Mostly Voices [0:00]

A foolish consistency is the hobgoblin of little minds, adored by little statesmen and philosophers and divines. If a man does not keep pace with his companions, perhaps it is because he hears a different drummer. A different drummer.

Mostly Mary [0:19]

And now, coming to you from dead center on your dial, welcome to Risk Parity Radio, where we explore alternatives and asset allocations for the do-it-yourself investor. Broadcasting to you now from the comfort of his easy chair, here is your host, Frank Vasquez.

Mostly Uncle Frank [0:36]

Thank you, Mary, and welcome to Risk Parity Radio. 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. It's a relatively small place. It's just me and Mary in here. And we only have a few mismatched bar stools and some easy chairs. We have no sponsors, we have no guests, and we have no expansion plans. I don't think I'd like another job. What we do have is a little free library of updated and unconflicted information for do-it-yourself investors.

Mostly Voices [1:25]

Now who's up for a trip to the library tomorrow?

Mostly Uncle Frank [1:29]

So please enjoy our mostly cold beer served in cans and our coffee served in old chipped and cracked mugs along with what our little free library has to offer.

Mostly Voices [1:50]

But now onward, episode 256.

Mostly Uncle Frank [1:53]

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. Just a little preview of that. Yeah, nothing happened. That's gonna be really boring when we get to it.

Mostly Voices [2:21]

I can't wait to start poohing through my garbage like some starving raccoon.

Mostly Uncle Frank [2:25]

But before we get to that... I'm intrigued by this. How you say, emails? And... First off. First off, we have an email from Lauren.

Mostly Mary [2:43]

And Lauren writes：March 8th, Double Jeopardy! had a category youy and Me, which had the quote from the intro to your podcast, which is the only reason I got the answer, drummer. Thanks, Uncle Frank, Lauren.

Mostly Uncle Frank [2:54]

Well, now that sets us up for a little frolicking detour here, huh?

Mostly Voices [3:02]

You are talking about the nonsensical ravings of a lunatic mind.

Mostly Uncle Frank [3:05]

Here is the complete quote：from Henry David Thoreau.

Mostly Voices [3:09]

If a man does not keep pace with his companions, perhaps it is because he hears a different drummer. Let him step to the music he hears, however measured or far away.

Mostly Uncle Frank [3:24]

Now this quote has special personal meaning to me because my mother had written it out on a large sheet of stock paper and hung it on my wall, where I saw it just about every day as a child. She wanted us to learn to think independently and to not follow crowds. And she still does, although she'll be 90 later this year.

Mostly Voices [3:48]

That's not how any of this works.

Mostly Uncle Frank [3:52]

I don't think I fully appreciated it until I was in adulthood, which is actually when I took up reading some of the transcendentalists. including Ralph Waldo Emerson. And that's where the second quote comes from, an essay called Self-Reliance, which I will link to in the show notes. That's where we hear about those foolish consistencies that are the hobgoblins of little minds. And I use that essay as one of my guideposts for living a fulfilled life, or an actualized life, I guess is what we say these days, they didn't use that language back in the 1840s. But anyway, the essay has two particular themes. One is that in order to fully self-actualize, since we'll just use that, the first thing you need to do is not follow crowds and think for yourself. And then the second thing you need to do is not make yourself your own crowd so that you're simply thinking the same things you did before just to be consistent about it. That you stop growing as a person if all you're doing is being consistent with your prior self. From a mathematical perspective, you would say he's urging you to become a Bayesian thinker who adjusts their ideas and thought processes as new information becomes available. Yes. At his core, Emerson was what you might call a practical philosopher. who focused on ways of being and good practices for life, something like a more modern Aristotle or Seneca.

Mostly Voices [5:29]

From Seneca to Cahuoga, bones ah.

Mostly Uncle Frank [5:33]

And just about all of what we know today as the self-help genre and those kind of ideas actually flows back and comes from Emerson and Thoreau in many ways. But at that time in the mid 19th century America, His ideas and even his way of speaking was adopted by many, particularly those on the anti-slavery or abolitionist movement since he was one of those people from Massachusetts. But if you're familiar with the speeches of Abraham Lincoln, a lot of it reflects essentially Emerson. So when he said, Our situation is new, so we must think anew, we must disenthrall ourselves, and then we will save our country, That part of that speech reflects straight back to self-reliance about not being consistent with the past, just to be consistent. I have another quote of his that I also use as a guidepost as to what the measure of success is. And in this quote, Emerson wrote, To laugh often and much, to win the respect of intelligent people and the affection of children, To earn the appreciation of honest critics and endure the betrayal of false friends. To appreciate beauty, to find the best in others, to leave the world a bit better, whether by a healthy child, a garden patch, or a redeemed social condition. To know even one life has breathed easier because you have lived. This is to have succeeded. Now you'll note none of that is about portfolio construction or safe withdrawal rates. But in fact, Emerson was essentially financially independent, and that's why he could afford to let Thorogo live in his property in a hut near Walden Pond. Now you can find another variation of what Emerson said in the financial independence classic, you, Money or youe Life by Vicki Robin. And that's what's called the parable of the ham. Now, in the parable of the ham, a child observes that her mother always cuts the end off of a ham, both ends, before cooking it in the oven. And one day she's curious about why her mother does that and asks her. And her mother says, you, know, I really don't know. We've just always done it that way. Let's ask your grandmother. And so they ask the grandmother. And the grandmother says, well, I'm not sure either. We've always done it that way. Why don't we ask your great-grandmother? And so they go and ask the great-grandmother. And the great-grandmother says, oh, the only reason I did that was because my pan was too small to fit the ham in. Surely you can't be serious. I am serious. And don't call me Shirley. And so that pretty much defines a foolish consistency. Doing something over and over again or thinking something over and over again just because it was something somebody did in the past and nobody bothered to think again as to whether it was a good idea or not today. That's not an improvement. But we'll put those little hobgoblins aside now. Shut it up, you.

Mostly Voices [8:48]

Shut it up, me.

Mostly Uncle Frank [8:53]

It's probably much more than you expected to get when you wrote your email. But I do thank you for it. And sometimes these emails allow me to give you just a little bit extra.

Mostly Voices [9:04]

What we do is if we need that extra push over the cliff, you know what we do? Put it up to 11. 11, exactly. But now let's move along.

Mostly Uncle Frank [9:11]

Second off. Second off, we have an email from Paul. Don't put too many onions in the sauce.

Mostly Mary [9:24]

And Paul writes, Hi Frank, after discovering you on the Chooseify podcast, I have been devouring your podcast. I have been following the performance of the Golden Butterfly Portfolio, the Simple Path to Wealth Portfolio, and the Scott Burns Couch Potato Portfolio at lazyportfoli etf.com what I have noticed is that the Golden Butterfly, the only risk parity portfolio of the three, performed slightly better than the other two in last year's dismal stock market, but it was still significantly in the red.

Mostly Voices [9:58]

So, a question has occurred to me. Since before your sun burned hot in space and before your race was born, I have awaited a question.

Mostly Mary [10:10]

A risk parity portfolio does not mean your portfolio will always be in the black. Does it? No. Sometimes the non-correlated assets can't save a portfolio from taking on losses. I would be interested in hearing your perspective on this and why a risk parity portfolio is or is not still a smart allocation in the current market and for the long term. All the best, Paul.

Mostly Uncle Frank [10:37]

All right, let's get right at your main question, which is a risk parity portfolio does not mean your portfolio will always be in the black, does it? And the answer is, of course not. There are no such things as risk-free returns in investing. And if you wanted certainty, you'd have to choose something like a bond ladder or an annuity, which we talked about in episode 253. But that's kind of a false test favored by politicians and other sophists. where you take a plan or an idea and say, well, it's not perfect, therefore it's not good and we shouldn't do it. In fact, you always have to compare one plan with another plan, or in this circumstance, one portfolio idea with other portfolio ideas. And so our claim has never been that these are perfect portfolios that never lose money. Our claim is simply that these kinds of better diversified portfolios are better than the popular ones that people often use or think about using in retirement, such as a two asset 60/40 portfolio or a three fund portfolio or something involving lots of stocks and buckets of cash. And so we are assuming that you are drawing down on whatever portfolio you are using, and that our goal is to achieve the highest safe withdrawal rates that are reasonably possible given the assets we have available. And so the easiest way to see this visually in one place is to look at some of the charts and materials over at Portfolio Charts, which I'll link to in the show notes, and we'll specifically talk about the golden butterfly since you mentioned it there. Now there's something there called a heat map with all these little boxes showing how the portfolio, any portfolio there performed since 1970 on a year on year basis. And you can see that the Golden Butterfly had down years in about 10 of those instances, so less than 20%, and that its longest time to recover was three or four years. Now, how does that compare to a 60/40 portfolio, which he's also got there you can look at? Well, a 60/40 portfolio was down 28% of the time in the same time period, so that was worse. But more importantly and more strikingly, the longest time to recover for that portfolio was over 12 years. Which is very undesirable when you're drawing down on a portfolio. And if you look at a three fund portfolio like he's got modeled there, you can see that it was down 32% of the time over the course of this data set, looking at annual returns, and that it also had a recovery time, a maximum recovery time, of over 12 years. And so it's pretty easy to see that you would prefer to have a portfolio that is down less of the time, and stays down for a much shorter period of time, then you would like to have a portfolio that had more down years and stayed down longer. And so Tyler's got the data analysis for about 18 common portfolios there that you can compare. But he's also got a nice thing that compares all of them in one place on a risk return basis. I'll link to that in the show notes. And what that shows you is that a golden butterfly portfolio, or if you were to put in a golden ratio kind of portfolio, have much better risk reward characteristics. They're higher on returns and lower on risk compared with all these other portfolios. Yeah, baby, yeah! And now getting just to last year's performances, Tyler did have a blog post there comparing all of these portfolios and their performances last year. And last year pretty much was the worst year in our lifetime for pretty much any portfolio composed of lots of stocks and bonds. But the Golden Butterfly did perform better than things like a 60/40 or a three fund portfolio. And really the only kinds of portfolios that did better had either lots of commodities in them or lots of gold. I love gold. Or some combination thereof. The ones with large cap value stocks in them also did well. And that included things like the Merriman Ultimate, which has a high proportion of value tilted stocks in it, both large and small. But I will also link to that in the show notes and you can check that out too. So in the end, I'm not saying these portfolios are perfect or will never lose money in a given year. What I'm saying is they're better than the common portfolios you hear people ordinarily using, like a three fund portfolio or a 60/40 or something with a big pile of cash in it. But this also goes to the Emerson discussion we were just having, because the reason that people use those sorts of portfolios is not because they've done any testing to determine whether they're the best portfolios to use or not, it's because People have used them in the past, and so they're anchored on them from the past. Instead of looking at their situation today, using the tools we have today, using the funds we have today, and constructing a better portfolio, they choose to be foolishly consistent to something that was invented 15 or 30 years ago. But I don't really expect you to believe me. What I want you to do is go do your own analysis and testing with the tools that you have available.

Mostly Voices [16:29]

We have the tools, we have the talent.

Mostly Uncle Frank [16:33]

Because I'm guessing we'll have even better portfolios in the future. We must disenthrall ourselves and then we will improve our safe withdrawal rates and our retirement outcomes.

Mostly Voices [16:45]

Paulie did the prep work and he had this wonderful system for doing the garlic. He used a razor I used to slice it so thin that it used to liquefy in the pan with just a little oil. It's a very good system. And thank you for your email. Last off.

Mostly Uncle Frank [17:02]

Last off, we have an email from my contact info.

Mostly Voices [17:06]

Oh, I didn't know you were doing one. Oh, sure.

Mostly Uncle Frank [17:10]

And my contact info writes. Hi, Frank.

Mostly Mary [17:17]

Apologies if you have read this, but thought you might find below of interest.

Mostly Uncle Frank [17:21]

and as usual, my contact info has found something that is indeed interesting for us to be looking at and talking about.

Mostly Voices [17:28]

I think I've improved on your methods a bit, too. This is an article on the website advisor perspectives.

Mostly Uncle Frank [17:33]

It's called riskless at age 104 by William Bernstein, published on March 20th, 2023. Now, today, Bill Bernstein is 74 years old, and he decided this year that he would create a 30-year TIPS ladder to take him to age 104 with some of his assets. And this article is about doing that. First, before we get to the article, one of the paradoxes, I think, of people in this space, people that write about personal finance or have podcasts and things like that, is that most of them are nowhere close to spending anything remotely close in retirement to a safe withdrawal rate. They're all chronic underspenders, and that includes Bill Bernstein, it includes Bill Bengen, it includes Paul Merriman. And so the paradox is that a lot of what they say simply does not apply to them, and it's only of academic interest. at least as far as they're concerned. Because if you have a withdrawal rate that's less than 3%, you can pretty much hold any kind of portfolio that's at least 30% in stocks, or do something different like this bond ladder that Bill Bernstein has constructed. And this also goes back to episode 253 where we talked about as this being one of the basic strategies that somebody might use in retirement. either by itself or more likely in combination with other strategies that involve portfolios and things like that. And so one of the things he does in this article is compare the bond ladder strategy with the annuity strategy and notes that the bond ladder strategy you can account for inflation, whereas with any annuity you can buy today that's not Social Security, it's not going to be inflation protected. But he also makes an interesting observation about TIPS themselves and the role that they would have, and that they really do not belong in a typical portfolio that you are rebalancing because they're serving a completely different purpose, as in using them for a bond ladder strategy like this. So he writes, and I'll read this to you, he writes, A bond fund manager recently related to me his difficulty in figuring out the role of TIPS in his portfolio. After fumbling for a reply, I realized that he was right. Like Social Security, they don't occupy a formal slot in most folks' asset allocation. Rather, they're an excellent though still imperfect supplement to Social Security. In the same way that most retirees don't capitalize their monthly government checks into the bond component of their portfolios, TIPS should be kept mentally separate from the policy asset allocation as well. So what he's saying is that if you're going to use tips, do not use them as part of a portfolio asset allocation, but account for them separately. And that is the way I would treat them. I would say that they should be used to reduce your net expenses. Now, what you want to do first is add up all of your expenses in retirement and then subtract off things that are covered. Whether they're covered by Social Security, some residual income, this bond ladder that you've made out of TIPS, an annuity, or something else, you simply subtract those from your expenses until you get a figure that's your net expenses. And then it's that figure that needs to be covered by your investment portfolio. Now, should we all be creating bond ladders that take us out to age 104? the answer is probably not. Another thing Bill Bernstein mentions in this article is that the probability of him or his wife actually reaching that age is less than 3%. And as I mentioned at the beginning of this answer, I think his burn rate is so low it could do just about anything. And so this is really of only academic interest. I think the more actionable idea has to do with where he is in life at age 74. because it is at that point in your early 70s that it would make sense to kind of reassess where you are, what your health is, and perhaps move some of your wealth to one of these very conservative strategies, either bond ladders or annuities, but that you probably don't need to be really doing any of that when you're only 50 something or even 60. And so that was another excellent article you've shared with us. The best Jerry, the best. And thank you for your email.

Mostly Voices [22:22]

And now for something completely different.

Mostly Uncle Frank [22:26]

And the something completely different is our weekly portfolio reviews of the seven sample portfolios you can find at www.riskparityradio.com on the portfolios page. As I mentioned at the outset, last week was so uneventful, this is almost not worth doing this week. But we'll do it anyway, just for completeness and foolish consistency, if nothing else. So last week, the S&P 500 was down 0.1%. The Nasdaq was down 0.42%. Small cap value represented by the fund of VIoV was down 0.2%. Gold had a bad week for once. Gold was down 1.16% for the week. You're insane, Gold Member! Long-term treasury bonds represented by the fund VGLT were also down 0.65% for the week. REITs were actually the big winner last week. Our representative fund R EET was up 1.77%. Meanwhile, commodities were the big loser. Our representative fund PDBC was down 2.73%. Preferred shares represented by the fund PFF were up 0.32%. and managed futures represented by the fund DBMF were up 0.38% for the week. Moving to these portfolios, the first one is this reference portfolio, the All Seasons. It's only 30% in stocks, 55% in intermediate and long-term treasury bonds, and the remaining 15% in gold and commodities. It was down 0.55% for the week. It's up 5.36% year to date. and down 3.13% since inception in July 2020. Now we get to these three kind of bread and butter portfolios that we talked about before. First one is a golden butterfly. This one's 40% in stocks in 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 0.43% for the week. It is up 5% year to date and up 12.58% since inception in July 2020. Next one is the Golden Ratio. This one's 42% in stocks in three index funds, including some small cap value, 26% in long-term treasury bonds, 16% in gold, 10% in a reit fund, and 6% in a money market fund. It was down 0.22% for the week. It's up 5.94% year to date and up 8.6% since inception in July 2020. Next one's our Risk Parity Ultimate. It's kind of our kitchen sink portfolio. It's got 15 funds in it that I will not go through. But anyway, it was down 0.69% for the week. Cool. And it is up 6.69% year to date. and up 0.84% since inception in July 2020. Now we get to these experimental portfolios involving leveraged funds. Don't try this at home, at least not with your retirement money. First one is the Accelerated Permanent Portfolio. It 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. It was down 0.89% for the week. It's up 10.81% year to date and down 15.54% since inception in July 2020. Next one is our most levered and least diversified portfolio, the aggressive 5050. It's one third in a levered stock fund, Upro, one third in a levered bond fund, TMF, and the remaining third divided into preferred shares and an intermediate treasury bond fund as ballast. It was down 0.87% for the week. It is up 11.04% year to date, but down 23.07% since inception in July 2020. And the last one is our levered golden ratio portfolio. It is 35% in a composite fund, NTSX, that is the S&P 500 and treasury bonds. 25% in gold, 15% in a REIT, O, 10% each in a leveraged bond fund, TMF, and a leveraged small cap fund, TNA, and the remaining 5% in a volatility fund and a Bitcoin fund. And it was down 0.76% for the week. It is up 6.58% year to date and down 18.4% since inception in July 2021. started a year later than the other ones, and so has had a much worse experience so far. And that concludes our portfolio reviews. Move along, nothing to see here. 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 eventually. 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.

Mostly Voices [28:04]

Signing off. This is a classic example of white privilege. And you both have it. Whoa. And we have that? You sure do. I see. Whoa. I never realized this stuff. Yeah, you've really opened up my eyes. Well, I'm glad we've been able to enlighten you. The real question is, Do you think you'll be acting differently from now on? Uh, I guarantee it. Yeah, yeah, me too, yeah. Step aside, please. We have white privilege. Yeah, yeah, yeah, check it out. Hey, no, no, no, no, no. Don't worry, it's okay. We automatically assume we can take what we want, and we don't have to worry about the police. It's okay, you didn't know. We didn't either. Good stuff. This is what we were taught, sir. We're subverting existing paradigms. This rules. I never thought I'd say this, but I'm glad we went to college. Now I have the skills for today's workplace.

Mostly Mary [29:18]

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.