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 1-3-5-7-8. 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 178 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. We also have our monthly distributions for June to talk about.

Mostly Voices [2:06]

But before we get to that... I'm intrigued by these how you say, emails.

Mostly Uncle Frank [2:15]

And we have some pretty lengthy ones today. Merry Merry, why you buggin'? First off, we have an email from George. Now, George has gone to the front of the line because he is one of our patrons on Patreon. We few, we happy few, we band of brothers. And you can join that august group. If you go to the support page at www.riskparityradio.com, all the money collected there goes to a charity, the Father McKenna Center, which is also linked to on that support page. We don't have any sponsors here at Risk Parity Radio. We just have a charity.

Mostly Mary [3:00]

Yeah, baby, yeah! And now getting to that email, George writes：hello Frank, I have listened to every episode, though I joined late, to date, and several episodes multiple times. Inconceivable! I continue to enjoy your podcasts, especially your response to questions from your audience. You are talking about the nonsensical ravings of a lunatic mind. Their thoughtful consideration and curiosity about the risk parity concept are reflected in their letters. I utilized momentum strategies for the last 15 years until I encountered the risk parity concept. While the momentum strategy did well with acceptable levels of risk, heck, who hasn't been an investing savant the last 15 years, it required regular analysis and trading. We want to simplify our lives, no longer needing to play the game. We live a frugal lifestyle and I'm retiring in July of this year. I will continue to work intermittently three to four months a year for my company as a partner and my wife, an RN, will continue to work for another four to five years. I have moved all of our portfolios, except our employer accounts, into the Golden Ratio or Risk Parity Ultimate structure. Those non-employer traditional IRA, Roth, and HSA accounts are with Fidelity. I will scratch the itch for optimization if needed by reading, listening, and analyzing using the tools available to us. But the default sample portfolios you have presented are adequate starting points for the near term. I listened to Morningstar's the Long View podcast interview with Cliff Asness, CIO of AQR Capital Management today.

Mostly Voices [4:45]

Dear Asswipe and Emily, congratulations on your upcoming blessed event. All our love, Bob and Diane. Here you go, sir. Listen, that's ours, we pay.

Mostly Mary [4:56]

And was intrigued by two of his references to risk parity portfolio design and leveraged 60/40 portfolio performance. His statements and portions of philosophy led me to believe that he is using some form of risk parity coupled with fundamental analysis and momentum theory. It was interesting to hear those concepts discussed as highly technical strategies worthy of whatever fee AQR would charge to implement, while we are already implementing similar strategies on our own. Anyway, I followed one of the links from the podcast to his company site and found some useful information and illustrations around risk parity. The first article I read, Understanding Risk Parity, written in 2010, introduced the risk parity concept using a risk parity portfolio of three equally weighted components：equities, bonds, and commodities. His analysis revealed the risk parity strategy improved the performance and Sharpe ratio versus the traditional 60/40. I want to point out he was using total bond funds for the bond holding, which has a higher correlation to equities versus long-term treasuries. But I digress. The paper goes on to discuss the use of leverage to increase the volatility of the portfolio to the 60/40 level while improving its performance. The rest of the article lightly explores possible risk parity variations. There are many other more recent related articles on their site that merit exploration at a later date. Perhaps you could post the link to your site for others to access and evaluate for their edification. I'm going to end now to spare Mary any extraordinary effort.

Mostly Voices [6:33]

Mary Mary, I need your hug. Enjoy your show and keep up the good work. Oops, the good retirement. George. I don't think I'd like another job.

Mostly Uncle Frank [6:44]

Well, thank you, George, and I'm glad you're enjoying the podcast. I agree with you that one of the things that makes this podcast particularly interesting is the questions from the audience. I've come to learn I have a Very sophisticated do-it-yourself investing audience here. The best, Jerry, the best. And I tend to get a lot better informed and interesting questions to answer than I hear on many other personal finance podcasts. And I'm also glad that you were able to take some of the sample portfolios and adapt them to your own use, because that's exactly what they are there for. They're not designed to be the be all and end all of anybody's investing journey, but just samples of the principles and application of the principles that we talk about here. The straight stuff, O' Funkmaster. I also listened to that interview of Cliff Asness on the Long View podcast, and we'll link to that in the show notes. He and his firm AQR Capital Management are a good example of professional investors who adopted this style of investing in the first decade of this century and have written a lot about it and modified it to suit their needs and the needs of their clients. And I will link to that article in the show notes. You'll find that and a lot of other useful articles written in the past 20 years or so over at Risk Parity Chronicles run by our listener Justin on his Support page. Groovy, baby. Or I should say, oh, Justin, here's another article to include on your support page in case you haven't done it yet. Don't be saucy with me, Bernaise. But Justin has done over there a lot of the things that I'm just too lazy to do. I really don't like it and I'm not gonna go. But are quite valuable if you are interested in this style of investing. And I think what this really gets at is how long this has actually been around that it's been around a couple decades and lots of professionals use it, but it had not really filtered down to the personal finance community or the do-it-yourself investor community until more recently and that is the niche that I'm hoping to fulfill.

Mostly Voices [9:08]

We had the tools, we had the talent.

Mostly Uncle Frank [9:11]

And if people are able to take these principles and apply them to their personal situations, as it appears you have, it makes me feel that I'm reaching some goals here. So thank you very much for that email and that reference. Ed McMahon, party machine! Yes! Second off, we have an email from Grant and Grant Rights.

Mostly Mary [9:38]

Uncle Frank, your wisdom, called from years in the financial wild west, has shown me the error of my ways. As I wrote in my last email, I have been riding the wild pony that is 100% Upro from 2011 to 2021. You have a gambling problem. It was an exciting ride, but I am now in a semi-retired stage of life and hung up my spurs last year. Since then, I have been slowly converting to a fully levered version of the Golden Butterfly Portfolio. Since the short-term treasury component is similar to cash and there is not a levered version with a high volume, I have dropped it and I'm using margin as a temporary cash buffer. I'd rather pull from the margin at 2-4% for up to a year than give up 20% of my portfolio to cash. I am replacing that fifth of the portfolio with GBTC for crypto exposure. So my portfolio consists of 20% of the following：UPRO, TNA, TMF, UGL, GBTC. I know, I know, it is highly levered with a large crypto component. I may still have a gambling problem. Well, you have a gambling problem. But I have more faith in crypto than the dollar, and I'm willing to make that bet. This year has been brutal as all these asset classes have been down. Even gold has been lackluster. Now, I know it's best not to switch gears after your portfolio has taken a beating. On the other hand, I could do a fair amount of rebalancing my taxable account with little tax impact as most trades would be at a loss. Is there a good balance between these two? Second, I have been tracking my trades in a spreadsheet and breaking them into tax lots to stay on top of my capital gains and losses and to help plan for future trades this year. But this is tedious. We have the tools and the talent, but I need more tools. And cowbell. Before we're done here, y'all be wearing gold-plated diapers. Do you know of a tool that can link to brokerage accounts and calculate your current capital gains and losses? What do you use? Thanks, your recovering pony rider from Waco, Texas, Grant.

Mostly Voices [11:47]

They're not going to catch us. We're on a mission from God.

Mostly Uncle Frank [11:51]

Well, Grant, it's very good to hear from you, gambling problem and all. I kept racking my brains as to who was the listener that wrote in with his all-YouPro investment account. But now I am reminded, and I do remember, I went ahead and took your unsafe at any speed, leveraged golden butterfly portfolio.

Mostly Voices [12:16]

Corvair, a most unusual car for people who enjoy the unusual. and stuck it into Portfolio Visualizer.

Mostly Uncle Frank [12:24]

It is pretty interesting to look at. I will link to that in the show notes so people can check it out. In terms of rebalancing, I think I would come up with a rebalancing strategy for your portfolio. You can't handle the dogs and cats living together. So you are not having to make that kind of decision on the fly. Now, if this were an unleveraged portfolio, typically, A 20% rebalancing band or doing it annually tends to be sufficient. But it's unclear to me what the optimal rebalancing timeframes or rebalancing bands are for a leveraged portfolio like this. I am guessing it's more like a 50% change, but it could be even greater.

Mostly Voices [13:13]

Mass hysteria.

Mostly Uncle Frank [13:18]

You might just play around with the rebalancing feature at Portfolio Visualizer because it allows you to set rebalancing bands and run simulations of each one. Of course, you really don't have that much data, so it's still kind of a bit of a guessing game.

Mostly Voices [13:32]

Don't put too many onions in the sauce. I didn't put too much onions in the sauce. Oh, three small onions, that's all I did. Three onions.

Mostly Uncle Frank [13:40]

But I do think that you do want to come up with some set rules for this so you're not wondering whether it's a good idea at a particular time or not. Now, you can also tax loss harvest even if you're not rebalancing, but to do that you're going to have to find suitable replacements for these components. I will link to the ETF database of leveraged funds. I have not gone through it to look for suitable alternatives to these, but I know that they exist at least for things like UPRO. and that would be another consideration. I am not aware of a particular tool to link to brokerage accounts and calculate current capital gains and losses, but the brokerage I use, which is Interactive Brokers, actually does do that for me. I can go in there and run different calculators and it will tell me short-term loss or gain for a given holding, long-term loss or gain for a given holding, and provide other statistics. and information. I know different brokerages have different tools at their disposals, so you may just want to check out what your brokerage offers in that category and see if it can suit your needs. I will be interested to see the results of your choice of investments here over time, as I still think you are on a bucking Bronco of a portfolio. But I suppose if you had the stomach to hold you pro by itself for 10 years, you probably have the stomach to hold what you are currently holding in terms of a levered golden butterfly. You may just be a rare bird indeed, as I'm not sure that that many people have the fortitude to hold such things, at least with a significant amount of their wealth. Fire, fire, fire, fire, fire. But I'm glad you were able to make good use of what we've got here and thank you for that email. In prison, dinner was always a big thing. Next off, we have an email from visitor 4090 and visitor 4090 writes. Uncle Frank, how do you have time to respond to chats? And the answer is, I don't really have time to respond to chats and I don't. It's not that I'm lazy. It's that I just don't care. I think when I set up the website, I may have just toggled that on because I wanted to make sure that people could reach me through the website. So I do get them eventually, but I just treat them like other emails and respond to them on the podcast, as I am right now. Yes! And there you go. Thank you for that chat. Next off, we have an email from Justin of Risk Parity Chronicles. Yes, this is the Justin who runs the site Risk Parity Chronicles. Young America, yes sir. Which you should check out. It's a veritable nice. Mind your own business.

Mostly Mary [16:43]

And Justin writes, Hey Frank, just listened to 174. Sorry to hear you had gout. I had that once. felt like someone was randomly poking my feet with thumbtacks. No fun. Regarding Japan, one other big factor is that the public sector filled in the gaps a lot and also made sure that unemployment didn't creep upward. This made Japanese companies carry a lot of dead weight for a long time, making it a bad time for corporate investors. But the dead weight was also people, with jobs and families and so on. So the human cost was much less than it was in the States after 2008-2009 when Americans were cast into the wind. I was in Japan some years after the bubble popped. I got here in '98. And while the corporate balance sheets were still terrible, it wasn't that bad for the average junichiro. One consequence though, as you note, was a much longer process to clean house and reorganize for growth. So then you've got a legit question, if some short-term pain is better than dragging it out. I think Japan has actually done about as well as can be expected and feel it takes a lot of flack for crappy stock returns while not also seeing that things are pretty good. Not perfect, of course. The declining population is an argument that reorienting the economy toward growth probably would have been a fool's errand anyway. You mentioned switching to GBTC for crypto. Was wondering if you had thought of GDLC instead. Also by grayscale and also trading at a discount and eligible for a big boost if it becomes an ETF too. But this one holds a basket of 10, maybe 12 different coins instead of just one. And if that approach works for equities, I would argue that it works for digital currency too. Wrote about it on our PC recently too. Last, what was that sound clip at the end? The one that ends, I got this miniature donkey with a little sombrero. I was kefing, but also because I knew all the lingo and acronyms and whatnot. Hilarious. Anyway, keep up the good work, Justin.

Mostly Uncle Frank [18:47]

All right, let's go through these. Now, as for your observations on Japan, yes, this is what I was really kind of trying to get at back in episode 174, that different countries have different legal structures and different priorities in terms of how they treat investments in public capital markets. And that is the aspect that is commonly referred to as country risk. That is a factor that one needs to account for when investing in the stock markets of any particular country. You see a lot of that now with respect to China in particular, because there are questions as to how that government is going to treat its capital markets. and people who invest in those capital markets. And that is one of the reasons that Chinese shares are trading at a substantial discount in terms of PE ratios or other ratios compared with similar companies in the United States. But I think this illustrates why it is kind of an error in thinking to try to take the experience or results in one country and apply it to another one. So while you can say, well, this happened in one country, therefore it could happen in another country, yes, that can be true, but it can also be true that the circumstances that allowed it to happen in one country are not present in the other country. And that's the real question that you always have to analyze if you're really going to get at something like that. otherwise you do fall prey to that cognitive bias, which is called the possibility effect, that because something is possible and we can imagine it and tell stories about it and find it somewhere else, that it's likely to occur in the future in a different place and a different time. It's a basic confusion between possibility and probability, which is not something you want to do if you want to be a successful investor. It's a trap! All right, getting to your second issue here, GBTC versus GDLC. Honestly, I don't have a great deal of confidence in any of the funds that offer crypto these days, simply because they're not in the ETF form, so they tend to be expensive and often trade at discounts these days, and they don't necessarily accurately reflect their holdings. And I'm not sure the analogy holds that 10 different coins are going to be like having a group of equities. I would think it would be more analogous to holding 10 different kinds of metals, gold, silver, platinum, palladium, copper, other things. And each of those has a different history, use case, and level of popularity. And so the experience of the holding may be quite different, in fact. But honestly, I don't really have any way of knowing which one is better. And I'm not sure anybody else does either. But it's certainly something to think about. You may need a digital crystal ball to figure that out.

Mostly Voices [22:07]

As you can see, I've got several here, a really big one here. Which is huge.

Mostly Uncle Frank [22:15]

Which reminds me, I did get a nice picture of me with a crystal ball that I put on the about page of the website. If you want to check that out for a laugh. Because we all know that's what I'm here for. What do you mean funny? Funny how? How am I funny? And as for that sound clip, that was something my friend Jim sent me. And it's from South Park. But here it is again, in case you missed it.

Mostly Voices [22:46]

Everything seemed calm at first, but then this guy in a suit shows up talking about investment opportunities. Next thing you know, these people over here started chanting Hodl, Hodl, and their NFTs started mooning. And then these guys over here started saying those guys right there right clicked them and called for a pump and dump, which made these guys beat the living hell out of anyone who said it was just FOMO. and died screaming that it was the Flippening. Luckily, I came out of it okay. I got this little miniature donkey with a lit up sombrero.

Mostly Uncle Frank [23:15]

And thank you for that email and all the good work you do over at Risk Parity Chronicles. So I don't have to.

Mostly Voices [23:22]

I'd say in a given week, I probably only do about 15 minutes of real, actual work.

Mostly Uncle Frank [23:28]

Last off. Last off, we have an email from Lily.

Mostly Mary [23:35]

And Lily writes, hi, Mr. Vasquez. I believe you mentioned in your podcast that you do private consultation. I would like to see if you have time to help me go over my portfolio. Thank you, Lily.

Mostly Uncle Frank [23:54]

Yes, I am still doing that, Lily, by popular demand. I do not advertise it. So I keep it down to one or two people a month. It is $300 an hour for a minimum of two hours. And yes, the price is designed to reduce the number of takers for financial coaching services. Because I am retired.

Mostly Voices [24:22]

I just sort of space out for about an hour. I just stare at my desk. But it looks like I'm working. I do that for probably another hour after lunch too.

Mostly Uncle Frank [24:32]

But thank you for that email and we will get you set up.

Mostly Voices [24:36]

And now for something completely different.

Mostly Uncle Frank [24:40]

And the something completely different is our weekly portfolio reviews of the seven sample portfolios you can find at www.riskparityradio.com on the portfolios page. And we also have our monthly distributions to talk about. Just looking at what happened in the overall markets last week, it was another week of pain as usual for 2022. But not too much pain. The S&P 500 was down 1.2%. The NASDAQ was down 0.98%. Gold was actually up. Gold was up 0.18%.

Mostly Voices [25:16]

I love gold.

Mostly Uncle Frank [25:20]

Long-term treasury bonds represented by the fund TLT were the big loser last week. After three up weeks, they were down 2.77% last week. REITs represented by the fund R E E T were down 1.76% for the week. Commodities represented by the fund PDBC were the big winner last week. They were up 2.9% for the week. And I think that fund is up over 40% this year, so a little goes a long way. in an inflationary environment. And then PFF, which represents preferred shares, was down 1.29% for the week. Now moving to the sample portfolios, the first one is a reference portfolio called the All Seasons. That is only 30% in stocks, that is 55% in treasuries divided into intermediate and long term, and then the remaining 15% is divided into A gold fund, GLDM, and a commodities fund, PBTC. It was down 1.19% for the week. It is down 11. 43% year to date and is up 0.69% since inception in July 2020. For June we will be taking a distribution of $32 which will come out of the cash portion which is actually indirectly out of the commodities which paid a big distribution last year. We are withdrawing from this portfolio at a 4% annualized rate. We will have withdrawn $205 year to date and $766 total since inception. And there is currently $9,536 in the portfolio. Moving to our kind of bread and butter portfolios that are similar in risk reward to a 60/40. 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 short and long term treasuries. And the remaining 20% is in gold. GLDM. It was down 0. 87% for the week, relatively the big winner of these portfolios. It is down 8.38% year to date. Not bad for a year like this and is up 13.72% since inception in July 2020. We will be distributing $43 out of it for June. It will come out of the short-term bond fund SHY, which has been the best recent performer. And we are withdrawing at a 5% annualized rate. so after that withdrawal we will have withdrawn $274 year to date and $1,055 since inception in July 2020 and it currently has $10,360 in it after starting with $10,000 a long time ago, well almost a couple years ago now. And our next one is the Golden Ratio Portfolio, this one is 42% in stocks divided into three funds, a large cap growth fund, a small cap value fund, and a low volatility fund. Then it's got 26% in long-term treasury bonds and TLT, 16% in gold, GLDM, 10% in a reit fund, REET, and the remaining 6% in cash, from which we take our annual distributions, our monthly distributions too, and it was down 1.21% for the week. It is down 12.35% year to date and is up 11.12% since inception in July 2020. We will be withdrawing $42 from the cash portion of it for June. We are distributing out of it at a 5% annualized rate and we'll have taken $273 out of it year to date and $1,054 since inception in July 2020. And it still has $10,100 in it after starting at $10,000. And our next one is the Risk Parity Ultimate that has 14 funds in it that I won't go through, but you can check out on the website. It was down 1.22% for the week, down 14.82% year to date and is up 7.51% since inception in July 2020. We are withdrawing from this one at a 6% annualized rate and it is intentional that we are withdrawing from these portfolios. at a higher rate than you would probably do in retirement, but it's more interesting to put them through their paces. If we were withdrawing from them at 4% or less, you would see them all continuing to accumulate. So we will be taking $48 from Gold GLDM for the June distribution. We will have distributed $317 year to date out of this portfolio. and $1,237 since inception in July 2020. And the current balance is $9,562 after starting at $10,000. And now moving to our experimental portfolios, which involve leveraged funds. The 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 a preferred shares fund PFF and 22.5% in a gold fund GLDM. It was down 3.24% for the week. It is down 27.39% year to date. It is down 1.92% since inception in July 2020. We are distributing out of this one at an 8% annualized rate and so we'll be taking $55 out of it. For June, it will come out of PFF, which has been the best performer recently. We will have taken $398 out of it year to date and $1,615 out of it since inception in July 2020. And it currently has $8,246 left in it. And now our next portfolio is the most leveraged one, the aggressive 5050. This one is 33% in a leveraged stock fund, UPRO, 33% in a leveraged bond fund, TMF. and the remaining third divided equally into a preferred shares fund, PFF, and an intermediate treasury bond fund, VGIT, to kind of act as ballast for the other two funds. It was down 3.97% for the week, is down 34.88% year to date, and 5. 23% since inception in July 2020. It has gone from the best performer of the lot to the worst. But that's what leverage will do for you. Now it is also lost enough that we will be reducing the distribution from an annualized 8% rate to an annualized 6% rate because it lost 20% of its original value. And so we will be taking $40 from the cash that is accumulated for June. We will have taken $392 year to date and $1,638 since inception of July 2020. It currently has $7,879 in it. And our last portfolio is our relatively new one, the levered golden ratio. This one is 35% in a composite fund, NTSX, that is a leveraged S&P and Treasury bond fund combined. It's got 25% in gold, GLDM, 15% in a REIT, O, 10% each in TMF and TNA, for a leveraged bond fund and a leveraged small cap fund. Then the remaining 5% is divided into a volatility fund, VIXM, and a Bitcoin fund, GBTC. It was down 1.79% for the week. It is down 16.44% year to date and 12.82% Since inception in July 2021, we are withdrawing from this one currently at an annualized rate of 7%. So we'll be taking $49 from it for the June distribution. It will come out of the leveraged small cap fund TNA, which is the best performer since we rebalanced it last month. We will have removed $324 in distributions year to date and $521 since inception in July 2021. And that concludes our portfolio reviews for the week and the month. But now I see our signal is beginning to fade. If you have comments or questions for me, please send them to frank@riskparadioradio.com that email is frank@riskparadioradio.com or you can go to the website www.riskparadioradio. com and put your message into the contact form and I'll get it that way. Or if you put it into the chat function, assuming I'm unable to figure out how to turn it off, I'll also get it that way eventually too. If you haven't had a chance to do it, please go to your favorite podcast provider and like, subscribe, give me some reviews, and some stars. That would be great. M'kay? Thank you once again for tuning in.

Mostly Voices [35:00]

This is Frank Vasquez with Risk Parity Radio. Signing off. Pictures of Lily. The Risk Parity Radio show is hosted by Frank Vasquez.

Mostly Mary [35:24]

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.