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 196. 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. I'm putting you to sleep.

Mostly Voices [2:09]

But before I put you to sleep with that, I'm intrigued by this, how you say, emails.

Mostly Uncle Frank [2:12]

And, first off, First off, we have an email from Davis, and Davis writes：hi, Uncle Frank.

Mostly Mary [2:24]

I've been looking into implementing your Golden Ratio Portfolio using GOVZ, an extended duration strips bond ETF with 25 plus year treasuries. It has more volatility than TLT, but maintains TLT's negative correlation to stocks. So I figured GOVZ would be an even better diversifier than TLT. However, the fund hasn't been around for very long and it is difficult to backtest. As a workaround, I backtested the Golden Ratio portfolio back to the 1980s and added 1.5 times leverage to just the long-term bonds portion. It performs better that way, but that could just be because my method of amping it up with a small amount of leverage is imperfect. Would you also consider using GOVZ or one of its equivalents like EDV or ZROZ as a substitute for TLT in the Golden Ratio portfolio? If so, would you keep the 26% allocation to long-term treasuries or decrease the allocation due to its increased volatility? Since the fund has 1. 5 times the volatility, would it make more sense to use only 18 to 20% GOVZ and use the extra space for more stocks, gold, and/or short-term bonds? I also wanted to share that I'm leaning away from using USMV in my version of the golden ratio. It was difficult for me to back test more than 10 years with it, and it seems to maintain a high correlation to stocks. Is there something I am missing about USMV? As always, I love the show. Thank you much, Davis.

Mostly Uncle Frank [4:01]

Well, let's talk about these extended duration bond funds, which are essentially Zero coupon bond funds investing in long-term treasuries. And the three of them that are the most popular are EDV, which is from Vanguard, ZROZ, which is a PIMCO fund, and the newest one on the block, GOVZ, which is an iShares fund. Now the way these tend to perform in practice is as if they were a leveraged version of something like TLT. And so they are about 1.5 times as potent, which means that if you see TLT go up or down by 10%, it is likely that one of these is going to go up or down by about 15%. These can be useful for a couple of reasons. One is for tax loss harvesting, that if you want to sell some TLT or one of its clones, like VGLT, and have something to substitute for it for 30 days, you could do that with essentially two-thirds as much of one of these things, and it should work out pretty well. And the other is you could actually use these as a primary building block in a portfolio, like you've suggested. Now, a couple things if you're going to do that. The first is that these tend to be much more thinly traded, than the TLTs and VGLTs of the world. So make sure if you're buying and selling them you're using limit orders. And the second issue is sometimes they throw off large distributions at the end of the year just because of the way they're structured. And I'm talking about large capital gains kind of distributions. EDV has the most issues with that in my experience. I don't know why. ZROZ seems to have fewer and lesser of those kinds of large distributions at the end of the year. I am not sure about GOVZ. That's pretty new on the block. It has not been around that long. But I think it's more structured like ZROZ. If you do look at charts of these things, you'll see that they tend to perform very similar over long periods of time for the most part. And as to your specific question about using this in a golden ratio portfolio, Yes, if you were going to do that, you would want to adjust the amount that you're using in that kind of portfolio because if you don't adjust the amount, you're going to get just different performance characteristics that are more tilted towards good performance in recessionary environments, essentially. Because in practice, this works like adding a bit of leverage to one part of your portfolio, in this case, the long-term bond. portion of it, but they certainly are viable building blocks with the caveats that I mentioned. But now let's move on to USMV, which we have in the sample version of the Golden Ratio Portfolio. But that is more of a sample version for you to contemplate than some kind of overall recommendation. Now what is USMV? It is a low volatility fund that in terms of its basic characteristics is a large cap blend fund. So it is designed over long periods of time to perform like the S&P 500 with lower volatility, but over shorter periods of time will underperform when growth stocks are doing particularly well. And so it holds things like Cisco and Johnson and Johnson and Vertex Pharmaceuticals and Pepsi, those sorts of things. I do not view it as a must-have in any portfolio. It's simply there as a volatility dampening mechanism. An interesting thing to compare it to is the Vanguard Total International Stock Index, VXUS, because I know lots of people hold that. Both USMV and VXUS occupy the same space. space in terms of being large cap blend funds. If you go over to Morningstar, look them both up, you'll see that their dots are in the same place on that little grid they provide on the portfolios tab of that. But if you take any portfolio that has VXUS in it and substitute USMV in it, I think you're going to be much happier with the USMV result. So bold strategy, Cotton. Let's see if it pays off for him. But I will leave that for you as a little homework assignment. Bow to your sensei. Bow to your sensei. I'm glad you're enjoying the show and thank you for that email. Second off. Second off, we have an email from Justice and Justice writes.

Mostly Mary [8:59]

On episode 71, You mentioned the therapeutic aspect of having a podcast and sharing knowledge as a retiree. It made me think about the recent Arthur Brooks book, which I thought was excellent. It's exactly about that transition from one age to the next. Would definitely recommend that you check it out at the library and give it a whirl. Cheers, Justice.

Mostly Voices [9:19]

Let us realize that the arc of the moral universe is long, but it bends toward justice.

Mostly Uncle Frank [9:27]

All right, just to orient everyone to what we were talking about in episode 71, what we were talking about was transitioning out of a primary career to other things and finding other purposes in life for that. And I think I mentioned a couple of books there. One is called Falling Upward by Richard Rohr, another one is called the Second Mountain by David Brooks. And both of those deal with these kinds of transitions. Now you identified a new one on the block by a different Brooks, Arthur Brooks, and it's called From Strength to Strength. And Mary and I have read that book.

Mostly Voices [10:11]

Mary and Mary, I need your hug.

Mostly Uncle Frank [10:18]

And I thought it was a good representation of the same kinds of ideas or thought processes that one might go through as one transitions in life. I think another book that alludes to this sort of thing, but is not specifically about it, is In Fact youy Money or youe Life by Vicki Robin, and I'm sure many of you are familiar with that. Mary and I enjoyed reading Strength to Strength, although we did not feel like it broke any new ground as far as this topic is concerned. It just seemed like another person's perspective on these kind of transitions. In terms of how to approach this, the way I like to think about it is you want to look for activities that involve the three attributes of autonomy, mastery, and purpose. And of the three of those, purpose is the most subjective because an activity that seems like it would have a lot of purpose to you might not have a lot of purpose to somebody else or their purposes might be different. And so for example, the purpose of this podcast to me is mostly an outlet for creative expression.

Mostly Voices [11:28]

Lots of beers.

Mostly Uncle Frank [11:32]

But also to lay down things that I think are important for my children to know, my adult children. No more flying solo.

Mostly Voices [11:40]

You need somebody watching your back at all times.

Mostly Uncle Frank [11:44]

And then to have some fun while doing that. What do you mean funny?

Mostly Voices [11:47]

Funny how? How am I funny?

Mostly Uncle Frank [11:51]

But that's probably why this podcast has an amateurish quality to it. Yes. Because I'm not trying to build a business out of it or cater to a particular audience or attract particular sponsors. Forget about it. It's mostly just me goofing off and experimenting with things. I am a scientist, not a philosopher. But I am very grateful for all of you listeners, and particularly the ones that have written in with interesting topics and questions. The best Jerry, the best. Because it makes it even more interesting for me and I learn more that way.

Mostly Voices [12:31]

You're not going to amount to Jack squat.

Mostly Uncle Frank [12:35]

So thank you for listening in and thank you for that email. Last off, we have an email from Value Stock Geek.

Mostly Mary [12:48]

Cool. And Value Stock Geek writes：Frank, on a recent podcast, I heard you talking about Ray Dalio's thesis about China replacing the United States as the world's leading superpower. China, China, China, China. A great rebuttal to Dalio's thesis is the work of Peter Zeihan. Recently, Peter was on MEB Faber's podcast. His basic thesis is that China's demographics are imploding and they won't have enough working-age adults to support their economy. Zeihan's book is also interesting, Disunited Nations. There is a great chapter in there about China and the challenges it faces. China. I like China. In addition to poor demographics, they also have challenges with food and energy production. I think you would enjoy both the podcast and his book.

Mostly Uncle Frank [13:39]

Thank you for the great work with the podcast. I listen to every episode and enjoy it thoroughly. Well, yes, it seems that Peter Zeihan has been all over the podcast world recently, and he's got a YouTube channel. I do subscribe to that. And he has some very interesting perspectives and has clearly put a lot of time into researching geopolitics. You always have to be careful with somebody like that because they have this kind of lilting voice and manner of speaking that goes down easy and makes you feel like, oh, this is all great. But for the record, I think both Dalio and Zehan are probably wrong. Wrong! With their predictions about China that China is neither going to take over the world nor are going to collapse into some kind of oblivion. Because while those narratives are interesting and dramatic, things don't usually work out that way. Forget about it. And I recall very vividly back in the 1980s there was a whole series of books by people like this who were saying that Japan was going to overtake the United States and essentially become the dominant power in the world. I recall a famous book from the time called Japan, Inc. But things didn't work out that way, and part of that story was the demography story that the population was aging quicker than the rest of the world. and that does result in a slowdown in a country's economic life. But on the other hand, Japan did not disappear, and most people would say Japan is a pretty decent place to live. So I can easily see a future for China that resembles what Japan went through over the past 30 years, which would make both Dalio and Zehan wrong.

Mostly Voices [15:41]

Wrong, wrong.

Mostly Uncle Frank [15:45]

But I am not in the business of making such predictions. Not gonna do it.

Mostly Voices [15:49]

Wouldn't be prudent at this juncture.

Mostly Uncle Frank [15:52]

I have been aware of this issue for some time, this issue being declining populations and older demographics in the world. There's a nice book that I think is from like 2005 or 2006. It's called Shock of Gray. I think the author is named Ted Fishman. and he talks about the various transitions and he goes kind of country by country, does a few different cities in fact in the United States, and just talks basically, well, this is how they're dealing with this demographic transition in this country. And so you get to read about Japan, China, United States, Spain, and others. I think the most interesting Social trends in China these days are the trends of the younger people. And if you go look up the trend of what it's called lying flat and the other one called let it rot, these are very familiar to anybody in Gen X. It doesn't really matter.

Mostly Voices [16:59]

I don't like my job and I don't think I'm gonna go anymore.

Mostly Uncle Frank [17:02]

Because they're basically the office space mantra of getting out of the system.

Mostly Voices [17:10]

But I really don't like it, and I'm not gonna go. So you're gonna quit? Nuh-. Not really.

Mostly Uncle Frank [17:18]

I'm just gonna stop going. And not playing the game of trying to climb corporate ladders or work the hardest or make the most money.

Mostly Voices [17:29]

What would you do if you had a million dollars? Nothing. Nothing, huh? I would relax. I would sit on my ass all day. I would do nothing.

Mostly Uncle Frank [17:46]

Well, you don't need a million dollars to do nothing, man. And I will link to a video about that in the show notes so you could check it out. It's always interesting to me to see the same kinds of trends in countries. Just happening at different times. Because I believe that this most recent social trend in China actually comes from Japan.

Mostly Voices [18:08]

You are correct, sir, yes.

Mostly Uncle Frank [18:12]

Anyway, that's probably enough of this frolicking detour for a podcast about portfolio construction.

Mostly Voices [18:20]

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

Mostly Uncle Frank [18:24]

But thank you for that email.

Mostly Voices [18:28]

And now for something completely different.

Mostly Uncle Frank [18:32]

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 all I can say here is not much happened. Just looking at the markets, the S&P 500 was up 0.36% for the week, the NASDAQ was up 2.15% for the week, gold was up 0.54% for the week, long-term treasury bonds represented by the fund TLT were down 0.82% for the week, REITs represented by the fund R-E-E-T were one of the big losers last week, they were down 2.17% for the week for being up over 6% the prior week, Commodities resumed their downturn trend. The representative fund, PDBC, was down 4.82%. I think a lot of that has to do with the falling price of oil, which is down below $90 now. It's funny how three months ago, the punditry in the oil world was screaming about $200 a barrel oil. Wrong! But as usual, the markets tend to make fools out of most of the pundits.

Mostly Voices [19:49]

You can actually feel the energy from your ball by just putting your hands in and out. Now you can also use the ball to connect to the spirit world.

Mostly Uncle Frank [19:57]

Getting back on script here, PFF, the preferred shares fund, was up 0.6% for the week. Moving to the portfolios, the first one is the All Seasons Portfolio. Overly conservative reference portfolio. It is 30% in stocks in VTI, the Vanguard Total Market Index Fund, 55% in treasury bonds that are long and medium, and then 15% is divided into gold, GLDM, and that commodities fund, PBDC. It was down 0.54% for the week, It's down 14.54% year to date and is down 0.35% since inception in July 2020. And that was actually one of the big movers this week for these portfolios. Moving to our bread and butter portfolios, the next three. 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. It has 40% in Treasury bonds divided into long and short and 20% in gold GLDM. It was down 0.11% for the week, so hardly moved at all. It is down 12.12% year to date and is up 12.55% since inception in July 2020. Next one is the Golden Ratio portfolio that we talked about a little bit earlier. This version of it has 42% in stocks divided into three funds. A large cap growth fund, a small cap value fund, and that low volatility fund, USMV. Then it's got 26% in treasury bonds, TLT, 16% in gold, GLDM, 10% in a reit fund, REET. It was down 0.06% for the week and is down 15.23% year to date. It is up 10.86% since inception in July. 2020. And then we get to the Risk Parity Ultimate, which is our most diverse portfolio that has 15 funds that I will not go through right now. It was down 0. 01% for the week. It was down 15.81% year to date and is up 6.37% since inception in July 2020. Now moving to our experimental portfolios that involve leverage funds. And the first one is the Accelerated Permanent Portfolio. This one is 27.5% in a leveraged bond fund, TMF 25% in leveraged stock fund, UPRO. And it's got 25% in the preferred shares fund, PFF, and 22.5% in the gold fund, GLDM. It was down 0.06% for the week. It is down 27.83% year to date. is down 2.36% since inception in July 2020. Moving to our next experimental portfolio, the aggressive 50/50. This is the most volatile and least diversified of these portfolios. It is 33% in a leveraged stock fund, UPRO, 33% in a leveraged bond fund, TMF, and the remaining third is divided into a preferred shares fund, PFF, and an intermediate treasury bond fund, VGIT. It was down 0. 58% for the week, down 38.15% year to date, and is down 5.08% since inception in July 2020. And finally, our big winner for the week, the levered golden ratio portfolio. This one is 35% in a composite leveraged fund called NTSX, which is the S&P 500 in treasury bonds. It is 25% in a gold fund, GLDM, 15% in a REIT, O, and then 10% each in a leveraged stock fund, small cap fund, TNA, and a leveraged treasury bond fund, TMF. And the remaining 5% is divided into a volatility fund and a Bitcoin fund. It was up 0.18% for the week. It is down 16.26% year to date and is down 11.65% since inception in July 2021 as the youngest portfolio. So there's not a whole lot to say about those this week. It looked like they were going to be up for most of the week and then on Friday things went down and they kind of went back to flat. That's not an improvement. Dragondoor 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 question 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. M'kay? Thank you once again for tuning in. This is Frank Vasquez with Risk Parity Radio. Signing off.

Mostly Voices [25:24]

Do you ever watch Kung Fu? I love Kung Fu. Channel 39. Totally. You should come over and watch kung fu tonight. Okay. Great. Okay.

Mostly Mary [25:38]

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.