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 [0:18]

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 [0:37]

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.

Mostly Voices [1:06]

Ain't nothing wrong with that.

Mostly Uncle Frank [1:10]

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 176 of Risk Parity Radio. 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. And just a little preview of that：Happy days are here again, the skies above are clear again, let us sing a song of cheer again, happy days are here again. But before we get to those reviews, I'm intrigued by this, how you say, emails.

Mostly Voices [2:29]

And we have some good ones here today. The best, Jerry, the best.

Mostly Uncle Frank [2:36]

So without further ado, first off, first off, we have an email from Steve.

Mostly Mary [2:41]

Hey, Steve. And Steve writes. Hi, Frank. Per your general recommendation, I was just listening to Ben Felix's Rational Reminder podcast, in this case, number 199, where he discusses bonds. In it, he specifically points to the recent 50 or so years of a very uncorrelated relationship between long-term bonds and stocks that we now know is highly beneficial to a risk parity style portfolio. However, he also notes that prior to the recent past, The two have been much more highly correlated over significant periods of time and thus, my words, presumably not nearly as helpful in creating risk parity portfolios. Given that portfolio charts and portfolio visualizer only go back to the 1970s or later, are we missing something important that we should know, that we would know if they used data sets that went back farther? Put differently, and without trying to predict the future, Are we nonetheless relying too heavily on the relatively recent past? I'd be interested in your thoughts. Thanks, and I love your podcast, Steve.

Mostly Voices [3:51]

I'll get you, hey, Steve, if it's the last thing I do!

Mostly Uncle Frank [3:58]

Well, I think what we need to do here is go back and look at some of that old data. And there is a paper that I've referenced a couple times. Last time I can see I did it in episode 124. But I will reference it again for this podcast because they continually update this paper. What this paper is, it's called Flights to Safety, Volatility Risk and Monetary Policy. The author is Claudia E. M-O-I-S-E, hopefully I pronounced that right. And let me just read you the abstract here. She writes, I show that unexpected shifts in realized stock market volatility, often associated with financial crises, carry a significantly negative price of risk across stocks and treasuries. Investors require a premium for holding risky assets, pern stocks closed pern, which correlate negatively with volatility surprises, and are willing to pay a premium for holding safe assets, pern treasury bonds closed pern, which correlate positively. This result explains the flights to safety phenomenon and the corresponding change in sign in the stock treasury bond return correlation during times of economic uncertainty. Now let me translate that for you into plainer English. What she is saying is that the data shows that there is a flight to safety phenomenon involving treasury bonds where you get this negative correlation in particular in times of economic uncertainty and in recessions in particular. And I think there's a common misunderstanding or misperception as to how correlations work. In fact, they change all the time and they change from month to month. And you can see this best by looking at Figure 1, which is on page 47 of this paper, which goes back to the monthly data for correlations between Treasury bonds and stocks back to 1952. So it's January 1952 and this is up through December 2020 is what she's got now. And what you see is that treasury bonds are often positively correlated with stocks, but then when you look and see where they go negative, it's always in these recessionary periods. And that's 1956, there's one in 1960, in the mid 60s, in the 70s, in the 80s, in the 90s, all the way up through. And when you think about it, that's what we're really interested in. We don't really care if Treasuries are negatively or positively correlated with stocks, if the stocks are going up and our portfolio is mostly stocks, because then our portfolio is going to be going up. When we really care about it is when you have these recessions and you see drops in the stock market of 30-40 or 50%. And if you look on page 48 of this paper in figure two, it does show you where those recessions are and the spikes that occurred. And these go back to 1952. So you've got a couple in the 50s, you've got the Cuban Missile Crisis, a credit crunch in the 60s, a pair of recessions in late 60s and 73-74, recessions in the early 80s, Black Monday, another recession in '91, Asian crisis, Russian crisis, Enron and Gulf War, the Great Recession, US debt downgrade, Brexit, and US-China trade war and COVID-19. And I'll just read you a couple of other things from page two in the introduction of this paper. She writes, the flights to safety that occur during times of market stress have historically led to negative stock bond return correlation, even though this statistic is positive most of the time, as can be seen in figure one. What she's saying is, yeah, you can have positive correlations between stocks and bonds, treasury bonds, but it's going to go negative when you see these recessions. Then she further writes, Meanwhile, periods of increased economic uncertainty are also characterized by a surge in stock market volatility, as highlighted in figure two. which is also what I just talked about. Therefore, flights to safety episodes point both to the interconnectedness between stock and treasury markets and their possible joint exposure to fluctuation in stock market volatility, which motivates me to investigate the connection between financial volatility and flights to safety. In the next paragraph, she writes, specifically, I show that volatility carries a significant negative price of risk across stocks and treasuries. Investors require a premium for holding risky assets, stocks, which correlate negatively with volatility surprises, and are willing to pay a premium for holding safe assets, treasury bonds, which correlate positively. The result explains the flights to safety and the corresponding change in sign in the stock treasury bond return correlation during times of economic uncertainty when volatility spikes. Furthermore, the volatility risk premium that I find in the Treasury yield curve explains its inverted pattern at the onset of recessions. And I think we've talked about that before as well, that when you see an inverted yield curve where the interest rates for shorter term bonds are higher than the interest rates for longer term bonds, that is generally a sign that a recession is in the offing in the next six to 18 months. So I suppose the next question then is, well, when do you see this switch flip that in times of positive correlation between stocks and bonds, when does it go negative? I'm not sure there's any definitive time period, but we actually saw that happen in the past three weeks here, believe it or not. About three weeks ago, if you were watching, you would have seen the correlation between stocks and bonds flipped to negative almost suddenly within a couple of days. And so while the stock market has continued to be beaten up for most of May, treasury bonds have actually gone up in value every week for the past three weeks.

Mostly Voices [10:20]

Now, what does that mean going forward? Well, we don't know. What do we know? You don't know. I don't know. Nobody knows.

Mostly Uncle Frank [10:27]

What we do know and see is that treasury bonds and yields seem to have topped out a few weeks ago, are down between 25 and 30 basis points since then. And I'm talking about the 10 and 30 year bonds. And every time there is news about slowing or a possibility of recession, the long-term yields seem to go down more and particularly move downward when the stock market is also moving downward. So I'm fairly confident that the observations made in this paper based on 70 years of monthly data are likely to hold in the future, and at least I have no reason to believe that they will not hold in the future, because I do not believe that this time is somehow different from other periods of time.

Mostly Voices [11:14]

That's not how it works. That's not how any of this works.

Mostly Uncle Frank [11:22]

But you should all check out this paper and this data yourself and see what conclusions you draw from it. I think it will convince you that the next time you hear somebody talking about correlations between stocks and bonds going positive and somehow that being some kind of trend that's going to stick around for years and years and years is just misguided. Wrong. And does not match what the data says, which says that the correlations tend to change All the time they go positive and negative even month to month, but that you see the most negative correlations during economic crises and recessions in particular. Those are my thoughts and thank you for that email.

Mostly Voices [12:01]

Don't be saucy with me, Bernaise. Second off.

Mostly Uncle Frank [12:05]

Second off, we have an email from Judy.

Mostly Mary [12:18]

And Judy writes, hi Frank, hoping there's no such thing as a bad question. This is from someone who can't quite get her head around bonds. I am using the Paul Merriman Ultimate Buy and Hold Portfolio, and I'm thinking of adding some gold after listening to you for the past several months. I do not have bonds except I bonds. I am 61 years old, and the reason I don't have other bonds is because I own two rental properties that I view as the fixed income portion of my portfolio. I make more than 4% in rents based on my investment, and I could sell at a sizable profit if needed at some point. I also invest in a private equity real estate company that mostly flips apartment buildings and has done very well in terms of return. So, less than one half of my retirement bucket is in equities, which in some ways is conservative already, even without bonds. I am still contributing to my retirement, brokerage, and 401k, and plan to retire in five years. So here is my question. Should I start buying bonds now since they are down? You said in a recent podcast that you would buy more bonds when you rebalance this summer. For people who don't own bonds, is now a good time to buy or are we just lucky that we don't own bonds? If buying is right, what would you recommend? Thanks for your informative and entertaining podcast. I enjoy listening. Sincerely, Judy.

Mostly Uncle Frank [13:39]

well, in fact, this is not a bad question. These are very good questions, but let's talk about them. I think the issue you really have here is one of process, and it doesn't have so much to do with bonds as it does with how to choose your assets overall. Because what you're considering here is more like shopping in a Target store, wandering down some aisles, seeing, well, I don't have any of those. Maybe I should get some of those. Oh, they look like they're on sale. Maybe I should pay pick up some of that. And that is really not a good way to approach choosing investments. So what is a better process for this? And I think the process needs to begin with evaluating your expenses and doing it on a fairly granular level so that you know what portion of your expenses you would characterize as keep the lights on. which portion would be living in comfort and which portion would be splurges or extravagances. And we talked about a process like this back in episode 163 where we analyzed Karen's situation. But that would be the first step. Then after that we're looking at how are these expenses going to be covered and you have some real estate investments that presumably are going to cover a substantial portion of those expenses. And you can model that in different ways. For example, you could just take your expenses and subtract those rents off of it and whatever steady income you're getting from this private equity real estate investment. Now, if those two things are more than half of your retirement assets, then I would expect them to cover more than half of your expenses. And if they're not covering more than half of your expenses, you may need to rethink whether those are good investments for you to be holding or whether you should be selling the building and reinvesting the money elsewhere. But let's assume you can evaluate those expenses and then subtract from that the incomes you're getting off of these real estate investments. And then you get a smaller number of leftover expenses that need to be covered by your retirement portfolio. So let's just suppose for exemplary purposes that your annual expenses are $100,000 and half of those annual expenses are covered by your rental properties. And so the amount that you need to generate or take out of your retirement portfolio, the rest of it, is $50,000. The next question then becomes What is the relationship between that $50,000 and the rest of your retirement invested portfolio? Is that $50,000 3% or less of your retirement portfolio? Is it about 4%? Is it about 5%? Because that is getting you at the safe withdrawal rate or the withdrawal rate that you need to apply to your portfolio. So if your portfolio is 1. 67 million dollars, $50,000 is 3% of that, and that would be a 3% withdrawal rate. If your portfolio is 1.25 million dollars, then you could apply a 4% withdrawal rate and get that 50,000 out. If you only had a portfolio of a million dollars, then you would be needing to apply a 5% withdrawal rate to that. So why do we care about that? The reason we care about that is that the goal of these portfolios on this podcast and what we talk about here is to maximize safe withdrawal rates. And if your necessary safe withdrawal rate is 3% or less, then you can hold virtually anything that has at least say 30% stocks anywhere from 30% stocks to 100% stocks, and you're not likely to run out of money. But if you need to be taking four or 5% out of that portfolio, then you need to be more focused on the composition and diversification of that portfolio in order to get a higher projected safe withdrawal rate. Now, historically, portfolios like our sample portfolio, Golden Butterfly or the sample Golden Ratio portfolio have had safe withdrawal rates of 5% or more, whereas a 100% stock portfolio historically has had a safe withdrawal rate of less than 3.5%. But then this circles back to your goals. Is your goal to take as much as possible out of this portfolio, or is your goal to say only take a little bit out and preserve it for your heirs. Because if you were mostly trying to preserve it for your heirs, you would leave it in 100% stocks because that is likely to grow the most over long periods of time. But if you're interested in spending more of that money during your retirement, then you are going to have to move to a more diversified portfolio that would include some bonds. Now, since I do not know what your exact situation is and what your goals are, Man's got to know his limitations. It's not really possible for me to tell you whether you should be buying bonds or holding bonds, but I would encourage you to figure out what do you want as a portfolio for the long term. So you're not thinking about whether you need to buy this now or buy that next week. or do something different. The idea here is to come up with a plan that includes a portfolio that matches your goals and then move to that portfolio in as tax efficient a way as possible and then essentially be done with it other than having to rebalance it periodically. And so that is an outline of the process that I would follow for determining whether you want bonds or anything else in your portfolio in particular. Now stepping away from that and just talking about bonds, and I will link to in the show notes, I did an episode on the Choose FI podcast called the Role of Bonds in youn Portfolio that you can go back and listen to where Brad and Jonathan interviewed me about that. You are talking about the nonsensical ravings of a lunatic mind. But let me just summarize that in a nutshell. Hearts and kidneys are Tinker Toys. There are generally three purposes for bonds in a portfolio. And different bonds perform these purposes better or worse than other bonds. So you need to pick the right bonds to suit your purpose. One of those purposes is income. Another one is stability. And another one is diversification. Those are three different purposes and different bonds do each one of those better than other bonds do. Now trying to generate a lot of income out of bonds these days is a difficult proposition because the kinds of bonds you would hold to generate the most income are going to be essentially junk bonds, high yield corporate bonds, which carry high levels of risk and are also highly correlated with stocks. And they also pay ordinary income. So most people these days are not relying on bonds to generate income in their portfolio. Better alternatives for generating straight income in a portfolio may include things like preferred shares, a fund like PFF or PFFV, it's going to be paying between 4 and 5% and mostly qualified dividends that qualify for the lower long-term capital gains tax rate. If you are in the highest tax bracket, oftentimes municipal bonds might be something you might consider because of the tax issues. The problem with ordinary bonds is that they pay ordinary income and so it's taxed at the highest rate that you're going to be paying, at least if you're talking about holding something in a taxable account. All right, let's move to that second purpose, stability. When you're talking about stability, you don't want the holding to go up or down in value that much, and you're more concerned about preserving it as capital than you are about gaining a lot of income from it. And for that, short-term bonds are where you want to be. Short-term treasury bonds, short-term corporate bonds, short-term tips, savings accounts, I bonds, all of those sorts of things are in this kind of stability bucket, if you will, because they are essentially serving the same purpose as holding cash. And the key to those is holding as much as you need, but not holding too much. because long term, that is not a good investment. It's a short term investment for short term needs. And so most people in retirement only need to have one to two years of that depending on what else they're holding and may need even less if they have a pension or other source of income. Some people prefer to hold up to five years of that sort of thing. But I think that's probably overdoing it for most people and will detract from the long-term performance of your portfolio. All right, that third purpose then we're talking about is diversification and specifically diversification from your stock holdings. Now, the most diversified bonds from your stock holdings are going to be intermediate and long-term treasury bonds, and they will typically exhibit that negative correlation during recessions and big stock market crashes. And we talked about that in reference to the last question. Now, other types of bonds do not exhibit that characteristic. So corporate bonds are going to be positively correlated with stocks. They're going to go up and down with stocks. They're going to crash during recessions with the stocks. and that is especially true for your lower grade, higher income yielding junk bonds and those sorts of things. Now, in the world we live in today, it's possible to buy the specific bonds in the form of a fund that you need for each of these specific purposes. But despite having those tools, we still see the suboptimal recommendation being made to use total bond funds for this purpose. A total bond fund has corporate bonds, treasury bonds, and bonds of all kinds of duration in it. It actually does not include a lot of other kinds of bonds like TIPS or high yield junk bonds or those sorts of things. So it's a misnamed thing. It's not even a total bond fund. It is just a basic construction that somebody came up with in an index. So what you end up with is something that does some of all of those purposes that we talked about, those three purposes, but it doesn't do any of them particularly well. So you only want to use that if you're incapable of figuring out what your real purpose for holding the bonds is. Because if you know what your purpose is, then you should go and buy the bonds that fit that purpose and not be messing around with stuff that you don't need or don't want. Now you will notice if you look at the sample portfolios we talk about here, that the purpose that we use bonds for mostly is diversification and some for stability in some of the portfolios. And that way we can limit the amount of bonds we need to hold in these portfolios and focus it on the specific purpose for them. And then that gives you more space to put more stocks or alternative investments in to drive the returns of your portfolio. Because we only have so much room in a portfolio and we don't want to put things in there that are not doing specific jobs that we've identified and focused upon.

Mostly Voices [26:32]

You had only one job.

Mostly Uncle Frank [26:36]

But now I think I've spent enough time on this topic and we should probably move on. Yes. Thank you very much for your email. Last off. Last off, we have an email from Geordie.

Mostly Mary [26:52]

And Geordie writes, hi Frank, what do you think of the book, the Simple Path to Wealth? Do you think it's a good approach on investing in the current days?

Mostly Uncle Frank [27:00]

All right, what you're talking about is J.L. Collins book, the Simple Path to Wealth. It is a classic book from what we call the Iron Age of investing. And it was written in 2011 and 2012. Just in case you're wondering why we call that the Iron Age of Investing. I shall taunt you a second time. I refer to the Stone Age of investing as things going back before about 1970 when we knew about Markowitz's paper but nobody had actually applied it in terms of portfolio construction. Then the 70s, 80s, and 90s were what we call the bronze age of investing, where the focus was on selecting fund managers who were supposed to be able to construct these portfolios using special skills and magic crystal balls that they had lying around.

Mostly Mary [28:01]

Now you can also use the ball to connect to the spirit world.

Mostly Uncle Frank [28:04]

But after a few people did some research on that, they found out that that really wasn't true. And what we should really be focusing on is not picking fund managers to do magical things with crystal balls, but should be focused on using low cost, well diversified funds to construct portfolios with, which led us to the Iron Age. And that is the period from the late 1990s to the mid 20 teens led by Jack Bogle and Vanguard. who created a lot of low cost funds for people to construct simple portfolios with. But now we have graduated to the age of steel, where we as do-it-yourself investors have sophisticated tools like portfolio charts and portfolio visualizer. We have a wide variety of ETFs in various asset classes that we can choose for our portfolios, and we have no fee trading. and fractional shares. And so our tools and capabilities have expanded greatly in just the past decade. Now getting to the book. I have a lot of affinity for this book and the motivations on how it was created, because they are similar to the reasons that I create this podcast. The Simple Path to Wealth was first a blog post, and it was not written for you or for me or for the public or for anybody. It was written for one person. J.L. Collins wrote that for his daughter because he realized that she was not that interested in talking about investing or dealing with investing at that particular time, but he wanted to preserve what he knew and give her some simple instructions in case he got hit by a bus and was not around when she needed that information. And so I can tell you that my primary audience is not you. It is my children, my adult children. I love Kari. I love Terry. I love money. I hate all of you. And whether they listen to this as it comes out, which some of them do, or they listen to it later on, it will be preserved as information that they might use going forward to help them manage their wealth.

Mostly Voices [30:39]

Can you take hats in a dignified and sophisticated manner? You mean like a weenie? Okay, may I take your hat, sir? May I take your hat, sir? All right, I've heard enough. You've got the job.

Mostly Uncle Frank [30:53]

So to your question, do I think it's a good approach on investing in the current days? And the answer to that is yes, but it's a qualified yes. Because the question you should be asking is not about the current days. Anytime you ask a question about investing that involves right now, currently, In this time, you're asking the wrong question. The question should be about for whom is this a good approach? And this remains an excellent approach for people in several categories. First, it's a good approach for people accumulating wealth. And it's especially good for people who are just getting started because it fulfills two of our principles very well. the simplicity principle, and the macro allocation principle. Beginning investors are frequently overwhelmed by the prospect of investing and even the terminology in figuring out the difference between an account, an investment, a fund, those sorts of things. And so they end up going down this erroneous thought path that leads them to bad places. And the erroneous thought path goes something like this. I don't know anything about investing. Since I don't know anything about investing, it must be complicated. Therefore, I need a complex solution or an expert to help me do this. Therefore, I need to pay a lot of money and do something really complicated to reach my goals. And the conclusion is erroneous. You do not need to do that. And in fact, you are much better off. starting with a simple path to wealth like this. A beginning investor needs to focus on two things, earning and saving. Earning and saving, I'll give you a article from Michael Kitces in the show notes called the Four Phases of Investing for Retirement. And what it says is until you've accumulated a significant amount, and that amount is roughly $100,000 or your annual salary, there is no point in you monkeying around with a bunch of complicated investments. You'd be better off just sticking it in one total market fund, get into the habit of investing in that fund regularly, and then just let it grow for a few years. And after a few years of doing that, you will have an idea for yourself as to whether that is an activity that you want to spend more time on self-educating, and doing different things. And it's fine if you do, but it's also fine if you don't. Because many people do not like investing, do not find it enjoyable to learn about, talk about, or think about, and would rather be busying themselves with their careers, their families, or something else. And for those kinds of people, this is a perfect way to continue investing in a way that will get you there in the end. So for instance, I have a friend Diana Merriam who runs the Economy Conference and also is the podcast host of Optimal Finance Daily. And I appreciate all of her references to this program on her show because she does frequently reference what we do over here. But she has been investing, saving and investing in a total market fund. I believe the one from Vanguard and doesn't really want to be spending a lot of time thinking about those investments or monkeying with those investments. And so she came to me and said, Is it okay if I just stick with this one fund and focus my life on doing other things, making money in other ways, and spending her time on more interesting pursuits to her? And I said, Of course that's fine. Of course that's going to work. you should continue to do that. And one of the advantages of taking that approach is that generally when amateur investors monkeying around with their portfolios, they end up doing worse than the simple path to wealth, not better. So unless you're really going to be engaged in the subject matter, you're going to be better off just leaving that thing alone and letting it grow. And so for somebody like that, which is actually like most people who are not listening to podcasts like this one, We few, we happy few. That is a great plan. Now, where I think the simple path to wealth leaves something to be desired is when you start talking about your decumulation phase or what is called phase four in that Kitsis article that I'm going to link to in the show notes where you're talking about managing a portfolio when you're drawing down from it. But there, I think it's just a product of its time. And although it's only 10 years old, that is a long time in terms of personal finance and what has developed since then. When JL Collins was writing that book, there was no portfolio visualizer for you to use. There was no portfolio charts. There was no no-fee trading. We did not have all of these ETFs that you could easily jump in and out of. A lot of that stuff has just come about since 2015. So the simple recommendation that he makes in there for your retirement portfolio, which I think is something like a 75 total stock market, 25% total bond market portfolio, is going to work for most people in most circumstances. But can also be easily improved upon using the tools and information that we talk about here.

Mostly Voices [36:45]

We had the tools, we had the talent.

Mostly Uncle Frank [36:48]

I certainly could not have done anything like what I'm doing here with these sample portfolios back in 2012. It just was not possible. But as do-it-yourself investors, we should look at the best we can do at any particular time. time. And while that doesn't mean you need to be making big changes every year to your approach or your portfolio, it does mean that you should keep up with best practices as best as you can and not get stuck in what we call the foolish consistencies that are the hobgoblin of little minds. Just because you had a plan that was the best plan on the planet in 2005 or 2012 or 1998, That doesn't mean that it's necessarily the best plan or idea for do-it-yourself investing in 2022. Really? So I guess my last and final answer is that most people should be using the approach described in a simple path to wealth at the beginning of their journey and then branching out or changing depending on both their interests and their goals. I would say that the simple path to wealth is certainly much better than all of these target date funds I see being recommended. And maybe I'll go on a rant about those sometime.

Mostly Voices [38:14]

Looks like I picked the wrong week to quit amphetamines.

Mostly Uncle Frank [38:18]

To me, target date funds are like prison jumpsuits. Sure, they fit everyone in terms of Covering you up, but in terms of actually fitting you and your goals, they don't fit anybody in particular. Forget about it. And at the beginning of an investing journey, until you've accumulated that $100,000 or annual salary, the simple total market fund is going to fit you a lot better than any target date fund. You need somebody watching your back at all times.

Mostly Voices [38:50]

But I will leave the rest of that rant for another day.

Mostly Uncle Frank [39:00]

Now we are going to do something extremely fun. And the extremely fun thing we get to do now is our weekly portfolio reviews of the seven sample portfolios you can find at www.riskparityradio.com on the portfolios page. I think we finally broke the seven week streak of going down in the stock market and saw some light at the end of the tunnel. It's funny that the markets are actually pretty much where they were at the beginning of the month now after all of the storm and drang. But anyway, looking at the markets themselves, the S&P 500 was up 6.58% last week. The Nasdaq was up 6.84%. Gold was up 0.32%. Long-term treasury bonds represented by the fund TLT were up 0.48%. REITs represented by the fund R EET were up 4.27%. Commodities represented by the fund PDBC were up 3.8%. And preferred shares represented by the fund PFF were up 6.1%. which is an unusual jump for them, but maybe a sign that everybody was piling into them while they could still get a 5% rate out of them. Now moving to the sample portfolios, as you can imagine they all had decent weeks. The first one is the All Seasons portfolio. This is a reference portfolio that is going to be too conservative for most people. It has 30% in Total Stock Market fund, VTI, 55% in medium and long-term treasury bond funds, and then the remaining 15% is divided into Gold, GLDM, and Commodities, PBDC. It was up 2.52% for the week. It is down 10.38% year to date and is up 1.81% since inception in July 2020. Moving to our next three portfolios, which are similar in risk reward to a 60/40 portfolio. The first one is the Golden Butterfly. This one is 40% in stocks divided into a small cap value fund and a total market fund, 40% in treasury bonds divided into long and short, and then 20% in gold, GLDM, It was up 2.76% for the week. It is down 7.6% year to date and is the best of our performers in 2022. And it is up 14.63% since inception in July 2020. And anybody holding this kind of portfolio is probably sleeping pretty well at night. I'm putting you to sleep, even with all of the turmoil in the markets in 2022. Moving to our next portfolio, the Golden Ratio. This one is 42% in stocks divided into three funds. It's got 26% in long-term Treasuries, 16% in gold GLDM, 10% in a re-fund R-E-E-T, and 6% in cash, which we use to pay out the distributions. It was up 3.4% for the week. It is down 11.3%. year to date and is up 12.36% since inception in July 2020. And you'd probably sleep pretty well at night holding this one too.

Mostly Voices [42:32]

I took the liberty of putting away something in your teeth. What are you talking about? I'm putting you to sleep.

Mostly Uncle Frank [42:41]

Next one is the Risk Parity Ultimate Portfolio. I will not go through all of the funds in this. There are about 15. And it's got everything in the kitchen sink in it. But it was up 3.43% for the week. It is down 13.8% year to date, and it is up 8.69% since inception in July 2020. And now moving to our experimental portfolios, these involve leveraged funds in them. Tony Stark was able to build this in a cave with a box of scraps. which create roller coaster rides for them. First one is the Accelerated Permanent Portfolio. This one is 27.5% in a leveraged bond fund TMF, 25% in a leveraged stock fund UPRO, 25% in PFF preferred shares, and 22.5% in gold GLDM. It was up 6.03% for the week. It is down a 25.05% year to date and is up 0.84% since inception in July 2020. Then moving to our most leveraged and volatile portfolio, the aggressive 5050. This one is 33% in a leveraged stock fund, UPRO, 33% in a leveraged bond fund, TMF, and then the remaining third is divided into PFF, a preferred shares fund, and VGIT, an intermediate treasury bond fund. It was up 6.86% for the week, similar to the NASDAQ. It is down 32.31% year to date, it's down 1.97% since inception in July 2020. The interesting thing about this is it was the best performing portfolio until this year, and now it's the worst performing portfolio, but that's what leverage will do to you or to a portfolio. But that's also why this is an experiment.

Mostly Voices [44:38]

Look away, I'm hitting it.

Mostly Uncle Frank [44:42]

And now moving to our last portfolio, which is a little bit more sensibly levered. This is the levered golden ratio portfolio. It has 35% in a composite stock and bond fund called NTSX. That is like the S&P 500 and treasury bonds. It's got 25% in gold GLDM. 15% in a REIT O, Realty Income Corp, 10% each in a leveraged bond fund, TMF, and a leveraged small cap fund, TNA, and then the remaining 5% is divided into a volatility fund, VIXM, and a crypto fund, GBTC. It was up 4.31% for the week. It is down 14.97% year to date. Not so bad for a leveraged fund and is down 11.32% since inception, which for this portfolio was in July of 2021. And so all in all, it was a good week. But as I mentioned before, we are kind of back to where we were at the beginning of May. And the future is very uncertain. My mom always said life was like a box of chocolates. This was a good example of why you really do not want to try and time markets because there was no particular impetus or reason for the markets to go up as much as they did this past week. But that is always what happens either at the end of a downturn in the stock market or as a head fake. So could this be some kind of a bottom that just occurred? Well, maybe. like in 2020 or maybe not like in 2008 or 2000. We could easily have a respite or a sideways market for a while and then another big drop.

Mostly Voices [46:31]

You never know what you're going to get.

Mostly Uncle Frank [46:35]

And so we will do what we always do, which is follow our rules for managing our portfolios. 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 are looking for more risk parity material in a blog form, I invite you to check out Risk Parity Chronicles, which is run by one of our listeners, Justin. Young America, yes, sir. Just wrote some excellent new entries about managed futures and some other things.

Mostly Voices [47:26]

That is the straight stuff, O Funkmaster.

Mostly Uncle Frank [47:30]

So check that out when you get tired of listening to me. If you haven't had a chance to do it, please go to your podcast provider, and like subscribe, give me some stars at a review. That would be great. Okay. Thank you once again for tuning in. This is Frank Vasquez with Risk Parity Radio signing off.

Mostly Voices [48:01]

See, I was cooking dinner that night. I had to start braising the beef. pork butt and veal shanks for the tomato sauce. I'm gonna make them all. I'm gonna make all this meat. It was Michael's favorite. I was making Ziti with the meat gravy and I'm planning to roll some peppers over the flames and I was gonna put on some string beans with some olive oil and garlic and I had some beautiful cutlets that were cut just right that I was gonna fry up before dinner just as an appetizer. Karen, that was worth $60,000. I need that money. That's all we got. What was I supposed to do? Karen, that's not what they were in everything. That's all the money that we had, Karen. I was dependent on that.

Mostly Mary [48:40]

Why did you do that? 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.