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 foundational episodes for this program. And those are episodes 1-3-5-7-10. and nine. One of our listeners, Karen, has also reviewed the entire catalog and has additional recommendations as foundational episodes. Ain't nothing wrong with that. And Karen's recommendations are episodes 12, 14, 16, 19, 21, 56, and 82, in addition to the first five that I mentioned. Now, I realize women named Karen get a bad rap these days, but I assure you that all of our listeners are intelligent, thoughtful, and savvy. Yes! And don't forget that the host of this program is named after a hot dog. That's not an improvement.

Mostly Voices [1:41]

Lighten up, Francis.

Mostly Uncle Frank [1:45]

But now onward to episode 166. Today on Risk Parity Radio it's time for our weekly portfolio reviews. Of the seven sample portfolios you can find at www.riskparityradio.com on the portfolios page. This is what that might sound like.

Mostly Voices [2:07]

I'm a man of constant sorrow I've seen trouble all my days Actually, it's not that bad.

Mostly Uncle Frank [2:20]

But before we get to that, I'm intrigued by this. How you say, emails. And first off, we have an email from Mitchell. And Mitchell writes, Frank, love the show.

Mostly Mary [2:36]

When Tax Loss Harvesting, is there a reference site or technique you would recommend to find ETFs similar enough to TLT SHY, GLDM, VIOM, VTI, and other common ETFs. Thanks for all you're doing, Mitchell.

Mostly Uncle Frank [2:53]

All right, this is an interesting question. And I'm not aware of a particular reference site for this tax loss harvesting issue, probably because nobody wants to hold themselves out as giving tax advice, and I don't either. But But, but, here's the way to look at it, at least for most funds. What you are looking for is something that is in the same class but follows a different index. So for example, VIOV, it's a small cap value fund. Vanguard also has another small cap value fund called VBR, which follows a different index. But those funds are pretty interchangeable most of the time. And so that makes an easy way to go from one fund to another. Same class, different index is a good kind of approach to take for that sort of thing. And then you also want to take your substitute fund and the fund you are substituting for and go to Portfolio Visualizer and put them in that asset correlation tool. We had the tools, we had the talent.

Mostly Voices [3:58]

Which I'll link to in the show notes, but you can put the two funds

Mostly Uncle Frank [4:02]

in there. I'll put in VBR and VIoV so you can see them. And what you were looking for is correlations that are high, like in the 90s or 0.9 to 1, and performances that are relatively the same. So for example, VTI, you might substitute VOO, which is the S&P 500 index, or VUG, which is a large cap growth fund, because most of what is in a fund like VTI happens to be large cap growth stocks. And I'll also go ahead and put those into the correlation analyzer. Gold is a little bit more difficult, and I have not analyzed all the various gold funds that are out there now because so many of them have come out in recent years. There's GLD, there's GLDM, there's IAU, there's BAR, there's IAM, and others. One you might look at is called P-H-Y-S, PHYS, and the reason I think that might be treated differently is while they claim it's treated differently on their own website, and you can check that out, I'll link to that in the show notes, but it's also set up as a Canadian trust. So it is in fact a different format, even if it is invested in the same thing. But don't take that as a recommendation, just take it as information. I have found that I typically do not do a whole lot of tax loss harvesting with gold anyway. And then for the bond funds, we actually talked about this in detail in episode 165 and how you might use funds like ZROZ, EDV, and TYA to substitute for a long-term treasury bond fund. TLT, you need to do it in the right proportions so it matches. But I won't repeat what I said in episode 165 since it just aired last week. Yes! For the short-term bonds, you can use just about anything because high-grade corporates and treasuries on the short-term scale are not that much different. So you might use a fund like BSV to substitute for SHY. Anything that is a high-quality bond that is of short duration should do fine for that purpose. At least for 30 days or more. And hopefully that helps. I can't believe it.

Mostly Voices [6:19]

It's just not believable, Cotton.

Mostly Uncle Frank [6:22]

Second off. Second off, we have an email from Alexei.

Mostly Voices [6:26]

So that's what you call me, you know? That or his dudeness or duder or, you know. Bruce Dickinson, if you're not into the whole brevity thing. And Alexei writes.

Mostly Uncle Frank [6:39]

Loved last week's episode, particularly your discussion

Mostly Mary [6:43]

of the listener's suggested substitution of QQQ for the stock portion of the Golden Ratio. That was a pure curve-fitting idea based on the last decade's performance. One simple method I have found to address this understandable tendency is to break down back tests by decade. Back testing the suggested portfolios from 2000 to 2010 gives a very different result indeed, which demonstrates just how not robust such a substitution is.

Mostly Uncle Frank [7:10]

Nice to have you back, Alexei. Take it easy, dude. What Alexei is referring to is episode 162, where I had someone email in about using QQQ as the sole stock portion in a portfolio. And my point was that causes a concentration when you use something that's concentrated like that. and so you're going to get much better performance when that part of the market is doing well, largely tech and growth for the QQQ and you're going to do much worse when that part of the market is doing worse. And so you may want a little more diversification throughout your portfolios. What you suggest here, Alexei, is also very important that there are two sort of bad decades in our lifetime. One is the 2000s from around 2000 to 2010. and then the other one is the 1970s. And so when you are constructing a portfolio, you really do want to see if you can back test as best you can in those two bad periods, because if you have a big problem, it is likely to surface in one of those two periods. And they're kind of on polar opposite ends of the spectrum. The 2000s was a deflationary period, a recessionary period. The 1970s was an inflationary period. And so different things performed well in each of those periods that typically don't do that well in kind of normal periods when you can just ride the stock market like the 1980s, 1990s, and 2010s. And if you weren't aware of it, one thing you can do at Portfolio Visualizer is limit the time frame in which you're testing something. So you can actually set the begin date and the end date, which can be useful for this sort of thing, particularly when you're talking about the 2000s. You really can't go back as far on Portfolio Visualizer to the 1970s. You really need to do that at Portfolio Charts and pick the asset classes that are the closest to what you're actually actually planning on holding. And thank you for that helpful suggestion and that email. The dude abides.

Mostly Mary [9:33]

Next off, we have an email from Brian, and Brian writes, I know this isn't your bread and butter, but I was hoping you might have some insight from your experience with leveraged ETFs and back testing. As someone accumulating and 30 plus years to retirement, How do you feel about adding around 20% leverage to an all equity portfolio using SSO or UPRO until closer to retirement? Bringing this up in most circles just results in parroted reasons why this is foolish instead of a conversation about the merits. I've been using the Golden Butterfly in a brokerage account for future savings goals and have been really happy with how it has performed, so thank you for exposing us to this kind of information. Thanks for spending your retirement with us. Keep up the minimal work. Brian.

Mostly Uncle Frank [10:15]

Well, Brian, minimal work is what I'm all about in my dotage here.

Mostly Voices [10:19]

Well, you haven't got the knack of being idly rich. You say you should do like me. Just snooze and dream. Dream and snooze. The pleasures are unlimited. But as to the rest of your email, I'm glad you're making good use out of the golden butterfly.

Mostly Uncle Frank [10:33]

I did not design that portfolio. It's designed by Tyler over at portfolio charts. But it is a very good example of a robust diversified portfolio that is easy to hold. That is the straight stuff, O Funkmaster. And for those who didn't follow what Brian is saying, what he's doing with the Golden Butterfly portfolio in his case is saving for intermediate term goals. Somewhere that's three, five to 10 years down the line. This is another good use of a risk parity style portfolio. and is actually what my eldest son and his girlfriend do to save for their intermediate term goals. Young America, yes sir. They are using a modified golden ratio kind of portfolio. Oh, I get it. Let me try. And when you do that, what you do every time you invest new money is just put it in the thing that has the lowest allocation, the laggard, if you will. And that way you're not. having lots of transactions or generating taxes by buying and selling stuff. What? Guy in a suit? No! It's a tax collector! Hi there, SpongeBob! And now your question about leverage. Yeah, the best discussion I've seen of this is from Ben Felix at the Rational Reminder podcast. And it's in a YouTube video that he put out. It's a couple years old now. I will link to it again in the show notes, but it's also got the Academic literature, basically saying, if you want to do better than the market, you have to do one of two things. Either you need to take a concentration and be right about what you pick as being the thing that's going to perform the best in the future. Now, you can also use the ball to connect to the spirit world. Or you can add leverage to your portfolio. Adding leverage has been disfavored in the past, but it's a lot easier to do these days than it was. in the past. And so people are beginning to experiment with it. Another good website that discusses all these leveraged funds and things like that is the Optimized Portfolio website, and I'll link to that in the show notes. I do not have any connection with it, but it has a lot of interesting and useful information. So my answer is, yeah, you could do something like that, but you do need to be aware that these funds have not been around that long. They've only been around for about, I don't know, 12, 14 years now. So there still could be some problems in terms of overall performance with them. And you have to be willing to hold on to them through any downturns that you experience and even add to them along the way. I did have one listener, and I don't remember the episode that it was. It's over a year ago that had actually done this with UPRO going back to about 2011 or 2012. You have a gambling problem. Which would have been a very painful roller coaster to go on in some of those periods. And he did get lucky that it was the 2010s when it was going up most of the time. Do I feel lucky? Do I feel lucky? So it has been done. Whether it would work for you depends on your stomach. in a lot of ways. One other paper that you might be interested in that I've referred to before is called Buffett's Alpha, and I'll see if I can find that again. But it was an analysis of Warren Buffett's investing over the years, and it observed that his Sharpe ratio was, or is about 0.79, and so it's not that much different than the market overall. But the way he structured Berkshire Hathaway in effect gives it about 1.7 times leverage. And that is really the source of why Berkshire Hathaway has performed as well as it has. That leverage in that case comes through the insurance companies in there generating cash that is then floated and can be used to invest in other businesses. So you may be interested in that as well. It's always an interesting topic.

Mostly Voices [14:45]

Well, you have a gambling problem.

Mostly Uncle Frank [14:49]

And thank you for that email. Last off. Last off, we have an email from Daniel and Daniel writes.

Mostly Mary [14:58]

Hi Frank, love your podcast. Keep up the good work. Here's my question. I was wondering how to draw down a golden butterfly portfolio in retirement. Should I withdraw in a way to always maintain the intended ratio between assets or withdraw from assets that have grown more significantly and give more time to the laggards to catch up? Looking forward to your input.

Mostly Voices [15:21]

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

Mostly Uncle Frank [15:29]

Well, this is a timely email, Daniel. We did actually discuss withdrawal mechanisms in episode 163 with Karen. If you want to go back and listen to that, I will summarize what I said there again here. This is more a matter of preference and psychology than it is of optimization. And the reason that is the case is because we are assuming that you are going to be rebalancing this portfolio at some point about once a year. And so it's going to go back to those allocations. So what you're doing throughout one year is not going to make that big of a difference as to overall performance. But the Golden Butterfly has a large portion of short-term bonds in the form of SHY. So if you wanted to just only look at your portfolio annually and not pay attention to it at all. Oh, I see nothing.

Mostly Voices [16:23]

I was not here. I did not even get up this morning. which is kind of the Paul Merriman approach to using his retirement funds.

Mostly Uncle Frank [16:31]

You would just spend money out of the SHY for your distributions for the entire year, and then you would rebalance the next year and do the same thing over again. And so you'd never even need to look at your other funds in there. I know nothing. If you wanted a more hands-on approach, a monthly approach, you could do it the way that we are. doing it with the sample portfolios where we are looking at the performance essentially since last rebalancing and taking off the top the best performers. And in recent times for the Golden Butterfly, that's been a lot of gold because it's been the best performer in recent months. That's gold, Jerry, gold. And what you'll find when you get to rebalancing time, there'll be less rebalancing you need to do then. So you can do set it and forget it, or you can do hands-on, or you can do something in between, and it should work out just fine so long as you stick to your plan and do rebalance on a scheduled basis. Groovy, baby! And thank you for that email. And now for something completely different. And the something completely different is our weekly portfolio reviews of the seven sample portfolios. you can find on the portfolio's page at www.riskparityradio.com and it was another ugly week out there. We've had a lot of those this year.

Mostly Voices [17:59]

That's not an improvement.

Mostly Uncle Frank [18:02]

Just looking at the markets themselves, the S&P 500 was down 1.27% for the week. The Nasdaq was down 3.86%. Gold was actually up. I love gold. Gold was up 1.14% for the week. Treasury bonds took another beating, probably the biggest one they've had this year. TLT was down 5.4% for the week.

Mostly Voices [18:27]

Do you expect me to talk? No, Mr. Bond, I expect you to die!

Mostly Uncle Frank [18:34]

REITs represented by the fund R E E T were down 1.34%. Commodities represented by PDBC, were actually the biggest winner. They were again, they were up 2.26% for the week. And PFF, the Preferred Shares Fund, was down 1.93% for the week. But I believe it also had a distribution. And as you might expect, all of our portfolios were down this week. The ones that had some gold in it, the more gold you had, the better off you were. Just going through them, the All-Seasons Portfolio, this is a reference portfolio that is 30% in a total stock market fund, 55% in treasury bonds, the remaining 15% divided into Golden Commodities, GLDM and PDBC at 7.5% each. It was down 2.4% for the week. It is down 7.13% year-to-date and is up 5.46% since inception in July 2020. Now moving to our three bread and butter kind of portfolios, variations of which one might actually hold in retirement. First one is the Golden Butterfly. This one is 40% in stocks divided into a total stock market fund and a small cap value fund. 40% in bonds divided into long-term treasuries and short-term treasuries and 20% in gold. That's GLDM, it was the best performer this week, down only 1.86% for the week. It is down 4.6% year to date and is up 18.17% since inception in July 2020. And gold remains the star performer in this portfolio. Moving to our next one, the Golden Ratio. This one is 42% in stocks, and we've divided this version into three funds, a large cap growth fund, VUG, a small cap value fund, VIOV, and a low volatility fund, USMV, that was actually up over a percent last week, which I thought was interesting, because it's evidence that there's a lot of rotation going on in the stock market, and some sectors and stocks are actually doing just fine. But it's also got 26% in long-term Treasuries, TLT, 16% in gold, GLDM, 10% in REITs, the fund R-E-E-T, and 6% in cash. It was down 2.07% for the week. It is down 6.21% year to date and is up 18.46% since inception in July 2020. Next one is our Risk Parity Ultimate Portfolio. It's got 14 funds in it, I won't go through all of these, but it was down 2.52% for the week. It is down 8.11% year to date, and is up 15.46% since inception in July 2020. And now for the experimental portfolios, which are beginning to look like Frankenstein's monster and the creature from the Black Lagoon.

Mostly Voices [21:52]

We got a scary 140 this week.

Mostly Uncle Frank [21:59]

First one is the Accelerated Permanent Portfolio. This one is 27.5% in a long-term treasury bond fund that's leveraged TMF, 25% in a leveraged stock fund, UPRO, 25% in PFF or preferred shares fund, and 22.5% in gold GLDM. It was down 4.4% for the week. It is down 17.21% year to date and is up 10.93% since inception in July 2020. And the next one is our least diversified and most levered portfolio, the aggressive 50/50. What this models is if you took a basic portfolio that was 50% stocks and 50% treasury bonds and levered it up, what would happen to it? And what happens is you get a lot of volatility without any gold here or anything else to Diversify it better. And so it's comprised of 33% UPRO, the leveraged stock fund, 33% TMF, the leveraged bond fund, and the remaining third divided into a preferred shares fund, PFF, and an intermediate treasury bond fund, VGIT. It was down 6.27% for the week. It is down 28.87% year to date with all that leverage in it. It is still up 9.9% since inception in July 2020. This one really exemplifies what happens when you put a lot of leverage into a portfolio that is only stocks and bonds because it was up almost 40% near the end of 2021 and has now become the worst performer, gone from best to worst. But that's why it's an experiment.

Mostly Voices [23:45]

But look at what has been done with hearts and kidneys. Hearts and kidneys are Tinker Toys.

Mostly Uncle Frank [23:48]

And then our last portfolio is the levered golden ratio, which is more diversified than those other two. This one is 35% in a leveraged composite fund, NTSX, that's S&P 500 and treasury bonds. Then it's got 25% in gold, GLDM, 15% in a REIT O, Realty Income Corp, 10% each in a leveraged small cap fund TNA and TMF the leveraged treasury bond fund. The remaining 5% is divided into a volatility fund and some crypto funds. It was down 2.54% for the week, so not bad considering the leverage in it. It is down 9.54% year to date and is down 5.43% since inception in July 2021. So it was a rough week out there. Feels like we're back in the 1970s. Makes you wonder whether the Fed is truly running the Paul Volcker Playbook, which happened in around 1979 to 1980, and eventually, I shouldn't even say eventually, rather quickly strangled inflation and also caused a recession. Whether it will all play out again like that this time remains to be seen.

Mostly Voices [25:27]

I've seen nothing, I know nothing. We are simply observers and not predictors.

Mostly Uncle Frank [25:33]

We don't know.

Mostly Voices [25:36]

What do we know? You don't know. I don't know. Nobody knows.

Mostly Uncle Frank [25:40]

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 your message into the contact form there and I'll get it that way. If you're interested in more risk parity material in a blog and website form, you might want to check out Risk Parity Chronicles. So put up there by our listener Justin, and that's at www.riskparitychronicles.com. The best Jerry, the best. If you haven't had a chance to do it, please go to your podcast provider, and like subscribe, give me some stars. That would be great. Okay. Thank you once again for tuning in. This is Frank Vasquez with Risk Parity Radio signing off.

Mostly Mary [27:02]

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.