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 Risk Parity Radio. If you are new here and wonder what we are talking about, you may wish to go back and listen to some of the first episodes where we did our introductions of the various topics. And those episodes are episode one, 3, 5, 7 and 9. And so if you go back and listen to those, it will get you up to speed. But now onward to episode 147. 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, I'm intrigued by this, how you say, emails. And? First off, we have a trio of emails about the same thing. Two from Jeff and one from Popeye. And in his first email, Jeff writes, Hi.

Mostly Mary [1:50]

Thanks for making such an entertaining and interesting podcast. I'm a young feller, but I enjoy implementing a bit of risk parity because it's just so neat to see different asset classes act in negatively correlated manners. And I enjoy watching money professional friends of mine's jaws drop when I mention owning things like long-term treasuries, my favorite risk parity asset so far. They think I'm cuckoo. I was listening to another podcast with Bullion Blohard, and they answered a listener's questions regarding your podcast and its suitability for people in their retirement portfolios. They were very disrespectful in their analysis of risk parity as well as disrespectful toward the model portfolios, eventually calling them gimmicks. First off, these fellows need a sound bite assault. Yes. Second off, well you should decide, but I hope you take a listen. I just laughed at their misinformed two-sentence worth of opinion. P.S. The episode description incorrectly titled your show Wealth Parity Radio, which I find hilarious. Jeff. And in his second email, Jeff writes. And today's show, January 13th, mentions you again. I was hoping they would apologize based on maybe a listener's feedback, but they just doubled down on their analysis. Fools.

Mostly Uncle Frank [3:01]

And then Popeye writes.

Mostly Mary [3:05]

Bully and Blowhard just mentioned you at the end of their podcast. Too bad they don't take your info with sincerity. Popeye.

Mostly Uncle Frank [3:14]

All right, first off, you'll notice that I changed the names of the podcast and the two hosts of that podcast so as not to publicize the guilty, if you will. But I did go back and listen to what they had to say on their podcast. This was my initial reaction.

Mostly Voices [3:37]

What you just said is one of the most insanely idiotic things I have ever heard. At no point in your rambling, incoherent response were you even close to anything that could be considered a rational thought. Everyone in this room is now dumber for having listened to it. I award you no points, and may God have mercy on your soul.

Mostly Uncle Frank [4:03]

And my second reaction was that I felt like I was, like, back in the seventh grade dealing with bullies who didn't understand what I was doing because I could do math and they couldn't. So what they did was misrepresent what was on my website and misname my podcast. So it kind of reminded me of Scott Farkas and his lackey in the Christmas story. If you guys are familiar with that, that was the bully kid.

Mostly Voices [4:33]

Scott Farkas staring out at us with his yellow eyes. He had yellow eyes. So help me, God, yellow eyes.

Mostly Uncle Frank [4:43]

And I was kind of wondering why do grown men behave this way? And did they really think that they were being funny? Because other people that look at my website that I've dealt with, for example, from Resolve Asset Management, I had asked them for a paper that they had written and they wrote me back, looked at my website and said, that looks interesting. Are you a CTA or a fund manager? and I said, no, I wasn't. I'm just a do-it-yourself investor with an interest in these things. But that is not the approach that bullion blowhard took. And so I was kind of curious as to why they might be so disdainful for no particular reason and what the reasons might be. So I went and took a look at their backgrounds there and their podcast and the website it's affiliated with. I mean, it looks like they are essentially what you call former personal finance media personalities who had radio and TV shows, I believe over a decade ago, sometime in the distant past. And sometimes people like that forget that everybody has a microphone now, that we don't live in an era where they can keep the microphone to themselves and not be contradicted by their audience or other listeners. I mean, we really don't have high priests of financial information that are supposed to take this and interpret it for the masses anymore, like these media personalities used to set themselves up as. Forget about it. There are a couple still around, but really it kind of reminded me of this character from Office Space that you may be familiar with. What would you say?

Mostly Voices [6:19]

You do here. Well, look, I already told you. I deal with the goddamn customers so the engineers don't have to. I have people skills. I am good at dealing with people.

Mostly Uncle Frank [6:37]

Can't you understand that? What the hell is wrong with you people? So anyway, you would have thought these guys having successful careers would have gone on and be enjoying their retirement right now. But apparently what they did for whatever reason is set up their own financial advisory service.

Mostly Voices [6:49]

Always be closing.

Mostly Uncle Frank [6:52]

So they are in fact no longer media personalities but what we would call Milkshake drinkers. I drink your milkshake. And their podcast is affiliated with that financial advisory service and they charge their 1% AUM fees and other things as they report in their website. Looks like at least one of their children is employed by this financial advisory service.

Mostly Voices [7:20]

My straw reaches a crawl.

Mostly Uncle Frank [7:30]

so knowing that, I can see why they might feel threatened by somebody like me who is a do-it-yourself investor who studied these things and read these papers and can do math. Am I right or am I right or am I right? Right, right, right.

Mostly Voices [7:41]

So I would have to say that this podcast is really not

Mostly Uncle Frank [7:45]

for people like that. Forget about it. This podcast is for do-it-yourself investors who are looking for alternative investment strategies and portfolio construction. It's not really for milkshake drinkers. Forget about it. Because the thing is, I've talked to a lot of the audience of this podcast and we're the ones who have the milkshakes. We're the ones that have the milkshakes that they are trying to drink. and many of you have created very large milkshakes because you are very good do-it-yourself investors already. So you would think that the would-be milkshake drinkers would treat their customer base a little better than they did and they have. But my experience with the financial services industry and financial media personalities Is they actually have disdain for the people who are consuming these services.

Mostly Voices [8:47]

They're sitting out there waiting to give you their money, or you're gonna take it.

Mostly Uncle Frank [8:54]

And that disdain is shown in the way they behave.

Mostly Voices [8:58]

I drink your milkshake. I drink it up.

Mostly Uncle Frank [9:07]

But we have a different idea here. We have a different business model that is highly disruptive to milkshake drinking. And it goes like this. I got this inkling.

Mostly Voices [9:18]

I got this idea for a business model. I just want to run it past you. Here's how it would work. You get a bunch of people around the world who are doing highly skilled work, but they're willing to do it for free and volunteer their time, 20, sometimes 30 hours a week. Oh, but I'm not done. And then what they create, they give it away rather than sell it. What's going on? Why are people doing this? Why are these people, many of whom are technically sophisticated, highly skilled people, and during their limited discretionary time, they do more technically sophisticated work, but for someone else for free? It's going to be huge.

Mostly Uncle Frank [9:56]

So in the end, I'm happy to ignore such people or only deal with them when I absolutely have to. Which is kind of too bad because I'm sure that we would agree on a lot of things about using index funds and things like that. I know at least one of those people is a Reformed recommender. He used to recommend managed funds as the be-all, get-all, but that was back in the bronze age of the 1990s, I believe. And he's come around and at least acknowledges that index funds are the way to go. For most things and most people. But if they are not going to come into the 2020s, they really don't have a place anymore in our financial lives. And they're just gonna have to come to terms with that.

Mostly Voices [10:45]

You can't handle the truth!

Mostly Uncle Frank [10:49]

Which I'm sure they will one way or another. Surely you can't be serious. I am serious.

Mostly Voices [10:53]

And don't call me Shirley.

Mostly Uncle Frank [10:57]

But now let's leave that behind and move on to our next email.

Mostly Voices [11:01]

And so, Second off. And Last off.

Mostly Mary [11:05]

Second off and last off we have two emails from an anonymous emailer, my contact info. And my contact info writes. Hi Frank, truly enjoy your podcast. Thought you might find this new missive from William Bernstein of interest. I have read his books and articles over the years. I think a risk parity portfolio is a viable alternative to his recommendation. And then writes again. Frank, given the concepts mentioned on your podcast, I thought you might find this new course by Andrew Lo at MIT of interest.

Mostly Uncle Frank [11:42]

So I will link to both the Bernstein essay, which is in the humble dollar website and the MIT course in the show notes if you're interested in those. Now for those of you who don't know who Bill Bernstein is, and most of you probably do. He's essentially one of the good guys in personal finance. And it's interesting to me, it always seems like the good guys in personal finance did not come there right away. They came from some other direction. William Bernstein happens to be a physician, a surgeon. Bill Bengen was an engineer before he got into personal finance. And people like that are a marked contrast to the people that we were discussing in the prior emails. So in this essay, William Bernstein is reflecting on his investing career going back to the 1980s when he was a young practicing physician and going through the crash of 1987. And he talks about, you know, the mistakes he made that we all made at that time. He writes, At that time, he held his breath and increased his stock exposure. This one salutary move, though, did not exactly herald a full flowering of financial wisdom. I continued to make mistakes, reading market timing newsletters, trying to pick both stocks and active fund managers and time the market, and allowing my spirits to rise and fall on a daily basis with share prices. I even got taken in by 1989's spurious cold fusion excitement and went long on palladium futures. And after describing some of his mistakes, he also describes what he's learned and gives a couple of basic pointers. One of them is, first, a sub-optimal portfolio you can execute on is better than an optimal one you can't. And this really goes to what we call the simplicity principle here, that we try to keep our portfolios as simple as possible for this very reason, that it's much easier to manage, particularly in stressful times, a simple portfolio than one with 20 or 30 things in it. And his second point that he writes is second, mentally compartmentalize your portfolio. What he means there is to avoid psychological stress, recognize that some of the things in your portfolio are going to be very safe and reliable, even if the other ones are more volatile. And then he writes about the difference between being a young investor who's accumulating and somebody who is in their drawdown phase, which he is in. He's in his late 70s now, I believe. So talking about the younger investor, he says, Theoretically, even if the young investor puts 100% of his savings into stocks, those savings are so small relative to his bond-like human capital that the overall stock allocation is still quite small. Even knowing all that, our young investor with 100% stocks in his 401 plan may not be able to emotionally handle half of it disappearing for some years. Our young investor then needs to discover his real world tolerance. Start with, say, a 50% stock, 50% bond retirement portfolio and see how you respond during a bear market. Were you able to buy more and up your stock allocation to say 75% stocks, 25% bonds. If so, then great, wait until the next time, rinse and repeat. Did you just barely hang on? Then 50/50 is probably right. Did you panic and sell? Then 50/50 is too aggressive. And so that mirrors what I've said before on this podcast, that if you are a young person and can tolerate a 100% stock portfolio, that's what you should be doing. He phrases it in the form of the idea of having human capital that you are eventually turning into financial capital in the form of your investments. The way I like to look at it is you are sitting on a big pile of future cash that your human capital is going to generate. And so getting that cash into stocks right away and being as aggressive as one can without being unreasonable is the right thing to do because your sum total of investments are still to come. So even if you're very aggressive with those first deposits for the first few years, you're still going to be putting in 20 more years or more of new capital into that as you convert your human capital to that pile of cash. But I think he's also correct that the only thing that stops you there is psychology. That if you are likely to sell out in a downturn or panic or can't sleep, then you need something different than 100% stock portfolio. And that will change over time. And then later on in this essay, he writes, I often tell people that when you've won the game, stop playing with the money you really need. Perhaps all would be fine if I kept 100% in stocks, but now I'm in my 70s and more interested in financial survival, which is why today I keep at least 20 years of living expenses in bonds and cash investments. That won't make me rich. Instead, I've done something more important：minimize my odds of dying poor. And I thought this was also interesting how this psychology can change over time. What he's talking about is basically a portfolio that looks a lot like Bill Bengen's portfolio. Bill Bengen has in his portfolio about 20% in stocks, 5% in gold, and the rest in fixed income investments. Sounds like what William Bernstein has is about 80% in cash and bonds and probably the remaining 20% in stocks. Someone who's like Paul Merriman, who's the same age, is a 50/50 portfolio, 50% in stocks, 50% in treasury bonds. But what they all illustrate is taking risk off the table when you don't need to have that kind of risk anymore. I would say I'm probably going to differ with him on just how conservative you need to be when you get into your 70s. I would think a portfolio that has somewhere between 40 and 60% stocks is fine, essentially forever, which is similar to our main bread and butter sample portfolios, the golden butterfly golden ratio and risk parity ultimate. But I wouldn't begrudge anybody from taking a more conservative stance, especially when you get up to that age. Got 20 years before I get there, so I got a lot to think about between now and then. You are talking about the nonsensical ravings of a lunatic mind. But thank you for bringing that to my attention. I'm always interested in what Bill Bernstein has to say. I recently read his most recent book, which is A Popular Delusions and Madness of Crowds book taking off on the 1843 classic of a similar name. It's not mostly a finance book, but I think if you are interested in how manias and panics start and perpetuate over time, That might be something you'd want to pick up and read yourself. I do recommend it for that. And I will check out the MIT course at some point. Andrew Lowe does a lot of good work. He's a well-respected academic in the finance field. And so thank you for those emails. Now we are going to do something extremely fun. And the really fun thing we're going to do now is our weekly portfolio reviews of the seven sample portfolios that you can find at www.riskparityradio.com on the portfolios page. There really wasn't a whole lot of activity this week overall. I mean, there's a lot of volatility in the market, but markets really didn't go anywhere and these portfolios didn't really go anywhere either for the most part. Just reviewing the markets, we had the S&P 500 was up 0.77% at the end of the week, all happening on Friday, I believe. NASDAQ was up 0.01% for the week. Gold was our big loser. It was down 2.44% for the week. Long-term treasury bonds represented by the fund TLT were down fractionally. They were down 0.17% for the week. REITs represented by the fund R E E T were down 0.81% for the week. Commodities were the big winner last week. Represented by the fund PDBC, they were up 1.61% for the week. I wonder if that has to do with what's going on in Russia and Ukraine and energy prices, but who knows? And then preferred shares represented by the fund PFF were down at 2.39% for the week, which is another move that I cannot explain. What do we know?

Mostly Voices [20:50]

You don't know, I don't know, nobody knows.

Mostly Uncle Frank [20:54]

But just going through the seven sample portfolios, the first one is this all seasons portfolio that is Extremely conservative, only 30% in a total stock market fund VTI, 55% in long and medium term treasury bonds, and then 7.5% each in gold and PBDC, that commodities fund. It was down 0.11% for the week. It is up 8.82% since inception in July 2020. I'm putting you to sleep.

Mostly Voices [21:22]

Moving to our bread and butter portfolios, the next three.

Mostly Uncle Frank [21:25]

First one is the Golden Butterfly. This one's 40% in stocks divided into a total stock market fund and a small cap value fund. It's got 40% in bonds divided into long-term treasuries and short-term treasuries and then 20% in gold GLDM. It was down 0.68% for the week, mostly on the gold, I would presume, and it is up 18.69% since inception in July 2020. Moving to the Golden Ratio, the next one. This is 42% in stocks, 26% in long-term treasuries, 16% in gold, 10% in REITs, and 6% in cash. It was down 0.60% for the week. It is up 18.9% since inception in July 2020. Very similar to the Golden Butterfly. And then we go to the Risk Parity Ultimate. I won't go through all 14 funds that are in here, but you can check it out on the website if you'd like. It is down 0.95% for the week. It is up 17.23% since inception in July 2020. This one does have 10% in preferred shares, PFF, which probably is one of the reasons it was drugged down a bit this week. And now we move to our experimental portfolios. These involve leveraged funds in them. First one is the Accelerated Permanent Portfolio. This one is 27.5% in TMF, that's a leveraged treasury bond fund, 25% in UPRO, that's a leveraged stock fund, and it's got 25% in PFF, that preferred shares fund, and 22.5% in gold GLDM. It was down 1.02% for the week, mostly on the gold and the PFF, and it is up 18.44% since inception in July 2020. Moving to what is usually our most volatile fund, but it wasn't this week. The aggressive 5050 has the largest leveraged component. It's got 33% in UPRO, the leveraged stock fund, 33% in TMF, the leveraged long-term treasury bond fund, and then 17% each in PFF and VGIT and intermediate treasury bond fund. It was down 0.11% for the week, so the same as that very conservative all-seasons portfolio. It is up 23.3% since inception in July 2020. And our seventh portfolio is the levered golden ratio. This one's only been around since July of this year, so did not have as favorable a run-up. And this one is 35% in a composite leveraged stock and treasury bond fund called NTSX, 25% in gold, GLDM, 15% in a REIT O, realty income corporation. And it's got 10% each in the leverage funds, TMF, that's treasury bonds, and TNA, which is a small cap Russell 2000 type fund. And then it's also got 3% in a volatility fund, VIXM, and 2% in cryptocurrency funds, BITQ and BITW. It was down 0.61% for the week. It is down 4.44% since inception in July 2021. But is a good test of what happens when you start your retirement and then six months later things go into the tank a little bit. So it was another volatile week this time it went nowhere. I expect we'll have more volatile weeks in the future because they usually come all together like that. That is the Fractal nature of markets. But now I see our signal is beginning to fade. 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 put in your message in the contact form there and I'll get it that way. If you haven't had a chance to do it, please go to your podcast provider and like, subscribe, give me some stars in a review. That would be great. M'kay? We'll be picking up next week with some more emails, and we're also going to have our monthly distributions coming up too. Thank you once again for tuning in. This is Frank Vasquez with Risk Parity Radio. Signing off.

Mostly Voices [26:22]

Nowhere if anyone that's a risk me this it's possible slam on the sand so we could be hable that's your one life saver with pop by the sail of the blind pop by the sail of the man, I'm a good sailor, pop by the sail of the man, I'm a good sailor, sail of the blind pop by the sail of the man, I'm a good sailor, sail of the blind The Risk

Mostly Mary [26:53]

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.