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 [0:39]

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, and 9. 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.

Mostly Voices [1:39]

That's not an improvement.

Mostly Mary [1:42]

Lighten up, Francis.

Mostly Uncle Frank [1:46]

But now onward to episode 188. 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.

Mostly Voices [2:08]

Boring, boring, boring. But before we get to that, I'm intrigued by this, how you say, Emails. Yes.

Mostly Uncle Frank [2:20]

First off, we have an email from Paul.

Mostly Mary [2:29]

And Paul writes, hi Frank, what are your thoughts on the small cap value fund AVUV? I am considering tax loss harvesting from IJS into it. Thanks.

Mostly Uncle Frank [2:38]

Well, the short answer is that's probably a good idea.

Mostly Voices [2:42]

Will Laddie Frickin' Die?

Mostly Uncle Frank [2:46]

But let's talk about why. First of all, AVUV is one of the Avantis funds. Now these funds are relatively new, but the methodology used to construct them has been around for 20 years and follows what Dimensional Fund Advisors did. And the people that founded Avantis are People that were at Dimensional Fund Advisors. And so if you look at what's in AVUV, you'll see that it's got a smaller number of companies. Basically what they do is take the index and then shave off the ones they don't like. So instead of like 3,000, it's got like 1,000 or something like that. And as it turns out, it ends up being both smaller and more valuey than IJS or similar index funds in the small cap value area. And it has a expense ratio of 0.25, which is actually pretty cheap for a fund that involves a little bit of management. So I know that a lot of people use this fund or a similar fund as their primary small cap value fund. I believe it's on Paul Merriman's list as one of the best in its class.

Mostly Mary [4:08]

The best, Jerry, the best.

Mostly Uncle Frank [4:11]

So I would have no qualms over using this for tax loss harvesting or just using it as your small cap holding or some of each.

Mostly Voices [4:18]

Groovy, baby.

Mostly Uncle Frank [4:22]

I don't think it'll perform that much differently from the small cap indexes, but historically it has done better. At least its methodology has done better. And it certainly fulfills the requirements of being diversified from your total market fund or your large cap value fund, which is the primary reason you want to hold this in a risk parity style portfolio. That is the straight stuff, O Funkmaster.

Mostly Voices [4:47]

So that sounds like a good plan, Paul, and I would go right ahead.

Mostly Uncle Frank [4:50]

It's a bold strategy, Cotton. Let's see if it pays off for him.

Mostly Voices [4:54]

And thank you for that email.

Mostly Uncle Frank [5:01]

Second off, we have an email from Sunu,

Mostly Mary [5:04]

and Sunu writes：Frank, the 4% rule is touted by everyone with a microphone. Cool. But what I have not heard much, if any conversation, is the frequency and time frame in which to withdraw. With how 2022 has gone, downward trend, incurring losses for many, when it comes to withdrawing, is it optimal to withdraw everything on January 1st? Huge chunk no longer in the market to keep working for you? Monthly, quarterly, every six months, December 31st? Just curious what is an ideal plan that won't set someone up for lots of stress when it comes to just living in retirement. Thanks.

Mostly Uncle Frank [5:47]

Well, this may be kind of a trick question because the only way of knowing the answer for it prospectively, as in going forward, is to have a crystal ball for the particular year.

Mostly Voices [6:00]

My name is Sonia. I'm going to be showing you the crystal ball and how to use it or how I use it.

Mostly Uncle Frank [6:07]

Because obviously in years like this where your portfolios and the markets are generally going down, you would have been better off taking all the money out at the beginning of the year. But in most years, like in 2021, say, when the market was going up, you would have been better off delaying your withdrawals until you actually needed the money. So every month or even every week, which would be kind of ridiculous for management purposes, but the monthly would have been better in 2021 than the annual. But as I say, only a crystal ball could tell you what would be likely to happen next.

Mostly Voices [6:42]

You can't handle the crystal ball.

Mostly Uncle Frank [6:46]

Over long periods of time, I think the adage time in the market beats timing the market certainly would apply to this like it does in the accumulation phase. And what that means is if you had a chunk of money that you were going to invest and you were considering should I do it all at once or should I dollar cost average it over the next two years or something. Statistically, if you looked at every potential day for doing that, you would have been better off investing it all right away. And that's only a function of markets tending to go up and to the right over long periods of time. But for any given day, there is probably some day in the future that would be better. Crystal ball can help you. It can guide you. There's just no way of choosing which one that will be. I would place it over a candle.

Mostly Voices [7:45]

And it's through the candle that you will see the images into the crystal.

Mostly Uncle Frank [7:50]

But what that implies is that you're better off leaving your money invested until you actually need it and then pulling it out. He starts to come and then he pulls out. Which would say that the monthly withdrawal strategy is probably better than pulling it out in a chunk earlier. He starts to come and then he pulls out. But honestly, I'm not sure that it really matters that much. And the reason it really doesn't matter that much is because you're going to be rebalancing this portfolio periodically anyway, probably once a year, in which case you're resetting the whole thing. which makes this less critical. If you were never rebalancing, then it might matter more because you'd essentially be using the withdrawals as your rebalancing function. Now in practice, I think what's going to be the least stressful for you is going to depend more on your personal psychology than on which one of these is better mathematically. Or what your crystal ball says that year. And it's gone.

Mostly Voices [8:57]

So if you are the kind of person that is more set it and forget

Mostly Uncle Frank [9:01]

it and does not like looking at their portfolio or managing their portfolio or dealing with it all the time, you're probably going to be better off just setting aside that cash at rebalancing time and then using that for the next year or the next period. And that's actually what we've done. As an example with that golden ratio portfolio, every time we rebalance it, we rebalance it back to 6% in cash. And then for the next year, we just take from that portion and not bother with the other allocations in the portfolio until it's time for rebalancing again. And that makes management extremely easy. But if you are a person that likes to be more hands-on and likes to see what's going on and likes to feel like they're doing something, then you're probably going to be better off with a monthly withdrawal kind of strategy, which we apply for more of the other sample portfolios, say the Golden Butterfly, where we are looking every month to see what is the best performing asset and then we would do our withdrawal for the distribution purposes from that asset to the extent that there's not cash accumulated already to cover the distribution from dividends. So, I would not stress out about this too much. I would simply pick which methodology seems better for you from a management perspective and then just stick with it. I know nothing. Nothing. I think we talked about this before in the context of Karen's portfolio and situation that we analyzed. And I think that was in episodes 163 or 169. or possibly 160. So you might want to go back and check those out. I know we've talked about this before. I just can't remember where. And I guess I'm too lazy to go back and actually figure it out. So I'll just leave you those to guess with. It's not that I'm lazy. It's that I just don't care. And thank you for that email. Last off. Last off, we have an email from Geordie.

Mostly Mary [11:10]

And Geordie writes, Frank, I was comparing some small cap blend and small cap value funds for my morphing from the simple path into a risk parity portfolio. However, it seems like in this century, small cap blend performs better than small cap value funds. I'm 10% invested in IJR and it is performing better than VIoV and similar SCV ETFs. Should I stick to it in your view? Thank you, Jordi.

Mostly Uncle Frank [11:38]

Well, Jordi, I think you're better off with the small cap value than the small cap blend. Surely you can't be serious. I am serious. And don't call me Shirley. And for a couple of reasons. First, I went over to Portfolio Visualizer and did an asset correlation analysis, which also includes your annualized returns. and this particular one goes back to the year 2000 because we're comparing it with the Vanguard Total Stock Market Mutual Fund, VTSMX, which goes back that far. And if you look at, first of all, the returns for the small cap value are actually better, slightly better than the small cap blend for that period, annualized returns of 9.41% versus 9.3%. And they both kicked the butt of the Total Stock Market Index, which only returned 6.72% over that period. due to the lousy performance in the first 10 years of it. But you also see that the small-cap value fund is slightly less correlated to the total stock market index than the small-cap blend fund, which is also what you want. I think more importantly is that the last 10 years, and what I mean by the period from 2010 until very recently, was kind of an anomaly in that growth stocks greatly outperformed value stocks. And usually they're pretty equal in most periods, but the value stocks are slightly better. So I think any recent view of value versus blend or versus growth is going to be biased by that recent data. If you go all the way back to the 1970s in particular, you're going to see value greatly outperform growth and just at the time you need it, which is in these bad periods for the stock market like we're experiencing right now. Fire and brimstone coming down from the skies. And over long periods of time, Fama and French and others have shown that small cap value does tend to outperform the rest of the market over decades. About you, sensei. Even if it doesn't in one particular decade. Bow to your sensei. So the data says you should go with the small cap value over the small cap blend. Buy a little. At all times. And it will help you more with the diversification from those total market funds or those large cap growth funds, which is also highly desirable.

Mostly Voices [14:12]

Real wrath of God type stuff. Exactly.

Mostly Uncle Frank [14:16]

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 at www.riskperiora.com. But let's take a look at the markets first. But before we even get to that, just wanted to alert you to a nice article that Tyler published over at Portfolio charts, which is a comparison of a lot of common portfolios for the first six months of 2020. And so it's got your standard 60/40, it's got a Merriman portfolio, it's got Bogleheads 3 fund, it's got Golden Butterfly. And it's just interesting to see how they compare over the six month period of bad returns for everybody. What you find is that the portfolios that had the most exposure to commodities, gold and value funds tended to do the best. I think large cap value was the best factor sector for stocks in that period.

Mostly Voices [15:24]

But I'll link to that in the show notes and you can check it out if you like. You better check yourself before you wreck yourself, 'cause I'm bad for your health. I come real stiff.

Mostly Uncle Frank [15:32]

Now going to the markets. It was kind of just a reversal of what happened the previous week. The S&P 500 was up 1.94% for the week. The Nasdaq was up 4.56% for the week. Gold had a tough week, it was down 3.98%. I think that's the worst it's done in a couple of years, maybe, on a weekly basis. Long-term treasury bonds represented by the fund TLT were down 2.7% for the week. Reiths represented by the fund R E E T were down 0.57% for the week. Commodities represented by the fund at P D B C were down 2.76% for the week, continuing their month-long declines. And preferred shares represented by the fund P F F were up 0.78% for the week. One thing that seems to be driving a lot of these performances is that the US dollar keeps getting stronger and reached a 20-year high against other currencies in the past week. That tends to have a serious negative effect on things like commodities and gold. And I believe it's also related to the inversion of the yield curve in the treasury bonds. The two-year treasury bond is now paying consistently more than the 10-year treasury bond. Which leads everyone to be talking about when's the recession coming and whether it'll be the worst recession ever or just barely a recession. Forget about it. And what we should call a recession or not.

Mostly Voices [17:03]

Forget about it.

Mostly Uncle Frank [17:06]

But I'll leave that all to the pundits while we talk through these sample portfolios which didn't move too much last week. Snooze and dream.

Mostly Voices [17:15]

Dream and snooze. The first one is the All Seasons.

Mostly Uncle Frank [17:18]

This is a reference portfolio and it only has 30% in stocks in a total stock market fund, 55% in treasury bonds in intermediate and long term. Then the remaining 15% is in gold and commodities, GLDM and PBDC. It was down 1.03% for the week. It is down 15.06% year to date. It is down 1.28% since inception in July 2020. Moving into our three bread and butter portfolios that are similar in risk profile to a 60/40. First one is a golden butterfly. This one's 40% in stocks divided into a total stock market fund and a small cap value fund. 40% in bonds divided into long and short term treasuries and 20% in gold. It was down 1.04% for the week. It is down 12.59% year to date and is up 8.86% since inception in July 2020. And our next sample portfolio is the Golden Ratio Portfolio. This one is 42% in stocks divided into three funds, including a low volatility fund, a small cap value fund, and a total market fund. It's got 26% in long-term treasury bonds. 16% in gold, 10% in REITs, and 6% in cash. It was down 0.82% for the week. It was down 16.26% year to date, and it's up 6.56%, excuse me, 6.52% since inception in July 2020. And the final one in this set of three is the Risk Parity Ultimate. It has 14 funds in it, including a little cryptocurrency, which helped it last week. So it was the best performer of our group. It was down 0.64% for the week. It was down 18.84% year to date. It was up 2.8% since inception in July 2020. Now in another week or so here, we're going to be rebalancing those four portfolios. And we'll do a little tweaking to that Risk Parity Ultimate Portfolio in terms of allocations and funds. But we'll get to that when we get to that.

Mostly Mary [19:41]

I'll show them. I'll show them all.

Mostly Uncle Frank [19:45]

In the meantime, let's look at these experimental portfolios where we run hideous experiments so you don't have to. These involve leveraged funds and are generally highly volatile. And 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, and it's also got 25% in a preferred shares fund, PFF, and 22.5% in gold, GLDM. It wasn't that volatile last week. It was down 1.83% for the week. It is down 33.18% year to date and is down 8.78% since inception in July 2020. And our next one is our least diversified and most leveraged portfolio, the aggressive 5050. This one's 33% in a leveraged bond fund, TMF, 33% in a leveraged stock fund, UPRO, and then the remaining third is divided into PFF, a preferred shares fund, and VGIT, an intermediate treasury bond fund. It was down 1.43% for the week. It was down 40.22% year to date, with all that leverage going on, and it is down 12% since inception in July 2020. And going to our last one, the levered golden ratio portfolio. This one's 35%. in a composite fund called NTSX that is leveraged S&P 500 and treasury bonds. It's got 25% in gold, GLDM, 15% in a reit fund, O, 10% each in a leveraged bond fund, TMF, and a leveraged small cap fund, TNA, and the remaining 5% is divided into a volatility fund and a crypto fund. It is down 1.09% for the week, it is down 21.53% year to date, and it's down 17. 01% since inception, but for this one, inception was in July 2021, which is probably one of the worst times to have inception for a portfolio, at least in recent times. The year of 2022 continues to be about as bad as it gets.

Mostly Voices [22:13]

Looks like I picked the wrong week to quit amphetamines. And when will it get better?

Mostly Uncle Frank [22:17]

Well, we could take a look at our crystal ball.

Mostly Voices [22:21]

A really big one here, which is huge. And what does our crystal ball say this week? We don't know. What do we know? You don't know. I don't know. Nobody knows. Funny, it seems to only have one setting. That's not an improvement.

Mostly Uncle Frank [22:42]

Trogdor strikes again. 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 haven't had a chance to do it, please go to your favorite podcast provider, and like, subscribe, give me some stars, a review. That would be great. Mm, okay. Thank you once again for tuning in. This is Frank Vasquez with Risk Parity Radio. Signing off. Uh, what?

Mostly Voices [23:26]

It's gone. It's all gone. What's all gone? The money in your account. It didn't do too well. It's gone. The Risk Parity Radio show is hosted by Frank Vasquez.

Mostly Mary [23:38]

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.