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 [0:38]

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! And the basic foundational episodes are episodes 1, 3, 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.

Mostly Uncle Frank [1:30]

Along with a host named after a hot dog.

Mostly Voices [1:34]

Lighten up, Francis.

Mostly Uncle Frank [1:38]

But now onward to episode 213. 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. And it was another one of those weeks. Fortune favors the brave.

Mostly Voices [1:59]

Fortune doesn't just favor the brave. Sometimes fortune affixiates them horribly with sulfur fumes.

Mostly Uncle Frank [2:09]

But before we get to that, I'm intrigued by this how

Mostly Voices [2:13]

you say, emails.

Mostly Uncle Frank [2:18]

And First off. First off, we have an email from Jeremy.

Mostly Voices [2:23]

He's a real nowhere man.

Mostly Uncle Frank [2:28]

And Jeremy writes, Hey fellas, look.

Mostly Voices [2:31]

The footnotes for my 19th book. Hi, Frank.

Mostly Mary [2:35]

What do you think of the warm, wasting asset retirement model of FIRE for those, like me, who couldn't sleep well a single day in 2022 yet?

Mostly Uncle Frank [2:46]

All right, let's first clue everybody into what this is. If I spoke clues, you'd all find out. I don't know what I talk about. Ad hoc, ad loc, and quid pro quo. So little time, so much to know. The so-called wasting asset retirement model, or WAR, was something that was talked about a few years ago and has Not been talked about much since a few years ago being about 2017 was the first time I started seeing things about this. I will link to a couple of them on the show notes. But anyway, this portfolio is almost all fixed income. So you have less than 10% in stocks and then you have the rest of it in low volatility, low return kind of assets. which are mostly cash and bonds. Surely you can't be serious. I am serious. And don't call me Shirley. And the theory behind this is you plot all of your spending out to some age, like age 100, and then try to allocate this entire portfolio to that spending. And while in theory you could do this, it doesn't actually make a whole lot of sense in reality. First of all, let me just get to a pet peeve I have with all of these sorts of cutesy named portfolio strategies, whether they involve acronyms like WARM or buckets or other things. And that is this observation. You cannot change the characteristics, the overall characteristics of a portfolio by arranging it differently or calling it different names or labeling pieces of it differently. Forget about it. At the baseline, it's going to perform the same based on its macro allocations. It's part of the macro allocation principle. So if you have a portfolio that is about 10% stocks and 90% fixed income, it's going to perform that way. Whether you just look at it face on as a whole portfolio, or you try to divvy it up and arrange it over spending over the course of some period of years. Same thing for labeling things with buckets. It doesn't change the overall performance of a portfolio. It may disguise or make things more complicated when you're trying to figure out which asset goes with which year and all that sort of stuff. But it doesn't really change anything. Do you think anybody wants a roundhouse kick to the face while I'm wearing these bad boys? So to me, a lot of this is a kind of avoidance mechanism that I don't really want to look at portfolio performance. I'd rather use a cutesy strategy with a cutesy name and think that that solves problems when it's just avoiding looking at the problem and evaluating the whole thing as one whole thing.

Mostly Voices [5:47]

Forget about it.

Mostly Uncle Frank [5:51]

But enough ranting about that. Don't be saucy with me, Bernaise. The reason this thing could work in theory is in theory, in the theory that applies to it, is you know exactly what your expenses are going to be from now until, say, age 100. And you know exactly what the rate of inflation is going to be from now until, say, age 100. And if you knew those things, yeah, you could do this. kind of thing. It would cost you more money. That's one of the drawbacks to this portfolio. You should expect to need 120 to 140% more than you would have with a regular retirement portfolio. But your real problem is you do not know what inflation is going to be in particular, and that's where you're going to get screwed, basically. That's not an improvement. Especially 20, 30 years down the line. Even if you can control your expenses and essentially live on less as time goes on, eventually you're going to hit some kind of a breaking point or are likely to hit some kind of a breaking point. And at that point, you may not have enough to continue going forward. So I don't think people who are thinking about this strategy are really thinking about how their self 20 or 30 years down the road is going to feel about them taking this strategy. now as their retirement strategy. Because the reality of this portfolio is it's just not going to keep up with inflation over time. That's the problem with it. So you need more stocks or something in the portfolio that's going to generate higher returns and keep up or beat inflation as the stock market typically does over long periods of time. The other problem I see with this kind of strategy is it's all or nothing thinking. And there are two kinds of all or nothing thinkers. There's the ones that say, well, why don't I just keep 80 to 90 to 100% stocks in my portfolio and then just have cash on the side and that'll be good enough for me. That's one all or nothing kind of thinking. This all or nothing kind of thinking is the opposite of that. Why don't I just get rid of all my stocks or almost all my stocks? In reality, the best kinds of retirement portfolios, and this is well known, have somewhere between about 40% and 70% in stocks typically, and then the rest is in bonds or other things. Because those kinds of portfolios tend to have the highest safe withdrawal rates with the kind of mix of things that will generate high returns over time with things that are less volatile and less correlated, hopefully. So if you're planning on a long retirement, you should probably be thinking of portfolios that have at least about 40% of them in stocks, regardless of what else you put in them. So something like that golden butterfly sample portfolio is an example of a conservative portfolio that would be appropriate for a long retirement. But if you did want to construct something like this, you wouldn't do it this way. You would start looking at annuity structures and laddering annuities over time. This will be very complicated to put together. But basically what you would want to do is have one single premium immediate annuity that you start with and then you have several of them laddered along your way, which are called deferred immediate annuities. They don't start paying until later. But what that would do is increase your nominal income as time goes on and that would help you keep up with inflation. Now, while that type of thing is possible, it's also very difficult to do, particularly if you're not sure what your expenses are going to be like in the future and could be quite costly. But the reason you would want to use annuities instead of fixed income for those long periods of time is that The annuities are guaranteed to keep paying you until you die, and you get what's called mortality credits through the insurance aspect of them, which just means as people die in the pool of the annuity structure you're dealing with, there's more left over for the people that don't die yet. And that can be calculated out using what's called the Gompertz mortality curve by insurance companies. One of the ironies of life and death is that it is almost impossible to predict when a given individual will die, but if you have a whole pool of them, it's relatively easy to predict how many will die by a certain time. And that's why life insurance is such a stable business.

Mostly Voices [10:33]

That is the straight stuff, O Funkmaster.

Mostly Uncle Frank [10:37]

The upshot of all this is that warm is probably not going to keep you warm.

Mostly Voices [10:41]

You need somebody watching your back at all times. At least not for a very long time.

Mostly Uncle Frank [10:46]

Forget about it. But thank you for that email. A boob for all seasons. How can he lose? Will your notice is good. It's my policy never to read my reviews. Second off.

Mostly Mary [11:06]

Second off, we have an email from Richard and Richard writes, Frank, I am a recently retired 60-year-old male with a 53-year-old spouse who is not employed outside of our home. Current net worth, $3 million. I have recently been recommended by a financial planner utilizing one-third of the portfolio in a deferred variable index annuity for a floor for guaranteed income expense coverage and utilizing the other two-thirds of the portfolio into stocks for growth. The annuity would be my fixed income percentage. In this recent year with stock market and bonds overall down and capital at risk is an annuity, deferred variable or SP-IA, worthwhile to provide a guaranteed floor for income. Or is it better to just keep all the portfolio in a risk parity portfolio, golden ratio, butterfly et cetera. Thank you for your informative and entertaining podcast, Richard.

Mostly Voices [12:10]

What do you mean funny? Funny how? How am I funny? Funny like I'm a clown? I amuse you?

Mostly Uncle Frank [12:13]

It seems like I can never escape annuities, even though this podcast is really not about annuities. Anyway, if you haven't listened to it, go back to listen to episode 184, where I talked about annuities and when you might want to consider one and what kinds you'd want to consider. I do think the most important things to consider are your age and your health. And I don't think your financial planner has been thinking or talking about that. You guys seem a little bit young. Young America, yes sir. Particularly your spouse to be considering annuities because the payout is lower when you're younger. But what I didn't talk about there was these types of annuities. And it does not make much sense to combine an annuity insurance product with some kind of stock market or index-based investing. That's how and why these products cost so much and perform so badly because frequently if you're dealing with some variable thing, where you're picking other things inside of it, the fees are just multiplying all over the place. Bing again! Same thing for structured products. The way to approach this is this. If you don't want to take stock market risk, you just reduce the amount of stocks in your overall portfolio. You don't go off buying things that are supposed to ameliorate your stock market risk. Because the real purpose of an annuity is to provide guaranteed income for a period. You had only one job. Typically your life, but it could be a shorter period. So the kinds of products you should be looking at for that purpose, as opposed to growing and keeping and maintaining a portfolio, which should be done separately, So you should be considering SPIAs, DIAs, and MIGAs, basically. SPIAs are single premium immediate annuities. They start paying right away. DIAs are the same product, except they start paying later. So you could buy one now that starts paying when you turn 70, for example. And then there are MIGAs, which are more like just CD products. They're a completely different thing, and that's spelled M-Y-G-A. But those are more like buying short-term treasury bonds or a CD for a specified period. One of those things that people like to talk about because it sounds sophisticated, but it's really not very interesting at all. Boring. So in your case, I would probably wait a few more years, see what your health seems to be like as you approach 70, because you would be more inclined to buy an annuity if you are in good health and expect to live for a long time. And you do need to consider whether this is on one of your lives, you have multiple annuities on each life, or you have joint life annuities because you can do it either way. The way you would think about that is you would not want to put that much into this product. You would basically be thinking about, well, what expenses is this supposed to cover? in terms of fixed expenses that you know you're going to have anyway. So, I don't see any reason that you would need to be jumping into annuity products right now. What you should also do is self-educate about these products, what they are, what their differences are. I think the best place to go do that is go to YouTube, go to the Stan the Annuity Man videos. And he's got different videos about just about every kind of annuity you can imagine. And I found that very informative as to understanding what exactly these products are, what their histories are, which are sometimes quite interesting. Boring. And then why or why not you may want to consider one, hopefully a simple one, as opposed to something else. And then if and when you feel you need one, you should shop for one at multiple vendors. because these are fairly commoditized insurance products in their simplest form. And there's no reason just to be going to one place without seeing what you can get at several of them. You'd want to get three or four quotes at least. The other thing you should be aware of if you were to even consider one of these variable products is that they are terrible inheritance vehicles. If the person who is inheriting your estate were to get a simple brokerage account with stocks or ETFs in it, they'd get a stepped up basis, would hardly have to pay any taxes. If what they get is some funds stuck in some annuity, they've got to dissipate the thing and they're probably going to be paying ordinary income taxes, not even capital gains taxes, ordinary income taxes on the gains that are in the annuity. It's a really ridiculous thing that no annuity salesman is going to explain to you, at least if they're making a commission off the product. Because only one thing counts in this life. Get them to sign on the line, which is dotted. But that's just another reason to stick to the simplest ones that are supposed to pay you for life and then go away and not be getting into this complicated nonsense with Funds inside of an annuity. Just dumb.

Mostly Voices [17:51]

Are you stupid or something? Stupid is a stupid does, sir.

Mostly Uncle Frank [17:55]

But hopefully that helps and thank you for that email. Last off. Last off, we have an email from Jen. I think this is the last email from August. I seem to be getting further and further behind. It's not that I'm lazy. It's that I just don't care.

Mostly Mary [18:19]

But anyway, Jen writes. Hi, Frank. I have a question on rebalancing. With ETFs, my understanding is fractional shares cannot be bought.

Mostly Uncle Frank [18:38]

So how are you able to execute your rebalancing? Do you just round up to the nearest whole share? All right, well, first your understanding is incorrect. You will find that it is you who are mistaken about a great many things. You can buy fractional shares of ETFs and it has nothing to do with ETFs themselves. What it has to do with is whether your brokerage allows you to do it or not. So if you're at a place like Fidelity or E-Trade or even Schwab now, I believe you can buy fractional shares of ETFs. Don't quote me on Schwab. What you're probably having is a vanguard problem because they don't like to let their customers do things that other customers at other brokerages are allowed to do in the 2020s. Hopefully they will remedy that in the next year or two going forward.

Mostly Voices [19:35]

We choose to go to the moon in this decade and do the other thing, not because they are easy, but because they are hard.

Mostly Uncle Frank [19:43]

But anyway, yes, you can just round to the nearest whole share for rebalancing purposes. Rebalancing just usually does not have to be that exacting anyway. Hopefully that helps and thank you for that email. And now for something completely different. What is that? What is that? What is it? 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. Another bad week.

Mostly Voices [20:16]

No, lots of beasts! Lots of beasts!

Mostly Uncle Frank [20:23]

Not a completely horrible week, but typical for the year of 2022. And just going through the markets, the S&P 500 was down 1.55%. The NASDAQ took it on the chin and was down 3.11%. Interestingly enough though, small cap value stocks represented by the fund VIoV were actually up last week. They were up 0.72%.

Mostly Voices [20:49]

I'm telling you fellas, you're gonna want that cowbell.

Mostly Uncle Frank [20:53]

Which may be a representation of some kind of rotation. At least that's what the professionals would say. The money in your account, it didn't do too well. It's God.

Mostly Voices [21:00]

Gold had a bad week. It was down 3.03% for the week.

Mostly Uncle Frank [21:04]

Long-term treasury bonds represented by the fund TLT were down 2.4%. REITs represented by the fund R E E T were down 1.55%. Commodities represented by the fund PDBC were also down. 3.07%. I think they were up over 8% prior week though. Preferred shares are presented by the fund PFF. We're down at 2.27% and continuing its wild success streak in 2022, managed futures were up again. The fund DBMF was up 1.74% last week.

Mostly Voices [21:43]

One minute you're up half a million in soybeans and the next boom, your kids don't go to college and they've repossessed your Bentley. Are you with me?

Mostly Uncle Frank [21:49]

Moving to the sample portfolios now, generally mediocre performances here. First one is the All Seasons. This is a reference portfolio. It's only 30% in stocks and a total stock market fund, 55% in treasury bonds that are intermediate and long term, and the remaining 15% is in commodities and gold, GLDM and PBDC. It was down 1.98% for the week. It is down 21.97% year to date. It's down 10.64% since inception in July 2020. Moving to our three bread and butter kind of portfolios. The first one is this golden butterfly. It's 40% in stocks divided into a total stock market fund and a small cap value fund. 40% in bonds divided into long and short treasuries. and 20% in gold GLDM. It was down 1.31% for the week. It was down 17. 75% year to date, so not too shabby in a year like this. And up 2.89% since inception in July 2020. Next one is the Golden Ratio. This one's 42% in stocks and three funds, 26% in long-term treasuries, 16% in gold, 10% in REITs, and 6% in A money market fund or cash, it was down 1.76% for the week, is down 23.22% year to date and a 1.7% since inception in July 2020. Our next one is the Risk Parity Ultimate. I won't go through all 15 of these funds. It's got some of those managed futures. It's got a little bit of leverage. It was down 1.87% for the week. It is down 26.69% year to date and 6.18% since inception in July 2020. And now we're going to these experimental portfolios with leveraged funds in them that are really painful looking this year.

Mostly Voices [23:56]

You definitely don't want to try this at home. You can't handle the gambling problem.

Mostly Uncle Frank [24:03]

But anyway, the first one is the Accelerated Permanent Portfolio. This one is 27.5% in a leveraged bond fund, TMF, 25% in a leveraged stock fund, UPRO, 25% in a preferred shares fund, PFF, and 22.5% in gold, GLDM. It was down 3.98% for the week, down 44.4% year to date, and 21.99% since inception in July 2020. I was reading somewhere earlier today that this is the worst year for stock slash bond portfolios since about 1937, which is why we're all waiting for it to be over, which leads us to our next experimental portfolio, the aggressive 50/50, which is half stocks and half bonds with a lot of leverage in it. So it's 33% in UPRO, the Leverage S&P 500 Fund, 33% in TMF, the Leverage Bond Fund, and the remaining third is divided into a Preferred Shares Fund, PFF, and an Intermediate Treasury Bond Fund, VGIT. It was down 3. 84% for the week and is down 51.82% year to date and 26.69% since inception in July 2020. We also look at these portfolios, these experimental ones in the middle of the month to see whether they have triggered a rebalancing. This one almost made it. The stock portion of it has dropped from 33% to actually 25.63%. If it was down below 25.5 we would have rebalanced. Maybe next month for that. But if you're interested in that procedure or process, it is described on the website. Now moving to our last experimental portfolio, the Levered Golden Ratio. This one is 35% in a levered composite fund, NTSX, which is S&P 500 and treasury bonds. It's got 25% in gold, 15% in a REIT, Ticker symbol O, 10% each in a leveraged bond fund, TMF, and a leveraged small cap fund, TNA, and the remaining 5% in a volatility fund and a Bitcoin fund. It was down 2.95% for the week, it was down 31.48% year to date, and down 27.16% since inception. And so concludes another ugly week, and another ugly month, and an ugly year. And while there's no end in sight for this at the moment, at least not until the Fed stops talking about raising interest rates in the future, I can tell you that that information source I saw about the worst year since 1937 also indicated that usually after having one of these years you get one or two large rebound years. But we'll just have to wait and see.

Mostly Voices [27:13]

You can't handle the crystal ball.

Mostly Uncle Frank [27:17]

And now I see our signal is beginning to fade. If you have comments or questions for me, please send them to frank@riskparityradio.com that email is frank@riskparityradio.com or you can go to the website www.riskparityradio.com and put your message into the contact form and I'll get it that way. I will answer them all eventually. Or so he says. I'm happier than a pig in slop. I should mention that if you do want to go to the front of the line, there is a way to do that, which is to go to the support page and become one of my patrons on Patreon. All that money does go to our charity, the Father McKenna Center. But that's just a little bit of an incentive as the line keeps getting longer.

Mostly Voices [28:09]

That's the fact, Jack!

Mostly Uncle Frank [28:13]

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

Mostly Voices [28:36]

Now where a man please listen you don't know what you're missing Now where a man for

Mostly Mary [28:45]

where the hell is at your command 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.