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 [0:37]

Thank you, Mary, and welcome to Risk Parity Radio. If you are new here and wonder what we are talking about, you may wish to go back and listen to some of the foundational episodes for this program. Yeah, baby, yeah! And the basic foundational episodes are episodes 1, 3, 5, 7, and 9. Some of our listeners, including Karen and Chris, have identified additional episodes that you may consider foundational. And those are episodes 12, 14, 16, 19, 21, 56, 82, and 184. And you probably should check those out too because we have the finest podcast audience available.

Mostly Voices [1:28]

Top drawer, really top drawer.

Mostly Uncle Frank [1:32]

Along with a host named after a hot dog.

Mostly Voices [1:35]

Lighten up, Francis.

Mostly Uncle Frank [1:38]

But now onward, episode 302.

Mostly Voices [1:44]

Today on Risk Parity Radio, it's time for the grand unveiling of money, which means

Mostly Uncle Frank [1:48]

we'll be doing our weekly portfolio reviews of the seven sample portfolios. portfolios you can find at www.riskparityradio.com on the portfolios page. But before we get to that, I'm just sorry I wasn't able to create an episode this week, earlier this week, but I think that's going to be the case for about the next six weeks, at least till close to Christmas. I have some lawyering to do, some charity work to do, and some other things to do that are taking up Most of my time these days. When Chekhov saw the long winter, he saw a winter bleak and dark and bereft of hope. But I will try to do at least one episode a week and then get back to two a week in late December. And now without further ado, we'll just do what we seem to do best here. Here I go once again with the email. And. First off, we have an email from William.

Mostly Voices [2:49]

We are commodities brokers, William.

Mostly Uncle Frank [2:53]

And William writes. Hi, Frank.

Mostly Mary [2:57]

Do you think now could be a good time to move along the yield curve for someone holding only the short spectrum of bonds? In my case, swapping my approximately 10-year Treasury ETF, IEF, for the TLT 20 years plus ETF. Thoughts? Tell them the good part.

Mostly Voices [3:15]

The good part, William, is that no matter whether our clients make money or lose money, Duke and Duke get the commissions.

Mostly Uncle Frank [3:30]

Well, it's funny, I see you wrote this on October 20th, and yes, that was a very good time to move out in the yield curve, given what happened last week with the Sharp reversal and upward climb of all of these Treasury bond ETFs. Now, whether that's a reversal of trend for a good long time, I really don't know. I was reading about various entities, crystal balls recently. Crystal ball can help you.

Mostly Voices [3:57]

It can guide you.

Mostly Uncle Frank [4:01]

UBS says that the Rate on the 10-year is going to drop to 3.5 by the middle of next year. Others are saying it's going to go up to 6% or even higher. The crystal ball is a conscious energy. And while it may be interesting to read those things for entertainment purposes, I don't recommend trying to market time with interest rates any more than I would try to market time with stock markets or anything else. Forget about it. It does seem like the current consensus is that the Fed is done raising interest rates in this cycle, which generally means that interest rates will calm down to some temporary equilibrium until something else happens, and then they'll move one way or another. That was weird, wild stuff. But when I'm thinking about these intermediate and long-term Treasury Bond ETFs, I am thinking of them as long-term holdings, as in decades, not weeks, months, or years, because that's really their purpose in a portfolio, to be a diversifier against your stocks, even though they haven't acted very uncorrelated recently. But generally, the Fed is not raising interest rates by about 5% over an 18-month period, and usually they're not adjusting them at all. So, I would just treat intermediate and long-term treasury bonds like every other long-term asset in your portfolio, which are mostly your stock funds, maybe some other things like gold. I love gold! Which is you buy low and you sell high in a rebalancing operation and you don't worry about current trends or predictions or other crystal balls.

Mostly Voices [5:49]

As you can see, I've got several here, a really big one here, which is huge.

Mostly Uncle Frank [5:54]

And I think that's more likely to yield better outcomes over time than trying to be right with these predictions, because you have to be right twice if you're jumping in and out of these sorts of things. You have to know when to get in and you have to know when to get out, or vice versa.

Mostly Voices [6:11]

So my true answer to your question is, We don't know. What do we know? You don't know. I don't know. Nobody knows.

Mostly Uncle Frank [6:23]

Because either you were right when you wrote this and you just missed the big move or a new trend is beginning in which case you have plenty of time to make the move that you're contemplating. But it's always a good discussion on these. And I don't know what it is about interest rates that makes people think that they are somehow easy to predict or easier to predict than the stock market. Because if you could actually predict interest rates in advance and which way they're going to go, you'd be fabulously wealthy. You can just trade options on treasury bonds all day long and make all kinds of money if you were right all the time. Inconceivable. But the reason people can't do that is because it's just really not that easy. And you're fooling yourself if you think that by jumping up and down the yield curve, you're going to likely improve your returns in your portfolio over time. Because for every right prediction you make, you're probably going to make a wrong one too. You could ask yourself a question. Do I feel lucky? Well, do you punk? Anyway, that's my story and I'm sticking with it.

Mostly Voices [7:38]

And thank you for your email. Clear so far? Yeah. Good, William.

Mostly Uncle Frank [7:45]

Second off, we have an email from Tyler.

Mostly Mary [7:53]

And Tyler writes, hi, Frank. I've been listening to your podcast a lot as I'm trying to design a portfolio for my wife and me. Shirley, you can't be serious. I am serious. And don't call me Shirley. I'm intrigued with the Golden Ratio Portfolio, but I came across something funny when I was using PortfolioVisualizer.com, and I'm wondering if you saw this too. Funny how, how am I funny? When I run a Monte Carlo simulation, I get vastly different results when I use the tickers option versus the asset classes option. I'm running the model for a 70-year retirement, and in the tickers model, I get a 63% success rate, whereas on the asset classes model, I get an 86% success rate. I added links to the two portfolios if you want to check them out, as well as a screenshot of the portfolio success chart that I'm referring to. I tried using the exact tickers you listed on your site, but I had to adjust some of them due to not being old enough. or in the case of the low volatility index, not having an equivalent selection in the asset class option. In short, my question is, do you have any ideas what might be causing this discrepancy? Thank you so much, Tyler.

Mostly Uncle Frank [9:06]

Well, Tyler, I see what you did there.

Mostly Voices [9:09]

Didn't you get that memo?

Mostly Uncle Frank [9:14]

And I will link to your Portfolio Visualizer analyses in the show notes. But let's just talk about what you've got there. First, I see you've modeled this on a 70-year retirement, and I don't think I would do that. I mean, maybe you'll live that long and you're that young, but if you're thinking about that, you probably would just want to look at what's called the perpetual withdrawal rate. The problem with using these excessively long retirement periods in portfolio visualizers, you don't have that much data. If you don't have 70 years of data, if you model a 70-year retirement, you're just getting repeats of the same data set. They'll be scrambled up, of course.

Mostly Voices [9:55]

That goes without saying. Oof.

Mostly Uncle Frank [9:59]

It's going to be very popular. But what that ends up resulting in is kind of a distorted analysis that is more centered around its mean. and the tails are less useful, if you will, because if you're using the same data over and over again. Truth is, once these things get out to 30 or 40 years or more, you're really not getting any more information about what's actually going to happen that many decades down the road. These kinds of analyses are actually more useful in comparing one portfolio versus another one. that is the best use you can use these kind of simulations for. Now looking at your two models there, in the one where you use the ticker symbols, you used tickers VIoV and VGLT for your bonds and small cap value. Unfortunately, those two don't go back that far. They only get you back to January of 2011. And you can see that when you run it, there's a little description of the data that pops out and it tells you how much data it had to analyze for that. And in this case it says January 2011. You could get back at least about 2004 if you put in IJS for VIoV, which are two funds that follow the same index. IJS is older. If you put in TLT instead of VGLT, that will take you back to I think 2002. So you can get more data out of it that way. and you'll see a difference there if you do. And then looking at your asset class analysis, one of the issues with Portfolio Visualizer is that their REIT data on the asset type data set only goes back to 1994. And so that analysis is limited to data from 1994 to the present. Now you can get REIT data that goes back to 1980. 70 in portfolio charts. So anytime you're analyzing something with REITs as an asset class, you probably want to go over there and do analyses over there as well. But one thing you should recognize about REITs and this golden ratio portfolio in particular is that you would not expect REITs to perform over time any differently than the rest of the stock market. That's just a baseline assumption. The reason you hold them as a separate asset class is because They're less correlated, and so you expect them to move differently at different times, and that gives you more diversification in your portfolio and lowers its over-volatility, which hopefully would increase its safe withdrawal rate. But that being said, you can get a longer dataset model by using a simplified version of the Golden Ratio, in which instead of investing that 10% in REITs, You just move it back into the two stock funds, the total stock market or large cap value, and then the small cap value. And that simplified analysis looks like 26% large cap value, 26% small cap value, 26% long-term treasuries, 16% gold, and 6% in cash. And that one on Portfolio Visualizer will take you all the way back to the 1970s. And I'll link to that in the show notes. But if you do your 70-year analysis with that portfolio, you get a 95% success rate. Again, you don't have 70 years of data, so take it for what it's worth. But that portfolio I described is kind of a baseline idea to work with because you can also model that in the toolbox at Early Retirement Now and get similar results going back 100 years. Which leads me to talking just more about the construction of that golden ratio portfolio. It is intended to be flexible. In particular, it's got 42% in stocks and 26% in the treasury bonds in our variation, long-term treasury bonds and 16% in gold. But those 10 and those 6% at the bottom could be varied into anything. They could be more cash or short-term bonds. They could be partially in managed futures. They could be just more stock funds. and you'll get different kind of risk reward characteristics based on what you're holding there. But all of those kinds of portfolios are going to be better over time than your traditional 60/40 two fund stock portfolio or three fund portfolio or any of those sorts of things just because it's a more diversified construction to begin with. and I'd probably have to say that over, say, the past 20 years, using REITs in that kind of portfolio has probably been a mediocre choice at best, and especially if you're using a total REIT fund, because they tend to be kind of unbalanced. But when I was constructing the sample portfolios, I wanted to do something relatively easy, even if it wasn't necessarily optimized for any particular time period. In our own personal portfolios, we hold more alternative things like managed futures and fewer of things like REITs. And as I said at the beginning of the year, we will be actually swapping managed futures in for REITs when that portfolio recovers the sample portfolio, just because I think that'll be more interesting as a sample portfolio. And because at the time we constructed it, I did not know of any managed futures fund that was cost effective and that could actually be used in that position. Those things are now a reality that weren't there or weren't tested very far at the time we were constructing those. So you have many options there with these sorts of portfolios and I would season to whatever particular tastes that you have, because I think lots of different variations will probably work pretty well. Hopefully that helps and thank you for your email. Last off. Last off, we have an email from Builder Man.

Mostly Voices [16:22]

Can we fix it? Yes, we can.

Mostly Mary [16:25]

And Builder Man writes, Frank. Thanks for reading my email on the show. I did know your Iowa history from previous episodes. My family's farm is in north central Iowa near the town of Algona in Kossuth County.

Mostly Voices [16:42]

They'll come to Iowa for reasons they can't even fathom.

Mostly Mary [16:46]

However, I have a brother who lives in Iowa City, so I get to your former area of the state with some regularity. I don't think I said, but I live in the Minneapolis area. I had considered your suggested approach, but I think hearing you articulate it helped me accept it as the proper way to think about this. That is the straight stuff, O Funkmaster.

Mostly Voices [17:28]

I don't intend to ever sell my share of the farmland,

Mostly Mary [17:31]

which makes it an income stream only that is pretty reliable and overall has had an upward trend.

Mostly Voices [17:39]

Ray, just sign the papers.

Mostly Mary [17:43]

I accept that farmland has positive expected valuation growth, but it is not very liquid, especially in small chunks, which makes that aspect nice, but it doesn't buy the groceries.

Mostly Voices [17:53]

Ray, when the bank opens in the morning, they'll foreclose.

Mostly Mary [17:58]

My reluctance to sell is partly nostalgic and partially practical due to the diversification I feel it brings. So for me, it seems similar to Social Security, except I can pass it on and collect it at any age. I do feel very fortunate to have lucked into exposure to this asset class, which I think is a nice diversifier, but until very recently, not very accessible to most people.

Mostly Voices [18:25]

Grew up like my daddy did, my grandpa could his land. When I was five, I walked a fence while grandpa held my hand. Appreciate your insights and your contribution to the community of listeners. Builderman. You're never home. You talk to your trucks more than you do me. You never even touch me anymore, Bob. I just can't do this. P.S. I love the sound clips.

Mostly Mary [18:48]

Movie quotes are 50% of my vocabulary. the more obscure the better. Keep up the great work.

Mostly Voices [18:55]

He speaks to me always, but today he is displeased. He is displeased with you, Malachi. What have I done? Question him not in vain. Do you not know you did sacrifice Joseph without an offering? And did you not spill the blood of the old man when his oil and gasoline were still useful to us? Sarah has the gift of sight. She warned us of the coming of the Interlopers. Question not my judgment, Malachi. I am the giver of his word.

Mostly Mary [19:27]

Also, I loved the Wizard of Oz episode. I listened to it on the way to the cabin with my wife and 17 year old twins and all enjoyed it and learned something. Thank you.

Mostly Uncle Frank [19:54]

All right, this is a follow-up email to the one we answered in episode 299. We were talking about how to model a portfolio or model your assets versus your expenses when you had certain things that were illiquid but income paying versus other things that were liquid. not necessarily income paying. And I won't repeat all that because you can go listen to it again. But I do agree with you that treating that farmland as a stream of income is more appropriate because you're not going to sell it.

Mostly Voices [20:31]

If I had to start all over, if I knew what it was going to be like when I got out of high school, I probably wouldn't have done it.

Mostly Uncle Frank [20:43]

You want to buy a farm? And it's interesting your note on practical diversification That is an interesting concept because all of the portfolios and things we're talking about here are basically people who are retiring and are going to die and are not really thinking about long-term family legacies or have something like a farm that's been in the family for many generations. Rain on the scarecrow, but on the plow. Rain on the scarecrow, blood on the plow. that is a completely different topic than we usually talk about. There is a excellent YouTube interview of a guy named Anthony Deedon from some years back. I will find it on YouTube and link to it in the show notes. Anyway, this person advises families basically constructing hundreds of year time kind of portfolios and thinking in terms of What sort of investments does this family want to hold for many, many, many generations? And when you're thinking in those terms, you do end up with a lot of these pre-industrial ideas that go back thousands of years. And productive real estate and gold are two of those things that generally are held by families forever. The other one is private businesses. And one of the things he talks about was, investing in beekeeping businesses for one of the families he advises. This is all very old money in Switzerland and things like that. But it was one of the more memorable interviews of a financial advisor I'd ever seen because it just illustrates that your investments need to match whatever your perspective is, and whether that's speculating in the near term, Constructing a portfolio for a lifetime or a retirement or doing something that's supposed to be multi-generational or 100-year time frames is fundamentally a different animal. But I would go watch that interview because I think you're gonna find it very informative and entertaining. And just looking at your notes for other references, the Wizard of Oz episode that was episode 208, where we talked about advice to beginning investors using a Wizard of Oz theme.

Mostly Voices [23:05]

It's true, I can't attend you here and now as I'd like, but just try to stay out of my way. Just try. I'll get you, my pretty, and your little dog too. I'm glad you and your family enjoyed that. It was fun to put together.

Mostly Uncle Frank [23:22]

And I'm glad you also enjoy the movie quotes and other scurvy and spurious references we fool around with here. You can't handle the tractor! Because I know not that many people do, but the ones who really do are the ones that actually listen to this podcast. So it all works out pretty well. And that's the way, -huh, -huh, I like it. Kacie on the Sunshine Band. This funny little place isn't for everybody, but thankfully it doesn't need to be. Am I right or am I right or am I right? Right, right, right. I also want to thank you again for your generous donation to the Father McKenna Center, which is our charity. We do not have any sponsors. And if you would like to donate to that, you can do it from the support page at www.riskparityradio.com. or there's also a link to donate directly. And if you do, let me know and I will move your email to the front of the line. That's all I got to offer here. You see, we're on a mission from God. Hope you're enjoying life down on the farm.

Mostly Voices [24:34]

Oh, but ain't that America? For you and me, ain't that America? Something to say. sleep, baby. Ain't got a married, home on the free.

Mostly Uncle Frank [24:58]

Little blank houses for you and Oh, yeah, you and me. And thank you for your email.

Mostly Voices [25:08]

Now we are going to do something extremely fun. It might be a tumor. It's not a tumor. It's not a tumor at all.

Mostly Uncle Frank [25:20]

And the extremely fun thing we get to do is talk about our weekly portfolio reviews of the seven sample portfolios you can find at www.riskparityradio.com on the portfolios page and also talk about our monthly distributions. And it actually was fun this week for once. Yeah, baby, yeah! I think this was actually the best week of the year for the stock market. And it just goes to show you how difficult it is to predict such things. I'm not aware of anyone who said several weeks ago or a couple months ago, it's like, well, just wait until we turn into November and then we're gonna have the best week in the stock market. That's not how it works. That's not how any of this works. I have seen a lot of amateurs not buying stocks or selling their stocks and loading up on CDs and things in the past three months. And that's really a bad idea. That's really the people who are going to miss out on these kinds of rallies because once something does come off a low, it generally does go up in a very dramatic fashion in a very short period of time. And if you miss it, you just miss it. I'm not a smart man. And then you're stuck trying to get back in after the rally and end up selling low and buying high and chasing things.

Mostly Voices [26:41]

Are you stupid or something? Stupid is as stupid does, sir.

Mostly Uncle Frank [26:45]

Anyway, let's get off that soapbox and look at these markets. The S&P 500 was up 5.85% for the week. The Nasdaq was up 6.61%. for the week. Small cap value represented by the fund VIoV was actually the big winner last week. It was up 8.8% on the week.

Mostly Voices [27:06]

I'm telling you, fellas, you're gonna want that cowbell. Gold was finally down for a week.

Mostly Uncle Frank [27:10]

Gold was down 0.82% for the week. Long-term treasury bonds were also up sharply as interest rates fell. Our representative fund, VG L T was up 3.54% for the week. REITs like small cap value were also up sharply. Our representative fund, R E E T was up 8.53% for the week. Commodities were down. Commodities represented by the fund, P D B C were down 1.33% for the week. Preferred shares were up with the stock market. They were up 5.49% for the week. and managed futures are leading up the rear this week. They were down 2.75% for the week. A lot of that I think is due to the weakness of the dollar last week, but in any event they're displaying their diversification properties pretty well. Now moving to these sample portfolios, the first one is this All Seasons. It's a reference portfolio that's only 30% in stocks. the total stock market fund 55% in intermediate and long-term treasury bonds and the remaining 15% divided into gold and commodities. It was up 3.12% for the week. It's up 1.87% year to date and down 6.34% since inception in July 2020. For November we are taking $27 as a distribution that's at a 4% annualized rate. It'll come out of accumulated cash will take in $320 year to date and $1,294 since inception in July 2020. And all of that detail is on the website if you are interested in that. Boring! Moving to these three kind of bread and butter portfolios. First one is the Golden Butterfly. Butter as it is. It's 40% in stocks divided into Total stock market fund and a small cap value fund. 40% in treasury bonds divided into long and short funds. And then 20% in gold. It was up 3.29% for the week. It's up 3.55% year to date and up 11.02% since inception July 2020. We will be distributing $38 out of this for November. That's at a 5% annualized rate. It will also come out of accumulated cash. There's lots of accumulated cash these days because all of these bond funds are throwing off lots of accumulated cash. That'll be $446 year to date distributed and $1,744 since inception in July 2020. Next one is this Golden Ratio Portfolio that we were talking about earlier. In this sample version we have 42% in stocks divided into three funds. a large cap growth fund, a small cap value fund, and a low volatility fund that would be characterized as large cap value in those terms. It's also got 26% in long-term treasury bonds, 16% in gold, 10% in a REIT fund, and 6% in cash or a money market fund. It's up 4.3% for the week, it's up 3.99% year to date, and up 6.61% since inception in July 2020. We'll be distributing $36 out of it for November at a 5% annualized rate. In this one we always take out of the money market fund, so that's where it's coming from. That'll be $428 year to date and $1,713 since inception in July 2020. Next one is the Risk Parity Ultimate. I will not go through all 15 of these funds. It's kind of our kitchen sink portfolio with lots of extra things that nobody really needs, but we've got to put them all somewhere. It was up 4.18% for the week. It's up 3.95% year to date and down 1.76% since inception in July 2020. We're taking $33 out of this from cash that's accumulated. We're now taking out of this at a 5% annualized rate. That will be $457 year to date and $1,953 since inception in July 2020. And yes, all of that is also described in the portfolio description at the website. Now moving to our experimental portfolios involving levered funds. And for once, leverage was our friend. First one is this accelerated permanent portfolio. This one is 27.5% in a leveraged bond fund, TMF, 25% in a leveraged stock fund, UPRO, 25% in a preferred shares fund, PFF, and 22.5% in gold, GLDM. It was up 8.64% for the week, which still leaves it down 0.17% year to date, but catching up very quickly there and down 23.91% since inception in July 2020. We'll be distributing $28 out of it, going to be coming out of accumulated cash for November. That's at a 6% annualized rate. We'll have removed $365 year to date and $2,190 since inception in July 2020. And we are intentionally withdrawing out of these portfolios at a excessive distribution rates just for illustration purposes. And the point of that is to push them to their limits and see when they fail. Because that's what experiments are for. I am a scientist, not a philosopher.

Mostly Voices [32:45]

Next one is this aggressive 5050, our least diversified and most levered portfolio.

Mostly Uncle Frank [32:50]

It's one third in a levered stock fund, UPRO, one third in a levered bond fund, TMF, and the remaining third in ballast divided into a preferred shares fund and an intermediate treasury bond fund. It was up 10.61% for the week. It's down 3.98% year to date and down 33.47% since inception in July 2020. We're taking $24 out of this for the month of November. It's at a 6% annualized rate and that will be coming out of the intermediate treasury bond fund, VGIT, which had been the best performer as of the end of October since the last rebalancing. That'll be $336 year to date and $2169 since inception in July 2020. And now moving to our last one, the levered golden ratio. This one's 35% in a levered composite 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 stock fund, TNA, that's small cap blend, and TMF, a leveraged bond fund, and then the remaining 5% in a managed futures fund, KMLM. It was up 5.27% for the week. It's down 1.05% year to date and down 24.24% since inception in July 2021. It's a year younger than the other portfolios and had a worse start date. We'll be taking $26 out of it from the cash that has accumulated. That's at a 5% annualized rate right now. And it's $328 year to date. And it will have been $1,138 since inception in July 2021. And that concludes our weekly and monthly portfolio reviews. It was a heck of a week, but it still doesn't wipe out the damages done for the past three months. I think the August, September, October timeframe this year was the worst three-month period since COVID in 2020, which all goes to show you're going to get bad periods and you're not going to be able to predict when exactly they come and when exactly they end.

Mostly Voices [35:11]

You're not going to amount to jack squats. You're gonna end up eating a steady diet of government cheese and living in a van down by the river.

Mostly Uncle Frank [35:24]

Hopefully this all will continue to recover in the immediate future, but if not, I'm sure it will go up in the long term as it always does. 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 and go to the website www.riskparriyradio.com, put your message into the contact form and I'll get it that way. Please also check out our sister website, Risk Parity Chronicles, which is a blog about similar materials put out by our friend Justin. And he was off the blogging horse for a while, but he's now back on. Interesting things over there always. And 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 Mary [37:06]

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.