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 [0:37]

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. Yeah, baby, yeah!

Mostly Voices [0:52]

And the basic foundational episodes are episodes 1, 3,

Mostly Uncle Frank [0:56]

5, 7, and 9. Some of our listeners, including Karen and Chris, have identified additional episodes that you may consider foundational. And those are episodes 12, 14, 16, 19, 21, 56, 82, and 184. And you probably should check those out too because we have the finest podcast audience available.

Mostly Voices [1:28]

Top drawer, really top drawer, along with a

Mostly Uncle Frank [1:32]

host named after a hot dog. Lighten up, Francis. But now onward to episode 211. 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 portfolio's page.

Mostly Voices [1:55]

Boring. Boring. But before I bore you with that, I'm intrigued by this. How you say, emails. And, first off.

Mostly Uncle Frank [2:10]

First off, we have an email from Boone.

Mostly Voices [2:14]

Boone, you had a face like a pepperoni pizza, right? And Boone writes.

Mostly Mary [2:21]

Frank, get ready to queue Homer's while you've got a gambling problem, sound bite.

Mostly Voices [2:26]

Fat, drunk, and stupid is no way to go through life, son.

Mostly Mary [2:30]

I have some questions about leverage.

Mostly Voices [2:33]

Fortune favors the brave. Sorry about the length.

Mostly Mary [2:37]

Perry, Mary, why you buggin'? I've been investing in my company's 403b for my career. but about five years ago started adding to a taxable account. After I discovered Risk Parity Radio around episode 20 or so, I moved the investments over to M1 Finance and created my own version of the Risk Parity Ultimate portfolio. The main difference in my version was I increased the amount of UPRO and TMF a bit. I also discovered that as opposed to my old E-Trade account that charged 6% or more for leveraged borrowing, M1 had an introductory offer of just 2%. I believed, and still do, that 2% is a low enough hurdle and by using a lower volatility portfolio such as my modified risk parity ultimate that I could use leverage for the first time. To keep things in perspective, this was about 3% of my total retirement savings and I am about 9 to 10 years from retirement. I'm not worried about short-term volatility, And I really wasn't worried about a margin call. But if it happened, I could weather the hit to the account. You have a gambling problem. I've been reading more about leverage, and I think I will be leveraging up to about 150% when I finally retire and transfer all of my 403b savings to my IRAs. That's assuming the cost of borrowing money is somewhat attractive at that time. Here are some questions. What are your thoughts about borrowing from the brokerage as opposed to using strictly leveraged ETFs? When I set up my global risk parity portfolio, I borrowed about 50% of the fund balance from M1 Finance. I was also using those leveraged funds to buy UPRO and TMF, compounding the leverage even more. Does it simply come down to what is more expensive, the expense ratio or the interest rate of the levered funds? is a mix better than all of one source of leverage. I have been adding to this account each week for the last 20 months or so since leveraging the account. I am able to put half of my contribution into the portfolio and the other half goes towards paying off the borrowed dollars. That lowers my risk of a margin call even further since the borrowed amount is shrinking as a percentage of the total portfolio. But is this the correct thing to do? Eventually, I'll have all the borrowed dollars paid off and it will be just as though I had never borrowed anything. I will have had the advantage of lump sum investing instead of dollar cost averaging into the market.

Mostly Voices [5:35]

And if you believe, like I do, that over a long enough period of time the market always goes up, is there any research that says that I should have been contributing all of my weekly funds to the portfolio and not touched the borrowed balance to achieve a better outcome? Or should I pay it off and try to borrow again if the interest rates are good again? Or is this more of a psychological decision about my comfort level with debt? Never go in against a Sicilian when death is on the line.

Mostly Mary [5:44]

Or is this more of a psychological decision about my comfort level with debt? I'm using TMF, TNA, and UPRO as my levered assets. Any suggestions for levered REITs, preferred shares, commodities, or gold? As a DIY investor, I humbly consider myself more educated than the average retail investor, even if my education is largely of the self-taught variety. However, leverage is not something with which I have much experience. I'm sure there are considerations I should be aware of that I haven't discovered yet. Any pitfalls I should consider beyond increased variation in my balance, tax consequences, IRA versus taxable account consideration? If you feel comfortable sharing how if you use leverage, it would be enlightening. Thanks for all you do. I've learned so much from your podcast, and I think we all benefit from your willingness to share your experience. Boone.

Mostly Voices [6:39]

No, Boone, you just got here. I've been downstairs for an hour entertaining some kid from Pigs Knuckle, Arkansas.

Mostly Uncle Frank [6:46]

Well, yes, Boone, a gambling problem indeed.

Mostly Voices [6:51]

You can't handle the gambling problem. Lots of questions here.

Mostly Uncle Frank [6:58]

Let's see if I can answer a few of them to at least your satisfaction.

Mostly Voices [7:02]

No more flying solo.

Mostly Uncle Frank [7:04]

First, this topic of leverage in a portfolio or leverage to use to manage a portfolio. is one of those things that has been theoretically very promising, but practically difficult to implement, although it's becoming a lot easier to implement these days than it used to be. There's a very nice video I've linked to before and we'll link to again by Ben Felix at Rational Reminder about using leverage in a portfolio, particularly an accumulation portfolio, and also talking about the options of whether it's borrowed on margin versus using a leveraged fund for that. The other good resource for this is the site optimized portfolios, which I'll also link to in the show notes, where they talk about all kinds of levered up portfolios and all kinds of levered ETFs for your consideration. Sometimes a little bit like DraftKings over there.

Mostly Voices [8:07]

Well, you have a gambling problem.

Mostly Uncle Frank [8:10]

All right, your first question, which is better levered ETFs or borrowing on margin? And the answer is they both have their pros and cons. Using margin is more efficient in the sense that you are able to invest in the underlying assets. And so you're not going to have tracking errors that you might have with levered funds. based on how those funds are constructed or managed. You can invest straight in basic index funds or stocks or similar things. The drawbacks to investing on margin are well known and they are well known as margin calls. So if you take too much leverage, the chances of your portfolio blowing up in a downdraft become very high and many people have blown up that way. Stay in formation. Targets just ahead.

Mostly Voices [9:03]

Targets should be clear if you go in low enough. You will have to decide. You will have to decide. You will have to decide.

Mostly Uncle Frank [9:21]

Going all the way back to the early 20th century, actually going back to the 19th century, that was a major feature of the 1929 crash. The other issue with using margin is the expense and the fact that you are generally talking about a variable interest rate that is based on the federal funds rate or some other benchmark that's going to move around and is higher these days than it used to be. Using margin accounts at places like Schwab or Fidelity has typically been prohibitively expensive really when you looked at it. But there have been more recently much better brokerages or vehicles for margin accounts. I think Interactive Brokers is still the best one and always advertises heavily as having the lowest margin rates. M1 has come along more recently. Their margin rates are also low, not as low as Interactive Brokers generally, except when you're talking about the smallest accounts, then I think they're kind of comparable. Now, on the levered ETF side of things, those are much easier to use for investors because they are built in with the leverage and you're not going to get a margin call using one like you would if you were investing on margin. The main drawbacks to a lot of these leveraged funds is that they are not really designed for long-term holding. And therefore, a lot of them can have considerable tracking error where they don't actually track to three times or two times the underlying index like you'd like them to. And depending on how they are constructed, some of them have a tendency to decay. And this is particularly a problem for those ETFs that are on the commodity side of things or where markets are more illiquid. and they are rolling over futures or options contracts more frequently. It is less of a problem for these levered ETFs that are trading on the S&P 500 or treasury bonds or things like that. You mentioned UPRO and TMF. Those are two of the more reliable levered ETFs in terms of this tracking error issue. There are actually a number of reviews of these kind of ETFs over at that optimized portfolios website. I'll see if I can give you a link in the show notes, but I would poke around over there because they do actually go through various different kinds of ETFs and talk about their pros and cons. So the overall answer to your question or that question in summary is that in theory, it should not matter whether you're using margin or levered funds to do this, but in practice there are the considerations that I just mentioned. All right, moving to your second set of questions. These were all about timing and whether you should put new dollars into more investments or to paying down the margin debt that you have there. And you're doing a kind of half and half thing as you've described. This is in part just a market timing question and is the same analogous question to whether you should invest all your money at once or do a dollar cost averaging into the investment. And in theory, over the long term, you would want to remain as fully invested as you could. Because think about it, if your dollar cost averaging, say over a year in 10 equal payments, You're putting 10% in each time, or you could have 100% right away. When you're levered up a portfolio, you're talking about, say, 150%. And so putting that all in at the beginning is the same thing as putting 100% in the beginning, as opposed to 10% over 10 months or 15% over 10 months. If that makes sense. And I realize I just garbled some of those figures, but I think you get the gist of it. Don't be saucy with me, Bernaise. But that's the theory. Now, in practice, you have a problem in that you cannot afford ever to have a margin call because it will force you to sell out at a low, essentially. And that means restricting the amount of leverage you take. And in fact, you'd probably want it to be half or less than the theoretical maximum you think you could take. You were looking for a rule of thumb on that. But even that is going to be no guarantee. And the other part is just the psychology that you lever up a portfolio that might ordinarily go down 35 or 40%. A levered portfolio of that nature could be down 70% or 80%. and that may cause you to become physically ill or throw in the towel or at least lose some sleep, none of which would be desirable. That's not an improvement.

Mostly Voices [14:29]

But I am glad to see that you're only doing this with about 3%

Mostly Uncle Frank [14:33]

of your portfolio because even if you lost the whole 3%, it wouldn't kill you. But that is another good way to manage this if you're going to try to use leverage is to do it in a segregated part of your overall portfolio. portfolio so that if that part does blow up, it's not going to ruin the rest of your financial life. All right, your next question was recommendations for levered ETFs. And you mentioned TMF, TNA, and UPRO. Those are generally the most reliable ones in terms of tracking error, although I know TNA has its critics that I'm not completely sold that it is as good a levered ETF as something like UPRO, based on the way it's structured. You'll find discussion of this, as I mentioned, over at that Optimize Portfolio website. I have not spent a lot of time looking at other kinds of leveraged ETFs. The most popular one for gold I know is called UGL. I had experimented with another one that no longer exists a number of years ago, and did not like the tracking error problems with it, but UGL seems to have a better reputation. As I mentioned, I'd be really careful about using specialized levered ETFs for anything other than short-term trading because of these problems with role of futures and options contracts that are often the embedded underlying asset in terms of their construction. Another decent option for leverage, particularly for somebody that's holding something long term, are the WisdomTree funds, which are moderately levered, and in particular, NTSX, which we've talked about in this program and we have in the experimental portfolio, the levered golden ratio. That is constructed of S&P and Treasury bond components. So basically it's like taking a 60/40 portfolio and then leveraging it up one and a half times and turning it into a 90/60 portfolio. And the idea of that is that you would take that, reduce the amount of your portfolio that is devoted to those assets, and then essentially have room to put other things in there. that particular fund has also a much more reasonable expense ratio. I think it's 0.2 compared to some of these other levered ETFs which are generally in the 0.8 to 0.9 expense ratio area, which is another cost that you need to account for. And we did talk about NTSX back in episodes 59 and 61 and then have talked about it in other episodes. but you can search the podcast for that. And there are some other links in those podcasts to other materials that may be of interest to you.

Mostly Voices [17:46]

Yes! And as to your final set of questions, are there any other pitfalls in what has been my experience? Forget about it. I think we have discussed most of the pitfalls.

Mostly Uncle Frank [17:50]

One theoretical advantage I haven't mentioned is that you are likely to get more rebalancing opportunities and more meaningful rebalancing opportunities if you are using portfolios with levered funds because they move up and down a whole lot more. And people who have written about these things sometimes say that you can get between a 1 to 4% bump or bonus just on the rebalancing activities of these sorts of portfolio constructions. I do not know whether that's actually correct, but that's what I've read. As for our use of them, I only fiddle around with them in kind of an experimental manner, and so we've mostly segregated those sorts of things off to Roth IRAs that we're not going to be touching anytime soon anyway. The idea being there is that you want Roth IRAs to hold your riskiest assets, because they have the best potential for growth. The best, Jerry, the best. I do use interactive brokerage. I do use interactive brokers as my brokerage of choice for those low margin rates, but that's mostly for cash management, which means that you can also just use it to withdraw from those accounts without selling anything if you don't want to incur taxes on a sale, and then pay the margin off with dividends and interest that you haven't received yet. So we're using it more as a line of credit. The real reason that we've included a couple of levered funds in that sample portfolio, the Risk Parity Ultimate, is both for experimentation and because it tends to offset the negative expectation of the volatility funds that are in there. So the bottom line is it's not unreasonable to do some experimentation with these sorts of things, but you need to be careful out there, particularly if you're getting closer to retirement as opposed to being somebody with many, many years to go and can afford massive drawdowns because they're really just accumulating.

Mostly Voices [20:05]

We can put that check in a money market mutual fund, then we'll reinvest the earnings into foreign currency accounts with compounding interest and it's gone. And thank you for that email. My dad said he listened to Matt Damon and lost all his money. Yes, everyone did, but they were brave in doing so. Second off.

Mostly Uncle Frank [20:24]

Second off, we have an email from My Contact Info.

Mostly Voices [20:28]

Oh, I didn't know you were doing one. Oh, sure. I think I've improved on your methods a bit, too. And my contact info rights.

Mostly Mary [20:35]

Congratulations on 200 podcasts. Listening to podcast 201 and was surprised to hear Led Zeppelin. Fantastic.

Mostly Voices [21:00]

Interesting comments on real estate.

Mostly Mary [21:04]

Like most issues in finance, no definitive answers in real estate investing other than prime primary residence is an interesting topic. If you opt to go down this rabbit hole, I would look forward to your views. Null hypothesis. It is a sub-optimal idea given difficult to diversify massive idiosyncratic risk. If borrowing money, cost of debt will be higher than that of large institutions, thus increasing probability that you will not be able to effectively compete on price, lack of scale, and thus negotiating clout with contractors. Better to buy low-cost REITs that provide diversification? After adjusting for risk, all costs, including opportunity cost of human capital, and potential tax benefits, hard to beat the return on a REIT portfolio adequately constructed portfolio generally or return on human capital. Vanguard REIT Index up 10% annually since inception in November 2001. Thank you for your wonderful podcasts.

Mostly Uncle Frank [22:03]

Well, real estate's kind of a funny thing.

Mostly Voices [22:07]

What do you mean funny? Funny how? How am I funny?

Mostly Uncle Frank [22:11]

With a lot of hype that surrounds it. We currently own one rental property. We used to have two. We sold one. We probably will not get another one because I simply lack the interest to do it properly. I don't think I'd like another job. It's one of those things I feel like if you're gonna do it right, you better get in there and do it right or not do it at all.

Mostly Voices [22:33]

It's not that I'm lazy. It's that I just don't care.

Mostly Uncle Frank [22:41]

But I really don't look at real estate as one kind of monolithic thing. I look at it as an object of value that has a whole set of businesses surrounding it. So for instance, there are construction and rehab businesses surrounding real estate. or development. There are lending businesses surrounding real estate. There are management and lease holdings surrounding real estate. There is simple speculation, particularly with something like raw land. There's no real difference between owning something like that and owning gold or a commodity. And then you get to the financialized aspects of real estate that are more passive and that includes syndications or partnerships you might invest in, and then you get out to publicly traded REITs on the most passive end. So I think it's kind of a mistake to equate all of those different kinds of businesses or methods of investing as equal, because they all have their own advantages, disadvantages, and idiosyncrasies. In some respects, it's really no different than all the businesses you can imagine surrounding cars and car ownership. You have manufacturers, you have sellers, you have people that operate rental fleets, you have people that use their cars to transport other people around and get paid for it, people who manage and fix them, and people who flip them. And then you also have people that race them and people that collect them. And on the passive side, you can invest in a variety of those kinds of businesses through publicly traded shares. I think the real attraction of real estate for smaller investors is not the real estate itself, but the fact that you can easily take leverage on real estate, and that is how people that invest in real estate really make money is through the leverage. It's interesting we were just talking about leveraging up stock investments. But if you added the same amount of leverage to stock investments as you did to any kind of real estate investment, you're going to get similar results based on the amount of leverage applied. And you also have the problem of blowing up if you take too much leverage. You'll have to decide. You'll have to decide. You'll have to decide. Now there's one area of real estate that I find to be particularly interesting or useful, particularly for people in their 20s or people who do not have children. I don't care about the children.

Mostly Voices [25:27]

I just care about their parents' money.

Mostly Uncle Frank [25:30]

And that is the concept of house hacking, which I've recommended to my children.

Mostly Voices [25:34]

What have children ever done for me?

Mostly Uncle Frank [25:38]

The reason that works particularly well in the US system is that you can take advantage of both the benefits of home ownership and the benefits of being a landlord. So as a homeowner, you're going to be able to get more leverage essentially because you can get into a property with a much lower down payment than somebody who is buying something purely to rent will have to put down. So you essentially get favorable treatment on that end that far exceeds what you would ordinarily be allowed to do if you're just investing. But then if you rent out a significant part of the home or duplex or whatever it is, you're also going to get the benefits of being a renter under the tax code, which include depreciation and being able to write off a lot of things in your house that you ordinarily would not be able to write down on your taxes if you were just living there by yourself or with your own family and not renting out part of it. Now, what makes this particularly attractive these days and more attractive than say it was when I was in my 20s is that there are more people out there to be your roommates. The truth is they're morons.

Mostly Voices [27:02]

Because there are more people who do not settle down until they

Mostly Uncle Frank [27:05]

get closer to 30 these days than existed in past eras. Young America, yes sir. So this method of investing in real estate has been advantageous to our eldest son who is doing just that and ends up being net cash flow positive most months after paying the mortgage and expenses.

Mostly Voices [27:29]

It's time for the grand unveiling of money!

Mostly Uncle Frank [27:34]

And therefore does not essentially have a shelter expense, which for most people is one third or half of their expenses. And if you don't have a shelter expense, you can save and invest all that money too. That is the straight stuff, O'Funkmaster! And it kind of snowballs. Now obviously there's a lot of people who this is not going to work for, particularly if you have jobs in certain areas of the country, or you are likely to be moving around in your career, because it still doesn't make sense to be buying real estate if you're going to be selling it frequently simply due to the transaction costs involved. Now, as for me, I lack the time and the interest to do any more real estate investing than we're already doing. Not going to do it.

Mostly Voices [28:24]

Wouldn't be prudent at this juncture.

Mostly Uncle Frank [28:27]

But if you enjoy that sort of thing and want to put the time in for it, more power to you. You can really do well with those kinds of investments.

Mostly Voices [28:35]

You're going to find out that you're not going to amount to jack squat.

Mostly Uncle Frank [28:39]

For those who are thinking about it from the sidelines, just a couple of caveats. In surveys of people who have become millionaires, most of them have not done it through real estate. Most of them have done it through saving in 401 s. There is also a large survivorship bias inherent in real estate when you hear people talk about it, that the people who tried it and failed or it didn't work out well are not going to be talking about it or mentioning it until they've gone away. And so all of the people that you see are merely the survivors that have done well with it. and it skews the perception as to how easy it is for somebody to do. And like any investment, there is a luck component to it. So if you got into real estate in 2005, chances are things didn't work out too well, unless you were very careful. On the other hand, if you got into real estate in 2010, chances are no matter what you bought or what you did, Things worked out just fine. Ooh, how convenient. But that is common to almost all kinds of investments, that many times it is just better to be lucky than good. You could ask yourself questions. Do I feel lucky? Do I feel lucky? We just strive to be good enough here.

Mostly Voices [30:06]

Gonna end up eating a steady diet of government cheese and living in a van down by the river.

Mostly Uncle Frank [30:13]

And thank you for that email.

Mostly Voices [30:17]

Last off.

Mostly Uncle Frank [30:21]

Last off, we have an email from Alex.

Mostly Voices [30:24]

Alex did my taxes and this is the refund. $800. Mallory, that's more than you made. And Alex writes. Hi, Frank.

Mostly Mary [30:36]

Thanks for all you do. Love the show. Two questions. For financial planning purposes, I have a large spreadsheet that projects future portfolio growth spending, cash flow, etc. Do you recommend using nominal or real values for something like this? Using real values is probably easier, but the nominal values look and feel more nuanced/intuitive to me. Would love for you to weigh in. Two, I am in my 30s and am curious how I might possibly be updating my approach to portfolio construction in 20+ years from now. I of course want to resist any foolish consistency. You have talked a few times about the different ages of investing for DIY investors.

Mostly Voices [31:27]

If we are in the steel age now, any musing on what the future may bring? What could the aluminum or plastic age look like if those ages make any sense for this analogy? You are talking about the nonsensical ravings of a lunatic mind.

Mostly Uncle Frank [31:32]

Alright, as to whether to use nominal or real values for projections, I probably would just look at both.

Mostly Voices [31:40]

Groovy, baby.

Mostly Uncle Frank [31:45]

I honestly think the biggest problem with most projections that people try to do is that they try to be too precise or imagine that they can be precise when the future is so unknown. And that gets you to a statistical problem called the bias variance dilemma or trade-off that we've talked about in the past here. which is that when you're dealing with an uncertain future and trying to project into it, you can either choose to be precise in your prediction, knowing that it's going to be absolutely wrong, or you can choose to be more broad or fuzzy in your prediction, knowing that it is likely to encompass what actually happens. So never be too confident in what you are attempting to forecast. particularly if it's based on future returns of volatile asset classes like the stock market. A lot of it is a matter of timing. This is also why just using back of the envelope kind of calculations using the rule of 72 is often just as good as precise predictions coming out of spreadsheets. So I always do just start with a very simple calculation, which is this. Look at your annual expenses. If your life doesn't change much, figure you need 25 times that in order to be financially independent. And then figure out, well, how close are you? If you have $100,000 saved and invested today and think you need to have a million dollars using the rule of 72 at a 7% compounded annual growth rate means that that money would double about every 10 years. And so you'd go from 1 to 2 in 10 years, you'd go from 2 to 4 in 20 years, from 4 to 8 in 30 years, and get to a million shortly thereafter without doing anything else. So that would be a little over 30 years to get there that way. Now if your returns were say 10%, which is probably more realistic, then you're doubling every seven years. So you go from 1 to 2 in seven years, from 2 to 4 in 14 years, from 4 to 8 in 21 years, in 21 years and probably get to a million by your 25th year, which tells you if you did nothing else, you would reach your financial goal probably somewhere between 25 and 35 years in the future. And obviously everything you add to that is going to reduce that time. Now, I did kind of go off on a little tangent there. What I'm really just trying to say here is that use whatever calculations you want to use As precise as you want to make them, but also recognize that that precision is a false precision. Forget about it. And that just having a ballpark estimate and then honing in as you get closer really makes the most sense because this is a thing to be managed over time, not something that you can just leave alone from age 25 to 55 without doing anything or thinking about it. One other thing I should probably mention on your first question is that most people use an inflation rate that's probably too high if they plan to actually attempt to manage their own inflation rate. Because as we've heard in the last episode and other episodes, the inflation rate for a typical retiree is less than the standard CPI because It's just less for somebody who's not working. Now, you can even improve on that when you think about it if you are willing to rein in your housing, shelter expenses, and transportation expenses, because those are in fact 50 to 60% of how inflation is calculated. So if you minimize those, your personal rate of inflation is going to be substantially less than most people's. Because personal inflation is personal. That's the fact, Jack!

Mostly Voices [35:49]

That's the fact, Jack!

Mostly Uncle Frank [35:53]

Now, as to your second question, asking for future predictions. This is always fraught with peril when you try to do something like this, because you know that you're going to be wildly wrong in many ways, probably. My name's Sonia.

Mostly Voices [36:08]

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

Mostly Uncle Frank [36:16]

But I see our abilities as do-it-yourself investors to invest in more asset classes and do it more efficiently is going to improve a lot just over the next 10 years. The ETF revolution is still in its infancy, and we've only seen in the past three or four years really people beginning to develop ETFs that are not just simple stock and bond type things, or essentially managed stock funds like the ARK funds are. But you can see already that ETFs are going to displace mutual funds as the primary vehicle for most people to invest through because they're more efficient and easier to transport from brokerage to brokerage. That process is going to take a little longer with respect to things like 401ks because those are really set up only to handle things like mutual funds and not ETFs unless you open up some kind of self-directed brokerage aspect. If you have one of those in your 401k. What this means is that we're going to have more and better choices to make as do-it-yourself investors in terms of diversification. Now, of course, there's going to be a lot of fads and bad ideas floated out there along with the good ones. So doing a lot of watching and waiting for the most part will make a lot of sense.

Mostly Voices [37:42]

You need somebody watching your back at all times.

Mostly Uncle Frank [37:46]

But I think one direction in terms of diversification this is going is what we talked about when we talked about the dragon portfolio back in episodes 53, 55, 98, 110 and 168. And that involved expanding the asset class universe beyond stocks and bonds, first to things like gold, then to managed futures, and then to volatility. We may be getting there sooner rather than later with respect to something like managed futures because it has performed well during this horrible time for just about every other kind of asset. And I'm hearing, you know, just about every week, I think it was Medibabble last week, saying that what's holding up their funds is managed futures. Now, that was an almost uninvestable asset class for most do-it-yourself investors about 10 years ago. It's no longer that. There's a couple of decent funds out there that aren't too old, like DBMF that we've talked about. But I expect there's going to be more of those coming out from the big players like iShares, et cetera, who will be using algorithms to mimic indexes. like that fund does. And you will see more of that construction where you construct the portfolio by using a sophisticated computer algorithm to essentially reverse engineer what you might find in an index. It's a brilliant concept, actually. But I have to believe there'll be more of those funds coming soon and they will get cheaper and cheaper as time goes on. We still do not have decent ways of investing in volatility through ETFs, but maybe somebody will figure that out in the next 10 or 20 years as well. The other thing we're going to have is a lot more data because there's been a lot more funds out there for the past 20 or 25 years. There's been a lot better collection of data. And so eras like the one we're living through right now are going to provide a fertile ground for testing and back testing various kinds of portfolios. Because what we're going through now is essentially like a 100 year flood. Inconceivable.

Mostly Voices [40:10]

What else can I guess at you about with my crystal ball here? A really big one here, which is huge.

Mostly Uncle Frank [40:15]

I think do it yourself investing will continue to get Easier, can't really get much cheaper now that we have no fee trading with fractional shares at a couple of different brokerages. I think that will be the minimum standard for pretty much all brokerages within the next decade. There are also many changes going on in financial services. Some good, some not so good. Always be closing. On the good side, people are coming up with Better business models from the consumer's perspective that are more like other professionals charging by the hour or charging by the job. Getting away from both commissions and AUM setups. I drink your milkshake.

Mostly Voices [41:03]

Those will continue to exist as long as there is an insurance industry.

Mostly Uncle Frank [41:06]

There will be commission sales. That is not going to change. Another positive development that I think will continue is that many advisors will build more upfront education into their business models. I'm thinking in particularly of the Money Guy Podcast and the way those guys operate, which is to put out lots of pretty good information that's free and available with the idea that you're building trust over a period of years and then when somebody really needs services, they'll come in the door based on that. That's a very positive kind of business model for consumers and do-it-yourself investors and is in marked contrast to the old model, which was to try to convince the public that the financial advisor had magic buttons or special abilities to do magical things with your money. Stand it's gone! Poof! And that that's why you needed them. There are fewer and fewer advisors who make the claim that they will beat the market as their calling card or have some special sauce, and many more that have adopted the mantra that their real job is more psychology coaching and hand holding, which is probably true for a lot of people. But on the other hand, if that's their job, that should also change the business model because you do not pay your personal fitness coach or psychologist an AUM fee based on your level of health.

Mostly Mary [42:52]

That's not how it works. That's not how any of this works.

Mostly Uncle Frank [42:57]

You pay them by the hour or the job. And that's the way hopefully the whole thing is going. The target should be clear if you go in low enough. You'll have to decide. You'll have to decide. You'll have to decide. With lots and lots of creative destruction and lower fees. Let's die! Now, as for what age we're going to be in, I think we're going to stay in the steel age for quite a while now because we just got here with the advent of no fee trading in fractional shares and the other improvements in availability of ETFs and other diversified offerings in fund land. So we're probably going to build on that for 10 or 20 years. We have been charged by God with a sacred quest. In terms of moving to another age entirely, I was listening to something about technology and uses of blockchains and ledgers that could revolutionize kind of the plumbing of the way things are traded. So instead of the old-fashioned way of trading and settlement within a day or three, you could get to a point where you have essentially instantaneous trading through some kind of blockchain ledger system. And that could result in more kinds of funds or financial products being invented. And that's what you might find in the age of aluminum or the age of plastic. That was weird, wild stuff. I'm actually hoping for titanium, but I should just say as long as we're not going to the age of plutonium, I'm probably going to be reasonably well satisfied. But that's enough of me babbling on that. I have no particular ability or skill to predict exactly what the future may hold in finance or otherwise. I know nothing. Nothing. 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 that you can find at www.riskparityradio.com Basically it was a big roller coaster again last week. Roller coaster! Hello! I want to go to the roller coaster! We didn't end up very much further from where we started. Anyway, the S&P 500 was up 1.51% for the week. NASDAQ was up 0.73% for the week. Gold was also up. It was up 2.09% for the week. One of the big winners. I love gold. Long-term treasury bonds represented by the fund TLT were not a big winner. They were down 1.43% for the week. REITs represented by the fund REET did even worse. They were down 2.63% for the week. Preferred shares represented by the fund PFF were down 1.14% for the week. Commodities were actually the big winner. They were up 8.78% on the week. Broken. I think largely due on the price of oil going back up. And then we get to managed futures represented by the fund DBMF and those were down 0.08% for the week, so essentially flat. I've been asked to include Cowbell in this recitation. I got a fever and the only prescription is more Cowbell. And so we'll begin with that. Small cap value represented by the fund VIoV, it was actually one of the big winners last week. It was up 3.94% for the week.

Mostly Voices [47:06]

Before we're done here, y'all be wearing gold-plated diapers.

Mostly Uncle Frank [47:10]

And small cap value has been actually pretty decent this year. Large cap value has been better. VIOV is only down about 15% for the year. But if you look at some specialty things like property and casualty insurance, look at the fund KBWP if you want to take a gander or something like that, that's down all of 2% for the year. So I guess you'd have to say you're in good hands with Allstate.

Mostly Voices [47:35]

You are correct, sir, yes.

Mostly Uncle Frank [47:38]

Anyway, moving to these portfolios, first one is this All Seasons portfolio. It's a reference portfolio. It's 30% in stocks, in the total stock market fund, 55% in treasury bonds in intermediate and long term, the remaining 15% divided into golden commodities. It was up 0.79% for the week. It's down 20.44% year to date and down 9% since inception in July 2020. Moving to our bread and butter portfolios. The next three, the first one is the Golden Butterfly. This one's 40% in stocks divided into a total market index fund and a small cap value fund. It's got 40% in treasury bonds divided into short and long. and then 20% in gold GLDM. It was up 1.14% for the week. It is down 16.69% year to date and is up 4.10% since inception in July 2020. Next one is the golden ratio. This one's 42% in stocks and three funds, 26% in long-term treasury bonds, 16% in gold, 10% in REITs and 6% in cash in a money market fund. It was up 0.48% for the week, it was down 21.91% year to date and down 0.15% since inception in July 2020. Next one is a risk parity ultimate. I'm not going to go through all 15 of these funds, but it was up 0.69% for the week when all was said and done. It is down 25.36% year to date. and down 4.65% since inception in July 2020. Now moving to our experimental portfolios, these hideous ones involving levered funds.

Mostly Voices [49:36]

Look away, I'm doing this. We're taking a pounding this year.

Mostly Uncle Frank [49:40]

First one is this accelerated permanent portfolio. This one's 27.5% in a leveraged bond fund, TMF, 25% a leveraged stock fund, UpPro 25% in PFF, a preferred shares fund, and 22.5% in Gold GLDM. It was up all of 0.19% for the week. It is down 42.28% year to date and down 19.48% since inception in July 2020. Moving to our next one, our least diversified one and most levered fund, the aggressive 50/50, which is half stocks and half bonds. It is composed of 33% in a leveraged stock fund, UPRO, 33% in a leveraged bond fund, TMF, and the remaining third in ballast divided between a preferred shares fund and an intermediate treasury bond fund. It was down 0.39% for the week, suffering without any gold or other things in there like small cap value.

Mostly Voices [50:40]

I'm telling you fellas, you're gonna want that cowbell. It is down 50.

Mostly Uncle Frank [50:44]

06% year to date. It is down 24.46% since inception in July 2020. That is a good example of how leveraged funds can really take a beating. And our last one here is the Levered Golden Ratio. This one is 35% in NTSX, that fund I mentioned a little bit ago. 25% in gold, GLDM, 15% in ERETO, 10% each in a levered small cap fund, TNA, and a levered bond fund, TMF, remaining 5% in a volatility fund and a crypto fund. It was up 1.17% for the week. It's down 29.52% year to date and down 25.16% since inception, which was in July 2021. It's a year younger than the other portfolios. And so it was another uninspiring week for the year of 2022. I award you no points, and may God have mercy on your soul. But at least we didn't lose any more ground. Dang, idiot. It seems that all of financial markets have devolved into speculating on what the Fed might do next. and the strength of the US dollar. It won't go on forever, but it does appear that as far as the Fed is concerned, the beatings will continue until morale improves.

Mostly Voices [52:15]

You can't handle the dogs and cats living together!

Mostly Uncle Frank [52:19]

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 fill in 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 follow, a review. That would be great. Okay. Thank you once again for tuning in. This is Frank Vasquez with Risk Parity Radio. Signing off. Haha, you fool. You fell victim to one of the classic blunders.

Mostly Voices [53:03]

The most famous is never get involved in a land war in Asia.

Mostly Mary [53:07]

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.