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 [0:36]

Thank you, Mary, and welcome to episode 131 of Risk Parity Radio. Today on Risk Parity Radio, it's time for our weekly portfolio reviews of the seven sample portfolios that you can find at www.riskparityradio.com, on the portfolios page. And there is kind of a theme to that review today. Just humming along in the background. But before we get to that, we have some emails. And before the emails, we have several news items.

Mostly Voices [1:16]

Groovy, baby.

Mostly Uncle Frank [1:19]

Our first one is we would like to give a shout out to Jake for becoming our latest Patrion Patron. If you would like to support the podcast that way, you can do it by going to the support page at www.riskparityraider.com and click on the link there and you can support the podcast that way. That money does go to a charity, the Father McKenna Center, and you will in exchange receive my undying gratitude plus priority if you send an email that it will go to the top of the email queue. We only have a few patrons, but I appreciate each and every one of you.

Mostly Voices [2:00]

We few, we happy few, we band of brothers.

Mostly Uncle Frank [2:05]

Next, I wanted to tell you about a little side project I completed over Thanksgiving. It is another tutorial. This one is for the portfolio visualizer back tester, the one that uses ticker symbols. And you can find that at the YouTube channel that we've created. We have all of two tutorial videos. Hopefully we'll have more in the future, but you can have a look at that and maybe that will help you analyze your own portfolio. Yes. And then finally, something I saw that's kind of interesting showing the development of cryptocurrencies in financial markets. Interactive Brokers is now partnered up with Paxos. So if you have an Interactive Brokers account, you can go buy some cryptocurrencies through Paxos and only pay a commission of 0.18%, which is significantly less than you'd have to pay elsewhere or through any of the funds that invest in crypto these days. So if you have an Interactive Brokers account, you may be interested in that. feature as a new and more efficient way to buy and sell cryptocurrencies. And I'll see if I can link to something about that in the show notes as well. And now it's time to answer a few of your questions.

Mostly Voices [3:27]

Here I go once again with the email.

Mostly Uncle Frank [3:31]

And first off, first off, we have an email from Ben and Ben writes, Frank, your knowledge,

Mostly Mary [3:37]

wisdom, and desire to teach others is greatly appreciated. Many, many thanks. Regarding accumulation portfolios, I remember you talking about the large growth small value equal allocation. Would you recommend this over a simple 100% VTSAX portfolio? At what point would an investor transition from a simple accumulation portfolio and begin using a risk parity portfolio such as the Golden ButterfLyer All Season? I am currently looking at retirement, partial retirement in 10 years at age 55 when I can begin drawing my pension, which will be roughly 30% of our desired income. Thanks again, Frank. You are greatly appreciated.

Mostly Uncle Frank [4:21]

All right, let's talk about accumulation portfolios briefly. We use the Buddy system. We use the macro allocation principle to think about this. And what that says is that any kind of reasonably well diversified 100% stock portfolio is likely to perform about 90% the same or 94% the same according to Jack Bogle as any other reasonably diversified 100% stock portfolio. And the difference is going to be not predictable in the future for the most part. So where that leads you is you can pick whichever one you want. If you want the VTSAX and just leave it like that, if you want to have the large cap growth, small cap value split, you could do that. There are many other portfolios suggested by others that would do just as well. What we do know about small cap value is that it does tend to outperform the overall market, but the time frame needs to be at least 30 years we're talking about. So it's a long-term investment in any given shorter Time period, 10 or 20 years, you can see large cap growth well outperformed small cap value. So what you want to avoid is jumping in and out of these strategies. Just pick one and ride it, because it's the jumping in and out that's probably going to get you into trouble if anything gets you into trouble. So I do have a small preference for having an allocation to small cap value in an accumulation portfolio. But if you don't have access to a fund or the fund is too expensive, maybe in a 401k, it would be just as efficacious to hold a S&P 500 fund or a total stock market fund, if that's what you've got. You do want to be mindful of the fees and keep them low so you're not getting tagged with lots of expense fees. Now in terms of transitioning from accumulation to decumulation or drawdown portfolio. That really depends on your FINE number, your financial independence number. And so what you really need to do is focus on what are your expenses now and what are they likely going to be in the future. If you know what those are on an annual basis, you can multiply that times 25 and get you a ballpark estimate as to what your FINE number is. That number is the amount of invested assets you have to have, and I'm assuming you don't have any other sources of income. So if you have accumulated enough assets to reach that number already, or can do so in the next few years with only modest growth, you can do that transition right away. And then you may still accumulate more over your fine number. Now that could be invested any way you want. Maybe that goes in something that's still risky because you're going to leave it to your heirs or something. or it goes into the whole pot with the rest of it, in which case maybe you can increase your annual expenses. But that is the basic timing. And then you do need to be mindful of tax implications as to how you make that transition, which accounts you're adjusting. You should treat all of your financial assets as one big portfolio, but make adjustments in appropriate accounts to minimize your tax bills. So looking at your situation, you're going to have a pension that's covering 30% of your desired income. So you can just take that off of the top. Then you're looking at that remaining 70%. You would want to multiply that times 25 to get an estimate as to what your five number is and then see how close you are with what you've accumulated already. And if you're there or very close, you can start making that transition anytime you like. And thank you for that email.

Mostly Mary [8:27]

Second off, we have an email from Andy, and Andy writes：I was just catching up on some episodes and learned that I am the first and at that time the only person to buy your NFT. Frank, all I need now is for it to blow up and then I will switch from thinking about risk parity and move to yacht parity with Jeff Bezos. Thanks for the very enjoyable podcast. It is nice to be humbled once in a while. It has reminded me that the set of things I understand is dramatically smaller than the set of things I do not understand. You can't handle the crystal ball! Well, thank you for participating in our little NFT experiment.

Mostly Uncle Frank [8:56]

Yeah, baby, yeah! Just so everybody else knows, if you haven't heard the episodes where we talked about this before, this is another fundraiser that we are using to help our designated charity, and these NFTs are of the Risk Parity logo. They are numbered and signed by me on the image there. You can buy them at OpenSea. You do have to have Ethereum and transfer it to the Polygon network.

Mostly Voices [9:25]

We got a scary 140 this week.

Mostly Uncle Frank [9:29]

The evil and insidious Polygon network. But if you are capable of doing those things, you can buy one of these NFTs for the equivalent of about $21. I've sold two so far. If those all get sold, we'll put some more out there and raise the price on them. I think it's gonna be a long-term experiment though. I'll show them. I'll show them all. But thank you for playing, and thank you for that email. You have a gambling problem. Last off. Last off, we have an email from Keith, and Keith writes.

Mostly Mary [10:10]

Frank, it looks like Realty Income Corp. Ticker O spun off another real estate investment trust called Orion Office REIT ticker O-N-L. What will the model portfolios do with the new REIT, Keith? Well, yes, Keith is an interesting prospect.

Mostly Uncle Frank [10:26]

We talked about it. Last week briefly, what happened was in the sample portfolio that's called the Lever to Golden Ratio Portfolio, we have a holding of O Realty Income Inc. And it spun off a smaller REIT called ONL. We have all of two shares of ONL now, and I'm not sure what we'll do with them. They've gone down in value fairly substantially already, so we may be tax laws harvesting them at some point. But for now, we're just going to leave them there because it'll only come up when we do our rebalancings and when we are drawing down on various parts of the portfolio. But thank you for being interested in that. I thought it was interesting as well. And now... Now we are going to do something extremely fun. And the extremely fun thing we're about to do is our weekly portfolio reviews of the seven sample portfolios. that you can find at the website www.riskparityradio.com. And this was an interesting week. Actually, it was a very interesting Friday in particular since we had the Omicron crash or the beginning of an Omicron crash. The stock markets went down substantially that day and we'll see how the other ones fared. Just going over those markets for the week, the S&P 500 was down 2.1% pretty much all of that occurring on Friday. The Nasdaq was down 3.52%. Gold had a rough week. Interestingly, it did fine on Friday, but earlier in the week it fell, so it was down 3.19%. But then our savior came in. Long-term treasury bonds, represented by the fund TLT, were up 1.46% for the week. And we'll see they were actually up 2.5% just on Friday alone. REITs represented by the fund REET were down 1.29% for the week. Commodities represented by the fund PDBC were down 3.74% for the week. Preferred shares represented by the fund PFF were down 1.26% for the week. Now what happened on Friday was kind of textbook behavior for the way markets behave. always do it all in one day, but what you saw then was a sharp decline in the stock market. What generally happens then is there is a flight to safety where people pile into the treasury bond markets. The long-term treasury bonds tend to go in the opposite direction and oftentimes about the same percentage that the stock market moves. Then what you also saw from Goldman Friday was was fine. It didn't do much of anything at all. I love gold.

Mostly Voices [13:16]

So how that plays into our portfolios is our portfolios

Mostly Uncle Frank [13:20]

did much better than the stock market did, and they're down a lot less for the most part. So going through them, first we have the All Seasons. This is the one that is only 30% stocks. It has 55% in treasury bonds, the remaining 15% divided into Commodities, PDBC and Gold, GLDM. It was down 0.65% for the week. It is up 12.33% since inception in July 2020. And if you go look at the printout on the website there, you see that TLT was up on Friday 2.52%, whereas the Vanguard Total Stock Market Fund was down 2.17%. and that is the kind of textbook behavior that we saw on Friday. Now, moving to our three kind of bread and butter portfolios, we begin with the Golden Butterfly. This one is 40% in stocks divided into a total market fund and a small cap value fund, 40% in treasury bonds divided into short and long, and then 20% in gold. It was down 1.47% for the week. It is up 22.3% since inception last July. Should say July 2020. Moving to our next one, the Golden Ratio. Very similar performance for this one. It is 42% in stocks, 26% in long-term treasury bonds, 16% in gold, 10% in a reit fund, and 6% in cash. It was down 1.43% for the week. It is up 23.44% since inception last July. And then we go to our Risk Parity Ultimate Portfolio. I won't go through all of these funds, but it's about 40% in stocks, about 25% in long-term treasury bonds, and then it's got gold, commodities, preferred shares, REITs, and a volatility fund, which was up 25% on Friday. Some Bitcoin, which was down a bunch on Friday. But this was down 1. 34% for the week. It is up 23.8% since inception in July of 2020. But what you saw from those three portfolios is very typical of the way risk parity style portfolios behave in stock market crash environments. You saw the markets are down 2.5% to 3% in this case. these risk parity style portfolios are only down about 1.3 or 1.4%. As I was saying, it doesn't always play out in a textbook fashion like that all in one day, because sometimes these things get bought and sold on different days. But that is the basic pattern that you'll tend to see with these. And now moving to our experimental portfolios. The first one is the Accelerated Permanent Portfolio. This is 27.5% in a leveraged bond fund, TMF, 25% in a leveraged stock fund, UPRO, S&P 500, with 25% in preferred shares and 22.5% in gold. This one was down 1.92% for the week, even with the leverage in it, it is up 27. 04% since inception in July 2020. If you look at the individual components, you there the leveraged stock fund being down 6.52% for the day on Friday, but the leveraged bond fund TMF was up 6.98% on Friday. And so you see how those things balance out with that severe negative correlation. Moving to our next portfolio, the aggressive 50/50. This is our most leveraged experimental portfolio. and is usually the most volatile, but wasn't last week. It has 33% in the leveraged stock fund, UPRO, 33% in the leveraged bond fund, TMF, and then the remaining 34% is split into PFF, a preferred shares fund, and VGIT, an intermediate treasury bond fund. It was down 1.5% for the week. It is up 35.41% since inception in July 2020. And our final portfolio, our levered golden ratio portfolio. This is the one with the O and the ONL in it. It was the worst performer of the week. It was down 2.32% for the week. It is up 4.28% since inception this past July 2021. This one is comprised of 35% in NTSX, a composite S&P 500 and treasury bond fund that is leveraged. Then it's got 25% in gold GLDM, 15% in O and ONL as the REITs, 10% each in the leveraged bond fund TMF and the leveraged small cap stock fund TNA. And then it has 3% in a volatility fund VIXM and 2% in cryptocurrency funds. Now, what really made the difference for it on the negative side was this fund TNA, it was down to 10.9% by itself on Friday, but that's what you can get out of these leverage funds, and so that accounted for a loss of 1% in the portfolio by itself. Thankfully, the TMF that's on the other side of that was up the 6. 98%, but that's how you can see how these things are moving in different directions in a levered manner, and so they tend to move a lot, but they all try to balance out. But that completes our review for the week ending November 26, 2021.

Mostly Mary [19:11]

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

Mostly Uncle Frank [19:15]

And now I see our signal is beginning to fade. Hope you all had a happy Thanksgiving. A turkey for me, turkey for you.

Mostly Mary [19:22]

Let's eat turkey in a big brown shoe. Love to eat the turkey. At the table, I once saw a movie with Betty Grable.

Mostly Uncle Frank [19:32]

When you have nausea, heartburn, indigestion, upset stomach, diarrhea. If you have comments or questions for me, please send them to frank@riskparityradio.com that email is frank@riskparityradio.com or you can go to the website www.riskparityradio.com and fill out the contact form and I'll get your message that way. We will be picking up this week with a very long email from a listener who is approaching retirement, and I think it makes a good case study for some of the concerns and things we need to deal with in reformulating our portfolios. And so we should be putting that out on Tuesday or Wednesday. If you haven't had a chance to do it, Please go to your podcast provider and like this podcast, subscribe to it, give it some stars. Be sure to also visit the new YouTube channel for Risk Parity Radio where we have all of two tutorial videos for you to take a look at and we will hopefully be making some more of those. They are not the highest quality, but I think they do the job. Thank you once again for tuning in. This is Frank Vasquez with Risk Parity Radio, signing off.

Mostly Mary [21:06]

No, Mr. Bond, I expect you to die. 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.