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. Thank you, Mary, and welcome to Risk Parity Radio.

Mostly Uncle Frank [0:50]

If you have just stumbled in here, you will find that this podcast is kind of like a dive bar of personal finance and do-it-yourself investing. Expect the unexpected. There are basically two kinds of people that like to hang out in this little dive bar. You see in this world there's two kinds of people my friend. The smaller group are those who actually think the host is funny regardless of the content of the podcast. Funny how, how am I funny? The larger group includes a number of highly successful do-it-yourself investors. many of whom have accumulated multimillion dollar portfolios over a period of years.

Mostly Voices [1:29]

The best Jerry, the best.

Mostly Uncle Frank [1:33]

And they are here to share information and to gather information to help them continue managing their portfolios as they go forward, particularly as they get to their distribution or decumulation phases. of their financial life. But whomever you are, you are welcome here. But now onward to episode 241. Today on Risk Parity Radio we have two lengthy emails to get into.

Mostly Voices [2:16]

Mary Mary why you buggin? And so without further ado, here I go once again with the email.

Mostly Uncle Frank [2:24]

First off, first off we have an email from Mark.

Mostly Mary [2:34]

And Mark writes, hello Frank and Mary, you kindly asked me to remind you that I made a donation to the Father McKenna Center when I had a substantive question for Frank. Yeah, baby, yeah! Thank you again for all you have done and will continue to do. I am lucky enough to have access to a pre-tax executive savings plan at work. The structure of this account is either a 457b plan or very close to one, and the rules of this account require that distributions occur immediately when I leave my company, regardless of my age. I elected a distribution option in which distributions are prorated over a 10-year period after leaving my company while the money remains invested in the account. Distributions will happen every year, no matter what is happening in the market, and I cannot specify that a distribution for a given year comes from a specific investment. It will sell an equal percentage of all holdings for a distribution. During the 10-year period of withdrawals, I would like to avoid leaving money on the table because I am being too risk-averse when looking at my whole portfolio, not just this account, but also avoid doing something stupid that adversely impacts the distributions over the 10-year period, all while understanding that I have no way to predict what the market will do. This 457 account is about 30% of our total portfolio. All distributions from this account are taxed as normal income, which further advocates for a conservative allocation for this account in addition to to the distribution rules. And the risk parity options for this account are barely adequate, but not great. It does have index funds, including a small cap value fund, and it does have long-term treasuries. So it is better than could be for sure, but it has no gold and no commodity exposure, and certainly nothing like a managed futures fund. So we only have a limited opportunity to smooth out the ride with risk parity principles for this account in isolation. Given all of that, I am considering an approach where we have our entire cash and short-term bond allocation for our total portfolio held in this account at the start of the 10-year period, which would leave about 20% to 30% of the account left over for allocations to index funds in addition to cash. If I do go this route, the account does have one fund choice that might be particularly useful. It's a stable value fund that consistently delivers about 3% interest. Even when interest rates were at 0%, it was still delivering above 2%. And the value of this fund does not go up and down with interest rates. It's as close as I'm going to get to a guaranteed rate of return in this account. But the downside of concentrating my cash and short-term bond allocation to this account is that it would warp the risk parity allocation in my other accounts. which will negatively impact my ability to effectively rebalance my other accounts during major market events. Thoughts and advice here? How would you implement a risk parity portfolio across all accounts? And specifically, what asset class mix would go inside the 457b during the 10-year withdrawal period and what stays in other accounts? Here are my macro asset allocation targets for my total portfolio across all accounts at the start of my retirement. Equities, 50% cash, savings, money market, I bonds, short-term treasuries, 20% long-term treasuries, 15% alternatives, gold, managed futures, private real estate, 15% for a total of 100%.

Mostly Voices [6:15]

Invention, my dear friends, is 93% perspiration, 6% electricity, 4% evaporation, And 2% butterscotch ripple. That's 105%.

Mostly Mary [6:28]

Any good?

Mostly Uncle Frank [6:33]

Well, first of all, thank you for your donation to the Father McKenna Center, which is our sponsored charity here. And I appreciate each and every one of your donations to that. We happy few, we band of brothers. Just so those are in the know, if you do donate to the Father McKenna Center, you do get to go to the front of the email line, unless you're named Alexi, in which case we can't have your emails every time. Although we do much appreciate the dude's participation and his donations. The Dude Abides. If you would like to do that, you can do that from our support page at www.riskparityradio.com, or you can go directly to the Father McKenna website and donate there. The Father McKenna Center serves homeless people and hungry people in Washington, DC. They're on North Capitol Street, about 10 blocks north of the Capitol. And it operates out of the basement of an old church, which oddly enough was just featured on Dirty Jobs when they were cleaning the clock tower. I haven't watched it, but I heard it's entertaining. I think you can find that on the Discovery Channel, but don't quote me on that. Anyway, full disclosure, I am on the board and I'm currently the treasurer of that organization. I was just down there last week as part of what we do there. We have a hypothermia clinic is what we call it, which basically operates during the wintertime and gives some people a place to sleep to keep out of the cold. So anyway, I had a nice dinner with a gentleman named Alfonso who was slightly older than me and had had a number of misfortunes including losing all of his IDs, which we were trying to help him recover. And he said he was so grateful and he just didn't know what he would have done without the support that we were providing to him. And so I thank you all for participating in that. The best, Jerry, the best. But now moving on to your question. This is a fairly peculiar 457b plan you're dealing with. but I suppose a lot of these 457b plans are kind of peculiar. What's peculiar about it is having to withdraw all of the money out of it within 10 years, and that does change how you might otherwise handle this. I think it does make a lot of sense to put a lot of your cash and short-term instruments in there, because it's got to come out in cash anyway, and that will make things a lot more predictable in terms of planning is concerned. What wasn't clear to me is whether those distributions themselves will in fact cover all your expenses or whether there'll be some left over that need to be reinvested in some way. But in principle, what you're doing with that makes sense to me, given that distribution requirement you have. Now, as to whether it should go in the stable value fund in there, that's also an interesting question because In the recent past, that would have been preferable to most other options simply because there were not very good interest rates that you could get otherwise. Today, I'm wondering with the rise in short-term interest rates whether that is still the best option. Although it seems to me with something like this, you can just move it from one thing to another without really any penalty, or at least I hope there's no penalty. So it may be a matter of just year to year looking inside that fund, seeing whether the Stable Value Fund is the best short term option or whether there's some other short term bond fund or other thing in there that might be a little bit better. So I think I would kind of play that part by ear. Now as to your overall portfolio management, I would manage everything as if it's one big portfolio and match up your overall asset allocations to what you want as you've described. at the end of your email.

Mostly Voices [10:58]

Time is a precious thing. Never waste it. He's absolutely bonkers. And that's not bad. And then the next question is asset location.

Mostly Uncle Frank [11:11]

And generally it makes sense to vary your asset location depending on what kind of account you're dealing with, whether it's a taxable account, a traditional IRA or 401K type thing. or a Roth. And the general principle is that you put things that pay ordinary income in the traditional IRA. You take things that are capital gains and qualified dividends only. Those go in the taxable account. And then the Roth account is typically things that you think are going to have the highest returns over long periods of time. But the exact organization is going to be a little bit different depending on the relative sizes of these accounts. So if you have something like REITs that are paying ordinary income, you probably put those in an IRA or similar, a traditional IRA or similar. The same would be true for a managed futures fund like DBMF or a commodities fund like PBDC simply because those tend to pay large distributions at the end of the year that are largely ordinary income. because they are trading throughout the year. I would say you probably want a year's worth of cash in your taxable account area, but it sounds like you're also taking a good chunk out of this 457 at the same time. But you just want to make sure that you have enough cash to live on, because otherwise you may have to sell things out of your taxable that you're not ready to sell yet or take other distributions that you don't want to take yet. There is a very nice video about asset swapping in these kinds of accounts to balance things out without incurring tax liabilities that Justin over at Risk Parity Chronicles put together. And I'll link to that in the show notes. You can check that out. But this generally sounds more complicated than it actually is once you sit down and look at what you actually have. The difficulty is trying to describe one idea or method that would cover everyone because everyone's situation is so varied depending on what they end up with in retirement in terms of what kinds of accounts they have and where they're located and what their tax rates are. The reality of this is once you get it set up, you really aren't making that many transactions throughout the year for the most part. There's no really reason to. So hopefully the management itself becomes much more simplified. Hopefully all of that helps. And thank you for that email.

Mostly Voices [13:57]

Second off, last off.

Mostly Uncle Frank [14:01]

Second off and last off today we have an email from Andreas.

Mostly Voices [14:06]

Merry Merry, why you buggin'?

Mostly Uncle Frank [14:11]

A lengthy email from Andreas.

Mostly Voices [14:15]

Merry Merry, I need your huggin'.

Mostly Uncle Frank [14:19]

A lengthy multi-part email from Andreas. I've spoken my piece and counted to three. She counted to three. Do it. She counted to three.

Mostly Mary [14:38]

And Andreas writes, Dear Frank, thanks so much for your response to my questions about risk parity investing and small cap value. It's been very helpful to me and hopefully to other listeners too. Really appreciate your invaluable contributions to financial literacy. I've caught a serious risk parity fever and can't help but bug you with more questions.

Mostly Voices [14:54]

Guess what? I got a fever. A.

Mostly Mary [15:02]

Apart from expense ratios, how do you go about choosing a specific ETF for an asset class? Is it correct that you should always be looking for the riskiest and most volatile ETF within one asset class, all else being equal? Reason being to free up more space in your portfolio. Example, there are trend following ETFs with different volatility but similar performance. And is more liquidity slash less spread another important factor? Could you say that long-term treasuries have inherent leverage compared to shorter durations? Are they generally superior to more expensive leveraged treasury ETFs? Many hedge fund proponents seem to like TIPS due to them representing a new kind of asset class, basically pure term risk without inflation risk held to maturity. Couldn't TIPS be a helpful diversifier to treasuries and other assets in certain market environments? EG falling rates, rising inflation? So you'd basically split your Treasury allocation between long-term nominals and TIPS just as you split market cap stocks and SCV. D, what do you think of my little risk parity experiment? 40% VT, 20% AVGE, 5% EDV, 5% LTPZ, 20% KMLM, 5% GLDM, 5% BCD. I've allocated less percentage to Treasuries due to the volatility of long-term Treasuries. E. What promising alternative return streams are you exploring? What do you think of long-short style Premia, market neutral and options strategy ETFs? Are there any limits to the number of assets you should include in a risk parity portfolio? Thanks and all the best to you, Andreas. P.S. Regarding D, being a Swiss resident, I don't pay capital gains taxes, only taxes on dividend or interest income from stocks and bonds. I also don't pay taxes on futures trading returns, e.g. KMLM. Maybe that's important to consider as well. P.P.S. Very sorry to bug you again. What do you think of the currency risk for foreign investors investing in U.S. Treasuries? Unfortunately, I have not found CHF hedged fund versions of the long-term US Treasuries I'm interested in, EDV, TLT, LPTZ, and there do not seem to exist any equivalent Swiss ETFs. Greatly appreciate your advice on this.

Mostly Voices [17:51]

I can't take much more of this.

Mostly Uncle Frank [17:59]

Well, Andreas, you ask a lot of good questions that I'm sure other people also have on their minds.

Mostly Voices [18:06]

Surely you can't be serious. I am serious. And don't call me Shirley.

Mostly Uncle Frank [18:13]

Looking at the first one, part A, you're asking about how do I choose a specific ETF or an asset class? Well, first the basic place to search for these is called the ETF database. I believe it was just bought by somebody else, but it's a very good resource just for looking up whatever kind of ETF you're looking for and it'll give you a list of the most popular ones and tell you a little bit about them. So that's probably your first stop. Now after that I think you first want to start with a basic low-cost index fund version of whatever you're looking for. So usually that's going to be a Vanguard product or an iShares product, but it could be something else. And you want that for two reasons. One being you're looking for lowest cost because all else being equal, you'd want to take the lowest cost ETF you can find. And then the second reason is predictability because you really want this thing to perform as advertised or as anticipated, which is helpful if you're back testing by asset class and you want to test the asset class small cap value, you would want to be using funds that actually match the historical data for that asset class because then you're going to have a better idea as to how a thing will perform in the future when you stick it in a portfolio. So more generic is another consideration, at least for starters. Then you are also looking at liquidity. An ETF that is more liquid and more traded is going to be better than one that's not because it's going to have a smaller bid ask spread. It's going to be easier to get in and out of. It's going to be cheaper in that respect to hold and to manage. Now mostly you could stop right there if you wanted to for most purposes. But these days there are many more things on offer that may be of use, including something that might have different return characteristics or volatility characteristics. But I think what you're mostly looking for there is then something that is not managed by a human being, but is also managed by an algorithm, whether you call that a index fund or not. And a good example of that are some of these new Avantis funds, like AVUV or AVDV, which are small cap value funds, but those also add in a profitability factor into their algorithm in terms of what they pick. I think you do want that algorithmic quality to things as opposed to having some individual manager who's just picking things maybe every year for a couple of reasons. First, it's going to be more tax efficient, and second, it's going to be more predictable generally. You might also look at things that add another factor onto what they've done, like the profitability factor we were just talking about, or maybe something like XSVM, which adds a momentum factor to a small cap value fund. So using those considerations you may come up with a small group of things that you might consider or you could just go over to Paul Merriman's website and look at the best in class recommendations and pick one of those. But if you're going to be more selective than basic index funds you do want to go and see if you can back test your entire portfolio with these selections in it swapping in and out the index fund to get an idea as to what that might be like. The main problem we have with a lot of these things is they just haven't been around that long. And when you have something that hasn't been around for more than 10 years, you really have to look at these results you might get out of a back test with a grain of salt and think about, well, what kind of environment were we in in the period I'm looking at? as opposed to some other environment. Although 2022 is very unpleasant, it is very useful as a data source because it gives you an environment that looks more like something in the 1970s or even 1930s that we really haven't experienced in a very long time and is much different than the environment that existed from 2011 to 2020. But I would be very careful and circumspect about jumping into a shiny new object just because it had a recent good performance. Because ultimately what we're trying to do here is construct portfolios that maintain their components over long periods of time and aren't being swapped in and out of but only being rebalanced periodically. Just remember that the more differentiated your fund is from the standard index fund, the more likely the performance in the future is going to be. a bit unpredictable, which could be in both good or bad ways. All right, question B. Could you say that long-term treasuries have inherent leverage compared to shorter durations? Are they generally superior to more expensive leveraged treasury ETFs? Well, the answer to the second question is probably yes for some of the reasons we just talked about, that they're going to be cheaper and more liquid In particular, they're going to be better on that score, and they're also going to conform more closely to historical performances. But hopefully they would perform relatively similarly over time. You can compare something like TYA, which is a levered version of an intermediate treasury bond fund designed to simulate a longer term treasury bond fund, and compare that with VGLT or TLT. And you'll see they have similar performances, but they do have variations over time. Now, your question about duration is more interesting. In terms of capital appreciation or depreciation, yes, a longer duration treasury bond or bond effectively performs as a levered version of a shorter duration bond. And typically the Rule of thumb is that you multiply the duration of the bond by however far the interest rate has moved and you can get an idea as to what its capital appreciation or depreciation would be. So if you have a 10-year bond and interest rates go up 1%, you would figure the value of that bond on a capital basis for that period is going to go down 10% because 1% times 10 years is 10% and that's a rough guideline. However, in reality, it doesn't always work out that way because different parts of the yield curve move differently. So for instance, in the past year, the short end of the yield curve went from about zero to about four. That's a 4% difference or I guess it's higher than four now. But the longer end of the yield curve didn't move that much. It moved more like one and a half to two, depending on how far off the yield curve you were. So it's not really the same as just applying leverage to something. There is going to be a difference in that the short end of the curve is generally controlled by central banks like the Fed, whereas the long end of the curve is not controlled by them and is subject to market forces about everybody's prediction about the future interest rates. So I think your term inherent leverage is probably a good one. It just does not apply in a very exacting way. How that works for a portfolio in particular is that you can hold less of a longer duration fund in a portfolio and get the same kinds of effects in terms of diversification. and then you can use that extra space that you free up in the portfolio to put in other things. That hopefully will give you even better diversification. All right, your third question, question C, couldn't tips be helpful diversifier to Treasuries and other assets in certain market environments? E.G. falling rates, rising inflation. Well, I would have to say you're almost never going to have a situation where you have falling rates and rising inflation, because rising inflation is the condition under which central banks typically raise rates. But more broadly, no, TIPS have not proved to be a very good diversifier at all in these circumstances for a couple of reasons. I don't want to make this thing too long, but Justin where at risk parity Chronicles did do a lengthy eight part series on TIPS recently. I'll link to the summary in the show notes. But here's the problem. TIPS are still bonds, and bonds do not perform well in rising inflationary environments or rising interest rate environments, just like you saw last year. TIPS funds perform just as bad or worse than many nominal bond funds. So to the extent TIPS were supposed to do that or were designed to do that, they've been a failure at that. And it is really time that people start admitting that failure and stop repeating this mantra about TIPS being this inflation hedge because it's false. It's false information. The data does not support it. We are finally now getting institutions to say that out loud. Nobody wants to admit that they've been wrong for 10 or 20 years. when they've been babbling about TIPS as an inflation hedge. But they have been wrong and they need to admit it. You can't handle the truth! Now, where have we seen this admitted best recently? There was a publication from Bloomberg that I've referred to in the show notes and in other podcasts recently where they did a review of all these asset classes as to which ones perform better or worse in inflationary environments, and in particular with TIPS, once you get out to a longer duration on the bond, an intermediate term bond or a long term bond, TIPS aren't really helping you much. They're just being a bad bond is what they're being. Short term they have some use, but that all goes to what you would call your short term bucket anyway. And I'll link to that presentation again in the show notes. Another place I've seen this recently is an interesting one. It's from Vanguard. And Vanguard may be finally waking up to the idea that just having a portfolio that is a stock fund and a bond fund is not a optimal way of diversifying a portfolio. There are other things out there and we ought to be using them. In this case, this paper is about the use of commodities commodities in a portfolio. Vanguard is telling you that you should be using commodities to diversify your portfolio in this paper, and they make suggestions as to how much it should be. It's a small percentage, between 3 and 7%. But why is Vanguard recommending you use commodities to diversify your portfolio? Still didn't put it in their target date fund, but they're recommending it in this paper. Places like Vanguard tend to speak out of many different mouths, though, depending on what they're trying to promote. So anyway, Vanguard is recommending commodities in particular in this paper for inflationary environments like the ones that we've recently had. And then it was only a question as to how much of an allocation do you need to have a decent effect. As part of that review, they also considered tips. And what did they say about TIPS and inflation? They said that TIPS do not make a good inflation hedge except for that part of the portfolio. So they're only hedging themselves as bonds. Let me repeat that again if it's not clear. Vanguard just released a paper that said TIPS are not a good inflation hedge for your portfolio. TIPS are not a good inflation hedge for your portfolio.

Mostly Voices [30:51]

Can you accept that? Do you think anybody wants a roundhouse kick to the face while I'm wearing these bad boys?

Mostly Uncle Frank [30:55]

Or does your little mind force you to believe what you've said in the past just to be consistent? I think the best way to actually see this is to go run back tests with tips in a portfolio as opposed to nominal bonds and whatever durations you want to run. And you'll find out that they just don't do a whole lot positive for you. in your portfolio.

Mostly Voices [31:17]

Forget about it.

Mostly Uncle Frank [31:21]

At least not in terms of diversification because they're not a very good bond and they're not a very good inflation hedge, which is not surprising because if you try to do two opposite jobs at the same time, you probably will not have success with either. You had only one job. All right, question D. What do I think of your RP experiment? 40% Vt, Vanguard All World 20% AVGE, that's a fund of funds from Avantis. 5% EDV, that's an extended duration. Treasury fund from Vanguard. 5% LTPZ, that is a long-term TIPS fund. 20% KMLM, that is the Lucas Managed Features fund. 5% GLDM, that is gold. And 5% Bcd, that is commodities. I would say it looks interesting, but there's no way to test this kind of thing long term. I probably would not use those funds that you're using for the stocks, VT or AVGE. Not because I don't like what's in them. It's because they will cause rebalancing problems. Neither one of those is segregated by growth or value or small or large factors. for example, and you really want that kind of separation because you want to be able to rebalance those factors against each other. If you ram them all into one fund like that, you can't do it. So it's going to be suboptimal for your portfolio management. The issue I have with AVGE is that it is a construction that Avantis put together of its other funds. And to me, there's no reason just to take something like that kitchen sink thing when you can create what you actually want and use the funds you actually want in the proportions you actually want without too much trouble. So I'm generally against accepting funds of funds that somebody else created for some other purpose and trying to shoehorn them into a portfolio that you are designing for your purpose. I think you're better off taking the raw ingredients that are inside that fund Picking the ones you actually want and then matching them up in the way you want as raw ingredients as opposed to a prepackaged cake mix.

Mostly Voices [33:40]

There's a cake in the oven, so sweet and delicious. Yummy cake in the oven, we love to eat cakes. Ow! Ow! Ow! A burning skin help! This sucks!

Mostly Uncle Frank [33:56]

I would not bother with that TIPS fund for the reasons we just stated and make it one long-term Treasury bond fund. And whether that means you go with something more like VGLT that is in between EDV and LTPZ in terms of duration, or just go one way or the other, that's more of a preference. Moving to KMLM. Yes, that is a pretty good fund to hold, even though it hasn't been around that long. It does have nice characteristics in terms of performance. The people that run that fund have been doing managed futures work for a long time. I'm not sure that you want to devote 20% to that fund because it does have a relatively high volatility and that may be too much of that, particularly in a portfolio that's not otherwise leveraged and also has commodities in it separately. and I'd be careful about using the year of 2022 in particular as a basis for any kind of decision making because chances are that was a very anomalous year and will not occur like that again for maybe 40 years. Moving to your gold allocation, you probably want more of that if you want it to have an impact, usually 10 to 15% in an unlevered portfolio seems to be the sweet spot. at least in terms of having a higher projected safe withdrawal rate. And then going to BCD, that's a commodities fund. It looks pretty interesting. I haven't spent a lot of time looking in that particular fund. It has not been around for that long. I think maybe five years tops, but it has performed well in that period of time. It is based on an index, so I can't see any reason why not to use that fund. But again, if it's had an outperformance recently, I would not expect that to continue in the future. And I would expect it to perform like most other commodities funds. All right, now moving to question E. What promising alternative return streams am I exploring? What do I think of long short style premia market neutral and option strategy ETFs? You have a gambling problem. Are there any limits to the number of assets you should include in a portfolio? Well, the answer to the last question is theoretically no, but practically yes. Because after a while you were just managing things that aren't making a whole lot of difference anyway. I think a problem with a lot of the strategies you're describing here, long short style, market neutral, options strategy, ETFs, is that they are not a very definable strategy but are dependent on the specifics of what is being implemented. These are generally hedge fund strategies. A good book or a couple of good books about this are the books written by Aunty Ilmanen, who is one of the directors or heads of research over at AQR Asset Management. And he wrote a couple of books about expected returns and investing in times of low expected returns. I talk a lot about alternative strategies, but that is on a higher and theoretical level. In terms of finding funds, it's difficult to find anything that you could have confidence in and back test it and really think about as a addition to a portfolio at this point. There are a lot more of these things coming out now since they changed the rules for these kinds of ETFs back I think in 2019. So that's why you're seeing a whole lot more of them. They just haven't been around long enough to really say a whole lot about them. We do have one that we've talked about in the past called BTAL, which is an anti-beta long-short fund. And we talked about that back in episode 114. I think that is the kind of thing we're looking for. What that is, is a fund that basically goes long low beta stocks or value stocks. It has a lot of correlation there as to what it's going long. and then short high beta stocks, which are typically growth stocks. So it's long value and short growth. And it's an algorithmic format, so you can be confident that it's going to be the same kind of thing year after year. So as you can imagine, last year something like that had a very good year. It's also market neutral, if you're looking for that. It was up over 20% last year. It's down over 9% this year already. as growth stocks have had a great January, but it also performed well in years like 2018, and it does have some nice diversification characteristics. So as we see more funds like that, it may be of some additional interest. A couple of other funds that are designed to perform well in inflationary environments, for example, RRH is one that was referenced by our good friend Alexei recently. There's another one we've talked about in the past called RISM. I'm sorry, that was actually RISR and we talked about it in episode 197 and it particularly focuses on rising interest rates. It was up over 30% last year and it was only down less than 1% this year. But again, this is something that is so new that it's not possible to really say we should be investing in anything like that at all. I do feel like as time goes on and in the next 10 years we will have a much better idea and much better set of options in terms of looking at these sorts of alternative investments offered through exchange traded funds. It certainly seems to me there are a lot of opportunities to improve our diversification of portfolios in the future at a reasonable cost. It's just I'm not sure which ones are the right ones right now.

Mostly Voices [39:52]

You can't handle the crystal ball.

Mostly Uncle Frank [39:56]

But that's what makes life exciting. Stay in Target's just ahead. Target should be clear if you're going low enough. You will have to decide. You will have to decide. You will have to decide. All right, now moving to your post scripts. The first one was about the fact that you are a Swiss resident and do not pay capital gains taxes or taxes on futures trading. returns, as you might find in KMLM. Yes, that is an important consideration to make. For most of us in the US, it has a lot to do with where we put certain asset classes, since our tax rates are very different on capital gains, on long-term capital gains and qualified dividends versus ordinary income. But that is always something to account for, depending on how much of something you're putting in your portfolio. It's less of a consideration if you're just talking about a few percent, but once you get up to something like 20% as you proposed, yeah, it does become a consideration. And as to your final postscript, what do I think of currency risk for foreign investors investing in US Treasuries? And you were looking for CHF hedged versions, and that refers to Swiss francs, if anybody's wondering.

Mostly Voices [41:19]

You are correct, sir, yes.

Mostly Uncle Frank [41:22]

And the answer is, no, I'm not aware of any other ones either. Man's got to know his limitations. Although I have not attempted to look for Swiss Frank-hedged versions of long-term treasuries or anything else. It's not that I'm lazy.

Mostly Voices [41:38]

It's that I just don't care.

Mostly Uncle Frank [41:41]

I think there's probably not a whole lot of demand for that. Even though the Swiss franc punches above its weight in terms of holdings worldwide, it is certainly not one of the world's most used currencies in commerce. I think you have an interesting problem because the Swiss franc is one of those few currencies that is consistently as strong or stronger than the dollar. For most people in most other countries, they're actually gaining some security or safety by moving some of their money into US dollar denominated assets versus their own currency. I don't think that's necessarily true when you're talking about the Swiss franc. It may mean you want to lower exposure to US denominated bonds than somebody else might have, but I think you could also deal with that issue in other parts of your portfolio probably. So sorry, I don't really have an answer for you on that. I award you no points, and may God have mercy on your soul. And now our signal is beginning to fade as well. We'll conclude this episode with a little bit of Swiss pop music. I know that's why you all come here. And while that's playing, let's go through our little announcement of the Economy Conference in Cincinnati. Cannati next month, the weekend of March 17th. I'll be attending and running a little breakout session. Then there'll be a variety of speakers about personal finance topics and other various and sundry activities to participate in over the course of the weekend from Friday to Sunday. Run by my friend Diana Miriam and she calls it a party about money. So check it out if you're interested or in the area. In the meantime, 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. If you haven't had a chance to do it, please go to your favorite podcast provider and, like, follow, subscribe, give me some stars or reviews. Oh, that would be great. Okay, thank you once again for tuning in. This is Frank Vasquez with Risk Parity Radio signing off.

Mostly Mary [45:29]

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.