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 [0:18]

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.

Mostly Voices [0:52]

Yeah, baby, yeah!

Mostly Uncle Frank [0:56]

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 Mary [1:28]

Top drawer, really top drawer, along with

Mostly Uncle Frank [1:31]

a host named after a hot dog.

Mostly Voices [1:34]

Lighten up, Francis.

Mostly Uncle Frank [1:38]

But now onward to episode 222. 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.

Mostly Voices [1:58]

But before we get to that, I'm intrigued by this, how you say, emails.

Mostly Uncle Frank [2:05]

And first off, we have an email from Jamie. And Jamie writes, hi, Frank.

Mostly Mary [2:19]

In light of your recent episode 206, I thought you would find this recent Wall Street Journal article on the topic of luck versus talent interesting. Jamie.

Mostly Uncle Frank [2:27]

Now, Jamie is referring to episode 206, where we were discussing Michael Mauboussin's book the Success Equation and what aspect or factor that luck plays in success. Thank you for this article from the Wall Street Journal. I will link to it in the show notes. It is of the same theme. You may have difficulty accessing it. It is behind a paywall. But it does confirm what we were talking about back in episode 206. And I do very much appreciate you listeners calling to our attention interesting finds that you have found, because that is what makes this a good podcast. The best Jerry, the best. And so thank you for that email. Second off, we have an email from Chris.

Mostly Mary [3:20]

And Chris writes, Frank and Mary, thank you so much for including and answering my multitude of questions. Super helpful. Have an excellent weekend, Chris.

Mostly Uncle Frank [3:30]

Well, Chris, we were very happy to read your emails and answer your questions.

Mostly Voices [3:34]

Yeah, baby, yeah.

Mostly Uncle Frank [3:39]

I think we suffer from an embarrassment of riches here on Risk Parity Radio because we have such good listeners with such good questions that really help. Direct and invigorate this show. Bing! When I hear the questions on other personal finance podcasts, I am glad that I do not have to answer some of them.

Mostly Voices [4:02]

Like that guy that invented the pet rock? You see, that's what you have to do. You have to use your mind and come up with some really great idea like that. and you can make millions, never have to work again. I had an idea like that once. It was a jump to conclusions, Matt. You see, it would be this mat that you would put on the floor and would have different conclusions written on it that you could jump to.

Mostly Uncle Frank [4:33]

And I very much appreciate the thoughtful nature of all of your questions. Bing again!

Mostly Voices [4:40]

So please keep sending them and I will get to them eventually.

Mostly Uncle Frank [4:45]

This email was back on October 7th, so I'm less than two months behind now. And I'll keep working at it. I'd say in a given week, I probably only do about 15 minutes of real, actual work. And so thank you for that email. Last off. Last off, we have an email from Alexei, otherwise known in these parts as the Dude.

Mostly Voices [5:12]

So that's what you call me, you know? That or his Dudeness or Duder or, you know, Bruce Dickinson, if you're not into the whole brevity thing.

Mostly Mary [5:25]

And the Dude writes, Hey, Frank, I just wanted to check in with you on my ongoing effort to create a long volatility ETF bucket suitable for do-it-yourself risk parity investors. This exploration was originally prompted by your earlier discussion of the Dragon Portfolio. My goal has been to combine actual VIX funds problematic on their own because of their negative carry/expected returns with other uncorrelated flight-to-safety assets as ballast to allow the bucket as a whole to move countercyclically without consistently posting negative returns. For Ballast, I have settled on the following assets. One, two levered dollar bull funds, E-U-O and Y-C-S. Rest in peace, C-R-O-C, the best of the bunch. Two, one stock put option fund, C-C-O-R. This fund was the hardest to model and was the fund I was most skeptical of going in. but it has performed really admirably in a muted return profile and weak positive and negative correlations to stocks, bonds, and VIX funds. For VIX exposure, I use VIXM. The proportions I use for this bucket are 35% CCR, 25% EUO, 25% YCS, 15% VIXM. As a 20% allocation of total portfolio, the percentages would be 7% CCR, 5% each YCS and EUO, 3% VIXM. I have been using this strategy for about 10 months as a bucket in my experimental portfolios and have been quite happy with its performance in the current bear market. I do worry about the YCS EUO portion being dependent on the current dollar run, which may be idiosyncratic. On the other hand, the dollar is a flight to safety asset, so there is some justification for including such assets in a long volatility strategy. I'd be curious as to your thoughts on this strategy. Any other funds that you would recommend to diversify the ballast portion of the strategy? B-T-A-L, Swan, hope you and Mary are well, Alexei.

Mostly Uncle Frank [7:53]

Well, this again is another reason I'm so fortunate for the listenership that we have here. The Dude Abides. What Alexei is trying to do is construct a volatility related allocation for a risk parity style portfolio. Which is one of the unsolved conundrums of portfolio construction. That's the fact, Jack! That's the fact, Jack! We first started talking about this back in episodes 55 and 57 with this idea of a dragon portfolio that had an allocation to volatility. The question is, what do you actually invest in to invest in volatility? Because the funds that invest directly in volatility, the VIX related funds, tend to decay and tend to have a negative expectation. So they're not very good and really force you to take some leverage in a portfolio to cover for that if you're going to use those sorts of things. And as we've talked about in some other episodes, like the one where we talked about BTAL episode 114. There are various ways to model or get at investing in volatility. One would be to use a long short fund like BTAL, another one as the dude has suggested and seems to work in some respects is to go long the dollar by going short other currencies, or there is an actual a long dollar fund ETF called UUP that you might use. So what the dude has done here is come up with a selection of these kinds of funds to model a volatility allocation to a portfolio. And it sounds like he's been actually working this in practice. Yes. And it has worked pretty well in a bad environment. So bold strategy, Cotton. Let's see if it pays off for him. And I will list these things in the show notes so you can see the allocations he's got. Now, I did go and do a couple of things over at Portfolio Visualizer, and this just goes to how you should be looking at these things and using these kind of tools. One thing I did was put it in the asset correlation matrix to see how correlated or uncorrelated these things are that you've chosen, and most of them have very low or negative correlations to stocks and other things. So that is a good sign. I also went and ran a little back test in the back tester there at Portfolio Visualizer, and I did it this way because I think this is the way you want to approach this. I started with a basic golden butterfly portfolio. And then I just swapped out the short-term bond fund in that for your selections as another 20%. And so I ran one version with C-C-O-R, which is a fund that has both stocks and options in it. And then I also ran a version of it where I put in B-T-A-L instead of C-C-O-R. Now these funds have just not been around that long, so the back test only goes back to 2017. You really can't say anything definitive with that very short back test, but it did look promising. The version I created with BTAL has a higher Sharpe ratio and higher Sortino ratio for this period, and I think BTAL may be a better product for this than CCO, simply because it has a lower correlation with the stock market. It actually has a negative correlation. It's an anti-beta fund, whereas CCO has a large percentage of large cap stocks overlaid with an option strategy. But it's suffice it to say that if you held something like this with this volatility allocation in a year like this, you'd only be down about six to seven percent as of the end of October and may be positive by now. And that is also reflected in the backtests that I will link to in the show notes so you can check those out. So while this is certainly not definitive of anything, it is a promising idea. Don't be saucy with me, Bernaise. And I'm glad you're pursuing it with an experimental portfolio and sharing it with us. Bing again! Because that's what I'm hoping that this podcast will yield, is people taking the principles we talk about here, particularly that Holy Grail principle, and then going off and coming up with their own formulations which they can then share back with us and we can all learn from. Groovy, baby! It is really amazing what we can do now that could not have been done a few years ago. both in terms of having no fee trading, the ability to buy fractional shares in ETF forms, and then with the liberalization of ETFs, you can now put just about anything that you can invest in into an ETF, which makes it accessible and usable for us as do-it-yourself investors. This is not something we could have done even five years ago, really. And now that we have tools and other resources, we can also run back tests on these things to get ideas of what they would perform like. Unfortunately, we're going to need a lot more data to say anything definitive about some of these ideas, but that will come with time. And so thank you very much for the work you have done and sharing it with all of us. Young America, yes sir. This is a most excellent email. Take it easy, dude. Oh yeah, I know that you will.

Mostly Voices [14:13]

Yeah, well, the do the binds.

Mostly Uncle Frank [14:17]

Now we are going to do something extremely fun. And the extremely fun thing we get to do now is our weekly portfolio reviews of the seven sample portfolios you can find at www.riskparityradio.com We also have the monthly distributions to talk about. And so without further ado, let's first go through what was going on in the markets themselves. The S&P 500 was up 1.13% for the week. The Nasdaq was up 2.09% for the week. Small cap value, represented by the fund VIOV, was up 0.96% for the week. Gold had an excellent week. I love gold.

Mostly Voices [15:02]

Gold was up 3.24% for the week.

Mostly Uncle Frank [15:07]

But the big winner again last week was long-term treasury bonds represented by the fund TLT. Those were up 4.07% for the week. Both of those asset classes seem to have benefited by what Jerome Powell had to say this week about not killing us with too many more interest rate hikes. And then the weak economic data, particularly what is called the ISM Manufacturing data, which showed a contraction in the US economy last month, also added fuel to the fire for those asset classes. and also reduced the value of the dollar, which contributed to Gold's outperformance. Moving forward, REITs represented by the fund R E E T were up 0.81% for the week. Commodities represented by the fund PDBC were up 1.32% for the week. Preferred shares represented by the fund PFF were up 1.10% for the week. And the loser last week was Managed Futures. The Managed Futures Fund we follow, DBMF, was down 2.31% for the week, undoubtedly on the weakness in the dollar since I know that that fund happens to be long the dollar these days. But the contents of that fund do change over time as it mimics an index of the largest trend following traders in the world. that is maintained by Societe Generale, the French bank. Now, moving to these portfolios. First one is this All Seasons portfolio. It's a reference portfolio that has 30% in A total stock market fund, VTI, 55% in long and intermediate treasury bonds and the remaining 15% divided into gold and commodities. It was up 2.78% for the week. It is down 15.42% year to date and down 3.6% since inception in July 2020. We will be distributing $29 out of this It'll come out of the cash portion, which is accumulated. This is at an annualized rate of 4%, and that distribution is for December. We will have distributed $381 out of it year to date and $942 out of it since inception in July 2020. Currently has $8,920 in it. Most of these portfolios started out at $10,000. I think this one actually started at $10,200. But you can find all that information on the website if you are so interested. That is the straight stuff, O Funk Master. Now we move to these three kind of bread and butter portfolios. The first one is the Golden Butterfly. This one is 40% in stocks divided into a total stock market fund and a small cap value fund. 40% in Treasury bonds divided into long and short and 20% in gold GLDM. It was up 1.75% for the week. It is down 10.37% year to date and is up 11. 42% since inception in July 2020. Still the best performer this year. We will be distributing $41 out of it. For December, it will come from VIoV, the small cap fund, which has done the best recently, and that is at a 5% annualized rate. We will have distributed $516 out of it year to date and $1,297 out of it since inception in July 2020. Currently has $9,886 in it. And our next portfolio is the Golden Ratio. This is 42% in stocks, stocks and three index funds. It's got 26% in long-term Treasuries, TLT, 16% in gold, GLDM, and 10% in a REIT fund, R-E-E-T, and then 6% in cash in a money market fund. It was up 2.13% for the week. It was down 15.05% year to date and up 7. 94% since inception in July 2020. We distributing $39 out of it for December, which is at a 5% annualized rate. And in this portfolio, the rule is we take the money out of the cash or money market every time and then rebalance and refill it once a year. We'll have distributed $508 year to date and $1,289 since inception in July 2020. currently has $9,544 in it. Now moving to our next one, the Risk Parity Ultimate. This has 15 funds in it that I will not go through, but it is the most diversified of these portfolios. It was up 2.32% for the week. It's down 20.42% year to date and up 1.05% since inception in July 2020. We will be distributing $42 out of it for December. which is at a 6% annualized rate. It will also come out of this portfolio from the small cap value fund, VIoV. We will have distributed $576 out of it year to date and $1,496 out of it since inception in July 2020. Currently has $8,651 in it. And now moving to our experimental portfolios that involve leveraged funds. 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 PFF, a preferred shares fund, and 22.5% in Gold GLDM. It was up 5.17% for the week. Trying to make a recovery before the end of the year, but it's very much down this year due to all that leverage. It is down 34.46% year to date and down 10.23% since inception in July 2020. We did rebalance more into the levered portion of this portfolio in November, and we'll see if that gives it a pickup since it's been going back up the past few weeks here. For the distribution for December, we're distributing out of this at a 6% annualized rate currently. We'll take $34 from GLDM for that distribution, which I should have done in connection with the rebalancing, but I neglected to do. We will have distributed $611 out of it year to date and $1,834 out of it since inception in July 2020. Currently has $7,177 in it. Next one is our most levered and least diversified portfolio, the aggressive 5050. It has 33% in a leveraged stock fund, UPRO, 33% in a leveraged bond fund, TMF, and as ballast, the remaining third is divided into a preferred shares fund, PFF, and a intermediate treasury bond fund, VGIT. It was a big winner last week. It was up 5.66% for the week. Still down 42.28% year to date and 14.63% since inception in July 2020. But you can see that it moves very quickly when it moves. We'll be distributing $32 out of it for December, which is at a 6% annualized rate. It'll come out of the Preferred Shares Fund PFF and we will have distributed $592 out of it year to date. and $1,833 out of it since inception in July 2020. Currently has $6,736 in it. Next one is the levered golden ratio. It's our last one in our youngest portfolio. This one's 35% in a leveraged composite fund, NTSX, which is S&P 500 and treasury bonds, 25% in gold, GLDM, 15% in a REIT, ticker symbol O, 10% each in a leveraged small cap fund, TNA, and a leveraged bond fund, TMF, and the remaining 5% divided into a volatility fund and a Bitcoin fund. It was up 2.13% for the week. It is down 22.36% year to date and is down 17.86% since inception in July 2021. It's been around a year less than the rest of them. We will be distributing $30 out of it for December, which is at a five percent annualized rate. It'll come from the fund NTSX, which is the best performer recently. We've distributed $509 out of it year to date and $806 out of it since inception in July 2021. There is currently $7,400 and $38 in this portfolio. And that concludes our portfolio reviews for this week and for the month. We're getting on the end of the year and we'll do some comparisons and look at these portfolios against commercial preparations and other commonly used portfolios at the end of December. In the meantime, I think we will be doing some tax loss harvesting of the TLT that is in a lot of these portfolios, we're going to sell that out and replace it with the Vanguard Long-Term Treasury ETF, VGTLT. I thought it made sense to do that since I'm actually doing some of that in my personal portfolios. And the excitement never ceases. He didn't fall?

Mostly Voices [25:49]

Inconceivable!

Mostly Uncle Frank [25:53]

But now I see our signal is beginning to fade. If you have comments or questions for me, please send them to frank@riskparityradio.com that email is frank@riskparityradio.com or you can go to the website www.riskparityradio.com and put your message into the contact form and I'll get it that way. Just a little announcement, as many of you know, this podcast does not have any commercial sponsors but does have a charity, the Father McKenna Center and we are having a program there this week called Lessons in Carols. I will link to that in the show notes. It is a tradition that started after World War I in Great Britain. So if you are in the DC area and would like to join us, it would be very nice if you would. I will be down there handing out programs. I may even wear a tie. Almost like going to work, but much more enjoyable. Looks like you've been missing a lot of work lately. I wouldn't say I've been missing it, Bob. Anyway, the Father McKenna Center is located in Washington, D.C. at the intersection of North Capitol Street and I Street. And if you are in the area, I'd love to see you. Mary will be there, too.

Mostly Voices [27:09]

Mary, Mary, why a buggin'? Thursday night, December 8th at 7 o'clock.

Mostly Uncle Frank [27:25]

Tonight only, the fabulous blues rock. The man, the blues review. The house, the hotel, room 616, Lake Suaso, Paman, the fabulous Blue's Brothers, Pro Band, and Review. 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. Mmkay. Thank you once again for tuning in.

Mostly Voices [28:00]

This is Frank Vasquez with Risk Parity Radio signing off. You on the motorcycle. You two girls, tell your friends. Free parking. Free parking. Two dollar cover charge only, folks. That's a lot of entertaining. Two dollars. Or two dollars. And it's ladies night tonight at the Bella Hotel Bar. So far we covered Lake McHenry and part of DuPage County. Good. Let's get to the gig. We got a full tank of gas. Half a pack of cigarettes, it's dark, and we're wearing sunglasses. Hit it. They're not gonna catch us. We're on a mission from God.

Mostly Mary [28:48]

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.