire year until it's rebalanced next year. So there was $44 taken out of cash in September and $87 total for the two months it's been in operation. And we see that it is up 4.63% since inception. Now moving to the next portfolio, the Risk Parity Ultimate. This was down 0. 9% this past week. And what was interesting about this portfolio is it has two very small, highly volatile components that move in the opposite direction. One is UPRO. It's a leveraged stock fund and that was down about 10% last week. It went from up 29% for the two months it's been in operation to down to positive 20.29%. Meanwhile, the Volatility Fund we have invested in VXX was up 10% last week, and it is down now 10% since inception. And that's a good example of how these various components of these portfolios can move in different directions at different times. Those two components of this portfolio only make up 2.5% each of it, so they are not that significant, but it does illustrate the point. Now for the September withdrawal, which is coming out at a rate of 6% annually, so we divide by 200, and so it was $52 that has come out of that portfolio in September. It was taken out of the small cap value fund, VIOV. which has been performing extremely well, is up 10.87% since inception. There has been $104 taken out of this portfolio altogether. The first distribution came out of gold and then the second distribution last month came out of VIoV because those components were the better or best performers in each of their months. This portfolio remains up 4. 03% since inception and so it is very well capable of sustaining the withdrawals that we are imposing upon it. The next portfolio is one of our experimental portfolios and so this carries a higher reward risk ratio or risk reward if you prefer. It was down 2.0% last week which is still less than the stock market was down. Now this portfolio we take out 8% annually from this thing. So we're really putting it through its paces, which means we took out $72 last month and the total that's been taken out of this is 143 over the first two months. Now what's interesting about this is the first distribution, the one we took out at the beginning of August, came out of the leveraged treasury bond fund that's in here because that was up the most at the time. Now that fund since has gone down and it's actually down over 5% since inception. So it's taken a dive over the past six weeks. But in the meantime, the Leverage Stock Fund has gone up a lot. It was fairly flat to a little bit up at the end of July. It reached a peak of about 29% positive last week, and now it is positive 19.21% since inception. So we use that one to take out the distribution from September that is UPRO. There is remaining in this fund or where it is totally this portfolio it is up 5.78% since inception. The other two components here which are used for balance and ballast are the preferred stock fund and the gold fund which are each positive for the last two months. And our final portfolio is the aggressive 50/50. and that one was down 2.35% for this past week, comparing again to the S&P, which was down 2.2%, and the NASDAQ down 3.3%, and this portfolio has a projected return of much greater than the stock market, but about the same kind of risk, and you saw the same kind of decline last week. And this portfolio, the distributions were similar to the Accelerated Permanent Portfolio and that we took $71 out of UPRO for the month of September, the leveraged stock fund. And so we've taken out $144 from this fund since inception. I'm sorry, that's $141. And those were taken out of UPRO for September and the leveraged bond fund, TMF for August. because that was the one that was up the most. So you can see from this portfolio review, and I hope you do take a look at what's on the website so you can follow along a little more closely, that these portfolios are demonstrating that they are well diversified. There is different components of them performing differently and better or worse each month. Yet they still all have a positive contribution overall. So we end up, say, with the aggressive 50/50 that's up 5.08% since inception and is doing quite capably in sustaining the 8% drawdowns, which involve dividing the total by 150 and taking that amount out for the month. And so that is the end of our portfolio review session. And now we will discuss the All Seasons portfolio a little bit more in detail. Now the All Seasons portfolio is actually a reference portfolio that is reflecting what Tony Robbins came up with in his book Money Master the Game after he interviewed Ray Dalio. It's a little bit unfortunate that this is becomes sort of the example of an all-weather portfolio or a risk parity style portfolio, because it really does not capture all of the breadth that one can use to go through this. This was just sort of one example that Ray Dalio came up with as a very conservative allocation off the top of his head. In reality, I don't think this portfolio is aggressive enough to sustain withdrawals long term, but we're going to find out. This portfolio is comprised of 30% total stock market fund represented by VTI, the ETF, it's a Vanguard total stock market fund. It has 40% long-term treasury bonds in it, which is represented by the ETF TLT. It has 15% intermediate treasury bond funds, which is represented by the fund VGIT. It's also a Vanguard fund. And then as alternative investments, it has 15% of those, which are split into gold at 7.5%, and that is represented by the ETF GLDM, which is a miniature version of GLD, and also a commodities fund, an Invesco commodities fund called PTBC, which invests in a broad group of commodities. As I was saying, it's unfortunate that people have come to this as the representative of a risk parity style portfolio because it really does not do the subject matter justice as some of our other portfolios do. I think the reason it is a little bit too conservative is it only has 30% in stocks in it, and you probably want a little bit at least 40% of stocks or stock related kind of funds like REITs or other things that are going to do well in good economies. It's also a bit overweight on the bonds with 55% in the two bond funds. And I found that it is better to have more stocks than to have long-term treasury bonds for the most part. because the balance works out better that way in terms of performance. The two alternative classes are fine at 7.5% each. And you wonder though whether they could have been expanded or if you could have included some other components like some preferred shares or some REITs into this. But nevertheless, this fund is holding its own. It has from inception we put in $10,200 towards the end of July, it has $10,230 in it right now and has taken two $35 distributions out of it. So it really is at $10,300. It does not move very much each week and is usually the fund that moves the least every week, which is not surprising considering what it's comprised of. It is interesting that the best performer in this portfolio has been the gold, the GLDM fund. It is up 5.09% since inception, which is slightly better than the total stock market fund, which is up 4.92% after the drop last week. The gold seems to be holding steady, as are the commodities, the bonds have taken a slight beating lately after getting off to a fast start in July. This portfolio does kind of recreate these theoretical risk parity style portfolios that I can link to again in the show notes that we discussed back in, I believe, episode four. But in those kinds of portfolios, the idea behind them is that you would also take some leverage or borrow some more money to add to the portfolio to goose the return. And that's what often hedge funds are doing with these styles of portfolios. We have not done that with this portfolio, obviously, because it's designed to be a conservative retirement style portfolio. But it is very similar in some ways to the experimental portfolios that we have the aggressive 5050 and the Accelerated Permanent Portfolio, which if you take those apart, they are leveraged portfolios with similar distributions or allocations to stocks and bonds that this one has. And with that now I see our signal is beginning to fade and it's time for me to go outside and Have a nice bike ride since it's a nice day here. So tune in next time, which should be Wednesday or Thursday this week, where we will be discussing REITs or bonds. I haven't quite made up my mind yet on that, so it'll be a surprise. And again, you can find these portfolios at the Portfolios page at www.riskparadioradio.com. If you have questions, I'd be happy to address them. You can send emails to frank@riskparadioradio.com that's frank@riskparadioradio.com or you can send me a message on the website itself. Thank you for joining me today. This is Frank Vasquez with Risk Parity Radio signing off.

Mostly Mary [16:54]

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.