Mostly Voices [0:00]

A foolish consistency is the hobgoblin of little minds, adored by little statesmen and philosophers and divines.

Mostly Mary [0:15]

If a man does not keep pace with his companions, perhaps it is because he hears a different drummer. A different drummer. 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 [0:38]

Thank you, Mary, and welcome to episode two of Risk Parity Radio. This will be one of our portfolio review sessions, and we'll be doing those hopefully every week, reviewing the six portfolios on the website featuring one. each week to talk about a little bit more in depth. Starting with the All Seasons portfolio, if we take a look at that, you know these portfolios have just been started up in the past couple of weeks here. So this one is all of $33.00 a head, 0.33% since it started a week ago. You can see in it it's got The VTI, which is the stock market component of it, is down 1.6%, but correspondingly we have the long-term bonds are up 1.28% and the gold component is up 3.46%. So it ends up in a profitable position at plus $33. In the Golden Butterfly, which started with $10,000 about two weeks ago, These are as of July 24th. We are up $255 since then or 2.56%. Looking at this, it is also showing some good performance in the small cap value section. The total stock market fund is flat. The long-term treasuries are Up 2.39% and gold is shining very brightly these days up 5.65% in that short period. So we're up 2.56% in the Golden Butterfly. In the Golden Ratio portfolio we are up 2.34% in the couple of weeks that it's been going on. with similar performances in the small cap value and low volatility funds. The long-term bonds and gold performing well. On the other hand, the growth fund, the large cap growth fund, is down 2.34% but is outweighed by the others. So it's up $219 on the 10,000 in that period of time. in the Risk Parity Ultimate Portfolio. And we won't be going through all 12 of these funds, but it's got similar performance. It's up 2.12% in the couple of weeks it's been going with the biggest outperformer being the long-term Treasury three times volatility fund. which is showing a improvement of 7.24% in that time period, and gold right behind that. The worst performer is the Volatility Fund there, which is down 6.18%, but only comprises about 2.5% of the fund, or the portfolio. Next we have the Accelerated Permanent Portfolio, and this is our our leader these days because it's got a lot of gold in it. It is up 3.52% in the couple of weeks it's been going on with the biggest performances being in the leveraged long-term bond fund TMF. It's up 7.53% and gold is up 5.36%. And the stock market component of that is actually down. So it's doing the best of the six. And the six portfolio is the aggressive 50/50. It is also up 2.47% with the leading light in that portfolio being the long-term leveraged Treasury bond fund, TMF, up 7.37%. The stock market component of that down 1% as the lagging part of that portfolio. But as you can see from these portfolios, as they perform much differently than a total stock market portfolio, and that oftentimes frequent that if the stock market portion is not performing very well, one of the other components is doing pretty well. So you get a steady performance out of it. And now we'll take a look at our featured portfolio of the week, which is the All Seasons Portfolio. The All Seasons Portfolio is a take on Ray Dalio's original all-weather portfolio that kind of set off the risk parity movement when it was created back in the 1990s. This portfolio is a very conservative portfolio. It is only 30% equities and then the rest of it we have 40% in long-term treasury bonds, 15% in intermediate treasury bonds. so that's 55% of the portfolio, and then smaller portions of both gold at 7.5% and commodities at 7.5% of the portfolio. This compares to a very conservative portfolio that you might find in say a Vanguard Wellesley Fund. It's like a 3070 kind of portfolio. It's very robust. It'll help you sleep at night. I think over the past 20 years the maximum drawdown in this portfolio over a year has been 5% or 6% and that's only happened four times. So 16 years out of the last 20 it's gone up and only four times down and barely down. If you looked at how this portfolio performed in March it was down a maximum of 8% which is quite tolerable considering that an all stock portfolio was down about 40% at the maximum drawdown in March. Typically this portfolio will have about half of the risk of the stock market, half or less. It will not perform as well as the stock market simply because it's so conservative. The hedge funds like Bridgewater would use this as they would take it and then add leverage to it or borrow money to invest more in the portfolio to increase its returns. That's not something we've done here because we wanted to keep it in its most rudimentary form. And so this is the form that Tony Robbins took it in when he wrote Money Master the Game and assembled the data from Ray Dalio to construct it. And as we look into it further, one of the things you want to do when looking at your portfolios is go and analyze the actual correlations of what you have in your portfolio. And you can do this yourself if you go to www.portfoliowizard.com, they have a asset correlation sector there. And then you can put in whatever funds or stocks or anything you own and get a nice little matrix out of that showing what the relative correlations are. And when you look at something like this you see that the Stock market component is balanced out by negatively correlated long-term treasury bonds and negatively correlated intermediate-term treasury bonds, and that the gold and commodities components tend to have pretty much zero correlation to the other components. So you can, in practice, what you'll see then is that the bonds typically moving in the opposite direction of the stock market on any given day. and the gold and commodities components moving on their own without regard to what the stock market or the bond market is doing. As it happens these days, gold is on a tear, which happens periodically, is completely unpredictable, which is why you don't want to try and jump in and out of something like this. You'll see that gold is an interesting component. You'll find it in most of these kinds of portfolios. And it's a difficult thing to invest in on its own because it has a volatility that is about one and a half to two times of the stock market, but it does not have a performance like that. So in any given year or any given 10-year period, gold could be the very worst performer in the portfolio or it could be the very best portfolio. performer and you won't be able to predict that. So the idea is that you're going to hold a little bit of it. It's like the seasoning on your meal. It's not something you want to over commit to, but it tends to smooth out the overall performance of these sorts of portfolios. So this particular portfolio has 7. 5% gold in it and a similar proportion of commodities in it. Just talking briefly about commodities funds. This is one of the more difficult areas to actually find good funds to invest in. And the one we picked for this is an Invesco product called PBDC that is actively managed. One thing that's difficult about commodities is that you're looking at a panoply of very different sorts of things ranging from agricultural commodities like corn or wheat or soybeans or frozen concentrated orange juice to things like oil and gas and then things like precious metals, which these will also include some smaller gold component along usually with some silver and perhaps some palladium or other industrial metals, perhaps even some copper. So we've picked one that seemed to be suitable that covers a wide variety of commodities, but I don't think that this area has been fully actually explored by the fund managers who put these sorts of things together. There's a No such thing these days. It's a balanced total commodity fund that you can find. They're all slightly a bit different. So if you want to have commodities in your portfolio, there are six or seven broad based funds that you could choose. And we picked this one because it seemed to have a good mix of performance and fees. The fees on these are a little bit higher than you'll find in stock market funds simply because it's a little bit more difficult to put them together in any suitable way. So that is the All Seasons portfolio. It is our most conservative portfolio. It is up these days. We would expect that it will stay in a steady performance and the only question being whether it will perform well enough to except the drawdowns that may be coming for it as we take money out of it on a monthly basis. And that is the end of episode two of Risk Parity Radio. You can find us at the website www.riskparadioradio.com. You may also find us now on Stitcher. We have put in our application to get listed on iTunes and Spotify and those are pending. We should be up there soon as well. We look forward to speaking with you next time for episode three where we'll go into a little bit more of a history of risk parity style portfolios. This is Frank Vasquez, your Risk Parity Radio host, signing off for now. Thank you and good day.

Mostly Mary [13:19]

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.