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. Top drawer, really top drawer. Along with a host named after a hot dog. Lighten up, Francis. But now onward to episode 325.

Mostly Voices [1:45]

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

Mostly Uncle Frank [1:48]

Which means we will be doing our weekly reviews of the seven sample portfolios you can find at www.riskparityradio.com On the portfolios page and it was kind of a funny week because the stock markets were down but our portfolios were up. Surely you can't be serious. I am serious and don't call me Shirley. Led by gold of all things.

Mostly Voices [2:12]

I love gold. But before we get to that. I'm intrigued by this how you say emails.

Mostly Uncle Frank [2:23]

And? First off, we have an email from Ed.

Mostly Voices [2:31]

Market drops five points. I'm glad my money's tied up in hay. Oh, morning, Wilbur. And Ed rates.

Mostly Mary [2:43]

Hello, Frank. Thank you for all your and Mary's work to support us DI wires. I recently donated to the Father McKenna Center, plus my employer match. Yes! And applaud their work with the homeless and underserved. I also noted to the charity my donation in relation to the Risk Parity Radio broadcast hosted by you. Could you please help me with a leveraged investment understanding? You have a gambling problem. I have 20% of my retirement assets in long-term government bonds, ticker TLT. I expect interest rates will very likely come down in the next six months to three years. Cue Sonja. My name's Sonja.

Mostly Voices [3:24]

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

Mostly Mary [3:32]

To help juice some of the returns when rates go down, I've been looking to move some TLT into TMF, which is the three times leveraged long-term government bonds ETF. Well, you have a gambling problem. I have read that leveraged ETFs are not good long-term investments because they decay over time.

Mostly Voices [4:10]

Aside from the higher expense ratio, can you please better explain the decay and volatility impact on returns? I know you hold TMF in a couple of your experimental portfolios, but is that a bad idea for us mere mortals? Give me the girl or die. Well, if I have a choice, I'll take death. So be it.

Mostly Mary [4:19]

You'll have to do better than that. I could see why they made this guy their leader. Kind regards and blessings to you and yours, Ed. Say, Wilbur, get a load of this story.

Mostly Voices [4:33]

Here at the bottom of the page in the corner. Little old lady leaves cat $50,000. Oh, that's silly. What do you mean, silly? What's a cat gonna do with $50,000? Well, he won't have to chase mice in his old age. That's true. He could buy himself 40 or 50 cows, have a lifetime supply of milk. That cat's got security, which is more than I've got.

Mostly Uncle Frank [5:02]

Yes, we haven't really heard from Sonya in a while, have we? A crystal ball can help you.

Mostly Voices [5:06]

It can guide you.

Mostly Uncle Frank [5:10]

But before we get to Sonya, I would like to thank you for your contributions to the Father McKenna Center. As all but three of you know by now, we do not have any sponsors on this program, but we do have a charity that we support, the Father McKenna Center, which serves homeless and hungry people in Washington, DC. And if you donate to the charity, you get to go to the front of the email line. Yeah, baby, yeah! So there are two ways to donate to the charity. Either you can do it through our support page, through Patreon at the website www.riskparityradio.com, or you can go directly to the Father McKenna website and Go to their donation page. And I do appreciate that you went and got the employer match going there for us. I always forget to mention that. But if your employer matches, and many of them do, we are a registered 501c nonprofit. And so many companies do offer that kind of match for their employees' contributions to charities. Didn't you get that memo? Anyway, thank you very much for that. And now on to your question. Well, let's talk briefly about TMF and what it's made out of. As you noted, it is a three times leveraged fund that is designed to perform 3X on a daily basis. So what it's constructed out of is actually a whole lot of TLT and then some swaps contracts that also trade on Long-term Treasuries, and I'll link to the description in the show notes so you can check that out. From Direction, its provider. So does that mean it performs like 3X over long periods of time? The answer to that is no. Forget about it. And you can see that by looking at Portfolio Visualizer. I'll also link to this in the show notes. I put in TLT, and TMF, which has existed since about 2009. And what you'll see there is that TLT has outperformed TMF over very long periods of time, but that TMF is extremely volatile and so has extreme highs and extreme lows. So that is both good and bad. It's bad if you were just to hold it without anything else in a portfolio. It's good though if you are trying to rebalance it against things. And I went and found one of my favorite articles from Portfolio Charts, which is about Shannon's Demon. And it is analyzing two theoretical investments that are uncorrelated but have zero returns by themselves and shows how using two assets like that you can get a positive return out of the diversification and the rebalancing that goes into it. And that is from Claude Shannon, one of the geniuses behind all kinds of electronics and all kinds of theory. In fact, Claude Shannon is known as the father of information theory. So if you are at all interested in diversification and want to understand how it works and how rebalancing can improve the Performance of a portfolio, you really should read this article to get a grounding in it. And that would be the advantage of using something like TMF in a portfolio that you are going to get more rebalancing opportunities and thereby improve your performance through that mechanism, but not in terms of the raw comparison between TMF and TLT. Now, as for the future movement of interest rates in the near term, I suppose we can ask Sonia that.

Mostly Voices [9:14]

It's kind of looking at the aura around the ball. See the movement of energy around the outside of the ball.

Mostly Uncle Frank [9:22]

But she is a bit too fixated on large crystal balls.

Mostly Voices [9:26]

As you can see, I've got several here. A really big one here. which is huge. This is the one that I tend to use more often. I have a calcite ball and I have a black obsidian one here.

Mostly Uncle Frank [9:43]

And we do know what our Risk Parity Radio crystal ball always has to say when we ask it a question. We don't know.

Mostly Voices [9:51]

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

Mostly Uncle Frank [9:56]

But I will tell you that there were predictions last year at the end of the year from all kinds of banks and pundits and other people that the rate on the 10-year would be anywhere between 2.5% to 3% and 6% to 7%. So whatever kind of prediction you want, you can probably find out there as to what's going to happen next with respect to that.

Mostly Voices [10:20]

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

Mostly Uncle Frank [10:23]

It is the case though that if the economy slows down and if the Fed reduces interest rates, particularly more than is expected at this moment in time, then you will see rates go down in long-term treasury bonds and things like TMF go up substantially in value. So I'm not recommending you roll the dice here. You can't handle the gambling problem.

Mostly Voices [10:48]

But there is another option if you want to roll half of the dice or not

Mostly Uncle Frank [10:52]

roll them quite as hard. Your dice are loaded.

Mostly Voices [10:59]

What? You gave me loaded dice? He gave me loaded dice.

Mostly Uncle Frank [11:11]

Which would be to use a zero coupon or strips instrument. And the ETFs I'm thinking of are ZROZ or GOVZ. Or you could use EDV, which is a Vanguard product, but it's not quite the same as the other two and does not have as much oomph in it, if you will. But GOVZ and ZROZ will give you about one and a half times the Oomph, if you will, that TLT would give you. And I also stuck one of those in the portfolio visualizer analysis I referred to before. So you can check that out as well in the show notes. But that does track much closer to TLT and multiplies it by about one and a half than something like TMF that's going to be all over the place. So we'll call that the bon jovi solution to this problem. And hopefully that's not too clever by half. So hopefully those resources will help you make some decisions here if you need to be making some decisions, and I will be Very interested to see what you do and how it all turns out. It's always so much more fun watching other people gamble than it is yourself, oftentimes.

Mostly Voices [12:45]

I'm gonna end up eating a steady diet of government cheese and living in a van down by the river.

Mostly Uncle Frank [12:53]

And so thank you for your donations and thank you for your email.

Mostly Voices [12:57]

We gotta hold on to what we've got.

Mostly Uncle Frank [13:14]

It doesn't make a difference if we're making a We got each other, and that's a lot for love. We'll give it a shot. Second off. Second off, we have an email from Jesse.

Mostly Voices [13:21]

Jesse, James, we understand has killed a many hand. He robbed a Union train. He stole from a rich, he came to the poor, hit a hand and a heart and a brain.

Mostly Mary [13:40]

And Jesse writes：hi Frank, Jesse Kramer here. I just tuned in for your recent Risk Parity episode about annuities and the steak dinners. Very funny and right on point. What do you mean funny? Funny how? How am I funny? Selling on fear and selling a terrible product at that. Woof. You have a great radio podcast voice, by the way. Top drawer.

Mostly Voices [14:00]

Really top drawer.

Mostly Mary [14:04]

I think we share a good amount of common ground on smart investing and financial planning ideas. From what I can see of your work, we probably disagree on some financial topics too. All the best with your continued success on Risk Parity Radio, and thanks for all of your contributions to various Facebook groups. I think we're both providing a lot of completely free guidance to thousands of people who need it. P.S. Based on the sound bites in Risk Parity Radio, I see you're a young Frankenstein fan. Dr.

Mostly Voices [14:41]

Frankenstein. Frankenstein. You're putting me on. No, it's pronounced Frankenstein. Do you also say Froedick? No. Frederick. Well, why isn't it Froedick Frankenstein? It isn't. It's Frederick Frankenstein. I see.

Mostly Mary [15:02]

I saw that movie a hundred times throughout my childhood and know most of it by heart. You must be Igor. No, it's pronounced eye-gor. PSS, I see you quote Dalio on your website. Have you read the new book, the Fund Yet? Definitely worthwhile. Best, Jesse.

Mostly Uncle Frank [15:35]

Well, thank you for writing in, Jesse. For those of you who haven't figured this out, Jesse is a professional financial advisor.

Mostly Voices [15:47]

Am I right or am I right or am I right? Right, right, right.

Mostly Uncle Frank [15:51]

Who is with a registered investment advisory firm that advises largely high net worth individuals and charges an AUM fee.

Mostly Voices [16:02]

And I have a straw, there it is, that's a straw, you see. Watching, and my straw reaches a cruel stool and starts to drink your milkshake. I drink your Milkshake. I drink it up.

Mostly Uncle Frank [16:30]

And I know I give you guys all a hard time much of the time. All in the sake of good humor, of course. Watch out for that first step. It's a doozy. But it is interesting for me to know that professional financial advisors are actually listening to this podcast.

Mostly Voices [16:49]

It could work.

Mostly Uncle Frank [16:57]

I am tickled pink, as it were. That goes without saying. Oof. He's gonna be very popular. And you'll be happy to know we are never going to run out of young Frankenstein clips. And you won't be angry? I will not be angry. Because Mel Brooks is my man and we can't really use too many things from Blazing Saddles now, can we?

Mostly Voices [17:29]

Hey, the sheriff is a-- what is he saying? The sheriff is near. No, girls, blame it on the name, blame it on the name. At least not if we want to keep this a family program.

Mostly Uncle Frank [17:44]

Why, what have children ever done for me? Now, as for this book, the Fund, no, I haven't read it, but I've heard so many interviews of the author now that I feel like I've read it. And it does kind of match my feelings about what often happens to executives who are ingrained with their organizations. And so it is particular to the people that are involved in the time they're doing their work. and what happens is oftentimes is this, and I think it applies to finance in particular, that as people go through life and succeed, sometimes they get confused as to the reasons for their success. And in most fields, the reasons that people succeed have to do with talent, luck, and persistence. But oftentimes at the end of their careers, they want to tell people that, no, they came up with a special management technique or other kind of technique that anyone can apply and will improve their performance or their organization or whatever. And it actually is a form of a Dunning-Kruger problem, if you ask me, because the secrets of their success are generally not associated with how they ran their business. In terms of the mechanics or other things. And they are not experts in managing organizations, particularly since the only one they managed was the one that they were in charge of. So they're not going to become people like Adam Grant, for example, just because they've run a successful business. So there's a bit of ego wrapped up in that. This also follows on, I do recall back in like 2010 or 2011, when Bridgewater's website was really primitive, I did download and I can't find this thing anymore, but it was basically a hundred page memo written by Ray Dalio, both about his management philosophies and then his investing philosophies. And if you read it, you realize that the management was as we described these kind of radical transparency things and all this other stuff. But that wasn't the interesting part. The interesting part was the parts about investing and investing principles in particular, like the Holy Grail principle. So I always felt, well, that is what he's an expert in, investing. He's not really an expert in management techniques that apply to broad organizations. And in fact, hedge funds can succeed with all kinds of different forms of management. I was listening to an interview of somebody who worked for George Soros around the year 2000, and I think they have a book coming out. And his management techniques are completely off the wall. I mean, he barely managed the people he was working with. The guy said he would like, he might call in four times in one day and then you wouldn't hear from him for a month or two. But obviously they were successful there as well. But again, that has to do with talent, luck, and perseverance. It does not have to do with magical management techniques.

Mostly Voices [21:02]

I have people skills. I am good at dealing with people.

Mostly Uncle Frank [21:09]

Can't you understand it? And I think this is true in most fields. I can tell you that the best lawyers that I've ever met were not the best managers. And in fact, they were often very bad at managing people.

Mostly Voices [21:20]

Here's something else, Bob. I have eight different bosses right now. I beg your pardon? Eight bosses. Eight, Bob? So that means that when I make a mistake, I have eight different people coming by to tell me about it. That's my only real motivation is not to be hassled, that and the fear of losing my job. But you know, Bob, that'll only make someone work just hard enough not to get fired.

Mostly Uncle Frank [21:45]

There is a funny principle that I believe is called the Peter Principle that people are promoted to their level of incompetence. That in many organizations, people get promoted from worker status to some kind of management status until they essentially fail at doing their jobs in a highly skilled manner. And then that is where they sit or end up in the hierarchy because they don't get promoted anymore. That's not an improvement. I always thought that was an interesting paradox that was often true in my observations.

Mostly Voices [22:23]

I'd like to move us right along to a Peter Gibbons. Now we had a chance to meet this young man and boy, that's just a straight shooter with upper management written all over him. Ooh, yeah. I'm gonna have to go ahead and sort of disagree with you there.

Mostly Uncle Frank [22:44]

Anyway, I hope you also saw on my website the quote from Bruce Lee, which I think applies to all of these ideas when you're looking at some expert in some field, that you never want to take everything they have to say whole hog. You want to do what Bruce Lee suggested, which is absorb what is useful, reject what is useless, and add something uniquely your own. And so that is the approach we take with Ray Dalio and any other financial expert for that matter. Because blindly following gurus is seldom the secret to Long-term success.

Mostly Voices [23:37]

Talkamata, do not ask him for mercy. Let's face it, you can't talk him out of anything.

Mostly Uncle Frank [23:44]

Anyway, I'm glad you're enjoying the podcast and thank you for your email.

Mostly Voices [23:49]

Class is dismissed. Last off. Last off, we have an email from Kyle.

Mostly Mary [24:03]

Kyle, and Kyle writes,

Mostly Uncle Frank [24:07]

Dear Frank, your rant was on point today.

Mostly Mary [24:11]

My wife is Peruvian, and when you suggested the first thing needed to do before tapping your pension plan was to sacrifice a guinea pig at Machu Picchu, I started laughing uncontrollably. Best to you and Mary.

Mostly Uncle Frank [24:33]

Well, in case anybody's wondering, Kyle is referring to episode 321 as our last emailer was. I think I forgot to mention that. But that was the rant about the three steak dinner invitations I got all to Ruth's Chris Steakhouse, all within a day or two of each other, some on the same day. But if you haven't listened to that, you can go check it out. Anyway, we have a lot of Peru on the brain since we just had our long 30th anniversary trip there in January and had a most excellent time. We went to Lima, we went to Machu Picchu, the Sacred Valley, Cusco, Lake Titicaca, the Colca Canyon, and several other places too. I did eat a guinea pig, although not at Machu Picchu. at a restaurant in Cusco is where we went for that. I did eat some alpaca at the hotel that's up at Machu Picchu where we stayed. We fed the baby alpacas in the morning and then ate them in the evening. Tempted, huh? Like a barbecue in a barn without the bones. And with a big iced Coke, it's where you're only human on Daddy Chomps. One of the other things we learned while we were there was how to make authentic Pisco Sours using a proper cocktail shaker. But Mary's always disappointed in my shaking abilities. She says I'm worthless and weak in that department. So we had a funny incident last week. We were in our kitchen and we got all the stuff to make Pisco Sours. here at home. And I was attempting to shake it and she took it from me and said, let me show you how to do this. She shook it very hard and the top came off and it spilled all over the floor. And both of us. So we had a laugh and then we made some new ones. But we did enjoy our trip to Peru very much and especially the Andean Explorer train which you can ride. through the mountains there.

Mostly Voices [26:46]

Well, you haven't got the knack of being idly rich. It's a luxury train.

Mostly Uncle Frank [26:49]

It's top drawer. Really top drawer. Which included both a car with a piano bar and an open car in the back for observation and waving at the people when you went by. The best, Jerry. The best. And if you ever get a chance to do that, I highly recommend it. Anyway, I've been wondering if it's legal to eat guinea pig in the United States. Probably in some states and not others, I'm guessing. Hey boy, no, you look just like a hog. It's not bad, but it is very bony. So it's like eating a small bird. But we've probably all heard enough about my Peruvian musings now, haven't we? Shut it up, you.

Mostly Voices [27:37]

Shut it up, me.

Mostly Uncle Frank [27:41]

And thank you for your email.

Mostly Voices [27:45]

I want to hold you every morning and love you every night, Cal. I promise you nothing but love and happiness. Now we're going to do something extremely fun.

Mostly Uncle Frank [27:54]

And the extremely fun thing we get to do now is our weekly portfolio reviews of the seven sample portfolios you can find at www.riskparityradio.com on the portfolio's page. And just looking at the markets last week first, the S&P 500 was down 0.26% for the week. The Nasdaq was the big loser last week. It was down 1.17% for the week. Small-cap value was up, though.

Mostly Voices [28:22]

I'm telling you, fellas, you're gonna want that cowbell.

Mostly Uncle Frank [28:25]

Small-cap value, represented by the fund VIoV, was up 0.71% for the week. Gold was the big winner last week. You're insane, Gold Member!

Mostly Voices [28:37]

And that's the way... I like it! She on the Sunshine Band... for not including cryptocurrencies.

Mostly Uncle Frank [28:45]

But gold was up 4.43% for the week and is now riding at all-time highs. Long-term treasury bonds represented by the fund VGIT were up 1.44% for the week. Grets represented by the fund REET, we're up 1.54% for the week. Commodities represented by the fund, PBDC, we're up 0.37%. Preferred shares represented by the fund PFF, we're up 0.91% for the week. Managed futures were down though, managed futures represented by the fund DBMF, we're down 1.16% for the week. At least we know they're diversified. Now moving to these portfolios, as of the recording of this podcast, I only have the weekly results because Fidelity has not updated my year-to-date and since inception results. But I will put those on the website when I have them. Anyway, the first one is the All Seasons. This is a reference portfolio that is only 30% in a stock fund. A total stock market fund, 55% in treasury bonds that are intermediate and long term, and the remaining 15% in gold and commodities. It was up 1.07% for the week. Now moving to these bread and butter kind of 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 treasury bonds divided into long and short. and 20% in gold. It was up 1.43% for the week. Next one's the golden ratio. This one's 42% in stocks and three funds, including some large cap growth and some small cap value. It's got 26% in long-term treasury bonds, 16% in gold, 10% in a reit fund, and 6% in a money market fund in cash. It was up 1.29% for the week. Next one is the Risk Parity Ultimate, our kitchen sink kind of portfolio. I will not go through all 15 of these funds. It does have a little bit of Bitcoin and Ethereum in it that are supposed to be 2% of the portfolio, but now are over 4% of the portfolio.

Mostly Voices [31:08]

And it more than doubled in value since the

Mostly Uncle Frank [31:12]

last rebalancing. But anyway, this one was up 1.62% for the week. It's one of the big winners. I should note that the Bitcoin and Ethereum were actually up 12.83% by themselves last week, but they are quite volatile. You can't handle the gambling problem. And I do have a year-to-date performance on this total thing. It is up 4.87%. year to date. Now moving to these experimental portfolios involving levered funds. First one is the Accelerated Permanent Portfolio. This one is 27.5% in a levered bond fund, TMF, 25% in a levered stock fund, UPRO, 25% in PFF, and 22.5% in Gold, GLDM. It was up 1.93% for the week. And if the stock portion of this continues to perform well, we may approach a rebalancing, but we'll find out about that next week. Because we look at those on the 15th. Next one is the aggressive 5050, which 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 as ballast in a preferred shares fund and an intermediate treasury bond fund. It was up 1.34% for the week, did not do quite as well as others because it does not have any gold or Bitcoin or anything else that would be termed an alternative investment in it. But that's really the point of this one, to just look at something that is pure stocks and bonds with leverage. We run hideous experiments here, so you don't have to.

Mostly Voices [33:01]

Look away, I'm an idiot.

Mostly Uncle Frank [33:05]

And finally, looking at the levered golden ratio portfolio, this one is 35% in a composite levered fund, NTSX, that is the S&P 500 in treasury bonds, 25% in gold, GLDM, 15% in a Reit, O, 10% each in a levered small cap fund, TNA, and a levered bond fund, TMF. the remaining 5% in a managed futures fund, KMLM, it was up 1.74% for the week, also benefiting from that holding in gold. And that concludes our portfolio reviews for the week. As I mentioned, I will put the complete stats up on the website when I get them. I usually have them from Fidelity on Saturday morning, but not this day. Maybe they're confused by the changing of daylight savings time this weekend. But now I see our signal is beginning to fade. Next weekend Mary and I will be off to the Economy Conference in Cincinnati, Ohio, run by my friend Diana Merriam. The Inquisition. Want to show the Inquisition.

Mostly Voices [34:20]

Here we go. Hopefully I'll see some of you there.

Mostly Uncle Frank [34:24]

I'll be doing a case study on the main stage and we'll also have a breakout session about withdrawal strategies. How about that? Cool. Fire! Fire! Fire! Fire! So there certainly will not be a podcast next weekend, although hopefully I will get one done before we leave this week. We'll see about that. I make no promises.

Mostly Voices [34:49]

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

Mostly Uncle Frank [34:54]

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, give me a review, a follow, some stars. That would be great. Okay. Thank you once again for tuning in. This is Frank Vasquez with Risk Parity Radio. Signing off.

Mostly Voices [35:29]

Well the people held their breath, they heard of Jesse's death, they wondered how it came to be, well I was grabbing for her in back, he shot me in the back, well he a hog, he's your on the wall.

Mostly Mary [36:16]

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.