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! 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 the finest podcast audience available. Top drawer, really top drawer. Along with a host named after a hot dog.

Mostly Voices [1:34]

Lighten up, Francis.

Mostly Uncle Frank [1:37]

But now onward, episode 340.

Mostly Voices [1:41]

It's time for the grand unveiling of money.

Mostly Uncle Frank [1:45]

Which means we'll be doing the portfolio reviews of the seven sample portfolios you can find at www.riskparityradio.com on the Portfolio's page.

Mostly Voices [1:57]

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

Mostly Uncle Frank [2:05]

First off, an email from Scott.

Mostly Mary [2:13]

Great Scott! And Scott writes? Hi, Frank. I started listening to your show about a month ago, and I'm already past episode 300. A really great show.

Mostly Voices [2:20]

The best Jerry, the best.

Mostly Mary [2:25]

I have more an observation than a question regarding gold. This is gold, Mr. Bond. Since you love it so much, I'm sure you know that gold is spiking to new highs because China has been dumping treasuries and swapping for gold at a record pace in the past 15 months. Meanwhile, the U.S. National Debt Tracker is printing at almost 35 trillion and growing. Nobody seems to be concerned about what China is preparing with this move and/or are ballooning debt. You've mentioned several times that you are also not concerned. That really gets me.

Mostly Voices [3:05]

Are we so home biased and comfortable sitting on our hands or is the US really too big to fail? Thoughts? Do you think anybody wants a roundhouse kick to the face while I'm wearing these bad boys? Forget about it.

Mostly Uncle Frank [3:09]

So your question is, Shouldn't I be concerned about the national debt? And the answer is, no, probably not. Forget about it. Now, the theory that you are describing here that the economy is about to implode due to the national debt has been around for a very long time, essentially my entire lifetime, so about almost 60 years. Shirley, you can't be serious. I am serious. And don't call me Shirley. And somehow the implosion never happens, the apocalypse never happens, the predictions never come true.

Mostly Voices [3:52]

You can't handle the dogs and cats living together.

Mostly Uncle Frank [3:55]

And so the question you should be asking yourself about this is why has this theory been wrong for so long? Wrong!

Mostly Voices [4:03]

Whoever you've been listening to propounding this theory,

Mostly Uncle Frank [4:07]

the question you should be asking, because I'm sure they've been saying it for quite a while, why have they been wrong? Wrong? Wrong! Right?

Mostly Voices [4:18]

Wrong! And there are a couple of different answers.

Mostly Uncle Frank [4:22]

The first one is that these people are typically what we would call a hedgehog in terms of forecasting. They fixate on one factor, as if that is the macro factor that is going to determine everything. A really big one here, which is huge. And then make up attractive stories about that and go forth and go on and on and on. It's like you're unraveling a big cable knit sweater that someone keeps knitting and knitting and knitting and knitting. Knitting! Knitting! So one red flag that people don't really know what they're talking about in terms of macro economies and how it all works is this, well, look how big the national debt is, then everything's gonna blow up. That's not how it works.

Mostly Voices [5:16]

That's not how any of this works.

Mostly Uncle Frank [5:20]

Another telltale sign is if you hear somebody say something like, well, if the US economy were a household, How could we possibly sustain this kind of debt? It's a bad analogy. The US economy is not a household. That's not how it works. The US economy is supported by a government that can print its own currency and is the reserve currency of the entire world. Oh, schitzeiten. So there have been lots of instances historically where the dominant power in the world has racked up a whole bunch of debt and then grown out of it. The US did it right after World War II. The British Empire did it after the Napoleonic Wars. They were in an incredible amount of debt then, and people thought at the time that the British Empire was going to collapse under all that debt. Instead, you ended up having the 19th century, which was dominated by the British Empire. Now, if you want to begin to understand these topics, you should go read a book by Reinhart and Rogoff called this Time is Different. And it's about 800 years of country financial crises and what goes into them. And what you'll find is the main feature of what causes apocalyptic events like hyperinflation in some countries' economy. is that they owe debt in another country's currency. As long as our debt is all in US dollars and the country can print US dollars, you don't have as big a problem as you think you have. Otherwise, Japan would have imploded a long time ago. That is twice what ours is relative to GDP. That's the fact, Jack! That's the fact, Jack! And you would expect to see economies like that fail. first in this global world order that you would expect to see Japan's economy fail first, and then some of the countries in Europe that are also in serious debt in Euro, and those would be your canaries in the coal mine. Now, I really don't want to turn this podcast into some kind of macroeconomic musings or reviews or arguments or whatever.

Mostly Voices [7:49]

Not gonna do it. Wouldn't be prudent at this juncture.

Mostly Uncle Frank [7:53]

But fortunately, somebody is doing this for me right now, and his name is J. David Stein. If you go to the podcast Money for the Rest of Us, he's actually putting out a series called the National Debt Master Class, and he's put out part one of that already. Yes!

Mostly Voices [8:10]

And I'll link to his page in the show notes, so you can check that

Mostly Uncle Frank [8:14]

out. He's also got another recent podcast about currency debasement. And he does a very good job explaining all this with lots of citations and references. So I don't have to.

Mostly Voices [8:25]

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

Mostly Uncle Frank [8:33]

If you do want to hear me talk more about this, I also talked about it with the Value Stock Geek on his Security Analysis podcast recently. And I'll link to that in the show notes and you can listen to that as well.

Mostly Voices [8:45]

I took the liberty of putting away something in your teeth. What are you talking about? I'm putting you to sleep.

Mostly Uncle Frank [8:52]

And I commend to you all of those sources so that you also can come to a better understanding of what this is and what it is not. And then start identifying real experts with real expertise who are not just hedgehogs repeating the same story over and over again like a broken clock. hoping it comes true someday so they can say, oh, look, see, something came true that I said 10 years ago.

Mostly Voices [9:19]

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

Mostly Uncle Frank [9:23]

Those are not good sources of information. Forget about it. So hopefully those things will help you to a better understanding of this situation. And thank you for your email.

Mostly Voices [9:36]

I think everyone here knows what this is supposed to mean. And you've gone over something again and again and again and again. Like I have. Certain questions get answered, others spring up. The mind plays tricks on you. You fight tricks back. Second off. Second off, we have an email from Midas.

Mostly Mary [10:00]

Stick it in your ear, LaFleur. I wouldn't sell you your gym back for all of King Midas' silver. The gym is mine. And Midas writes：hi Frank, I listened to one of your episodes where a listener claims that adding a small percentage allocation to gold increases the safe withdrawal rate. While that is true in several cases, it is highly dependent on the price of gold at the time you retire. For someone retiring in 1981, for instance, when the gold peaked for many years to come, the results are actually quite bad and the PWR is way lower while the SWR would be more than 100 basis points lower in the end. Here's the link of one backtest I made that shows that. All to say that comment wasn't 100% true. Gold is a good portfolio stabilizer, but not all of the time.

Mostly Uncle Frank [10:52]

So you can take your band of yellow-bellied losers and just crawl out of here. Well, it looks like we're two for two on emails with fallacious reasoning in them. That's not how any of this works.

Mostly Voices [11:02]

So what's wrong with this reasoning?

Mostly Uncle Frank [11:07]

You've picked out a date when an asset class was at an all-time high and tried to draw some conclusions from starting a sequence at that date.

Mostly Voices [11:15]

Watch out for that first step. It's a doozy.

Mostly Uncle Frank [11:19]

That is a bad process, but it is used to sell annuity products. Bing. And how is that process used to sell annuity products? Frequently, An annuity salesperson, an insurance salesperson will use the date of 1999 or the end of 1999 to show how poorly the stock market performed since then versus whatever product they're trying to sell. Bing again!

Mostly Voices [11:51]

Why do they cherry pick that date? And that's what this is called.

Mostly Uncle Frank [11:55]

It's called cherry picking the data. They pick that date because it was a local high for the stock market. And anything compared to that, since the stock market went nowhere for the next decade, seems to outperform the stock market.

Mostly Voices [12:15]

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

Mostly Uncle Frank [12:20]

And so by your reasoning, we should not be investing in the stock market because we can point to A day at the end of 1999 where it hit a high, or you can do the same thing with 1929 and didn't recover for 25 years. This is a conspiracy. That's what this is. And everyone's in on it. Those are just specious and fallacious arguments though, because you don't get to pick a date and then draw an analysis or any conclusions from that. In fact, if you wanted to go back to 1981, what was the best asset to hold for the next 30 years from 1981? Do you think it was the stock market? You would be wrong. Wrong! The best asset to hold from 1981 to 2010 was long-term treasury bonds. They performed better than the stock market over that period of time. I bet you didn't know that. You can't handle the crystal ball. Now does that mean that we should sell all our gold and sell all our stocks and all buy long-term treasury bonds because they were the best performer for three decades after some date in 1981? No, that would be idiotic. That's not how it works. And that's why this line of reasoning is idiotic. That's not how any of this works. The whole reason you hold a diversified portfolio with a little bit of gold in it is because you don't know what the next period is going to be. Somebody says, why is that? We don't know.

Mostly Voices [14:00]

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

Mostly Uncle Frank [14:05]

But you do know that at least one of these assets you're holding is going to have a very good performance in the next period. You just don't know which one it is. This is why, as Tyler over at Portfolio Charts has observed in a number of articles and analyses, that gold by itself is a terrible portfolio to hold. But as an ingredient in a diversified portfolio, it improves the performance of that portfolio over time. if you're talking about safe withdrawal rates. So in your example of 1981, somebody who is holding stocks, bonds, and gold performed just fine over the next period because the stocks and the bonds had a good period coming up. On the other hand, if it was 1999, if you had a portfolio that's stocks, bonds, and gold, The next period, the stocks were horrible, but gold and the bonds were great. They were great for the early 2000s. And in the 1970s, gold was the all-star.

Mostly Voices [15:18]

And that's the way, -huh, -huh, I like it, Kashi on the sunshine band.

Mostly Uncle Frank [15:26]

So beware of this kind of reasoning. Always BB, see closing. There are lies, damn lies, and statistics. Always be closing. And this is one of the ways people use statistics to lie.

Mostly Voices [15:41]

Always be closing.

Mostly Uncle Frank [15:45]

By cherry picking the data.

Mostly Voices [15:49]

Because only one thing counts in this life. Get them to sign on the line which is dotted.

Mostly Uncle Frank [15:57]

Because you can prove almost any thesis you want about a the performance of an asset being good or bad by picking the appropriate date in the past. That happens to work for whatever thesis you're trying to prove. But that does not prove anything in reality. That's not how it works. Because the only conclusion you can draw from the analysis you gave is that you should not hold a portfolio that's 100% in gold. That's the only conclusion you can draw from that. which is also backed up by longer data analyses. It does not support any thesis that you should not be holding gold in a diversified portfolio. It just doesn't. That's not how any of this works. Hopefully that improves your understanding of how to use and not use data in portfolio construction. And more importantly, to recognize when other people are cherry picking data and making specious arguments.

Mostly Voices [16:56]

Put that coffee down.

Mostly Uncle Frank [17:00]

Because charlatans abound in the financial world.

Mostly Voices [17:04]

Am I right or am I right? Or am I right? Am I right?

Mostly Uncle Frank [17:07]

And they are often selling annuity products. Do you have life insurance? Because if you do, you could always use a little more. And thank you for your email. Bow to your sensei. Bow to your sensei.

Mostly Voices [17:22]

Last Off.

Mostly Uncle Frank [17:26]

Last Off, we have an email from Neil.

Mostly Voices [17:29]

Look out, Mama, there's a white boat coming up the river. And Neil writes, hi, Frank.

Mostly Mary [17:41]

A more personal finance question, if you don't mind answering. Do you have umbrella insurance? I read a horrible story about an early retired person that was sued for a car accident of his fault and lost all his savings that were in his brokerage account, the majority. You being a lawyer, what do you recommend for us early retirees that won't break the bank? Thanks, Neil.

Mostly Voices [18:04]

I think you better call John because it don't look like they're here to deliver the mail and it's less than a mile away. I hope they didn't come to stay.

Mostly Uncle Frank [18:24]

It's got numbers on the side and they've gone and it's making big waves. Well, the answer is yes, we do have umbrella insurance and I've had umbrella insurance for a long time. It is a common thing to hold if you are a highly paid professional. I will tell you that. I suppose I should explain what umbrella insurance is. I will link to something in the show notes to explain it. But what it basically is is liability insurance that rests on top of your auto or homeowners or other kinds of liability insurance that's supposed to cover the first few hundred thousand dollars of liability. You put umbrella insurance on the top, so if that insurance is not enough, umbrella insurance will take you into the millions of dollars for a relatively low cost. So it needs to work with the other policies that you hold. Usually the best way to to get it is to talk to a insurance broker and have them bundle that with your auto and homeowners and other insurance because you're going to get the best deal that way. Some places of employment also will provide it to their highly compensated employees, but that's more the exception than the rule. So yes, I do recommend if you have some millions of dollars that you also have some umbrella insurance. And interestingly enough, the amount you need is very difficult to determine. I mean, you can kind of just estimate it as to what your net worth is, although what is really important actually is what is your lifestyle like? I mean, are you having drug-crazed parties at your house all the time in which people might get injured?

Mostly Voices [20:29]

That's not an improvement.

Mostly Uncle Frank [20:32]

Or are you living a quieter lifestyle than that?

Mostly Voices [20:36]

I think I've improved on your methods a bit too.

Mostly Uncle Frank [20:40]

And do you habitually drive at high speeds or recklessly?

Mostly Voices [20:43]

Down the quarter mile of death in their 7,000 horsepower nitro burning suicide machines as they shake hands with the devil when they scream through the burning gates of hell.

Mostly Uncle Frank [20:54]

That would be another reason why you would want to have more umbrella insurance.

Mostly Voices [20:58]

We'll sell you the whole seat, but you'll only need the edge. Be there.

Mostly Uncle Frank [21:02]

But that's really more something to talk about with an insurance broker. It ends up being relatively inexpensive. I mean, you can get a million dollars in coverage for a few hundred dollars a year. The other very useful thing about it is if you were to get sued, the insurance company is going to supply lawyers for the defense of the claim since they know they could be on the hook. So in effect, it would save you some legal fees there as well. So yes, you should have it. It needs to work with your homeowners and auto policies. So usually the best way to get it is where you're getting those policies as well. And usually the best way to do that is actually to talk to insurance brokers in your local area because they can bundle these things together in a better way than, say, calling up Geico or Somewhere that you already have a policy with. They said that line again.

Mostly Voices [22:02]

It's so easy, caveman. Tina, don't.

Mostly Uncle Frank [22:09]

This really is somewhere where a broker can be helpful as opposed to trying to buy individual homeowners auto and other insurance by itself. So although it's not exactly on the topic of this podcast, it is a good question. And thank you for your email. It's so easy to use Geico.

Mostly Voices [22:28]

com, a caveman could do it. What? Oh, no, I... Not cool. I did not know you were there. I could...

Mostly Uncle Frank [22:38]

Now we're going to do something extremely fun. And the extremely fun thing we get to now is our weekly portfolio reviews of the seven sample portfolios you can find at www.riskparityradio.com on the portfolio's page. Looks like everything's recovering in May from what happened in April. But just looking at the markets, the S&P 500 was up 1.85% for the week. The Nasdaq was up 1.14% for the week. Small cap value represented by the fund VIoV was up 1.82% for the week. And gold was the big winner last week. Again. I love gold. Gold is up 2.46% for the week. Long-term treasury bonds represented by the fund VGIT were up slightly. They were up 0.34% for the week. REITs represented by the fund REET were up 1.37% for the week. Preferred shares represented by the fund PFF were down 0.44% for the week. Commodities represented by the fund, PBDC were up 0.78% for the week and managed futures represented by the fund, DBMF were up 2. 07% for the week. They are still leading the way this year in terms of performance up over 15% since the beginning of the year, just slightly ahead of gold which is up 14.5% this year. Now moving to our Sample portfolios. First one is this reference portfolio, the All Seasons. That's only 30% in stocks in a total stock market fund, 55% in intermediate and long-term treasury bonds, and the remaining 15% in gold and commodities. It was up 1.18% for the week, it's up 1.52% for the year, and up 3.07% since inception in July 2020. Now moving to our 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, GLDM. It was up 1.51% for the week. It's up 3.21% year to date and up 24. 39% since inception in July 2020. Next one's the Golden Ratio. This one's 42% in stocks and three funds. It is 26% in long-term treasury bonds, 16% in gold, 10% in a REIT fund, and 6% in a money market fund. It was up 1.6% for the week. It's up 2.68% year to date and up 20.18% since inception in July 2020. Next one is the Risk Parity Ultimate, kind of our kitchen sink of portfolios here. I won't go through all 15 of these funds, but it was up 1.51% for the week. It's up 5.31% year to date and up 13.3% since inception in July 2020. It's interesting because this portfolio has so many different things in it. It has a lot of what it's called tracking error. which means that it performs or can perform significantly different than most of the other portfolios in any given time period. And this one's actually up the most of all these portfolios for the year, up 5. 31% year to date. Now moving to our experimental portfolios involving leveraged funds. We run hideous experiments here, so you don't have to. Look away, I'm hideous. 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 up 2.47% for the week. It's up 1.5% year to date and down 6.99% since inception in July 2020. And if the stock fund continues to perform well, we may actually be doing a rebalancing next week. We'll see what happens. We checked that on the 15th for these. Next one is the aggressive 5050. This one is 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 a Intermediate Treasury Bond Fund is the most levered and least diversified of these portfolios and shows it. It's up 2.18% for the week, it's down 0.98% year to date and down 18.8% since inception in July 2020. Don't try this at home. And moving to our last one, it's only been around since 2021. this is the levered golden ratio portfolio. It is 35% in a composite levered fund called NTSX. That is the S&P 500 and treasury bonds, 25% in gold, GLDM, 15% in a REIT, O, 10% each in a levered bond fund, TMF, and a levered small cap fund, TNA, the remaining 5% in a managed futures fund, KMLM. It was up 1.55% for the week. It's up 2.59% year to date and down 11.22% since inception in July 2021. And that concludes our portfolio reviews. But now I see our signal is beginning to fade. Just one announcement. There will probably not be any podcasts for about a week and a half after this. We're going on a small hiatus here to do some family things, but we will get back to it when we can and I will try to keep the website updated on the weekly performances. 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 some stars, a follow, a 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 [29:29]

Cover me with the thought that pull the trigger Just think of me as one you never figure I was gonna fade away so young so much left undone, done Remember

Mostly Mary [29:58]

me to my love 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.