Mostly Voices [0:01]

A foolish consistency is the hub goblin 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 [0:36]

Thank you Mary, and welcome to Risk Parity Radio. If you are new here and wonder what we are talking about, you may wish to go back and listen to some of the foundational episodes for this program.

Mostly Voices [0:49]

Yeah, baby.

Mostly Uncle Frank [0:51]

Yeah, And the basic foundational episodes are episodes 1, 3, 5, 7, and nine. 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.

Mostly Voices [1:17]

Whoa.

Mostly Uncle Frank [1:19]

And you probably should check those out too because we have the finest podcast audience available.

Mostly Voices [1:26]

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 [1:37]

But now onward episode 234 Today on Risk Parity Radio,

Mostly Voices [1:43]

It's time for the grand unveiling of money,

Mostly Uncle Frank [1:47]

Which means we'll be doing our weekly portfolio reviews of the seven sample portfolios that you can find at www dot Risk Parity Radio dot com on the portfolios page.

Mostly Voices [2:01]

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

Mostly Uncle Frank [2:07]

And first off, first off, we have an email from Alexi,

Mostly Voices [2:13]

So that's what you call me, you know, uh, that or uh, his ness or uh, der or uh, you know Bruce Dickinson if you're not into the whole brevity thing

Mostly Uncle Frank [2:25]

And the dude writes,

Mostly Mary [2:27]

Hey Frank, great to have you back on the airwaves. Who knew Iowa in November was where the glitterati wintered in luxury regarding your comments on episode two 18 on incorporating momentum into a risk parody portfolio.

Mostly Voices [2:56]

Rolling. Rolling, rolling, rolling.

Mostly Mary [3:02]

I was intrigued by your statement that the momentum strategy tended to be tax inefficient relative to large cap growth. I looked up the tax cost ratio for both QMOM and VUG on fidelity and found them to be 0.05% and 0.16% respectively.

Mostly Voices [3:27]

So it appears that at least in these ETFs momentum is more tax efficient than large cap growth az You're correct sir. Yes.

Mostly Uncle Frank [3:29]

Alright.

Mostly Voices [3:34]

As you all might guess, this email is from the end of November, Though the streams are swollen

Mostly Uncle Frank [3:37]

Since I haven't been to Iowa since November.

Mostly Voices [3:41]

Well the freaking God,

Mostly Uncle Frank [3:45]

But getting on this momentum issue, we recently talked about this in episode 2 31, so I won't repeat myself from that so I won't repeat myself from that. But I will link to something in the show notes that may inform this discussion, which is in little article from Dimensional Fund Advisors about momentum strategies. And the real question with momentum strategies is whether the funds that are offered are really capturing what the academics meant by momentum which required very frequent trading. And so dimensional analyzed, and this is from 2018, they had analyzed the common momentum funds to determine whether the funds themselves were reflecting the momentum factor. And they found that actually they were not capturing the momentum factor in a meaningful way and therefore they concluded that most funds focusing on momentum have not been able to capture the momentum premium after costs even when the premium was positive. What this really means is that that if you are going to construct a momentum fund like the academics use that term, that fund would be tax inefficient. And that's what I'm saying when I'm talking about these things.

Mostly Voices [5:12]

Just to be clear Now go away or I shall taunt you a second time.

Mostly Uncle Frank [5:17]

Now, perhaps this QMOM fund that you found solves that problem since that article was from 2018. I don't think QMOM has been around much longer than that. It looks like QMOM has been around since 2016 and I doubt it was one of the funds that Dimensional was analyzing in their 2018 paper. But I think the question still remains then is that capturing the same kind of momentum factor that was described in those academic papers that required very high turnover, which is what you would lead you to tax problems if you actually constructed a fund like that. I did go put this in the asset correlation analyzer again, along with a small cap momentum fund and mid cap momentum fund and a large cap momentum fund. It was interesting, the mid cap momentum fund is actually the best performer out of those three and compared to QMOM going back to just 2016, but all of them are still relatively highly correlated with a large cap growth fund except for QMOM, which has a correlation factor of 0.77 with VUG, our sample large cap growth fund. But I will link to all these things in the show notes and you can check them out at your leisure. Yes, in the end, if you choose to add a momentum fund to your stock mix, I would also consider its other factors, namely is it a large cap or small cap fund or a mid cap or is it value tilted or growth tilted or is it somewhere in the middle? Well, that's probably enough of the dude for one day and so thank you for that email.

Mostly Voices [7:08]

Dig it easy dude. Oh yeah, I know that you will. Yeah, well the dude, the binds

Mostly Uncle Frank [7:18]

Second off, second off, we have an email from Yang Gone, which is probably pronounced more like Y gone if my flat Midwestern accent wasn't getting in my way from and Yong rights.

Mostly Mary [7:40]

Hi Uncle Frank, I've been a fan of risk parody portfolio construction. Thank you for your generosity and wisdom. I have two unrelated questions for you today. One from the lesson I learned on your show. I changed my stock portion of my portfolio from 100% total market to a 70 30 total market small cap value funds. My question is what characteristics of mid cap funds makes mid-cap generally unattractive in your portfolio construction? I thought as small cap companies grow their market share, they become mid-cap and some will make it. As far as large cap companies, what aspects of mid-cap makes mid-cap not as useful in your portfolio construction? Two, you might need to put an attorney hat on to answer this question, but as a listener of your entire episodes up to date, I feel compelled to share your knowledge to friends, family and many more to help them with their portfolio construction. The question is where is the legal boundary for helping others with all money matters including portfolio construction? Do we need to have an official designation such as a CFP or CPA of some sort to coach people on basic personal finance management getting out of debt and or more advanced ideas like portfolio construction legally if we are charging fees, what is the scope of practice of CFP or other regulated professionals that hardcore listeners of your show yet amateurs with no certification need to be aware of and stay away from? In short, what can I do to help others and what can I not do? Thank you in advance, Yangon.

Mostly Uncle Frank [9:22]

Alright, looking at your first question about midcap funds, well maybe we should have a midcap momentum fund that seems to be doing well or has done well in the recent past. That fund is XMMO by the way, but the question really goes to diversification by the size factor and obviously mid-caps cannot be as diversified from small or large caps as small and large caps are diversified from each other.

Mostly Voices [9:54]

Just by definition That is the straight stuff O funk master

Mostly Uncle Frank [9:58]

And the academics have found that there's no particular advantage or disadvantage to a company being a mid-cap company. So there's nothing wrong with mid-cap stocks and it's not something you need to avoid. In fact, if you look at something like REITs or even some utilities, a lot of those are mid-cap stocks. If you were going for those sectors, it's just not adding anything to the mix. So there's no reason to have a fund in particular that's devoted to being a mid-cap fund. I suppose you can put this in the category of factors that actually don't mean anything or are reflecting something else. I think dividend paying stocks is another one of those things. What dividend stocks generally have is a high correlation to value stocks. So you're better off focusing on the value aspect of it. The dividend paying aspect of it is more up to the companies themselves and whether they choose to do that or share buybacks or have some other thing going on there, it's not a real underlying factor from an academic perspective. So just focus on the value factor and you'll get some dividends there too if you really wanted them. If you really wanted to buy stocks for income, I suggest you look at preferred shares funds because they are designed specifically for that purpose and then you can hold less of them. But now I'm meandering off because you didn't ask me anything about those things.

Mostly Voices [11:22]

I award you no points and may God have mercy on your soul,

Mostly Uncle Frank [11:27]

But just as a general principle, there are a lot of characteristics or pseudo factors that are not really meaningful and whenever somebody describes a fund with a certain characteristic, you always has to be asking yes, but is that a meaningful characteristic for the purposes of diversification or anything else? And midcaps is one that it's probably not meaningful.

Mostly Voices [11:52]

You need a cold nor hot. So because you are lukewarm, I will spew you out of my mouth. Forget about it.

Mostly Uncle Frank [12:01]

Alright, your second question about what you can say to coach people and whether you need a certification for it. Lemme preface this. This is not legal advice, this is just what I know personally from studying information about these things.

Mostly Voices [12:18]

I'm happier than a peg and slop.

Mostly Uncle Frank [12:21]

First in terms of certifications and rules, the financial services industry is basically just a big mess.

Mostly Voices [12:28]

Human sacrifice, dogs and cats living together, masses ter,

Mostly Uncle Frank [12:33]

There's something like 73 different certifications, some which are highly meaningful like A CFA, which takes years to get and a lot of certificates that take a couple of weekends of study to get.

Mostly Voices [13:00]

Unlike the legal or medical professions, there are no ethical standards or very little in the way of ethical standards imposed on the financial services industry generally sitting Out there waiting to give you their money, are you gonna take it

Mostly Uncle Frank [13:04]

Unless you represent yourself as something like an RIA, which has specific qualifications for it, but most people that hold themselves out as financial advisors are only subject to this suitability standard.

Mostly Voices [13:23]

If that and the suitability standard is not much of a standard, That and a nickel get you hot cup a jack squat.

Mostly Uncle Frank [13:29]

It's not a fiduciary standard,

Mostly Voices [13:32]

It's all one big crap. Shoot anyhoo.

Mostly Uncle Frank [13:35]

But as to just talking to people or coaching people, you don't need a certification to do that.

Mostly Voices [13:51]

But I would not hold yourself out to be a quote advisor because that term could mean different things in different contexts and it could be confusing, Forget about it.

Mostly Uncle Frank [13:53]

I think the big no-no that you need to avoid is actually handling somebody else's money or accounts 'cause that's where you can get into trouble and that's where you need proper certifications. You would at least need what's called a series 65 license, which is obtained by taking an exam and you'd also probably need a series seven license, which is another exam. But I'll link to a little article in the show notes explaining what those things are. But in general, as long as you're just talking about the topics and not actually handling other people's money or accounts, you should generally be fine in terms of those regulations. But you should also recognize that what I'm telling you now is just a drop in the bucket in terms of how much information there is out there about this.

Mostly Voices [14:47]

Like anyone can even know that.

Mostly Uncle Frank [14:50]

And I'm just trying to give you a flavor of what are the considerations and how this generally works. I would definitely do some more research into it.

Mostly Voices [15:04]

If you have specific questions about specific activities You can handle the dogs and cats living together,

Mostly Uncle Frank [15:09]

Hopefully that helps. And thank you for your email.

Mostly Voices [15:21]

Last off,

Mostly Uncle Frank [15:24]

Last off, we have an email from Brett and Brett Wrights.

Mostly Mary [15:29]

Good morning, Frank and Mary.

Mostly Voices [15:40]

I hope this email finds you both well and we'll keep things brief with a bit less alphabet soup for Mary to have to contend with What's wrong, wrong everything. Well, you call this a happy family. Why do we have to have all these kids? Dad, how do you spell frank and science? I don't know. I ask your mother.

Mostly Mary [15:50]

I've started the process of moving my retirement account from TSP to Fidelity and easing into full positions in TLT and Gold, but doing so a bit at a time rather than going all at once. On another front, I'd be interested to hear Frank's opinion on investing in BDCs as a portion of a risk parody portfolio.

Mostly Voices [16:11]

Dad, how do you spell? Hallelujah? How should I know? What do you think? I am a dictionary, Tommy, stop that. Stop it. Janie. Haven't you learned that silly tune yet? You'll play it over and over again now. Stop it. Stop it.

Mostly Mary [16:21]

I follow the work of Steven Bavaria, the Income Factory and found this article to be quite interesting and would like to hear your thoughts. I spend a lot of time listening to podcasts and your podcast continues to be my favorite. Thanks as always to both of you for the time and effort that goes into each and every episode. It's greatly appreciated.

Mostly Voices [16:41]

Brett, One of us is going to jail. Well, it's not gonna be me.

Mostly Uncle Frank [16:45]

Alright, let's first define what we're talking about here. A, B, D, C for those who have not heard of that term, is a business development company. It was something that was created by legislation in about 1980 and it's described as unregistered. Closed end investment companies can be registered as BDCs and so they are similar to closed end funds but not quite the same. So what that means is in terms of portfolio construction is A, BDC is actually not a particular kind of investment. What it is is a corporate structure and theoretically you could shove anything you want inside of A BDC or almost anything you want know, kind of like REITs or more like closed end funds in that regard, which means that knowing something's A BDC does not really tell you anything about what it's invested in and you wouldn't necessarily just group a whole bunch of BDCs together, although I know that are funds that do that. BDCs are often involved in smaller companies, often involved in lending money and leveraged loans and those sorts of things. So they tend to have high volatility but also generate high income. They're similar to mortgage backed rates in that regard. I don't have any objections to somebody including BDCs as part of their portfolio, but I can't imagine that they would be particularly necessary in in anybody's portfolio.

Mostly Voices [18:16]

Not gonna do it wouldn't be prudent at this juncture.

Mostly Uncle Frank [18:20]

I'm not sure I'd really wanna hold a basket of BDCs if I were interested in them. I'd probably be looking at individual ones. But then you are basically studying an individual company and its management and that's a lot more work than I really wanna do.

Mostly Voices [18:36]

What do you think of a person who only does the bare minimum?

Mostly Uncle Frank [18:41]

You should also be aware that they're probably going to be adverse tax consequences to holding BDCs in taxable accounts because they generally throw off ordinary income. So you would probably wanna hold it in a tax deferred or retirement account if you're going to be holding it as part of a larger portfolio. That's where it would go with the REITs.

Mostly Voices [19:03]

Did you get that memo?

Mostly Uncle Frank [19:05]

But I see you provided this seeking Alpha link when I went to it. It was behind a paywall I'm afraid, but I will put it in the show notes so others can check it out. And thank you for your email.

Mostly Voices [19:19]

Now we are going to do something extremely fun

Mostly Uncle Frank [19:23]

And the extremely fun thing we get to do now is our weekly portfolio reviews of these seven sample portfolios you can find at www dot Risk Parity Radio dot com on the portfolios page. Just checking out the markets. Last week was a good week for everything. Just about s and p 500 was up 2.67% for the week. NASDAQ was up 4.82% for the week. Small cap value represented by the fund of VIOV was up 4.66%. Gold continues to climb.

Mostly Voices [19:56]

I love gold.

Mostly Uncle Frank [20:00]

Gold was up 2.79% last week. Long-term treasury bonds represented by the fund VGLT were up 1.3900000000000001% for the week. REITs represented by the fund are EET were up 4.03% for the week. Commodities rebounded. A representative fund. PDBC was up 5.44% for the week and preferred shares represented by the fund PFF were up 1.9100000000000001% for the week. The only thing that was down was managed futures. Our representative fund DBMF was down 0.35% for the week. Moving to these portfolios, the first one is the All Seasons. This is a reference portfolio. It's only 30% in stocks. It's got 55% in treasury bonds and intermediate and long term. And the remaining 15% is divided into golden commodities. It was up 2.14% for the week. It is up 4.78% year to date and is down 3.66% since inception in July, 2020. Our next one is the golden butterfly or three bread and butter portfolios. This one's 40% in stocks divided into a total market fund and in small cap value fund, 40% in bonds divided into long and short treasuries and then 20% in gold. GLDM, it was up 2.45% for the week. It was up 5.08% year to date and up 12.67% since inception in July, 2020. Moving to our next one, the golden ratio. This one's 42% in stocks divided into three funds, a large cap growth fund, a small cap value fund, and a low volatility fund. And it's got 26% in long-term treasuries, 16% in gold, 10% in a REIT fund are EET and the remaining 6% in cash outta which we take our distributions. A money market fund is what I should say. It was up 2.65% for the week. It is up 5.44% year to date and is up 8.09% since inception in July, 2020. Next one is our risk parody. Ultimate, I won't go through all 15 of these funds. It's got a lot of stuff in there. It was up 3.18% for the week. It is up 6.21% year to date and up 0.38% since inception in July, 2020. All of these are making speedy recoveries from the horrors of 2022.

Mostly Voices [22:37]

Yeah, baby. Yeah.

Mostly Uncle Frank [22:39]

And now moving to our three experimental portfolios that have leveraged funds in them. The first one is the accelerated permanent portfolio. This one is 27.5% in a levered bond fund, TMF 25% in a leveraged stock fund U Pro 25% in PFF. That's a preferred shares fund and 22.5% in gold GLDM, it was up 4.24% for the week. It is up 11.93% year to date a good two weeks. It is down 14.69% since inception in July, 2020. Next one is our aggressive 50 50, which is 50% in stocks and 50% in bonds. One third of it is in a levered stock fund to U Pro. One third of it is in a levered bond fund, TMF and the remaining third is divided into a preferred shares fund PFF and a intermediate treasury bond fund VGIT. It was up 4.36% for the week. It is up 12.86% year to date already. It is down 21.81% though since inception in July, 2020. And moving to our last one, the levered golden ratio, which has only been around since July, 2021. This one is 35% in a composite fund called NTSX. That is s and p 500 and Treasury Bonds levered up 1.5 to one. It's got 25% in gold GLDM, 15% in a RET O 10% each. And I'll leverage small cap fund TNA and a levered bond fund, TMF and the remaining 5% divided into a volatility fund and a Bitcoin fund. It was up 4.36% for the week. It is up 7.66% year to date and down 17.57% since inception in July, 2021. At the rate these are going, they'll all make up for 2022 in about eight weeks somehow. I don't think it's gonna work out that way, but it's been a good start to the year anyway, which I know it was completely unexpected from anybody that I've heard say anything about the markets these days.

Mostly Voices [24:58]

Should we ask our crystal ball whether it'll continue, Place it over a candle and it's through the candle that you will see the images into the crystal.

Mostly Uncle Frank [25:10]

And what does the crystal ball say?

Mostly Voices [25:12]

We don't know. What do we know? You don't know. I don't know. Nobody knows.

Mostly Uncle Frank [25:19]

Funny. Our Risk Parity Radio crystal ball always seems to say the same thing.

Mostly Voices [25:24]

Okay. Okay. Okay, everybody. Everybody chill.

Mostly Uncle Frank [25:29]

But now I see our signal is beginning to fade. Just one announcement to make. I wanted to clue you all in that I'll be presenting at a conference called The Economy Conference, which is held on the weekend of March 17th this year. It is run by my friend Diana Merrim and it is in Cincinnati, Ohio at the University of Cincinnati there.

Mostly Voices [25:54]

I'm living on the air in

Mostly Uncle Frank [25:58]

Cincinnati and I'll be running a little workshop there about withdrawal strategies in particular, but I'm sure we'll talk about portfolio construction as well.

Mostly Voices [26:09]

Looks like I picked the wrong week. Quit amphetamine.

Mostly Uncle Frank [26:12]

Thankfully I'm not the only thing featured there. It's actually three days now of presentations and social events about various aspects of financial independence and related topics.

Mostly Voices [26:25]

The best Jerry, the best,

Mostly Uncle Frank [26:27]

Diana likes to call it a party about money.

Mostly Voices [26:30]

Ching ching, Jing, money, money, pennies.

Mostly Uncle Frank [26:43]

It's limited to a few hundred people, but there are still tickets available. And I will link to the website in the show notes so you can check that out if you are so interested. Hope to see some of you there. But in the meantime, if you have comments or questions for me, please send them to Frank at Risk Parity Radio dot com. The email is frank at Risk Parity Radio dot com or can go to the website, www dot Risk Parity Radio dot com and put your message into the contact form and I'll get it that way. If you haven't had a chance to do it, please go to your favorite podcast provider and like subscribe, give me some stars a review. That would be great.

Mostly Voices [27:25]

Okay.

Mostly Uncle Frank [27:26]

Thank you once again for tuning in.

Mostly Voices [27:34]

This is Frank Vasquez with Risk Parity Radio signing off On Move. Move on Raw hard round. Cut them out, cut them out, write them in.

Mostly Uncle Frank [28:02]

Roll

Mostly Voices [28:02]

Hide.

Mostly Mary [28:04]

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.