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.

Mostly Uncle Frank [0:39]

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.

Mostly Voices [1:11]

I don't think I'd like another job.

Mostly Uncle Frank [1:15]

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 [1:28]

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 [1:51]

But now onward to episode 292.

Mostly Uncle Frank [1:55]

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 preview of that. Yeah, it was one of the worst weeks of the year, typical for September. Thank Jerome Powell.

Mostly Voices [2:21]

That's not an improvement. But before we get to that, I'm intrigued by this, how you say, emails. And?

Mostly Uncle Frank [2:34]

First off, I have an email from Owen. And Owen writes, Hi, Frank.

Mostly Mary [2:42]

I was discussing the RPAR and UPAR ETFs with a friend who referred me to your podcast because of your thoughts about tips.

Mostly Voices [2:50]

I want you to be nice.

Mostly Mary [2:54]

I listened to a few of your episodes that discussed tips and considered your critiques. I did not hear any discussion of stagflation, however, which is the market environment in which tips are expected to perform the best, i.e. higher than expected inflation and lower than expected growth. Instead, your discussions focus on backtests from recent periods where we have experienced either low inflation or inflation plus strong growth. I think your analysis of TIPS is therefore incomplete. Really? I wonder how you see your model portfolios performing in a stagflationary period and what would you say about holding TIPS as insurance for stagflation? I know you're a fan of other assets that might do well during stagflation, such as gold and managed futures. So perhaps you will conclude that these other assets are sufficient. In any event, I'd appreciate hearing how you approach this question and what you conclude.

Mostly Voices [3:52]

Have you ever heard of Plato, Aristotle, Socrates?

Mostly Uncle Frank [3:55]

Ah, one of my favorite whipping boys, tips, or rather, people that promote tips.

Mostly Voices [4:03]

You can't handle the truth. You know, because it's funny.

Mostly Uncle Frank [4:07]

Because what people who promote tips are good at are two things I've found over the years. One is telling stories about them, and then the second is moving the goalposts when the story doesn't pan out.

Mostly Voices [4:22]

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

Mostly Uncle Frank [4:30]

What was the story we've been hearing about tips since they were invented back in around 2000? The story was, was when inflation comes, these tips are going to hedge your portfolio and if you hold a bunch of tips in your portfolio, you won't have anything to worry about when inflation comes around. You won't have anything to worry about. So everybody needs to put tips in their portfolio because these are a hedge against inflation. Forget about it. They say inflation protected on them, so that should work, right? Forget about it. Boy was that misguided. You're a legend in your own mind. We learned that in spades last year, 2022, inflation came and TIPS did horribly. In fact, most TIPS funds like TIP and LTPZ did worse than their nominal counterparts. They were terrible assets to hold in an inflationary environment. Let me repeat that. They were terrible assets to hold in an inflationary environment. They did not hedge your portfolio. They did not help your portfolio. They made your portfolio underperform. They did exactly what they were not supposed to do. Exact opposite. Surely you can't be serious. I am serious. And don't call me Shirley. So you confront TIPS promoters with that. What do they say? Oh, oh, oh, oh, wait. That's not what I meant. What I really meant was they're gonna perform well in stagflation. Stag, yes, stagflation. That's the ticket.

Mostly Voices [6:05]

I'm Tommy Flanagan, and I'm a member of Pathological Liars Anonymous. That's the new story. That's the new tale. Yeah, that's the ticket. Are they going to perform well during stagflation?

Mostly Uncle Frank [6:18]

Well, first we need to define stagflation. We don't talk about these these buzzwords, these scare words, and say, oh, oh, oh, oh, yeah, yeah, yeah, yeah. It's gonna work. It's gonna work. Yeah, that's the ticket. Stagflation is typically defined as high inflation, low growth, and high unemployment. So we had low growth and high inflation last year. It's exactly what we had in 2022, low growth and high inflation. Yeah, that's the ticket.

Mostly Voices [6:51]

Did TIPS perform well then? No, they did terribly. Forget about it. What was the only missing element?

Mostly Uncle Frank [6:59]

Unemployment. Unemployment was actually lower in 2022. Now, do we really think, do you really think that if unemployment is higher, that's going to change the pricing of a bond, an inflation-protected bond? Not gonna do it.

Mostly Voices [7:16]

Wouldn't be prudent at this juncture.

Mostly Uncle Frank [7:20]

If you really think that, I've got a bridge to sell you. I really do. Yeah, that's the ticket. Because what is higher unemployment likely to be associated with? It's likely to be associated with a recession, like 2008, which was a terrible time for TIPS, or maybe 2020, in which you'd rather have nominal bonds.

Mostly Voices [7:45]

That is the straight stuff, O Funkmaster.

Mostly Uncle Frank [7:48]

So based on the data, the data not the stories, there does not appear to be any reason to believe that TIPS are going to be some wonderful thing in a stagflationary environment. What do we expect them to do? We expect them to protect themselves if you compare them to nominal bonds or to cash. that's what they're going to do. They're not going to hedge your portfolio. Because if you want to tell an accurate story about TIPS, and I did talk to one of the purveyors of RPAR about this at a conference call, and he agrees that the difference between TIPS and nominal bonds is that TIPS help you if inflation is higher than the market originally anticipated. unanticipated higher inflation. And then what do they do in that case? Well, they just do better than nominal bonds or cash. That's it. But they are still bonds, and that is their primary characteristic. And so if you go out on the duration scale to intermediate or long term, their bond-like characteristics are going to dominate any inflation protection characteristics. Now, where have we last talked about these in the more or less comprehensive manner. It was in episodes 236 and 241. In episode 236, we went over a Bloomberg presentation that we had also referenced in episodes 224 and 227 about which assets perform well in inflationary environments. An entire slideshow presentation that is accompanied by another podcast. I should note that this Bloomberg analysis is actually talking about a situation of stagflation. The analysis is from November of 2022, looking at older data. And what that showed is that you are really trying to hedge against inflation. You need things like managed futures and commodities that value stocks, momentum tilted strategies, do better in inflationary environments than ordinary stocks, and that tips are mediocre, especially as you get out on the duration curve. So that presentation from November of 2022 would be my position as to which assets are likely to perform well or poorly in inflationary environments. It's database and it's very good. Yes. The other episode where we talked about this was in episode 241, in which we were referencing an entire presentation on tips from our friend Justin over at Risk Parity Chronicles, which I will also reference. And he did an eight-part series and goes through all the same sorts of things. But I'll leave you that to that in the show notes so you can check that out too. Real wrath of God type stuff. Finally, you hit upon one of my pet peeves, which is using the word fan in connection with choosing investments. I am a fan of the Kansas City Chiefs and I've been a fan for many, many years even before Patrick Mahomes arrived and while they were having bad season after bad season and disappointment after disappointment. But that kind of sentiment should not be used as a basis for choosing investments or not choosing investments because that is subjective and it's based on storytelling. It's not based on data. It's not based on saying this asset performs well in this economic environment. It's like asking me, are you a fan of hot soapy water? Well, hot soapy water is great for cleaning, but I'm not gonna drink it. Does that mean I'm not a fan of it? Because I don't drink hot soapy water. Necessary?

Mostly Voices [11:43]

Is it necessary for me to drink my own urine?

Mostly Uncle Frank [11:47]

No. No, it means we should not be using subjective criteria and feelings about investments to choose them or not choose them, but looking at what we are trying to do and then picking investments that suit our purposes. In this case, when we're talking about portfolio construction of a portfolio that is largely equities, and that's generally what we're dealing with here, TIPS do not really have a good place in that kind of portfolio. They're not going to hedge inflation for the stocks or the bonds. If you want bonds in there for recessionary purposes, pick the nominal ones because the TIPS aren't going to do as well as those. And if you're really looking for inflation hedges, you had only one job. You are going to be looking at managed futures or commodities or maybe some of these newer funds that actually speculate directly on interest rates. And those include things like PFIX and RRH, which are designed to do well in rising interest rate environments. TIPS don't really have a role, at least not a TIPS fund in a portfolio like that, because they don't do anything very well. You had only one job. No, I think after last year, people are finally getting the message, getting the memo. Did you get that memo? And realizing that to the extent you're using TIPS, it's not probably going to be in connection with a portfolio construction. What it's going to be in connection with is something like a bond ladder that you are constructing. But that's a completely different approach to managing assets for retirement than using a diversified portfolio. And where we've seen that best is a recent article by Bill Bernstein, who was writing about the TIPS ladder he constructed to keep him safe until age 104. I think he's a little bit oversaved. But anyway, in that discussion he said, and he realized this speaking to a financial advisor, that TIPS really do not have a good place in an ordinarily constructed portfolio. 'Cause they're not really doing anything well.

Mostly Voices [14:03]

You had only one job.

Mostly Uncle Frank [14:06]

Their best use is in something like a bond ladder, separate and apart from any portfolio construction you might be doing. Didn't you get that memo? And so that's my story. It's the same story I've told and held in my belief system since 2008 when I was invested in TIPS and they did really badly in late 2008. And I'm not going to do that again. Just because somebody's telling me a story about stagflation.

Mostly Voices [14:31]

Forget about it.

Mostly Uncle Frank [14:35]

And is rooting for tips because they wear the pretty powder blue uniforms.

Mostly Voices [14:38]

Okay, ladies and Joshua, do you know what it's time for? Your competition is what.

Mostly Uncle Frank [14:46]

Hopefully that little mini rant clarifies my position if it wasn't clear enough already. And it's nothing personal, these are good questions, and I do thank you for your email.

Mostly Voices [15:06]

And I'll go ahead and make sure you get another copy of that memo, okay? Second off. Second off, we have an email from Jeff.

Mostly Uncle Frank [15:14]

Actually, it's two emails that we've combined into one. Now, I usually don't give away last names, but I do have to note that this Jeff has a nut. It is last name. And the relevance of that may become apparent shortly.

Mostly Voices [15:30]

I used to be able to name every nut that there was. And it used to drive my mother crazy.

Mostly Mary [15:42]

And Jeff Wright's? Frank, thank you so much for freely sharing the information on your podcast. I made the decision to move from Empower and thought I'd be happy with the simple path to wealth portfolio. It started becoming apparent that I don't have adequate knowledge to take care of it. I actually started feeling panicked over the whole thing. I've decided to slow down, learn what you're teaching, and take control in a few weeks or months when I'm comfortable. By the way, I love your diverse education. I have an electrical engineering degree from Oklahoma State University and an MBA from the University of Colorado.

Mostly Voices [16:20]

Puffle with wind comes sweving down the plain, and waven wheat tech smell sweet when the wind comes right I

Mostly Mary [16:32]

worked in industry for ten years before quitting to train dogs full time. I've been doing that for eighteen years now.

Mostly Voices [16:41]

I'd like to,, thank Cuba for walking in the word a I tell him. because it's more natural kind of environment for him and it makes him relax and makes me relax too to not think about the competition, just take a walk and smell the ground and all that.

Mostly Mary [17:03]

The kids are a senior and sophomore and just not missing their stuff anymore so I'm going way down in dog numbers. Not sure I can ever give it up completely. but competing nationally just isn't that important to me anymore at this point in my life. We're living in a low cost of living area, run cattle, hunt, don't have to have new cars, etc. The 36,000 I will start withdrawing annually as 72T only represents a small portion of our investable assets. Not counting our non-investable assets, house and a few hundred acres. This is just slow down time. Ultimately, we want to take more, but not fully for about five to eight years. We have options. Again, thank you so much for educating people, Jeff.

Mostly Uncle Frank [17:53]

Before we get too far into it, I was just thinking about what showing dogs must be like.

Mostly Voices [18:01]

We'll get going and it'll be show time for you, right? And look at that, the judge is going to look at him and say, Hey, hey, hey. And sometimes I think he's gonna talk to the judge and say, hey, judge. Hey, judge. Look at me. That's, I mean, he's not, the dog ain't gonna talk, but his mind is like a telepathy thing

Mostly Uncle Frank [18:23]

where he says, I want the best one here. I want the best one you ever seen. Well, Jeff, I'm glad you're finding value here. Despite the various interruptions from my children.

Mostly Voices [18:39]

Pinhead, your time is up. Who you callin' Pinhead? I wanna be Dirty Dan! What makes you think you can be Dirty Dan? I'm dirty. And other distractions.

Mostly Uncle Frank [18:50]

Now how much would you pay? Because the more serious parts of this podcast were intended for folks such as yourself. who are asking the question, what else is there? They've read a lot of personal finance materials. Most of them are directed at accumulation and reducing costs and expenses. But I think relatively few at the do-it-yourself investor level get past formulas and into principles and trying to apply them. But I think if you really want to get the most benefit out of what you've accumulated and spend lots of it in retirement. You really do want to go beyond just taking something off the shelf without really understanding why it works or doesn't work. And then what are the principles behind that and can we apply those principles in a better or more effective way for our circumstances? And so that's why we have our three principles, the simplicity principle, the macro allocation principle and the Holy Grail principle, which we talked about at great length in episodes 1357 and 9. And that's also why we try to apply that Bruce Lee principle to all of the various works we have available, whether it's A Simple Path to Wealth, whether it's Paul Merriman's stuff, Larry Swedroe's stuff, Ray Dalio's stuff, things we get from AQR, Bogleheads stuff, Historical attempts at alternative investments like the permanent portfolio. All of these have something valuable to offer, but what you really do need to do is then apply that Bruce Lee principle, which is take what is useful, discard what is useless, and add something that is uniquely your own. And to the extent I can help you do that, I will have served my mission. We're on a mission from God.

Mostly Voices [20:54]

At least the mission to inform. I am a scientist, not a philosopher.

Mostly Uncle Frank [21:02]

The mission to goof off and to laugh requires other implementations. She'd hear me in the other room and she would just start yelling.

Mostly Voices [21:14]

I'd say peanut, hazelnut, Cashew nut, macadamia nut. That was the one that was sent her into a going crazy. She said, you, stop naming nuts. And Hubert used to be able to make the sound, and he wasn't talking, but he was to go, that sounded like macadamia nut. Pine nut, which is a nut, but it's also the name of the town. Pistachio nut, red pistachio nut, natural, all natural, white pistachio nut. But thank you very much for your appreciation and thank you for your email. And then the judge in his mind, because he can pick up on the lap, as they will, sometimes give him blue ribbon. Hey, Judge. Hey, what's going on there? I know what you're thinking, and I'm the best dog in the whole ring. See?

Mostly Uncle Frank [22:19]

Last off. Last off, an email from Will from Buffalo.

Mostly Voices [22:28]

I believe in Buffalo. I believe in the Buffalo way. The land of blue cheese and the red pinto. The town run by a mostly benevolent mafia. They come to you in friendship, unless you insult the family.

Mostly Mary [22:52]

And Will from Buffalo writes：hi Frank, I have a question that might be good for the show. I just listened to episode 274, pitfalls of retirement calculators and being unrealistically conservative. So, a big theme：find good benchmark returns to plug into the calculators, otherwise garbage in, garbage out. My question, what's a good benchmark rate? My gut, which could be wrong, is that the world and S&P 500 is very different today than 100 years ago. Thus, I hate to use the 95 to 150 year average return of the S&P 500, 10 to 12%, depending on who you ask. However, I go back and forth on when is the most appropriate. In my mind, I tend to go between 50 to 70 years, 1952 to 1972, until 2022, the present. Why do I do this? One, the world has some big differences. Global trade, less war, more cooperation in general, not always for sure, LOL. Far more of the world being lower middle class or better. And two, financial markets are way different. More government-imposed backstops, more investment diversification options, more parties in the market. 401ks weren't created until 1978. What are your thoughts? I am trying to outsmart my common sense here. Also, what does one do for other asset classes that were not around in 1972 or had limited data? REITs, micro cap ETFs, mutual funds, emerging markets ETFs, mutual funds, and so on. Is it advisable to use a CAGR from the S&P 500 for 50 years and CAGR from REITs for 40 years and CAGR from emerging markets or micro cap funds that only have 25 years baked in? I can certainly see some flaws there, but I'm unsure of the most logical way to proceed. Will.

Mostly Uncle Frank [24:52]

Well, Will from Buffalo, yes, you may be trying to outsmart your common sense here, as you mentioned. But this does get into a very interesting topic as to what should be the basis for your inputs in any kind of analysis, whether it's a Monte Carlo analysis or some other kind of analysis. Because there are A couple different choices you can make. One is you can use the actual historical data. So you look at a data point as being one year or one month and then look at how whatever assets you're analyzing performed together in that environment. And then by using a Monte Carlo simulation, you are just mixing up all of those data points to get various ranges of outcomes. But you can also just be selecting what you believe is a reasonable average return for the next period and then putting some standard deviation on that. And that could be based on historical data or some other data or crystal ball data. A lot of people try to do such things using CAPE ratios and other things these days.

Mostly Voices [26:09]

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 [26:17]

And so there ends up being kind of a hot debate as to which one is better. Now the crystal ball has been used since ancient times.

Mostly Voices [26:25]

It's used for scrying, healing and meditation.

Mostly Uncle Frank [26:30]

My belief is that using the raw historical data as it actually appeared is probably the best use of data because what it forms is a base rate and is likely to be less wrong than anything you can come up with because you have to believe that whatever you're using is probably going to be wrong in some way for the next period. It's either going to be too low or too high. But by using large historical data sets, you are likely to be less wrong because you are not over valuing some other input that you think might be relevant. And that's the real danger of any kind of projection method that is relying on specific inputs or macro data that they are obviously excluding all the other data in the world that could possibly affect the investments. And I think that's played out as true over time. I mean, especially if you look at things like Vanguard's projections of future returns going back to at least like 2010. Those have been laughably wrong for a really long time. Wrong! And it's because they are trying to use valuation metrics to forecast future returns. And so they've been way under averages and the actual returns have been over averages. So you'd be better off just taking the historical averages because you would have been less wrong. And so whenever I see somebody's projections based on their caped crystal balls or whatever they are.

Mostly Voices [28:09]

A really big one here, which is huge.

Mostly Uncle Frank [28:14]

The first question I ask is, have you actually been able to use that method prospectively as did you actually use that method 15 years ago and come up with an accurate projection of what was going to happen going forward. And the truth is, pretty much nobody has come up with such a mechanism for projecting future returns. It's all very fuzzy, it's all very messy, and generally it doesn't work any better than historical returns. In fact, historical returns are usually less wrong than what some guru with a crystal ball tells you.

Mostly Voices [28:52]

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

Mostly Uncle Frank [28:56]

So unless they've got an established track record of being correct, prospectively, not coming up with data that's relying, that's looking backwards and saying this would have worked, but actually have made the predictions and gotten them more right than historical data would suggest, there's no reason to rely on them at all. And if you actually looked at some of these things, they're highly embarrassing, I would say. Vanguard's annual projections are some of the most laughable and embarrassing, I would say. Morningstar's recent experiences aren't much better. And you can tell that there's something wrong with their crystal ball simply by just comparing their projections in 2021 in their state of retirement report versus their projections in 2022. They're extremely different. And these projections are supposed to be for the next 30 or 40 years. If your projections are changing that much year to year based on some crystal ball inputs you're making, that is not a good model. It's just not.

Mostly Voices [30:02]

Forget about it.

Mostly Uncle Frank [30:06]

Roger Whitney was recently asked this question on his Retirement Answer Man show because his outfit does use historical data when they're doing their Monte Carlo simulations and things. And the questioner was saying, well, shouldn't you be accounting for this, that, or the other macro event or data to modify your predictions? And he said no, for pretty much the same reasons I've been saying that the best thing about historical data is that you're not being able to project any of your personal beliefs upon that data. You're not sitting around saying, well, I think the national debt is the most important factor. I think what the Fed is doing is the most important factor. I think unemployment is the most important factor. You're not injecting that kind of subjectivity into the forecast. So you know it's going to be wrong, but the chances of it being subjectively wrong based on you are lower or nonexistent because you're taking that out of the equation. But he also said something that I thought was even more prescient, which was that the problem with using some forecasters device is that what people end up doing is they, okay, I'm going to use the Bloomberg forecast this year. And then you use that for a couple of years and it's like, well, that didn't really work. Well, I'm going to go with Morningstar now for the next two or three years. And then I'm going to go with Vanguard. If you keep changing what forecasting methodology you're using, then all of a sudden you are all over the map as far as things like portfolio construction, what you think you can take out of the portfolio year to year, and you're going to end up jumping around based on which forecaster you are picking to follow. And that is also a very subjective process. because there are many, many, many different forecasters that you could be following. And your subjective choice of one is not an objective methodology for doing these sorts of analyses. Again, you are best off using the historical data because it's likely to be less wrong than any subjective forecast that you can come up with. Now, I did want to call your attention to one subtlety that you were talking about here is it appears that you are using an average return over the past 100 years or 50 years or whatever and then applying a standard deviation to that. I would actually not do it that way. I would actually use the historical data from each time period because you want to reflect essentially what were the macro conditions of that time period. How did that affect all of the different assets you're analyzing? How did that affect stocks specifically, bonds specifically, each different kind of bond, each different kind of stock, managed futures, gold, whatever other assets were involved in that? All of them were performing at the same time in the same macro environment. If you disambiguate, if you will, these performances and try to instead take that and turn it into an average with a standard deviation and then pretend all of these assets are uncorrelated. So you give stocks a average return and a standard deviation, you give bonds an average return and a standard deviation. That is not also a very accurate way of looking at things because what that is modeling is potentially stocks in an inflationary environment while your bonds are in a deflationary environment. at the same time. That situation is not going to exist and you don't want to be modeling things that have never existed or are never likely to exist. That is also a subtlety I don't think is very well appreciated. So if you're going to use analyses like that, you would want to use them as a supplement to actually using the raw data as it appeared in the time frames that you have data for. and obviously the more data you have, the less wrong your projections are likely to be. So I don't think I would be using the compounded annual growth rates in the way that you are suggesting to take each one out separately and say that this is likely to have this growth rate over this period of time, because it's not reflecting those macroeconomic environments that these things were actually performing in simultaneously. and that's what you're really trying to capture with this. Now you ask about modeling REITs or thinking about REITs prior to their existence. What we know about REITs is that generally they are mid-cap value in terms of factor exposure. Mid-cap blend really tilted towards value, I should say. We also know that their returns are actually very similar to the overall returns of the stock market. so I wouldn't think that they would be any different over time. They are less correlated though to the overall stock market, which is what you're really interested in with REITs. Not because you think they're going to perform any better, but because they're going to perform differently in different environments. I would actually not try to break these things down too far beyond some of the basic factors. That is one of the issues that Factor Investing has run into having what they call a factor zoo with all of these spurious things that are look like they're meaningful factors, but in fact are not. The good book to read about that is Larry Swedroe's All About Factor Investing that came out in 2017 or 2018, which does go through discussing that issue with respect to factors and why people typically only look at things like growth versus value, small versus large, momentum, quality, and volatility. Because a lot of newfangled made-up factors really are not statistically meaningful. Generally, the fewer variables you are dealing with, the more likely your projections are to be less wrong. Because the more variables you stick into a formula, the more likely you are going to get some input that causes a output that sticks you off the map, particularly if you're compounding it over time. Now, fortunately, at least with respect to things like the stock market, people have tried to do analyses going back centuries in time, analyzing the growth of businesses over time. And while you can quibble with them, they generally come out saying that over time, it does seem to be that these growth rates experienced in companies in the stock market or bonds are remarkably consistent over centuries. If anything, they're a little bit better today than they were in the past simply because we have better financial technologies for creating shares, creating funds, and trading them. And we also have more liquid markets for the most part, meaning that asset prices are more likely to reflect all available information. Now, as for things like emerging markets, I think that's one of the most difficult things to deal with because the composition of any emerging market index has changed drastically over time with China not being in the index at all prior to about 30 years ago and now dominating the index. And the problem with an index like that, because it involves multiple countries and multiple or varied allocations to countries over time. And each country has its unique country risk associated with it. It's hard to believe that you're going to have a lot of consistency out of that data. As a practical matter, I do think that you can get some nice exposures to these things now through the Avantis funds because they not only incorporate these headquarters issues about which country a company is in, but they also add in those factors, small in value in particular, that you can then apply to these things. And you're going to be able to construct better portfolios if you're focused on that, whether you're using domestic or international stocks to do that. I'm telling you, fellas, you're gonna want that cowbell. The only thing I can tell you that I am aware is consistent is that if you are a US investor investing in other countries' stock markets, the performance of the US dollar against that other currency is likely to dictate pretty much whether the stock market in that country outperforms the US stock market or not. So when the dollar is weak against those currencies, the foreign market tends to outperform the US stock market. And when the dollar is stronger, the US market tends to outperform the other one. From a very big picture perspective, I really don't think there's any way of saying that the risk reward involved in investing in emerging markets is different from investing in the US. Basically, you're taking more risk, and so you should be getting a higher reward with that, or say a micro cap stock. But lots of people are writing lots of stuff about this all the time, and each country is going to be different. So if you have some insight into a particular country or region, you might be able to get ahead of the game with respect to that. For domestic issues, I think the best accepted set of data is the Fama-French data that goes back to the 1920s. And I would rely on that as the best available and what's largely accepted by anybody who does serious work in this area. And so the bottom line is I would use as much historical data as you have available. I would use it in the form that it exists, and that reflects all of the assets performing in one economic environment as opposed to different assets analyzed separately. And I would avoid adding crystal ball methods on top of that, regardless of how tempting that may be.

Mostly Voices [40:30]

The crystal ball is a conscious energy.

Mostly Uncle Frank [40:33]

And if you do that, I think you will be less wrong than somebody who does not do that. That again is my story and I'm sticking with it. And thank you for your email. And now for something completely different.

Mostly Voices [40:46]

What is that? What is that? What is it? Oh, no, not the bees! Not the bees!

Mostly Uncle Frank [40:54]

And it does appear we were attacked by bees this past week. Guess all the markets did just as bad as they've done all year, at least since last March. Not coincidentally, the dollar is at its highest level since March as well. And so the dollar wrecking ball is in full swing. But anyway, looking at those markets, the S&P 500 was down 2.93% for the week. The NASDAQ was down 3.62% for the week. Small cap value represented by the fund VIoV was down 2.82%. For the week, gold wasn't so bad.

Mostly Voices [41:33]

I love gold. Gold was only down 0.04% for the week.

Mostly Uncle Frank [41:41]

One of the better performers actually. Long-term treasury bonds represented by the fund VGIT were down 1.59% for the week. REITs were the big loser. Representative fund R EET was down 4.22% for the week. Commodities represented by the fund, PTBC, were down 1.18% for the week. Preferred shares represented by the fund, PFF, were down 0.62% for the week. And lo and behold, managed futures managed to be up for the week. I think that's the third week in a row they've done okay if not good. A representative fund, DBMF, was up 0.25% for the week. And so just like they did last year, when the dollar is strong and the Fed is raising rates, they do tend to perform because they do follow currencies and interest rates in a trending way. As you might expect, all the seven sample portfolios were down for the week, beginning with the All Seasons, our reference portfolio that's only 30% in stocks, 55% in treasury bonds, and the remaining 15% in Golden Commodities was down 1.77% for the week. It's up 2.65% year to date and down 5.62% since inception in July 2020. Going to our three kind of bread and butter portfolios, first one's this Golden Butterfly. It's 40% in stocks divided into 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 1.62% for the week. It's up 2.97% year to date and up 10.41% since inception in July 2020. Next one's the Golden Ratio. This one's 42% in stocks, 26% in long-term treasury bonds, 16% in gold, 10% in REITs, and 6% in a money market fund. It's down 1.97% for the week. It's up 3. 71% year to date and up 6.32% since inception in July 2020. Moving to the Risk Parity Ultimate Portfolio. I won't go through all 15 of these funds. It was down 1.95% for the week. It's up 4.38% year to date, but down 1.35% since inception in July 2020. Now, moving to our hideous experimental portfolios that involve leveraged funds and are extremely volatile. We run hideous experiments here so you don't have to. First one is this accelerated permanent portfolio, and this one is 27.5% in a leveraged bond fund, TMF, 25% in a leveraged stock fund, Upro 25% in PFF preferred shares fund and 22.5% in gold. It was down 4.14% for the week. It's up 1.03% year to date, down 23% since inception in July 2020. Next one's the aggressive 5050. This is the least diversified and most levered of these portfolios. 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 immediate Treasury Bond fund is down 5.21% for the week. It's actually now down 0.14% year to date for being up as much as about 17% earlier this year and down 30.82% since inception in July 2020. And the last one, which is our newest one, the Levered Golden Ratio Portfolio. This one is 35% in a composite LevEraged fund NTSX, that's the S&P 500 in Treasury bonds, 25% in gold, GLDM, 15% in a REIT, O, 10% each in a LevEraged small cap fund TNA and a LevEraged bond fund TMF, and the remaining 5% in a managed futures fund KMLM. It was down 3.45% for the week, down 0.17% year to date, and down 23. 57% since inception in July 2021. A relatively bad time to start a portfolio. I suppose the real question on everybody's mind is how long will this go on? I did consult our crystal ball here. Let's see what it said.

Mostly Voices [46:22]

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

Mostly Uncle Frank [46:29]

Funny it always seems to say something like that. The answer is probably somewhere between longer than we'd like, but not that long, really, in the grand scheme of things. Anyway, that's probably enough for today. And now I see our signal is beginning to fade. Just a couple of announcements. First, our friend Justin over at Risk Parity Chronicles is restarting his blogging operations after being on hiatus for a good part of this year.

Mostly Voices [47:00]

People keep asking if I'm back, and I haven't really had an answer. But now, yeah, I'm thinking I'm back. We're happy to see him back?

Mostly Uncle Frank [47:12]

'Cause you know we're pretty late on the written work here.

Mostly Voices [47:16]

I'd say in a given week, I probably only do about 15 minutes of real, actual work.

Mostly Uncle Frank [47:23]

And a bit lazy to boot.

Mostly Voices [47:27]

I don't think I'd like another job.

Mostly Uncle Frank [47:30]

Anyway, I will read a short email from Justin in our next episode. And he also reminds me that it is our last week for talking about the Walk for McKenna for the Father McKenna Center, which is our charity to which he has donated. If you are in the DC area, we are doing that on Saturday the 30th at 8：00 AM. and you are welcome to join, but even if you can't join, you're welcome to donate, and I'll put that link in the show notes. And 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 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, follow, give me some stars or review. That would be great. Mmmkay? Thank you once again for tuning in. This is Frank Vasquez with Risk Parity Radio signing off.

Mostly Voices [48:40]

Some people think, you know, you're on a small creek, a small body of water that you have to use a small fly, but I've been in many situations even on a big river where I'm using a size 18, a size 20, a size 22, and I go with a dropper. Sometimes I go with a parachute Adams, and maybe I have a little PT nymph on the end, and you can hook a big fish. A lot of people don't realize that thing.

Mostly Mary [49:09]

You have to go with like a woolly bugger or a sculpin pattern or some kind of maybe egg sucking leech or something, which I've never had any luck with myself. 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.