Mostly Voices [0:00]

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

Mostly Mary [0:19]

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

Mostly Uncle Frank [0:36]

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

Mostly Voices [0:51]

And the basic foundational episodes are episodes 1, 3,

Mostly Uncle Frank [0:55]

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. Top drawer, really top drawer, along with a host named after a hot dog.

Mostly Voices [1:35]

Lighten up, Francis. But now onward, episode 311.

Mostly Uncle Frank [1:40]

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.

Mostly Voices [1:55]

But before we get to that, I'm intrigued by this. How you say, emails? And?

Mostly Uncle Frank [2:04]

First off, first off, we have an email from Kyle. Kyle! And it's a long one, Mary. I hope you're ready for it.

Mostly Mary [2:15]

Mary, Mary, why a buggin'? Dear Frank and Mary, I was doing some back testing at portfoliovisualizer.com and came across a couple of things I was hoping you could speak to. A portfolio of 80% stocks, small cap value and large cap growth with 20% long treasuries had a higher compounded annual growth rate than a portfolio of 100% US stock market over the duration of available back testing. Adding five years to the start year and re-running the test several times produced similar results until the start year was after 2000. Still in my financial growth phase, safe withdrawals are not a concern yet. Interestingly, not rebalancing frequently leads to a slightly higher compounded annual growth rate coupled with much larger drawdowns, while rebalancing trimmed a couple of points off the compounded annual growth rate but greatly reduced the size of the drawdowns. This effect was so pronounced that a portfolio of 30% large cap growth, 30% small cap value, and 40% US 10-year actually beat the US total stock market returns while having similar max drawdowns with no rebalancing and slightly underperforming US total stock market with drawdowns that cut in half, comparatively speaking, when rebalancing was applied. There is no question here, only an invitation for commentary. You fell victim to one of the classic blunders. Next, another question about back testing on portfolio visualizer. When run by itself, CashX both delivered a positive return over time, having a compounded annual growth rate of 3.22% and slightly beat inflation with a real return of 0.42% when run on Portfolio Visualizer. Cash had a similar but slightly better result when run in the asset level simulation. I would have expected cash to just lose value over time, but I am thinking of a cash stuffed mattress when I think of cash. Thoughts on this? What am I missing? Never go in against a Sicilian when death is on the line. Finally, Risk Parity Radio rocks. I have binge streamed the back episodes whenever I drive anywhere for the last couple of months. It has been a wonderful journey and I have learned much. You are talking about the nonsensical ravings of a lunatic mind. Alas, I am now all caught up having listened to the final historical episode this week on my way to work. Stand, it's gone. Poof. Driving is now empty and dull. The whole left is impossible to fill. Thank you for this wonderful experience, formerly homeless, Kyle.

Mostly Voices [5:13]

Sometimes love is hard, but you can't just run away from it. When you start to have something special, you have to work at it. Even though it might seem like the world is against you, you still have to hold on with both hands.

Mostly Uncle Frank [5:24]

Well, as some of you may have suspected, Kyle has gone to the front of the email line because he is one of our Patrons on Patreon, where we collect money for our sponsored charity, the Father McKenna Center, which serves hungry and homeless people in Washington, DC. And if you would like to go to the front of the line, you can also become a patron on Patreon on our support page, or you can give to the Father McKenna Center directly and just let me know when you send me an email. And I will dutifully move it to the front of the line as best I can. I've been a little bit confused in the past month since I came back with the pile of emails that have been sorting through. So sorry if I didn't move yours to the front of the line immediately.

Mostly Voices [6:16]

Don't let society dictate who you can and can't be with. Kyle, I love you, babe.

Mostly Uncle Frank [6:23]

Anyway, getting to your questions. I will link to your portfolio visualizer links in the show notes so people can check them out. But I think what's going on here is there is an anomaly with the data for long-term treasury bonds and portfolio visualizer. It's not really an anomaly with the data. It's where it starts. It happens to start in 1978, and that is a particularly good year to start for two asset classes. One being treasury bonds because they were about to peak and then go down substantially the interest rates, I mean, and so the value of bonds went up substantially in the 1980s. And the other is small cap value, especially small cap value versus the rest of the market, which was on a 12-year positive run from about 1975 to 1987 and often in those years greatly outperformed the main market. So what happens there is if you use long-term treasury bonds in an analysis and portfolio visualizer and get that start date of 1978, first all of your results will look better, and then second, your results in particular will look better when you use treasury bonds and long-term treasury bonds and small cap value stocks. This is why I also always like to just use 10-year bonds in any of those kind of analysis in Portfolio Visualizer because the data then goes back to 1972 and you pick up that really bad period in 73-74. And then also to use Portfolio Charts, which goes back to the early 1970s and also the Toolbox Calculator at Early Retirement Now. This is a good example of why you want to use multiple calculators and multiple analyses when you're doing these sorts of things. and that you especially do not really want to rely on these calculators for their absolute numbers for a limited data set. What you're really using them mostly for is to compare alternative portfolios. So use more than one and use more than one data set. And if you want to see a quick difference of what you got there, switch the long-term treasury bonds to 10-year treasury bonds. and it will pick up that earlier data right away. And so you can see the difference between the two analyses there. I'm not sure about the rebalancing issue. I would suspect it's because small cap value did go on that great 12-year run at that point in time. And so if you did not rebalance out of it, you probably performed better in that time period. All right, next question. CashX has delivered a positive return over time. Well, yes, I believe cash is modeled in Portfolio Visualizer as a three-month T-bill rate or something similar to that. So yes, it does have a positive return over time. And if you are interested in the data sources for Portfolio Visualizer, if you go to the FAQ There is a whole bunch of things you can click on about data and methodologies and all sorts of other things to see where something in particular came from. So no, it is not cash stuffed in a mattress. It is what is known as the risk free rate in most methodologies, which is a three month T-bill. And third off here, yes, I am very glad you are enjoying the show. I've been able to listen to all the back catalog.

Mostly Voices [10:10]

You're insane, Goldmember!

Mostly Uncle Frank [10:14]

I suppose I've only gotten weirder over time, but that's par for the course for people such as myself.

Mostly Voices [10:23]

And that's the way, -huh, -huh, I like it! Keshi on the Sunshine Band.

Mostly Uncle Frank [10:30]

This podcast was never really intended intended for a broad audience, so I'm always very glad to know that the people that listen to it are very, very much interested in it and very much appreciated for all of its idiosyncrasies. We few, we happy few, we band of brothers. Because I'd rather be involved with a smaller group of people that really care about what they're doing or listening to than a larger group who doesn't care that much. You see, we're on a mission from God. So I appreciate both your listenership and your support for our charity. Happy New Year, Kyle, and thank you for your email.

Mostly Voices [11:24]

I swear by the moon and the stars and the sky I'll be there, Cal. I swear. Like the shadow that's by your side. Cal, swear to God, I'll be there. Second off, we have an email from Andy. Andy and Barney were lawmen. Bravest you ever did see. Warned ever crook in the record book to stay out of Mayberry. They were the Yes, the world, the law, and the institution of no fear. Wait a minute, Andy, it gets better in the second verse.

Mostly Mary [12:08]

And Andy writes, hi, Frank, glad to have the show back. Yes. It seems like the S&P 500 is almost back to its January 2022 high. I recall earlier in the year you mentioned waiting until our portfolios had recovered before trying to blend in a managed future ETF. Are we approaching that point? And which ones? Thanks, Andy. Let's listen to this.

Mostly Voices [12:31]

A pretty boy Floyd, come a-risin' Dillinger, too big as life They weren't alone there without Capone and in back of Mack the knife, they rolled. By holy mother, whoever wrote that did I did not.

Mostly Uncle Frank [12:53]

Well, first, let me apologize to Andy because I should have moved you to the front of the line earlier. Your email is from mid-December when I returned from my hiatus.

Mostly Voices [13:05]

Looks like I picked the wrong week to quit amphetamines.

Mostly Uncle Frank [13:09]

But I did get to it, and I did respond to you directly. So hopefully that apology will suffice.

Mostly Voices [13:16]

You're too stupid to have a good time. Now getting to your question.

Mostly Uncle Frank [13:21]

This is an interesting question generally and the general question is if you have decided for whatever reason to change the allocations in your portfolio and you might from time to time based on changed circumstances in your own lives or you just find a newer investment that seems better than some of the ones you already have. The question is, well, when should you do that? And the best answer to that is whenever your current portfolio is at or near an all-time high, which is the simple and easy answer to that question, because then you are definitively selling high. But if you want a more nuanced answer to that question, you could also consider it when the asset that you are replacing with whatever new asset you're putting in there When those two things would have yielded a similar performance in your portfolio over, say, the past several years or whenever you started this holding period of whatever you have right now, that is also a decent time to consider making a switch, especially if you're talking about something small. You're not revamping a whole portfolio. You're not going from an accumulation portfolio to a decumulation portfolio. if you're doing something like that, yes, you would want to do that when you're at your all-time high. But here Andy is talking about making a substitution using one of these newer managed futures funds for some of the other assets in his golden ratio style portfolio. And we had talked about doing this with a couple of our sample portfolios, the golden ratio and levered golden ratio portfolios. We talked about that all the way back in January of 2023, and I made the observation similar to what I'm talking about right now, that that was not a good time to do that because you had just seen the managed futures go on a great positive run in 2022. You really wanted to wait until they had a bad performance and whatever you were replacing it with for was having a good performance. In those cases we were talking about replacing a REIT allocation with a managed futures allocation. And we are still waiting for a good time to do that with those, because oftentimes this takes over a year before you should make a substitution. This is not a simple or short process. You don't want to be jumping around from asset to asset. That's a bad investment process. But here, yes in particular, if you were going to take some managed futures and put it in for something like the S&P 500 or something that's been performing quite well and is at or near an all-time high. Yes, this is probably the time to do something like that, especially if it's a small allocation. So for some of you, this might be a good time to do that. Or the alternative is to build out an allocation over time, which can be annoying, but you could put in one percent, say, every month until you've built it up to what you want it to be, which is essentially a method of dollar cost averaging. But anyway, in other email traffic we've had back and forth Andy's really talking about making a 5% allocation to this, so a very small allocation to this. In terms of which funds to use, I think the ones that seem most applicable these days are DBMF, which is that Replicator Fund that replicates the SOC Gen Index and KMLM, which is slightly more volatile and aggressive. Both of those are sort of this new wave of ETFs that's come around the past few years. There are other ones that are coming out on the market, several of them just introduced last year. The problem being with those is we just don't have enough data to see how they perform generally, whereas we really have an idea of what DBMF and KMLM do, and they both seem to perform that function of behaving like a typical managed futures fund pretty well. So I would probably use one of those. The more volatile one, which is likely to go up and down more, is KMLM. So if you're having a smaller allocation, maybe that's the one you want to go with. and if you had a larger allocation, maybe DBMF would be more sensible for an average kind of portfolio. I think I'd kind of wait on the rest of that world until we see how some of these other ones perform, like CTA is another new one. Besides DBMF and KMLM, there are currently three other ones listed in the ETF database, although I know there are more. The other three listed are CTA, WTMF and FMF, and I'll link to that in the show notes. I anticipate this area to expand greatly in the next few years with lots of additional low-cost solutions. So hopefully that helps and it's not too confusing and thank you for your email. Next up, we have an email from Eric. Eric from Cincy.

Mostly Voices [19:11]

I'm living on the air in Cincinnati. Cincinnati, WKRP. And Eric from Cincy writes, Dear Uncle Frank, Simplify recently posted estimated capital gains distributions for their ETFs.

Mostly Mary [19:31]

ETFs are known to be fairly tax efficient, so I was surprised to see the Simplify Managed Futures Strategy ETF has an estimated distribution of $1.24, which is 4.8% of the net asset value of the share price. In your experience following managed futures ETFs, is this capital gain distribution a one-off or does it represent what is common with other managed futures ETFs? Do you have any concerns about holding managed futures ETFs in taxable accounts? Thanks, Eric from Scentsy.

Mostly Uncle Frank [20:04]

Well, here's another managed futures question. How about that? Well, Laddie, frickin' dog! Yes, I've mentioned this in the past, although I haven't dwelt on it, that because managed futures ETFs are going to pay distributions at the end of the year because they're trading during the year, they're best put in a traditional IRA or something similar like that in terms of asset location. And usually there's room in there because we're not talking about a gigantic part of the portfolio anyway. So that's where I would locate them. As to each one's distribution, this is also something that we're going to have to watch over the next few years. And it's going to be interesting to see how these things are managed. Because some of them, like DBMF, are specifically designed only to use, say, about a dozen different underlying futures contracts, and others are using a whole lot more differentiated managed futures contracts. I think CTA is one of those. Then depending on which one you're looking at, there may be a different time frame on which case they're rolling over their contracts or changing their allocations internally, and that is also going to affect this issue as to Distributions at year end. Right now, these things are all too new to say one is preferable to the other. But if you are looking for a guideline, a fund that has fewer assets to manage and rolls them over fewer times during the year is going to naturally have lower distributions at year end. Which funds that will be? We shall see. But I will put this link in the show notes so others can check it out. And thank you for your email.

Mostly Voices [22:16]

Last off. Last off we have an email from Bluto. Fat, drunk and stupid is no way to go through life, son.

Mostly Mary [22:30]

And Bluto writes：hello Frank and Mary, I discovered your podcast about a month ago and I've been binging it ever since. Thank you, great stuff. I'm wondering if you'll be presenting at the Economy Conference again in March. I'm on the fence about attending, but if I knew you were going to lecture or lead a session, then I will buy my ticket. After all, fat, drunken, stupid is no way to get through life. Thanks, John Bluto Blutarsky.

Mostly Voices [22:55]

Mr. Blutarsky.

Mostly Uncle Frank [22:59]

Zero point zero. Well, Bluto, it sounds like you're just the kind of person that would listen to a podcast like this.

Mostly Voices [23:10]

I think this situation absolutely requires a really Feudal and stupid gesture be done on somebody's part. We're just the guys to do it. And actually enjoy it.

Mostly Uncle Frank [23:27]

And I'm glad you are enjoying it.

Mostly Voices [23:31]

Nothing is over until we decide it is.

Mostly Uncle Frank [23:40]

Was it over when the Germans bombed Pearl Harbor? But yes, I will be attending the economy conference again this year. In March. I'll link to that in the show notes. I know it's about 72 or 75% sold out at this point. I will not be doing a two-hour workshop this time, but we'll be doing something on the main stage.

Mostly Voices [23:57]

Top drawer. Really top drawer. I think we're doing a case study. No more flying solo.

Mostly Uncle Frank [24:05]

You need somebody watching your back at all times. But I'm also happy to meet with others, informally as the case may be, or as things may arise. I do plan to be there for the entire three days this year. I missed Friday last year. Let's go! Come on!

Mostly Voices [24:28]

So it's been fun the last couple years, and I hope to see you there,

Mostly Uncle Frank [24:31]

and whomever else would like to show up. Let's go! And thank you for your email.

Mostly Voices [24:44]

Enough for something completely different. What is that? What is that? What is that?

Mostly Uncle Frank [24:52]

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. And yes, it looks like the bees have returned. As this was, I think, the first down week though in about 10. But it looks like everybody who was waiting to sell just waited until the year ended so they could put their gains in the next year. You frequently see that kind of buying and selling. around the year end. But anyway, it actually was not really that eventful. Looking at the markets, the S&P 500 was down 1.52% for the week. The Nasdaq was the big loser last week, down 3.25% for the week. Actually, I spoke too soon. Small cap value represented by the fund of VIOV was actually down 3.5% for the week. So that was the big loser. Gold was not such a big loser. Gold was down 0.93% for the week. Long-term treasury bonds represented by the fund VGIT were down 2.37% for the week. REITs represented by the fund R E E T were down but only down 1.49% for the week. Commodities represented by the fund PDBC were actually up last week. They were up 0.6% for the week. Preferred shares represented by the fund PFF were down 0.22% for the week and managed futures represented by the fund DBMF showing their diversification were up 0.43% for the week. Not quite as good as the rest of the commodity sector, but good enough. Now going through these portfolios, first one is this reference risk parity portfolio called the All Seasons. It is only 30% in stocks in a total stock market fund, 55% in intermediate and long-term treasuries, and 15% in gold and commodities. It was down 1.6% for the week, and that is the same year to date. So I don't need to say year to date after all these and down 0.10 since inception in July 2020. Moving to these kind of bread and butter portfolios, First one's a golden butterfly. This one's 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. It was down 1.74% for the week and the year and is up 18.42% since inception in July 2020. Next one's a golden ratio. This one's 42% in stocks divided into Three funds, a large cap growth fund, a small cap value fund, and a low volatility fund that is generally large cap value. It's also got 26% in treasury bonds, 16% in gold, 10% in a REIT fund, and 6% in a money market fund. It was down 1.86% for the week, and that's up 14.84% since inception in July 2020. Next one's the Risk Parity Ultimate. This one has 15 funds in it. It's kind of a kitchen sink of everything we could think of within reason. And it was down 1.84% this week and for the year, but it's up 4.69% since inception in July 2020. This one's benefiting recently from its exposure to Bitcoin. A tiny exposure, but an exposure nevertheless. Now moving to these experimental portfolios.

Mostly Voices [28:41]

Look away, I'm hitting this.

Mostly Uncle Frank [28:46]

These all involve leveraged funds. And are a don't try this at home kind of operation. You can't handle the gambling problem. 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 4.04% for the week. That's what leverage does to you and is down 12.06% since inception in July 2020. Next one is the aggressive 5050. This is the least diversified and most levered fund of these. It is one-third in a levered stock fund, UPRO, one-third in a levered bond fund, TMF, and the remaining third in ballast in a preferred shares fund and an intermediate treasury bond fund is down 4.43% for the week and the year and is down 21.62% since inception in July 2020. These things do move up to 10% a week so it can change very rapidly. And the last one, our newest one, the levered golden ratio, this one's 35% in a composite fund, NTSX, that is the S&P 500 in Treasury bonds, then is levered 1.5 to 1, 25% in gold, 15% in a REIT, oh, 10% each in a levered bond fund, TMF, and a levered small cap fund, TNA, that follows the Russell 2000, and then the remaining 5% in a managed futures fund, KMLM. It was down 2.75% for the week, and is down 15.84% since inception in July 2021. It started just before those small caps topped in November, and they have not recovered since then. So that's an interesting example of something that began its life at an inauspicious time. Anyway, there's really not too much more to say about these things. You would expect them to decline after going up for nine or ten weeks in a row. But we'll see what next week has to bring. And now if we consult our crystal ball for 2024.

Mostly Voices [31:03]

A crystal ball can help you. It can guide you.

Mostly Uncle Frank [31:10]

Let's see what our crystal ball has to say. What will 2024 be like, crystal ball? We don't know.

Mostly Voices [31:17]

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

Mostly Uncle Frank [31:21]

Funny our crystal ball always seems to say the same thing, but at least it's accurate as to that. I will love my eyes, my eyes, my eyes. But now I see our signal is beginning to fade. I had another child of a listener send me a video of them reciting their favorite sound clip. Which was Mr.

Mostly Voices [31:54]

Krabs?

Mostly Uncle Frank [31:57]

It's time for the grand unveiling of money! So I'm glad you're all having fun out there with that.

Mostly Voices [32:01]

All we need to do is get your confidence back so you can make me more money.

Mostly Uncle Frank [32:05]

But now if you have comments or questions for me, please send them to frank@riskparityradio.com that email is frank@riskparityradio.com Or you can go to the website www.riskparityradio.com and put your message into the contact form and I'll get it that way. If you haven't had a chance to do it, please go to your favorite podcast provider and like, subscribe, give me some stars or a review. That would be great. M'kay? Thank you once again for tuning in. This is Frank Vasquez with Risk Parity Radio. Signing off.

Mostly Mary [33:05]

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.