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 [0:46]

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 [1:24]

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

Mostly Uncle Frank [1:27]

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

Mostly Voices [1:34]

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

Mostly Uncle Frank [1:38]

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? These include friends and family, and a number of people named Abby. Abby someone. Abby who? Abby normal. Abby normal. 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 [2:35]

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 [2:43]

But whomever you are, you are welcome here. 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. But now onward, episode 290. 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. And we have a rebalancing to talk about.

Mostly Voices [3:28]

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

Mostly Uncle Frank [3:36]

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

Mostly Voices [3:40]

emails.

Mostly Uncle Frank [3:44]

And I'm running a little short on time this week, so we'll just be doing a couple. So let's get to them. First off, first off, we have an email from Justin. Justin@riskparitychronicles. Yes.

Mostly Mary [3:58]

And Justin writes, Frank, hereby evoking privilege as a Patreon contributor to move to the front of the line. It's good to be the king. I heard episode 289 and Alexi's little note.

Mostly Voices [4:13]

Take it easy, dude. Oh yeah.

Mostly Mary [4:16]

I thought I would also make a visit to the Glorious Dive Bar that is Risk Parity Radio. It's my birthday, Sammy.

Mostly Voices [4:24]

Give me a beer, stick a candle in it, and I'll blow out my liver.

Mostly Mary [4:27]

and to offer an à contraires to your friend and mine, the dude. Don't be saucy with me, Bernaise. Specifically, his remark that nothing lately had piqued his interest. Quite the opposite for me, given the release of Return Stacked Stocks and Managed Futures ETF, RSST, last week. I don't want to get overly excited, but I'm really intrigued by this fund and what it may mean for retail risk parity investors. I had so much to say, I actually came out of my writing hibernation to pen some quick thoughts about it. I'm sure those of us nursing our beers served in chipped glasses might like to hear your thoughts on RSST as well. It's a dog-eat-dog world, Sammy, and I'm wearing milkbone underwear. Best wishes for a successful charity walk for the McKenna Center, Justin.

Mostly Uncle Frank [5:25]

Well, it's good to hear from you again, Justin. For those of you who don't know, Justin runs a blog called Risk Parity Chronicles. It's kind of an offshoot of this podcast. And that's the way, uh-huh, uh-huh, I like it. And it contains more detailed material without so many rantings and ravings.

Mostly Voices [5:48]

You are talking about the nonsensical ravings of a lunatic mind. Justin's been on hiatus from the blog for a little while.

Mostly Uncle Frank [5:54]

I think he was practicing his retirement skills.

Mostly Voices [5:58]

Well, you haven't got the knack of being idly rich. You see, you should do like me, just snooze and dream. Dream and snooze. The pleasures are unlimited.

Mostly Uncle Frank [6:08]

But now appears to be back and better than ever. And I will provide this link in the show notes to your new blog post. Now about this new fund. Yes, it does appear to be intriguing. This is another one of Corey Hoffstein's new funds. And for those of you who do not know who that is, he's a hedge fundy kind of person who has developed a variation of risk parity, I would say, that he calls Return Stacking, which attempts to use both leverage and very broad diversification, including managed futures especially, to construct portfolios. I'll link to a nice little video from him about his personal portfolio from excess returns that I found interesting. But anyway, they've created two funds over there. We had talked in the past about RSBT, which is bonds and managed futures, and now we have this new one which is RSST, which is stocks, the S&P 500 paired with managed futures in a leveraged kind of fund that basically weights 50% to each category. And Justin describes it in much more detail on his blog post and includes all of the relevant links to the primary sources. I think this is a very interesting fund. I think where we are in the kind of the cycle of things is looking at some of these alternative investments like managed futures and trying to decide how best to incorporate them into a portfolio. And so this fund and the other one that he's got are two interesting new examples of how somebody might do that. We already know that Wisdom Tree has a few slightly older funds that are doing similar things such as NTSX, which is stocks and treasuries, US stocks and treasuries, they've got one that's international stocks and bonds and some that are stocks and gold over there. And I view those as kind of similar constructions to this, although these seem to be the first ones that are explicitly incorporated managed futures into this. But you could imagine or think about combining one of these funds say with one of those funds, say NTSX and this new fund RSST, in ways to achieve different kinds of diversified portfolios. Of course, you might also have to add some small cap value or other things to really build this thing out. But I think this is a good example of why I say this is the golden year of investing for do-it-yourself investors because we are getting access to these kinds of Assets in the form of exchange traded funds, and so they're not costing 2%, 3%, 4% to invest in. This one has a cost, I think, of 0.95, which is expensive for a fund, but not that expensive for a managed futures kind of fund. Probably one third of the cost of a managed futures fund, at least those traditional mutual funds. I should also link to another interview I just heard of Andrew Beer. I think it was on Forward Guidance. He's the person that developed the DBMF fund and talks a lot about how the purpose of that is really to deliver a cost effective product to the masses in this managed futures area. So where do I come out about this right now? Well, I think it could be very useful, but it's very new. And so I think we should wait and see to see how it performs and whether it matches up to its expected performance, if you will, based on what it's constructed of. I also still have a personal aversion to these combo kind of funds because they don't allow for rebalancing between the assets that are within the funds. So for instance, instead of having a managed futures fund and a stock fund that you could rebalance when they went out of balance, you are basically locked into whatever this one is constructed of and whatever rebalancing rules it's incorporated, which may or may not be bad, but I'd rather have those raw ingredients, if you will, to work with. I think working with these kind of funds makes things a little bit more complicated. You may need to be doing some algebra, depending on what else you're adding to it, to make sure you're getting the macro allocations you actually want, as opposed to what they are offering. within a fund. As I mentioned, the cost is a bit high, not for a managed futures fund, but consider that part of it is a stock fund. It's high for a stock fund. So if you look at something like NTSX that has a cost of 0.2% expense ratio, which is really good for a leveraged fund like that, this one I would say is more of an average range for what it is. So thank you for calling this to our attention. It's a very interesting find and I'm sure some of you will find some interesting things to do with it. You have a gambling problem. And please tell me when you do.

Mostly Voices [11:26]

Well, you have a gambling problem.

Mostly Uncle Frank [11:30]

And finally, as you mentioned, you did get to go to the front of the line with this because you are one of our contributors on Patreon. and all of that money we collect there goes to the Father McKenna Center, which is our charity for this podcast that supports homeless and hungry people in Washington DC. And as you also conveniently mentioned, this is our main fundraising month for the center, and we have our annual Walk for McKenna on September 30th this year, and you can participate in that. If you are in the DC area, by coming to walk with us on that fine Saturday morning. But even if you're not going to walk with us, you can make a donation, you can get a t-shirt, you can do all kinds of things. I will leave a link in the show notes for your consideration. And thank you for anything that you give. Yeah, baby, yeah! And so thank you for all you do for our risk parity world. Thank you for popping your head in and thank you for your email. I'll just put you and the dude back in your little carriage here now.

Mostly Voices [12:36]

Oh, but with this long trip and this exhausting conversation, I'm famished. Bernice? Yes? Do we have any of those delicious raisins left? You ate yours. These are mine. Au contraire. They are mine. I paid for them. Hand them over. I paid for them, they're mine. Don't be saucy with me, Bernaise. Last off, we have an email from Chris

Mostly Uncle Frank [13:15]

and Chris writes, hello, Frank, in episode 288, there was a question from

Mostly Mary [13:22]

Kevin about how Ray Dalio's Holy Grail graph was made. Kevin, stop singing. I believe Dalio used modern portfolio theory to provide the return and volatility estimates. Once you have an estimated return and volatility, those values can be put into a normal distribution calculator to check probabilities. The estimated return corresponds to the mean, and the volatility corresponds to the standard deviation. With all of this information, I think there may be a discrepancy between what Dalio says in the video and what the graph depicts. In the video, he tells the viewer to consider a portfolio of different assets, each with volatilities of 10% and returns of 10%. However, the chart depicts a 40% probability of one of those assets losing money in a given year. By my calculations, an asset with those attributes should only have a 16% chance of losing money in a given year. I suspect Bridgewater generated the graph and the probabilities assuming a conservative return of 4% with a volatility of 10%, but Dalio used 10% when he was speaking because it's a round number. I've included a few finance and statistics links that Kevin might find useful.

Mostly Uncle Frank [14:47]

Well, I think Chris may also be a patron on Patreon, but I wasn't sure. But anyway, I moved this one up simply because it is a nice correction or supplement to what I just talked about a couple episodes ago, and episode 288, which was all about Kevin and his problems. We put him in the easy chair for quite a while. Dead is dead. I think you are correct that they were using essentially theoretical numbers in those emails to illustrate the point, being how combining uncorrelated assets in a portfolio reduces the risk while maintaining a high level of return. You are correct, sir, yes. Which is basic modern portfolio theory. and you've provided some excellent links to those things, modern portfolio theory, normal distributions, and other methods, and I will link to all of those in the show notes. And so thank you for your email.

Mostly Voices [16:02]

And now for something completely different.

Mostly Uncle Frank [16:06]

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. Just looking at what the market did last week, it was kind of not much. The S&P 500 was down 0.16% for the week. The NASDAQ was down 0.39% for the week. Small cap value bucked that trend. I'm telling you fellas, you're gonna want that cowbell.

Mostly Voices [16:35]

Our representative fund, VIOV was actually up 0.

Mostly Uncle Frank [16:40]

54% for the week. Gold was up slightly, gold was up 0.08% for the week. Long-term treasury bonds were down again. They were down 1.21% as measured by our representative fund, VGLT. REITs were up last week. Our representative fund, REET, was up 0.57% for the week to join that small cap value. Commodities were the big winner last week. Representative fund, PDBC, was up 1.73% for the week. Preferred shares were also up. Representative fund PFF was up 0.23% for the week. And finally, managed futures were up again. Our representative fund, DBMF, was up 1.29% for the week. Moving to these portfolios, first one is a reference risk parity portfolio, the All Seasons. It is only 30% in stocks in a total stock market fund, and it's got 55% in treasury bonds divided into intermediate and long, and the remaining 15% in gold and commodities equally split. It was down 0.40% for the week. It's up 4.58% year to date and down 4.03% since inception in July 2020. Next one is the Golden Butterfly, first of our three kind of bread and butter portfolios here. This one was down all of 0.14% for the week. It's up 4.59% year to date and up 12.14% since inception in July 2020. Next one is the golden ratio. This one was down 0.24% for the week. It's up 5.77% year to date and up 8.43% since inception in July 2020. I should have said the Golden Butterfly is 40% in stocks divided into a total stock market fund and a small cap value fund, 40% in bonds divided into long and short treasuries, and 20% in gold. And the golden ratio is 42% in stocks divided into three funds including some small cap value and a low volatility fund. It's got 26% in treasury bonds, long-term treasury bonds, 16% in gold, 10% in a REIT fund, and 6% in a money market fund. But now moving to our risk parity ultimate portfolio. This one has 15 funds in it. I'm not going to go through all of them. It's got everything you can think of. and also some small allocation to cryptocurrency. It was down 0.12% for the week. It's up 6.35% year to date and up 0.52% since inception in July 2020. Now moving to our experimental portfolios. We do hideous experiments here with leverage so you don't have to. All these involve portfolios with leverage funds and they're very volatile. The first one is the Accelerated Permanent Portfolio. This one is 27.5% in a leveraged bond fund, TMF 25% in a leveraged stock fund, UPRO 25% in PFF a preferred shares fund, and 22.5% in gold GLDM it was down 1.06% for the week it's up 5.18% year to date and down 19. 83% since inception in July 2020. Next one is the aggressive 50/50 this one is the least diversified and most leveraged of these portfolios. It's basically 50% in stocks and 50% in bonds. That is comprised of one-third in a levered stock fund, UPRO, one-third in a levered bond fund, TMF, and the remaining ballast in a bond fund, intermediate treasuries, VGIT at 17% of the portfolio, and PFF preferred shares at Another 17% of the portfolio. It was down 1.66% for the week. It's up 4.99% year to date and down 27.26% since inception in July 2020. And now moving to our final portfolio, the lever to golden ratio. This one's been around the least amount of time, but this is also the one we are rebalancing. We'll talk about that in a minute. First, it is comprised of 35% in in a composite levered fund, NTSX, that is the S&P 500 and treasury bonds, 25% in gold, GLDM, 10% each in TMF, a levered bond fund, and TNA, a levered small cap fund, 15% in a REIT, O, and then 3% in a volatility fund, VIXM, and 2% in a Bitcoin Coin Fund GBTC. It was down 0.7% for the week. It's up 3.3% year to date and down 20.91% since inception in July 2020. Now all three of these levered portfolios are on rebalancing bands. And so our rules for rebalancing them are to look at them every 15th of every month. to see how far out of balance they have gone. And for this one in particular, the rebalancing band says if any asset has moved more than 5% from where it is allocated to begin with, then we rebalance the entire portfolio. And so in this case, the levered bond fund TMF had fallen below 5% of the entire portfolio. So we are rebalancing that and everything else in the portfolio. We will also be doing a small reallocation in this portfolio to simplify it and hopefully make it a little bit better. If you go all the way back to when we started this portfolio, I said that the 5% that is currently in a volatility fund and a Bitcoin fund really could be in just about anything, including cash or something else. I've never been happy with the way these volatility funds have performed or not performed. And so I did want to get rid of that when we got to rebalancing. And then with the Bitcoin fund, while it actually performed okay, meaning it did not lose money, it actually gained money over time, it really seems to be highly correlated now with small cap growth stocks and in particular the tech stocks. And so displays a high positive correlation with TNA. And so that's really not that useful for this kind of portfolio. So I talked at the beginning of the year about adding managed futures to this portfolio at some point. And this seems to be a good opportunity to do that, at least for that little 5% that could be invested in anything. I also consider just leaving it in cash, but it'd be more fun to have a different asset. at least for these experimental portfolios. So we're going to use KMLM, which is another managed futures fund like DBMF. KMLM is a little bit more aggressive or volatile, if you will, so makes a little bit more sense in a levered portfolio. And so we are going to replace the volatility fund and the Bitcoin fund with 5% in KMLM. or the purpose of this portfolio, in addition to the rebalancing. What this all means in terms of actual dollars and cents is we are selling $352 of NTSX, also selling $273 of GLDM. We'll be buying $99 worth of that REIT O, which has fallen in the past year or so. We'll be buying $346 worth of TMF, the worst performer in a long time. We'll be buying $82 worth of TNA, that small cap levered fund. And then we'll be selling the remainder of the volatility fund. That's $109 worth, $154 of the Bitcoin fund, GBTC, and we end up buying $345 worth of KMLM, the Managed Futures Fund. We're doing this all tomorrow, Monday, September 18th. This will also be leaving us with about $38 in the cash part of the portfolio just for the next distribution. And all of this is laid out in detail on the website at www.riskparityradio.com on the portfolios page. But now I see our signal is beginning to fade. If you have comments or questions for me, please send them to frank@riskparityradio.com that email is frank@riskparityradio.com or you can go to the website www.riskparityradio.com, put your message into the contact form and I'll get it that way. If you haven't had a chance to do it, please go to your favorite podcast provider and like, subscribe, give me some stars, a review. A follow. That would be great. Mmmkay? Thank you once again for tuning in. This is Frank Vasquez with Risk Parity Radio signing off.

Mostly Voices [26:09]

Sometimes you wanna go where everybody knows your name. And they're always glad you came. You wanna be where you can see our troubles are all the same. you want to be where everybody knows your name. You want to go where people know people all on the same. You want to go where everybody knows your name.

Mostly Mary [26:47]

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.