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, 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. That's not an improvement. Lighten up, Francis. But now onward to episode 203. 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. If you want a preview of that...

Mostly Voices [2:03]

I command that you shoot me now!

Mostly Uncle Frank [2:07]

But before we get to that... I'm intrigued by this. How you say, emails? First off, we have an email from Jen. And Jen writes, hi Frank, enjoying your podcast.

Mostly Mary [2:26]

I am interested in the Golden Butterfly portfolio and would like to dollar cost average into it. My understanding is that I cannot buy ETF fractional shares, so I would like to use the mutual fund equivalents instead. I know that for VTI, the mutual fund equivalent would be VTSAVX, but what about for the other four components? What would be their mutual fund equivalents?

Mostly Uncle Frank [2:52]

Well, I think there are two issues here, actually. One is identifying these funds that you're looking for, and then the second is just overall account management and using all of your available options. to do that. As to the first one, let me teach you how to fish. This is how you fish when you're looking for a fund from a particular family that matches what you're trying to invest in. With Vanguard, you can just go to their site, type in Vanguard Small Cap Value Fund, and it'll tell you which ones they are. If you're looking for more of a broad view of all the funds in the world, use the fund screener at Portfolio Visualizer, I'll link to it in the show notes. And you can select mutual funds or ETFs or both, and then you can select with drop down menus what you're looking for, whether it's a stock fund, what kind of stock fund it is, or something else. And then it'll bring you up a list of funds and they're there and available for you. You will find Vanguard has multiple funds if you're looking for the ones in the Golden Butterfly portfolio, but A selection of four of them would be VTSAX for the total stock market, VSIAAX for small cap value, VLGSX for long-term treasuries, and VSBFX for short-term treasuries. But there are other ones, and what you really need to do if you're going to go that route is to look and see, for instance, what the minimum is for these funds. And some are actually $50,000 in their institutional funds, and you probably don't want. any of those. You will not find a fund, a mutual fund that invests in gold at Vanguard, and the ones that are available are not good. They're way too expensive. But you can also find those on that fund screener at Portfolio Visualizer. The other thing you should be aware of is that Vanguard has some fees on its funds and evidently they're going up. I will link to a video in the show notes from Rob Berger that he posted recently about this problem at Vanguard. Which leads me to my second point. The larger point is you are not using the best available finance tools for your personal finances right now. What you are doing is the equivalent of using a flip phone or a Blackberry as your phone. Surely you can't be serious. I am serious. And don't call me Shirley. And there's really no reason for anybody to be doing that in the 2020s unless they're just stuck with a certain fund or firm because that's what's in their 401k or 403b. You really can't do anything about that. But it doesn't sound like that's your situation here. Now, the Band-Aid solution is something other listeners have mentioned that Vanguard has a mutual fund land and then it has its regular brokerage land. and you need to go open up the separate account in the regular brokerage land, which you should be able to do online. And if you go over there, you can buy any ETF you want. Now, if Vanguard is not going to allow you to buy fractional shares, you can still do all of this just by buying whole shares. But if you have to buy whole shares with small amounts of money, you may need to change what you are investing in in terms of fund choice. so you wouldn't invest in VTI, which costs a couple hundred bucks a share or more. You would go to say ITOT, which is an iShares version of a total market fund, or SCHB, which is the Schwab version of a total market fund. Those have much lower share prices, and you could certainly use those to invest in. And you should be able to do that through the Vanguard brokerage account. But honestly, when it really comes down to it, one of the themes of this program is that we should avoid foolish consistencies. And what are foolish consistencies? Foolish consistencies are doing the same thing over and over again, even though it's no longer a best practice. So if you had something that's a best practice 10 or 15 years ago, when books like the Simple Path to Wealth were written, Books like Common Sense Investing by Jack Bogle. There's a lot of good stuff in those books, but they're outdated in some respects. And one of those respects is the best practice for do-it-yourself investors to be investing in the 2020s. And you're just not going to find that best practice at Vanguard. You're going to have to go to Fidelity or Schwab or other providers who do offer things like No fee trading with fractional shares and don't make you jump through a bunch of hoops or open up a bunch of different kinds of accounts or charge you fees for holding their mutual funds. That's not an improvement. So my best advice is to open a new account in a different place that offers the things that you want, need and deserve to have and go forward from there. You can do it online. It's not very hard.

Mostly Voices [7:57]

Yeah, baby, yeah.

Mostly Uncle Frank [8:00]

And sorry if that sounded like a rant, it wasn't intended to. I am having some difficulties with a cold right now.

Mostly Voices [8:09]

Looks like I picked the wrong week to quit amphetamines. Which makes me sound a little more scratchy and grumpy than usual. Bow to your sensei. Bow to your sensei.

Mostly Uncle Frank [8:17]

I hope all of that helps, or some of it helps, and thank you for that email.

Mostly Voices [8:25]

Second off, Second off, we have an email from Greg.

Mostly Uncle Frank [8:30]

And Greg writes：hi, Mary and Frank. I really enjoy your podcast.

Mostly Mary [8:33]

I don't agree with Karen. I think a student needs to listen to all of your podcasts because there is something unique in each podcast. Real wrath of God type stuff. And not to over compliment you, but I say student because your podcasts are like college seminars. I'm on episodes approximately 60 and 180 plus. Any last questions before we leave? You may have already spilled the beans, but I'm curious which eight REITs you have chosen for your Golden Ratio Portfolio. I'm assuming that you would go all risk parity and try to choose REITs that are not highly correlated with the market. I took a shot at it like this. I was not able to copy the Portfolio Visualizer link, but made this snapshot. The correlation does change depending on the length of the period you look over. Over a period much closer to the present, some of the correlations can be closer to approximately 0.3 to 0.4. But if I had to choose, looking only at the correlations and ignoring the returns, I might choose DLR, CCI, AMT, PSA, EXR, O, ADC, and EQIX. These do overlap similar types of REITs, DLR, CCI, AMT and PSA, EXR, etc.

Mostly Uncle Frank [9:57]

Can you give us a hint as to what metrics you use to choose your REITs without saying which ones? Thanks for your time. All right, REIT, REIT, REITs. For those who are looking for more information about REITs, go back and listen to episodes 19 and 21 for the basics on this. But one of the things I said in that episode, and if it said, in other episodes is that you are probably better off not using the cap-weighted REIT funds like VNQ or even what we're using in the sample portfolios, REET. And the reason for that is because that cap weighting makes them kind of unbalanced as far as the industries are concerned. And so you end up with some weird concentrations. that may not be desirable overall. And it's not that difficult these days to just pick your own individual REITs. And there are many different ways to do that. I would say if you were only going to pick one REIT or a very few REITs, I would certainly include O Realty Income Corp. That is a REIT that holds about 11 or 12,000 leases on things like 7-Eleven's and pharmacies. And so it's very stable and is very well internally diversified. Now as to what you're doing and what I'm doing, I mean it looks like you picked some pretty good ones there, but I have taken the opposite tack in that I do not want to have more than one REIT in a particular industry. Although I do view data storage and cell towers as separate industries. So I would say CCI and AMT, those two, I would just pick one of those. you can keep your DLR, and of PSA and EXR, I would probably just pick one of those. In my case, I've picked PSA. So I've tried in my REIT selection to cover a wide variety of industries, in addition to looking at those pure correlation numbers. So what do I have? Well, let's go through this list. I have AMT, which is the American Tower Cell Tower company. What's funny about that one is it actually has worldwide cell towers. So it's an international cell tower REIT, whereas CCI I think is mostly or only in the United States. I do have DLR, that is the data storage company. I have a REIT called GLPI that is not a very large REIT, but what that owns is the buildings and leases for casinos. And GLPI stands for gaming and leisure properties. I have a recalled IRM, Iron Mountain, which does both data storage and hard storage, mostly of documents. It's one of the older REITs in that industry. I have Lamar L-A-M-A-R, which is a billboard company. Leases out space on billboards all over the country. I have O, which I've already mentioned, Realty Income Corp. PSA, that's public storage. I think everybody knows what that is. VTR, that's a health REIT, Ventas. Now of those REITs, I am overweight in that Realty Income Corp, REO. And then I had one experiment, which as lots of experiments go, did not go very well at all. I have an investment in IIPR, which rents out warehouse space to cannabis companies. And it's taken a big shellacking recently. Do you think anybody wants a roundhouse kick to the face while I'm wearing these bad boys? Along with most of that industry. But it's only a tiny holding. I'm just mentioning it for completeness. The other thing or point I should make is that my REIT holdings only occupy 4-5% of our overall portfolio. Because I wanted to make space for other things like commodity funds and managed futures. But there you have it. I think there's more than one way to skin this cat. And obviously you do not actually need to hold REITs in any particular portfolio. They are just an option that you might choose. You do want to hold them in your IRAs or tax protected accounts because they do pay ordinary income. And that is another best practice. Yes! And thank you for that email. Class is dismissed. Last off. Last off, we have an email from Nathan. Get your hot dogs, hot dogs, hot dogs.

Mostly Voices [14:47]

And Nathan writes：hello Frank, first off,

Mostly Mary [14:51]

I would like to say that I continue to thoroughly enjoy the show and get great value out of it.

Mostly Voices [14:59]

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

Mostly Mary [15:03]

I know that the podcast is dedicated to risk parity portfolio construction. However, some of my favorite moments are when you veer off topic for short periods of time to cover philosophical issues, world demographic trends, or recommendations for books or other podcasts.

Mostly Voices [15:21]

Lisa, if you don't like your job, you don't strike. You just go in every day and do it really half-ass. That's the American way.

Mostly Mary [15:33]

I wanted to pass this feedback along and share my hope that you will continue to wander off topic at times.

Mostly Voices [15:37]

Abby, someone. Abby someone. Abby who? Abby Normal. Abby Normal.

Mostly Mary [15:52]

Second off, I was hoping you could weigh in on something. I know that you are supportive of viewing stock index fund investments by style, such as growth and value, rather than by geography or other popular groupings. I understand that this is because growth and value are the best way to differentiate for diversification purposes. To this end, you suggest categorizing an S&P 500 or total stock market fund as large cap growth because that is what currently dominates these indices. I am wondering if this has always been the case and if this would be likely to change over the long term. I am roughly 20 years from retirement, and so I am looking at my purchases today based on a very long time horizon. We know that the nature of most index funds is that the stocks that rise in value represent increasing proportions of an index, and those that lose value represent decreasing proportions of an index. Growth stocks have been the dominant performers for 10 plus years. If we are holding an index such as the S&P 500 or total stock market for a very long time, then it seems plausible we could see a reversal where value stocks outperform for a long period of time and end up making a much larger portion of the indices. I looked for some data online and was having trouble finding historical weightings of value versus growth in the S&P 500 or total stock market. Would you happen to know where one might find that information? I guess I'm wondering whether we would have growth versus value diversification over long periods of time by virtue of holding an index that evolves over time. Nathan. Hot dogs, hot dogs here.

Mostly Uncle Frank [17:42]

Well, taking your second question first, no, I'm not aware of any data source that monitors the specific makeup of the S&P 500 over time. One thing you should realize is the S&P 500 itself has only been around since 1957. And the reason it tends to be growth oriented is that it's always reflecting the newest greatest thing in companies, which are the biggest ones growing the fastest. And so you end up with a growth tilt almost all the time. I think the real solution is simply to use a specific growth fund and then specific value funds. And that way you won't have to be wondering what's in the S&P 500 or how it's going to change over time. But again, that's one of these options that we didn't have 15 years ago. You didn't have a lot of specialized factor based ETFs and or index funds. So an S&P 500 fund is a great place to start. or to have a core part of a portfolio, but ultimately you're going to want to branch out into more specific factor-based funds.

Mostly Voices [18:51]

I'm telling you, fellas, you're going to want that cowbell. I will give you a few interesting links in the show notes.

Mostly Uncle Frank [18:59]

One is a short article about value versus growth over time, historically, going back to 1926. Another one's just a little Investopedia article about value versus growth. which has some other references and links in it. And then I will give you a link to what is called the Matrix Book. The Matrix Book is put out by Dimensional Fund Advisors every year and is updated. And it has all this data going back to 1926 for all of these different factors. So there's data for small cap value going back to 1926 or large cap growth or any other thing you want to look at. It's presented in a table form with tiny numbers, so it's not very pleasant to look at or use, but it is a resource that is available if you're looking for that sort of thing. The goofy thing about it is DFA does not publish it directly, but gives it to its affiliated registered investment advisors, and then some of them will put it up in a given year. And so you always have to hunt around and find well, which one put it up on the web this year? I'll give you the link for the most recent one that I've found. But that probably is the best data source that you could use. It's the Fama-French data is what it is essentially. And I ask for your first observation or comment that you enjoy it when I do go off topic. I'm not sure everybody shares that, but I'm sure at least the people asking the questions do.

Mostly Voices [20:31]

What we do is if we need that extra push over the cliff, you know what we do? 11, exactly.

Mostly Uncle Frank [20:36]

For Mary, it sounds something like this most of the time.

Mostly Voices [20:43]

I could stand up here and talk on and on like some bow weevil sitting on a stump bragging to a dog in heat.

Mostly Uncle Frank [20:47]

But I don't mind doing it in answer to people's questions because I think it makes for a better program and if it If that's what my listeners are interested in hearing about or hearing my opinion about, then just ask and I'll tell you what I know. Stupid is as stupid does, sir. And you can take it for what it's worth.

Mostly Voices [21:09]

Everyone in this room is now dumber for having listened to it. I award you no points and may God have mercy on your soul.

Mostly Uncle Frank [21:17]

And thank you for that email.

Mostly Voices [21:21]

And now for something completely different. What is that? What is that? What is that? Oh, no, not the bees!

Mostly Uncle Frank [21:28]

Not the bees! And just when you thought that the markets couldn't get any worse this year or were getting better, I think we just had one of the worst weeks of the year. Well, I say he does have to shoot me now. So shoot me now! Just looking at the markets themselves, it seems like everybody was just selling everything and hoarding dollars. So we saw the S&P 500 go down 3.29% for the week. The Nasdaq was down 4.21% for the week, and it wasn't even the big loser. Gold was down 2.83% for the week. Long-term treasury bonds represented by the fund TLT were down 2.99% for the week. Reits were down, our EET, our representative fund, was down to 3.63% for the week. Commodities were also down too. They were the big loser. Our representative fund, PBDC, was down 4.89% for the week. I think part of that was due to declining oil prices again. Preferred shares represented by the fund PFF are also down 2.05% for the week. They were actually the best of that lot. But guess what went up this past week? Guess what? Managed futures represented by the fund DBMF were up 2.49% for the week. They have been really out there pulling their weight and trying to get some more playing time on the portfolio team. I think that fund is up over 25% for the year. and a lot of that is because I think it's short the Euro and the Yen against the dollar, which a fund like that can do. It's all one big crapshoot, anyhoo. But anyway, moving to our sample portfolios, and we had our monthly distributions for September to talk about in addition to the weekly performance. The first one is the All Seasons. This one is 30% in a total stock market fund, VTI, 55% in treasury bonds, intermediate and long term, and then a remaining 15% is divided into gold, GLDM, and a commodities fund, PBDC. It was down 2.83% for the week and is down 15.9% year to date and is down 4.2% since inception in July 2020. We'll be taking out a distribution from this of $30 for the month of September. Still has about $9,000 in it. And that is at a 4% annualized rate. It will be coming out of PDVC, the commodities fund, which has been performing the best recently. That seems to have been a theme all year for this portfolio. We will have distributed $296 year to date and $857 dollars from this portfolio since inception in July 2020. Next one is the Golden Butterfly. We're getting into our three bread and butter portfolios here. This one is 40% in stocks divided into a total stock market fund and a small cap value fund. I could have used a little more cowbell. It's got 40% in bonds divided into long and short term treasuries, and then it's got 20% in gold, GLDM. It was down 2.65% for the week. It is down 12.84% year to date and is up 8.57% since inception in July 2020. In terms of a distribution, we'll be taking $41 out of it from the short-term bond fund SHY for September and that is at a 5% annualized rate. We will have taken out $398 in distributions year to date and $1,179 since inception in July 2020. And if you wanted to know where all of the amounts have come out of for each of these portfolios in terms of which fund was accessed, you can take a look at that on the website. It's interesting because different parts of the portfolio perform better over time, and so you end up taking a little bit here and a little bit there. That is all part of the distribution strategy for most of these portfolios. That is the straight stuff, O' Funkmaster. It is not the distribution strategy for our next portfolio though. Our next one is the Golden Ratio. This one's 42% in stock funds, a large cap growth fund, a small cap value fund, and a low volatility fund which tilts towards quality and value. The best, Jerry, the best. And then we have 26% in a long-term treasury bond fund TLT, 16% in gold GLDM, and 10% in a Representative REIT fund, R-E-E-T, and the rest of it is in cash, 6%. This one was down 3.01% for the week, is down 16.75% year to date, and is up 5.94% since inception in July 2020. We'll be distributing $40 from the cash portion of this portfolio that's at a 5% rate. And the distribution plan for this portfolio is to take all of the distributions for a given year out in cash. It's like a little cash bucket there. And then when we rebalance, we refill up that bucket and then take the cash out of it. It's the simplest way to do portfolio management in a distribution scenario. Do you want a chocolate? Now we will have also taken $395 year to date in distributions and $1,176 since inception in July 2020. Moving to our next portfolio, the Risk Parity Ultimate. I won't go through all 15 funds in this. It does have a little bit of that DBMF in it.

Mostly Voices [27:23]

Ed McMahon's party machine! Yes! It was down 3.

Mostly Uncle Frank [27:28]

28% for the week. It is down 20.33% year to date and is up 1.15% since inception in July 2020. We are distributing $44 out of it for September. That's at a 6% annualized rate and it's coming from the Gold Fund GLDM. We will have distributed $453 from it year to date and $1,373 from it since inception in July 2020. Now moving to our experimental portfolios that involve lots of leveraged funds. We run hideous experiments here so you don't have to.

Mostly Voices [28:03]

I am a scientist, not a philosopher.

Mostly Uncle Frank [28:11]

Better to see it in a sample portfolio and not in your real retirement portfolio.

Mostly Voices [28:14]

You can't handle the gambling problem.

Mostly Uncle Frank [28:18]

But anyway, our first one is the Accelerated Permanent Portfolio. This one's 27.5% in a leveraged bond fund, TMF, 25% in a leveraged stock fund, UPRO. That's got 25% in PFF of preferred shares fund and 22.5% in gold GLDM. It was down 5.21% for the week. It is down 34.8% year to date and is down 10.63% since inception in July 2020. We're going to be distributing $37 out of this. It's coming out of cash which had accumulated. That's at a 6% annualized rate. We will have distributed $514 out of it year to date and $1,737 out of it since inception in July 2020. And my voice is really flagging here, but we'll see if we can get through this. Next one is the aggressive 50/50. This one's 1/3 in a leveraged stock fund, UPRO, 1/3 in a leveraged bond fund, TMF, and the remaining 3rd in Ballast, which is in PFF, a preferred shares fund, and VGIT, a intermediate treasury bond fund. This one was down 5. 94% for the week and is down 41.73% year to date. Loving that leverage or not, it is down 13.88% since inception in July 2020. We're taking $35 from this for a distribution for September. It's coming out of the cash portion which had accumulated. We will have distributed $502 out of it year to date and $1,748 out of it since inception in July 2020. And the current rate of distribution is 6% annualized. We get to our last sample portfolio, another experimental one called the Lever to Golden Ratio. This one's 35% in a composite fund called NTSX. That's the S&P 500 in treasury bonds. It's got 25% in gold, GLDM. 15% in the REIT O, 10% each in a leveraged stock fund, TNA, that's a small cap fund, and a leveraged bond fund, TMF. And then it's got 3% in a volatility fund, VIXM, and 2% in a Bitcoin fund, GBTC. It was down 4. 46% for the week, it was down 22.38% year to date, and 17.88% since inception in July 2021. We'll be taking $32 out of it for its distribution for September. It's coming out of that reit fund O, which has been holding up this year remarkably. That's at a 5% annualized rate. We will have taken out $422 year to date and $719 since inception in July 2021. But now I see our signal is beginning to fade along with my voice.

Mostly Voices [31:09]

Forget about it.

Mostly Uncle Frank [31:13]

But I would be remiss if I did not mention the promotional event we are having next Saturday, September 10th, for our charity, the Father McKenna Center. It is called the Walk for McKenna. We're here in Washington, DC. So if you're in the area and would like to come out and have a walk, get a t-shirt, donate some money, we could have a brunch after that with me if you'd like. And hopefully I'll see a couple people there. I realize most of you do not live anywhere near Washington, DC. That wouldn't be prudent at this juncture. But I will link to that in the show notes for the details. If you have comments or questions for me, please send them to frank@riskparityradio.com that email is frank@riskparityradio.com or go to the website www.riskparityradio.com and put your message into the contact form 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 [32:23]

Well, I thought I was gonna die.

Mostly Mary [32:27]

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.