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. 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 The finest podcast audience available. Top drawer, really top drawer, along with a host named after a hot dog.

Mostly Voices [1:34]

Lighten up, Francis.

Mostly Uncle Frank [1:37]

But now onward to episode 226. 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. I'm putting you to sleep. Unfortunately, it was more of a snooze fest for those portfolios, given what the market did last week, which was not good. But before we get to that, I'm intrigued by this.

Mostly Voices [2:06]

How you say, emails? And?

Mostly Uncle Frank [2:10]

First off. First off, I have an email from Alexi.

Mostly Voices [2:15]

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 [2:27]

And the dude writes, Hey Frank, thanks for the Dragon Dude shout out on episode 214. Yeah, baby, yeah! Being associated with El Duderino is a thrill to me to this day. The Dude abides. On the Dragon front, these are my current Dragon style risk parity portfolios. Option 1：Decumulation Portfolio a la Golden Ratio 1.5 times Dragon 30% stock, including leverage 7.5% UPRO 7.5% VIoV 30% Treasuries, including leverage 7.5% TMF 7. 5% VGLT 30% real assets, including leverage, 10% UGL, 10% REIT, VNQ or basket individual REITs, 30% trend, 30% DBMF, 30% long volatility, including leverage, 5% EUO, 5% YCS, 7% C-COR, 3% VIXM. Option 2, more aggressive accumulation type portfolio to be compared to 100% stock portfolio. 9 fund dragon, 35% DBMF, 25% UPRO, 10% TMF, 10% UGL, 9% C-COR, 4% YCS, 4% EUO, 3% VIXY. For longer backtesting purposes, the whole volatility bucket can be replaced with RYS DX, the oldest 2x Bull Mutual Fund. DBMF can be replaced with RYM FX, the oldest CTA Mutual Fund. Well now, that was quite a mouthful.

Mostly Uncle Frank [4:37]

Mary Mary, why you buggin'? But I did go ahead and put your portfolios into Portfolio Visualizer and we'll provide a couple of links for that one with the specific funds you mentioned, then another one that back tests a little further in time. You can't really tell that much from these. given how little data there is, but in theory they should work quite well. And you'd certainly be happier holding them in the past year than you would be holding just about anything else. And it's just really nice to see people experimenting with these tools and these concepts, because this really wasn't something we could do or use even just a few years ago. And I think we will be learning a lot more about these kinds of portfolios as time goes forward. and we have more data. Although this year has been particularly painful for most investors, from a data perspective, it's a good thing to have in your data set, having the worst year in 40 or the worst year in 80, depending on what you're looking at, because it does kind of give you one of those worst case scenario data points. Whereas if you were just going to look at something like the data between 2010 and 2020, it would be highly misleading. But I have to tell you, this does remind me of the Strong Bad cartoon where all the characters are trying to draw dragons as little art projects.

Mostly Voices [6:04]

Let's see how the other students are doing. What do you got for me, Coach Z? Take a look there. I think she's looking pretty good. I said consummate V's, consummate! Geez. Guy wouldn't know majesty if it came up and bit him in the face. It happened once. Strong mad? You just keep doing your thing, man. Get out of my house. I do what I'm told. Oh, I didn't know you were doing one. Oh, sure. I think I've improved on your methods a bit, too. I employed some Kiara Skuro shading and- I'll improve on your methods. What? That's not an improvement. Trogdor strikes again.

Mostly Uncle Frank [6:50]

Do it yourself portfolio construction can be kind of like that. Surely you can't be serious. I am serious. And don't call me Shirley. But I'm glad you're enjoying this topic and are curious about it and thank you for your email. Take it easy, dude. Oh, yeah. I know that you will.

Mostly Voices [7:10]

Yeah, well, the dude abides.

Mostly Uncle Frank [7:14]

Second off, Second off, we have an email from Matt, and Matt

Mostly Mary [7:18]

writes：Uncle Frank, love the podcast, and thanks for the education and entertainment. Bow to your sensei.

Mostly Voices [7:26]

Bow to your sensei.

Mostly Mary [7:29]

My question is about market versus limit orders. Should the old advice about using limit orders be abandoned for highly liquid securities with a one cent bid ask spread? It feels like a foolish consistency, and at best a wasted mental effort when a market order is sufficient. Doesn't placing a limit order require a crystal ball to set the price? Thanks.

Mostly Uncle Frank [7:52]

Well, I would say that you could probably can get away with market orders for the most liquid ETFs like VTI or TLT or something like that. But it's still a best practice to use limit orders, particularly if you're dealing with a lot of shares or a lot of money or something that is not so liquid and does not have a bid ask of one cent. In terms of setting the limit order price, you know, you don't really need a crystal ball. You just need to look at the bid ask spread.

Mostly Voices [8:25]

A really big one here, which is huge.

Mostly Uncle Frank [8:28]

And so if you just set the limit to what the current ask is, if it's within a penny, that's all you really need to do. Or if the bid ask spread is larger than a penny, maybe you want to just put the price in between those two things somewhere. A lot of it depends on the size of your transaction. These days you can just whip out your phone, put in your limit order, and then wait for an hour or so and see if it clears or not and if it doesn't adjust the price. I would like to disabuse people of the notion, however, that this is difficult, hard, or time consuming to do because it's just not. If you can order an Uber or a DoorDash on your phone or something like that, trading is actually easier than doing one of those tasks and takes less time. This is one of the areas where people are just confusing unfamiliarity with difficulty. I will say that for the sample portfolios, because the amounts we're talking about are so small and it's usually a share or a fraction of a share that we're trading, I just do use market orders for that. And part of that is laziness, and part of it is because I didn't want to try to skew the outcomes with trading techniques and market orders basically just give you kind of the worst case scenario. And just one other best practice that you should be mindful of, which is that it's not a good idea to really trade at the beginning of the day or the end of the day because there is a lot more volatility in those periods. So the best practice is to wait till about 10 or 10：30 before you put in any orders and not to put any orders in after about 3 o'clock. I'm talking about Eastern Time here. But none of this should be very problematic unless you're doing lots and lots of trading. You have a gambling problem. Which I don't recommend, at least not for portfolio management purposes.

Mostly Voices [10:24]

Well, you have a gambling problem. Hopefully that all helps and thank you for that email. Last off, we have an email from

Mostly Uncle Frank [10:44]

Daniel. And Daniel writes, hi Frank. J.L.

Mostly Mary [10:51]

Collins called some of his readers stupid for investing in the TLT fund. Stupid is as stupid does, sir. He said that's exactly what you shouldn't be doing when investing for FIRE. I wonder what you'd have to say to that. And by the way, I agree with you that his book is outdated, especially regarding bond investing.

Mostly Uncle Frank [11:08]

Well, first of all, I don't know if JL Collins said that or what he said, and I am not interested in looking up such things. I don't think I'd like another job. I do think we are best off trying to be dispassionate about our investing practices because I view do-it-yourself investing as a technology that is constantly evolving.

Mostly Voices [11:36]

That is the straight stuff, O Funk Master.

Mostly Uncle Frank [11:40]

And generally getting better. Yes. And that's why I think it's best to put everything in context, particularly historical context if you're talking about any given set of practices or recommendations. I do think his sentiment is correct if you're talking about an accumulation portfolio because TLT is a bond fund and you probably don't need or want to use those when you are accumulating. You are much better off if you have a long time to go to simply use low cost index funds. And I mean low cost stock index funds, not other kinds of index funds. I think what people tend to forget sometimes is the macro allocation principle here in that any 100% equity portfolio comprised of reasonably well diversified funds is probably going to perform very similarly to any other 100% equity portfolio of reasonably well diversified funds over the course of say 10 years or so. They're probably going to be over 90% the same, and which combination will perform better is more of a random event than anything you can plot or plan. But let's think about this in its historical context. The Simple Path to Wealth was written in 2011, soon after the book Common Sense Investing was written by Jack Bogle, which was published in about 2007. And at that time, the big fight in the world of do-it-yourself investing and retail investing generally was whether you should be using managed funds or index funds. I called this the Iron Age because that was the fight that was going on and the index fund camp won the fight. And ever since then, more and more people have gravitated towards index funds and portfolios composed of them. of index funds. But at the same time that was going on, what was going on in the background was an evolution in fund technology itself. And that evolution involved the use of exchange traded funds, ETFs, which are a more efficient form of fund than mutual funds. And then using those to create specific asset class kind of building blocks that you can then use for portfolio construction. So you weren't just stuck with some fund managers proposed combinations, but you could take the building blocks and build things yourself then. And the first really popular funds in that category were in fact the long-term treasury bond TLT, which was rolled out in about 2002, and then the gold fund GLD that was rolled out in about 2005. and over time more and more people have realized the usefulness of these building blocks and these types of funds. And so Vanguard has gotten into the mix of those and created its own version of a lot of these funds. So there is a Vanguard version of TLT called VGTLT that came out in about 2010 and Vanguard came out with an extended duration treasury bond fund EDV. even before that in about 2007 or 2008. And then it's come out with a variety of other types of funds going forward. And so what we see now in 2022 is a much better variety of funds, of cheaper funds, of better options for do-it-yourself investors. And these fund companies were not rolling these things out just for fun. They were rolling these out because the professional world of portfolio managers, people that run family offices and hedge funds and your high end registered investment advisors, RIAs, were demanding these sorts of things because the world of portfolio construction was continuing to develop. And so what you also saw around 2011, and I think this is an interesting coincidence that it was at that point in time that Paul Merriman sold his practice, his advisory practice, and created his foundation to help do-it-yourself investors. And they first created relatively complicated portfolios, but after he had an interview with Jack Bogle in about 2017, and Jack told him that the portfolios were too complicated, they've come up with simpler versions of those sorts of things. And so the baseline recommendation for a basic accumulation portfolio has evolved from the simple one fund portfolio or something that has a total international and a total US funds in it, to something that looks more like a total US stock market and a small cap value fund. I'm telling you, fellas, you're gonna want that cowbell.

Mostly Voices [16:37]

And that is the coalescence of the evolution of a lot of ideas,

Mostly Uncle Frank [16:41]

not only from Merriman, but from people like Larry Swedroe, who wrote a book about factor investing that came out in like 2016. and just a raft of materials about that kind of investing, which was originally only really available through advisors, through things like the DFA funds that were only sold through advisors. So much of what we have available today in terms of building blocks, inexpensive funds, and in terms of knowledge just was not around 10 years ago. Now, that does not mean that those older ideas are bad ideas or they don't work anymore. They work just fine. They're good ideas. It's just that we have better financial technologies and better knowledge as to how to use them today than we did before.

Mostly Voices [17:32]

Groovy, baby!

Mostly Uncle Frank [17:36]

And that's not a criticism, it's just an observation. I think that we should all be just happy that we live in an era of no fee trading and fractional shares and lots of options. Because in the end, you know, it's funny why J.L. Collins wrote that series of blog posts that turned into the book the Simple Path to Wealth was to give advice to his daughter in a place where he knew it would be preserved. And I'm actually doing the same sort of thing with this podcast, which is to lay down some principles and ideas that I think are important for my adult children to know about and be able to follow. But I'm too lazy to write it down, so I'm just talking into a can, if you will.

Mostly Voices [18:18]

We hear that you pay good money to sing into a can.

Mostly Uncle Frank [18:26]

But I'm sure when some other father sits down to try and do something like this in their 50s, when they're in the 2030s, it'll probably sound a bit different then, or read a bit different then as well.

Mostly Voices [18:34]

I don't care about the children.

Mostly Uncle Frank [18:43]

What have children ever done for me? Maybe they'll be able to present it in the form of an NFT, rather than a book or a podcast. Forget about it!

Mostly Voices [18:47]

Anyway, I look forward to the development of better

Mostly Uncle Frank [18:51]

and less expensive ideas for do-it-yourself investors in the future. And thank you for that email.

Mostly Voices [18:58]

And now for something completely different.

Mostly Uncle Frank [19:01]

And the something completely different is our weekly portfolio reviews of the seven sample portfolios you can find at www.riskparityradio.com on the portfolio's page. Just looking at what the markets did last week, this really seemed like another Grinch week or Krampus week.

Mostly Voices [19:20]

One thing I hate, all that noise, noise, noise, noise.

Mostly Uncle Frank [19:30]

It's funny people talk about the Santa Claus rally in December, but in my experience it's often there is a lot of sales and a downdraft towards the middle of the month of December. And then this so-called Santa Claus rally is just going back to where things were. I don't really have any data to support that notion. It's just been my general observation, which would make some sense because this is the season for tax loss harvesting. And then a lot of the big fund managers want to clean up their portfolio since their holdings are going to be reported at the end of the month, end of the quarter, and end of year. So first you have the dumping and then you have the rebuying. Anyway, going through these markets last week, the S&P 500 was down 2.08% for the week. NASDAQ was one of the big losers, probably the big loser, was down 2.72% for the week. Small cap value represented by the fund, VIoV, was down 2.53% for the week. Gold wasn't so bad. Gold was down 0.35% for the week, so almost flat. Long-term treasury bonds were one of the winners last week. TLT was up 0.73% for the week. REITs represented by the fund R E E T were down 2.07% for the week. Commodities represented by the fund PDBC were up 0.99% for the week. They were actually the big winner. Preferred shares represented by the fund PFF were down 0.16% for the week and managed futures represented by the fund DBMF were down 0.45% for the week. This all translated into not much movement for these portfolios. Just going through them, first one is the All Seasons. This one is our reference portfolio that is 30% in stocks, 55% in treasury bonds, and the remaining 15% divided into gold and commodities. It was down all of 0.19% for the week. It is down 16.97% year to date and 4. 95% since inception in July 2020. Moving to these three kind of bread and butter portfolios, the next one is the Golden Butterfly. This one's 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. It was down 0.79% for the week. It's down 12.54% year to date and up 8.91% since inception in July 2020. Moving to the next one, the Golden Ratio. This one's 42% in stocks and three funds, 26% in long-term treasury bonds, 16% in gold, 10% in a REIT fund, and the remaining 6% in a money market fund, which is actually yielding something these days, something like 3.5%. It was down 1.12% for the week. It was down 17.42% year to date and up 5.1% since inception in July 2020. Next one is the Risk Parity Ultimate. It has 15 funds in it. I'm not going to go through all of these. It was down 1.1% for the week. It's down 22.78%. year to date and down 1.67% since inception in July 2020. Now moving to these experimental portfolios that involve leveraged funds in them and are quite volatile usually, although not this week. 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 down 0.71% for the week. It's down 37.19% with that leverage in it to year to date and down 13.46% since inception in July 2020. Next one is the aggressive 5050, our most leveraged and least diversified portfolio. It's one third in a leveraged bond fund, TMF, one third in a leveraged stock fund, UPRO, and the remaining third divided into preferred shares and an intermediate treasury bond fund. This one almost had a rebalancing last week, but didn't make it because the leveraged bond fund is now almost 40% of the portfolio given recent performance of these funds since it was rebalanced in November. But we'll check it again next month and see where it is. It was down 0.84% for the week. It's down 45.15% year to date. So what happens when you put a lot of leverage in something?

Mostly Voices [24:19]

We need that extra push over the cliff. You know what we do? Put it up to 11. Exactly. And it is down 18.

Mostly Uncle Frank [24:27]

2% since inception in July 2020. And going to our last one, our last hideous experiment, this one's the levered golden ratio. It's only been around for about a year and a half now. This one is 35% in a composite fund called NTSX. That is a leveraged S&P 500 and Treasury Bond fund. It's got 25% in gold, GLDM, 15% in Areet O, 10% each in a leveraged small cap fund and a leveraged bond fund, TNA and TMF, and the remaining 5% in a volatility fund, VIXM, and a Bitcoin fund. was down 1.17% for the week, down 25.13% year to date and down 20.63% since inception in July 2021. It was not an auspicious time to start a new portfolio, which is why it looks much worse than the others. But that concludes our portfolio reviews for the week. I noted this week that Fidelity has rolled out a new set of performance metrics for accounts and portfolios. And so I will be going through those and cleaning up what I've got. A lot of my tracking has been manual entry and therefore I make mistakes.

Mostly Voices [25:54]

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

Mostly Uncle Frank [25:58]

I don't think it'll change these numbers much, but I have noticed a few discrepancies, particularly when I forgot to include a Distribution or typed in the wrong number in a fat finger operation.

Mostly Voices [26:10]

Are you stupid or something?

Mostly Uncle Frank [26:14]

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 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. Okay. Thank you once again for tuning in. This is Frank Vasquez with Risk Parity Radio signing off.

Mostly Voices [26:52]

Be excellent to each other.

Mostly Mary [27:00]

Party on, dudes! 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.