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

Mostly Uncle Frank [0:41]

There are basically two kinds of people that like to hang out in this little dive bar.

Mostly Voices [0:48]

You see in this world there's two kinds of people, my friend.

Mostly Uncle Frank [0:51]

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?

Mostly Voices [0:59]

These include friends and family and a number of people named

Mostly Uncle Frank [1:04]

Abby. Abby someone.

Mostly Voices [1:07]

Abby who? Abby normal. Abby normal.

Mostly Uncle Frank [1:14]

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. The best Jerry, the best. 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.

Mostly Voices [1:50]

What we do is if we need that extra push over the cliff, you know what we do? Put it up to 11, exactly.

Mostly Uncle Frank [1:57]

But whomever you are, you are welcome here.

Mostly Voices [2:01]

I have a feeling we're not in Kansas anymore.

Mostly Uncle Frank [2:05]

But now onward, episode 285. Today on Risk Parity Radio, we'll just do what we do best here.

Mostly Voices [2:16]

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

Mostly Uncle Frank [2:21]

First off, first off, we have an email from Chaz. Charles, you didn't have anything to do with this, did you? Me? Not a chance. Wouldn't waste my time. Unless of course I could get a good laugh out of it.

Mostly Mary [2:39]

And Chaz writes, hey Frank and Mary, David Stein over at Money for the Rest of Us launched an analysis tool that's based on analyzing return drivers of stock indices. It's called Asset Camp. I know you've mentioned him in the past, so would love to hear your thoughts on the tool if you've seen it. As always, thanks for everything that you do. Truly a one-oF-A-Kind podcast. Thanks, Chaz.

Mostly Uncle Frank [3:03]

Well, yes, I did see that David Stein had launched this. Asset Camp Tool. I'm on his email list and he had sent an email around two or three weeks ago talking about it with some charts and other things that he had generated out of it. It was interesting. One of the things that he had concluded out of that and talked about in the email was that earnings yield is a better forward predictor than PE ratios. But we know that. And also similar to what I had said about investing in international stocks, two or three episodes ago. There is a currency risk associated with that that most people don't account for or account for very well. And he also concluded that value and growth stocks had similar return profiles over time. So I will link to the AssetCamp webpage in the show notes and there's a little video there in description. Honestly, it doesn't look like something I would pay for. Not gonna do it. Wouldn't be prudent at this juncture. Basically, what you get is a set of historical data and tools for analyzing that, which look kind of like Portfolio Visualizer to me. And then there's a set of tools for trying to predict future returns using earnings and PE ratios and other things. That's the crystal ball part of it.

Mostly Voices [4:22]

My name's Sonia. I'm going to be showing you the crystal ball and how to use it or how I use it.

Mostly Uncle Frank [4:30]

And he says that these are the same kinds of tools that professionals use. And while I'm sure that's true, what I also know is that professionals are not good at using these tools to predict anything. Forget about it. And so the likelihood of me or just about anybody else using those tools to predict something meaningful and to make a portfolio decision about is probably actually not that great. Forget about it. So it would be something to be used for curiosity and entertainment purposes.

Mostly Voices [5:02]

Now the crystal ball has been used since ancient times. It's used for scrying, healing and meditation.

Mostly Uncle Frank [5:10]

But I would not use something like that for investment decisions.

Mostly Voices [5:14]

I am a scientist, not a philosopher.

Mostly Uncle Frank [5:17]

But that is where I differ with David Stein. As I've said many times, We want to follow the teachings of Bruce Lee whenever we're given the opinions or content from an expert or somebody else, which is to take what is useful, discard what is useless, and add something that is uniquely your own. What I find very useful from David Stein's work is his methodology for analyzing assets and also all of his various descriptions of different kinds of assets. So if somebody asked me, about closed-end funds. I know I can go there and find a good article that describes it in detail, or the different ways of investing in gold. He's got a good article there describing all of that kind of stuff. The part of his work that I do not find particularly useful is that he believes that through his club and this tool that he can actually make meaningful forecasts to change allocations in a portfolio. and essentially market time. Crystal Ball can help you. It can guide you. And while people can be successful with that some of the time, I don't think it's likely that anyone's going to be successful with those methodologies for their decision making most of the time and would probably be better off sticking with more of a static asset allocation and then rebalancing it as opposed to trying to jump in and out of various asset classes based on skill and forecasting abilities. I would place it over a candle. And it's through the candle that you will see the images into the crystal. And I also would not want to have to rely on somebody else to do that for me. Secondary latent personality displacement. Oh, great one. Yes, sir. Because what if they go away or start charging too much or something else happens? Or they go from being the billmiller of 2005 with 15 years of great forecasting, beating all the indices to the next five years of abject failure.

Mostly Voices [7:33]

Now you can also use the ball to connect to the spirit world.

Mostly Uncle Frank [7:36]

Whenever you are relying on the skill of particular individuals For your investment decision makings, you are taking a risk that whatever they are doing or have been doing is going to stop working. But you won't really know if it stopped working. That's the problem.

Mostly Voices [7:56]

I have officially amounted to jack you squat.

Mostly Uncle Frank [8:00]

If you think you can make your asset allocations and investing decisions based on that kind of forecasting skill or methodology, More power to you, or you think you found somebody that can do it. More power to you and them together.

Mostly Voices [8:15]

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

Mostly Uncle Frank [8:23]

But I would prefer to stick with my three principles of simplicity, macro allocations, and holy grail, and leave others to their crystal balls.

Mostly Voices [8:35]

As you can see, I've got several here, a really big one here, which is huge. This is the one that I tend to use more often. I have a calcite ball and I have a black obsidian one here. I'll certainly be watching to see what happens with that, but it's really going to be for entertainment purposes only. The crystal ball is a conscious energy.

Mostly Uncle Frank [9:04]

Thank you for bringing that to our attention and thank you for your email.

Mostly Voices [9:10]

Risk Parity Radio, Frank Vasquez, risk parity, risk, parity, Frank, Vasquez in the audio. Second half.

Mostly Uncle Frank [9:33]

Second off, we have an email from Keith, and Keith writes, Frank and Mary, I love

Mostly Mary [9:36]

the podcast and count myself among your earliest fans. Yeah, baby, yeah! When I discovered you and listened to all of your back catalog, it had only 20 episodes in it. Now you have over 200 action-packed recordings in a worldwide following. Congratulations on your success.

Mostly Voices [9:58]

You're not going to amount to jack squat. Now for my question.

Mostly Mary [10:02]

In episode 218, you said that you and Mary like to take a bit more risk than can be found in the golden butterfly, so you allocate more to stocks. I'm sure you considered increasing your leverage instead. How should one approach this decision? If one can borrow at reasonable rates, it might make sense to allocate less to stocks and lever up to get higher returns.

Mostly Uncle Frank [10:28]

Well, Keith, good thing I have the finest podcast audience available and can pawn this one off on you a little bit. If you go back to episode 259, one of our listeners, Ron, did a kind of analysis looking at whether it would be better to use margin or to use ETFs than taking leverage in a portfolio. And sitting here right now, I cannot remember what his conclusion was, but I would say that probably now with prevailing interest rates much higher than the rate of inflation, so the real return on bond assets is now positive and greatly positive. It's probably not a good time to be taking out margin loans. And as for the general question to lever or not to lever, I think this does depend a lot on your risk tolerance and when you plan on using the money at issue. I would not be comfortable with that or much of it in retirement portfolios. And the only things I've got that are levered are things in Roths we don't plan on using anytime soon anyway, but wanted to do little experiments with them to see how it all works. I think this area is one that is expanding with people like Corey Hoffstein talking about return stacking, the guys that Resolve Asset Management and others. But this is one of the reasons we've modified the traditional risk parity approach, which is to take a very conservative portfolio and lever it up. I think it's more appropriate and easier to implement for an average investor simply to increase the percentage of stocks in the portfolio. So instead of having something that is 25 or 30% stocks and then leveraging that up, you would take 40 to 70% as the proportion in stocks in a portfolio. And historically we do know that those kinds of portfolios tend to have the highest safe withdrawal rates. So it's a pretty good bet. I would say if you're very young and this is not like your whole pot of savings or you haven't saved very much anyway, you could try using some leverage. Maybe you do that in a Roth IRA when you also have a 401k where you're saving most of your money. But I honestly think we're going to know a lot more about the usefulness of this and the correct ETFs to use within the next five or 10 years, because we are at a juncture right now where new ETFs for this purpose are just being developed, like NTSX and some of the ones over at Simplify Asset Management. But right now, since these are relatively new, I can't say which ones or which combination would be the best ones to use other than in theory.

Mostly Voices [13:20]

Yogi Berra said that in theory, there's no difference between theory and practice, but in practice, there is.

Mostly Uncle Frank [13:27]

So I would suggest you go back and listen to that episode 259 and then be very careful. And thank you for your email. Last off. Last off, we have an email from Fritz. They've killed Fritz. They've killed Fritz.

Mostly Voices [14:02]

Those horrible and Chassity-filled vermin! They've killed Fritz!

Mostly Mary [14:07]

And Fritz writes... Hi Frank, thanks for all that you do with the podcast. I have been transitioning my portfolio, which has been heavy on cash, to a golden ratio style portfolio. I am doing this by dollar cost averaging contributions to the under allocated categories, which happen to be GLDM and TLT. I'm about halfway to 26% on TLT and have noted the recent downturn in price, around $93 at the time of this email. At the risk of getting the crystal ball sound clip... That's not how it works. That's not how any of this works. Is there a baseline price level that TLT is intended to target? It seems difficult to imagine the highs it hit in 2021 occurring again. The current price seems like a buying opportunity if building a long-term portfolio, but is also concerning wondering if there is a natural floor on how much further it could drop, noting that the yield is getting ever closer to the short-term rate. Perhaps just looking for reassurance that the long-term treasury category is still a sound option for diversification against equities. I think after writing this, I already know the answer. But I have to believe that others have been thinking the same. Thanks again.

Mostly Uncle Frank [15:28]

Max, I'm okay. I'm okay, Max. Just a scratch. Look, I'm all right. Oh, oh, Fritz. Well, it's interesting Ben Carlson of a wealth of common sense just wrote an article about this very thing called everything and everyone underperforms eventually. And he talks about bonds and he talks about other asset classes. you can always cherry pick some data from one day to another and say, this was the best performance for this asset class. And then this other period, this was the worst period for this asset class. But no, there is nothing out there that suggests that bonds or any asset class has some kind of particular floor, although there is a couple of issues playing out. First, that you're not going to have an inverted yield curve forever. And then second, what I mentioned before is that it's unusual to have positive real rates and as positive as they are right now. The real rate is basically the treasury bond rate. Usually they're looking at a 10-year or shorter, minus the rate of inflation, which right now is around 2%. Sometimes they just look at the Fed funds rate itself. But when it gets this high, basically it's saying that the Fed is attempting to strangle the economy and usually succeeds eventually, and then rates go down again. The problem is trying to time that, because as we've seen for the past couple of years here, I've been listening to all kinds of predictions as to what the Fed is going to do next year and rates about to go lower or some timeframe for a recession or something like that. And it's instructed to realize that nobody has been able to really predict how that's all going to play out, because it's a complex adaptive system. I am continuing to buy long-term treasury bonds, both in our sample portfolios and our own portfolios. The silver lining, if you can call it that, is you are locking in long-term returns that are near or above your safe withdrawal rate, and what you'll see if we do have a recession at some point. I expect we will, and interest rates are lowered again, then the short end of the curve is going to go down very quickly, whereas the long end of the curve will stay high or higher, then you'll watch the yield curve un-invert and go back to how it usually is. But this is also why you hold less of a proportion of these in a portfolio than you would have say, Intermediate term bonds, if you were holding say a 60/40 portfolio with 40% in intermediate term bonds. Longer term bonds, you're essentially getting more bang for your buck so you only need to allocate space of I would say between 15 and 30% in a portfolio to get the same overall effect over time and then that leaves you more space to either put more stocks or alternatives in a portfolio. But knowing events like this are possible and have happened in the past, that's why you restrict the amount of allocation you have to this asset class. On the flip side, if they continue to perform poorly, it's highly likely that the stock market will continue to do what it's been doing most of the year, which is going up, because it's basically a sign of a strong economy. But these past few years since COVID have really made Fools out of all kinds of market timers.

Mostly Voices [19:03]

Have you ever heard of Plato, Aristotle, Socrates? Yes. Morons.

Mostly Uncle Frank [19:10]

Statistically, this probably will be in fact a very good time to buy them. And it's funny if you look at the history of these sorts of things, obviously the best time to have bought them in our lifetimes was right around 1980, the last time the Fed was raising interest rates like this. But absolutely nobody wanted them, and for the next 15 to 20 years, people were afraid of them, even though they were the best thing to be in. So is it painful to watch? Well, yes it is, but not that painful, at least knowing that you're getting assets that are paying about your safe withdrawal rate when you buy them right now. Just remember that these are long-term assets and A decade or two is a long time. But it's always good to talk about such things.

Mostly Voices [20:01]

That's how much longer you've got to be alive. And it isn't long, my pretty. It isn't long.

Mostly Uncle Frank [20:08]

And thank you for your email.

Mostly Voices [20:12]

Ooh, Fritz. Fritz, get up for God's sake. Get up. They've killed Fritz. They've killed France!

Mostly Uncle Frank [20:21]

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. As I mentioned earlier, We going on hiatus this weekend, so there will not be a podcast. I will update the website, however.

Mostly Voices [20:53]

It's not that I'm lazy, it's that I just don't care.

Mostly Uncle Frank [20:58]

And there should be another podcast next week. 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. M'kay? Thank you once again for tuning in. This is Frank Vasquez with Risk Parity Radio. Signing off.

Mostly Mary [21:38]

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.