Mostly Voices [0:00]

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

Mostly Mary [0:18]

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

Mostly Uncle Frank [0:37]

Thank you, Mary, and welcome to Risk Parity Radio. If you have just stumbled in here, you will find that this podcast is kind of like a dive bar of personal finance and do-it-yourself investing. Expect the unexpected. It's a relatively small place. It's just me and Mary in here. And we only have a few mismatched bar stools and some easy chairs. We have no sponsors, we have no guests, and we have no expansion plans.

Mostly Voices [1:10]

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

Mostly Uncle Frank [1:15]

What we do have is a little free library of updated and unconflicted information for do-it-yourself investors.

Mostly Voices [1:23]

Now who's up for a trip to the library tomorrow?

Mostly Uncle Frank [1:27]

So please enjoy our mostly cold beer served in cans, and our coffee served in old chipped and cracked mugs, along with what our little free library has to offer. But now onward, episode 345. 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. Boring. But before I put you to sleep with that, I'm intrigued by this how you say, E-mails. And... First off. First off, we have an email from David. Oh, Davey, that is awful. And David writes...

Mostly Mary [2:32]

Frank, I would appreciate your thoughts on Michael Green's view that increased use of indexing in retirement accounts is making the US market more rigid and fragile, creating a sort of death spiral that drives active price-sensitive managers out.

Mostly Voices [2:44]

Real wrath of God type stuff. I am thinking that long-term investment for retirement is not new to the market.

Mostly Mary [2:51]

Back when company pensions were the norm, that money was invested consistently long-term regardless of price. So I don't see how indexing really changes the market dynamic in the way he describes. What are your thoughts, Dave? P.S. Thank you, thank you, thank you for the retirement hobby that is Risk Parity Radio. I am on the verge of de-accumulation and I now feel I can enter with confidence.

Mostly Voices [3:15]

Yeah, baby, yeah!

Mostly Uncle Frank [3:19]

Well, first off, I'm glad you're enjoying my hobby. I am enjoying it, too. You are talking about the nonsensical ravings of a lunatic mind. Especially since I'm not required to conform to any podcast norms, if you will. Do not ask him for mercy. Let's face it, you can't talk him out of anything. But now let's talk about Mike Green.

Mostly Voices [3:46]

On this show we talk about coffee, New York, daughters, dogs, you know, no big whoop, just coffee talk.

Mostly Uncle Frank [3:54]

For those of you who do not know who Mike Green is, he is essentially an asset manager person who is one of the principals that runs the Simplify Group of Funds. And they have come out in the past few years with a lot of innovative kind of ETFs that invest in a number of different things. And so I see him fairly or hear him fairly often on podcasts about investing and innovations in investing. And I had listened to this discussion when it came out over a month ago, since this email is still from April. Looks like you've been missing a lot of work lately. I wouldn't say I've been missing it, Bob. And he was basically saying that if everybody started using index funds and passive investing and not really paying attention to the markets, then the markets will become more rigid and fragile and maybe subject to a bigger crash at some point.

Mostly Voices [4:49]

Fire and brimstone coming down from the skies, rivers and seas boiling, 40 years of darkness, earthquakes, volcanoes, the dead rising from the grave.

Mostly Uncle Frank [4:57]

But he was unwilling to put any kind of time frame on this alleged problem. And I think that's important to recognize that when you're listening to somebody who's talking about some idea or forecast in the future, if they do not put a time period on it, then it's just amusing. It's not useful, really. It's an interesting idea. Because to make a true forecast, you do have to put a time frame on whatever you think is going to happen in the future.

Mostly Voices [5:28]

That's the fact, Jack! That's the fact, Jack!

Mostly Uncle Frank [5:32]

If you don't have a time frame on it, it really doesn't count. Forget about it.

Mostly Voices [5:36]

You're just one of these kind of hedgehog experts saying the same thing

Mostly Uncle Frank [5:40]

over and over again, saying, well, I'll be right someday. Well, someday may be when we're all dead.

Mostly Voices [5:46]

Dead is dead.

Mostly Uncle Frank [5:49]

and even he was saying that he thought that asset prices would continue to go up based on indexing, at least in the near future, but he wasn't willing to put a time frame on that either. Forget about it. But I tend to agree with you that this is not some big problem that we really need to worry about mostly because there are very large active managers out there who represent institutions, pension funds, insurance companies, large banks, and other people who are very happy to engage in active investing at a high level and at a significant volume. And I don't think that's going to change. So whatever individuals are doing in their 401ks or otherwise is not that significant in the great scheme of things. You know, no big whoop. You really only need a small part of a market to be active, so that the market can experience what is known as price discovery, that the prices actually move based on what people are thinking about the company, the future, so on and so forth. And in some respects, I think his bias may be showing. If you go and look at the Simplify Funds, and they are a very interesting set of ETFs there, You have funds that are speculating on interest rates, that are doing trend following, that are combining, say, gold in the stock market, and all sorts of other things. And the fact that we see these kinds of fund families that are relatively new becoming larger and more significant over time seems to go against his whole thesis. So although I have a lot of I have respect for Mike Green, and I find it interesting to listen to him. This does fall into that category that Bruce Lee tells us about, which is for every expert, you need to absorb what is useful, reject what is useless, and add something uniquely your own. And I think this idea falls more in the useless category than anything else, especially since it, in my mind, does not even qualify as a prediction since there's no time frame put on it. It's like saying every empire and society has dissolved eventually historically, and their currencies have gone to zero. Well, yes, that's true, but it's not useful or actionable on a human scale. And we don't need to be preparing for the eventual supernova of the sun either.

Mostly Voices [8:24]

You can't handle the dogs and cats living together! So those are my thoughts.

Mostly Uncle Frank [8:28]

They agree with your thoughts.

Mostly Voices [8:31]

You are correct, sir, yes. So let's be independent together. You wouldn't mind my red nose? Not if you don't mind me being a dentist.

Mostly Uncle Frank [8:44]

It's a deal. And thank you for your email.

Mostly Voices [8:49]

Now I'm getting a little of a clump. Talk amongst yourselves. I'll give you a topic. The radical reconstruction of the South after the Civil War was neither radical nor a reconstruction discussed. Second off.

Mostly Uncle Frank [9:07]

Second off, we have an email from Eric. Eric from Cincy. I'm living on the air in Cincinnati.

Mostly Mary [9:17]

And Eric from Cincy writes. Frank, Recently, a remake of Road House was distributed on Amazon Prime. Road House. In preparing to watch the remake, I figured I should watch the original with Patrick Swayze since I had never seen it before. Road House. Imagine my delight when I discovered some of your most used samples contained within the movie.

Mostly Voices [9:40]

Oh, yeah, Road House. What a wonderful discovery which added to my viewing pleasure.

Mostly Mary [9:48]

Roadhouse. Roadhouse. Unfortunately, I can't recommend the remake, and I don't recall any memorable lines from the new movie. Cheers, Eric from Cincy.

Mostly Voices [10:01]

Peter, the only message in that movie is that every problem in life can be solved by kicking. Oh my God.

Mostly Uncle Frank [10:05]

Brian, you're right. Peter, I'm joking. What did you say to me? Peter, what are you doing? Not gonna talk to me like that in my bar. Not a bar. Keep the change. Roadhouse. Well, yes, Roadhouse, particularly the original Roadhouse, is one of those movies that is so classically bad that it's good in a way that it's turned into a cult classic. Expect the unexpected. With very cartoonish characters and lots of one-liners. I want you to be nice until it's time to not be nice. So it's become one of those staples in our family that we watch over and over again, like Talladega Nights or Office Space. Sorry we're closed. Well, then what are all these people doing here? Drinking and having a good time. Well, that's why we're here. You're too stupid to have a good time. But it's also one of those things that there's really no point in remaking it because it's not a good story. It's not a good plot. The characters are wooden or cartoonish. A polar bear fell on me. And I can't imagine anybody replacing Patrick Swayze in that role. You know, I thought you'd be bigger.

Mostly Voices [11:31]

So you play pretty good for a blind white boy. Yeah, and I thought you'd be bigger. You know, for that line of work, I thought you'd be bigger.

Mostly Uncle Frank [11:43]

Gee, I've never heard that before. It'd be like trying to remake Dirty Dancing. That probably wouldn't work very well either. It probably has been remade, and I just don't know it. Nobody puts Baby in a corner. So I probably will not be watching that remake, and I will just stick with the original. You got a skinny little runt named Dog working here? He's out the back.

Mostly Voices [12:12]

How's it going, Miho? Mind your own business, Dad. I thought you'd be bigger, Miho.

Mostly Uncle Frank [12:20]

I'll tell you something else. You taught me as much as I ever taught you. But thank you for your reveal.

Mostly Voices [12:34]

Roadhouse. Roadhouse. Road. Roadhouse. Road. Roadhouse. Roadhouse. Roadhouse. Last off. Last off. We have an email from Pete. Peter, we've had complaints from all over town. You're gonna have to stop with the kicking. Oh, yeah? I think my scary, otherworldly, shadowy spirit friends might have something to say about that.

Mostly Uncle Frank [13:09]

Ghost.

Mostly Mary [13:13]

And Pete writes, Dear Uncle Frank and Aunt Mary, I have to admit, I like the idea of seeing my four kids thunder-dome it out for the three 529s. But instead, my wife and I more often tend to joke that we over-save for their college each time they say something confidently stupid.

Mostly Voices [13:28]

I'm as stupid as a stupid doves.

Mostly Mary [13:33]

Yesterday, my seven-year-old daughter argued that she had balls. It took me 15 minutes to realize she thought balls meant buttocks. Perhaps I don't need to worry about a Princeton tuition. Forget about it. On another note, Larry Swedroe wrote an article on kitsis.com a couple of months ago, and I'm curious as to your thoughts on it. He essentially argues that richly valued equities likely imply lower future returns. Whatever. He points out that one should diversify into value and international equities for possible better returns. Yawn. But then he recommends considering a series of mutual funds in alternative investments. Reinsurance, long short market neutral factor based funds, and private credit. Yet before I can even Google what reinsurance is, a quick check at Fidelity tells me that of the seven funds mentioned, six cannot be traded and one, QRPiX from AQR, ignoring the $49.95 transaction fee and a 3. 15% net expense ratio, has a required minimum to invest of $5 million. Are these funds only reserved for financial advisors and pension plans? Are there alternatives for us mere mortals? I don't even know what reinsurance is, but now I want it so badly. There's a separate article also by Mr. Swedroe recommending the same mutual funds. De Apresto Lieber, Pete. Could I come home and think that I've been fishing all day or something? That's, Really not what I do, Peter.

Mostly Voices [15:12]

However, the good news is I think I can help you. Well, it's good to hear from you again, Pete.

Mostly Uncle Frank [15:19]

It's always good to hear from you and about your children, which I find highly amusing.

Mostly Voices [15:26]

Why? What have children ever done for me?

Mostly Uncle Frank [15:30]

For the rest of you, this refers back to episode 322, when we were talking about Pete's four children with their Three 529s and I suggested that they have competitions resembling the Hunger Games or Thunderdome or at least Festivus to compete for them.

Mostly Voices [15:49]

And now as Festivus rolls on, we come to the Feats of Strength. Not the Feats of Strength. Until you pin me, George, Festivus is not over. Please, somebody stop this. Let's rumble.

Mostly Uncle Frank [16:04]

What your seven-year-old said reminded me a bit of what our eldest said when he was young and we took him to the National Aquarium. And at the time they had dolphin shows there. And we told him we were going to take him to a dolphin show. And he said, When are we going to go see the dolphin choke? Probably, thankfully, they no longer have dolphin shows at the National Aquarium. And they do not choke the dolphins either, as far as I know.

Mostly Voices [16:35]

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

Mostly Uncle Frank [16:38]

Now, getting to Larry Swedroe, who is actually one of my favorite people, particularly about explaining factor investing to the general public, through his book All About Factor Investing, which was written in about 2017. And I would recommend for anyone who is serious about their do-it-yourself investing, because it does represent modern best practices for portfolio construction, at least on the stock side of things. But as you observe, he likes experimentation, particularly in his personal portfolio. I'll link to these two articles in the show notes, but I'm also going to link to a YouTube video where he's interviewed about his personal portfolio. I think it's on excess returns. I'll go find it and link to it in the show notes, where he talks about this. And he holds a very esoteric, diversified portfolio that I think is only something like one-quarter stocks that are all small cap value or international value, then some fixed income that's in about another quarter, and then half of his portfolio is in these more esoteric products involving reinsurance, long-short strategies, and other things like private credit. And as you also observed, a lot of these things are either expensive to get into or require very large minimums of millions of dollars, and so they're really only appropriate for people running institutions and family offices.

Mostly Voices [18:07]

Well, you haven't got the knack of being idly rich.

Mostly Uncle Frank [18:14]

It's interesting to contrast what he's talking about here, which obviously some people are doing with Mike Green's fear from the first email we talked about, that obviously there are a number of people out there, professionals, who are not indexing and are doing all sorts of other things. And so if you're worried about Mike Green's concern that there aren't enough people out there doing other things, I think that this example from Larry Swedroe is a good example to counter that. Because while there may not be that many Larry Swedroes out there, they control a very large amount of capital. And the kind of thing he's constructed is something like you might see part of a pension fund's investments invested in all these sorts of alternative strategies and esoteric investments. This is one of those things that I think is interesting, but it's really kind of a bridge too far for your average DIY investor. And I think he's doing it more for his own interest in entertainment, if you will, than anything else, because he's well capitalized and does not need to worry about high drawdowns or anything like that. So he can invest his money however he wants and he's going to be fine personally. I think the real main problem for a do-it-yourself investor looking at something like this is simply you have no way of analyzing or evaluating it with prior data or anything else. So you're completely relying on somebody saying, well, I think this is a good idea right now and relying on their projected returns, so on and so forth. So it's the kind of thing you want to see experienced investors doing just to see what happens. And maybe we'll all learn something from it, but we don't need to be guinea pigs alongside Larry Swedroe testing out these kind of advanced esoteric strategies. I did last talk about this in episode 314, if you want to check that out. And I think that also has the link to the video I mentioned. Now, of the assets that he mentioned, I think reinsurance is probably the most interesting for a do-it-yourself investor to be thinking about. But as you observe, it's very hard to get into that because there aren't a whole lot of companies that do that. There is one called Assurant Guaranty Corporation that you can just invest in. It's traded on the New York Stock Exchange. Its ticker symbol is A-G-O. And it performs generally similar to other insurance companies, but does have a nice diversification from the overall market. What reinsurance is, is basically insurance for insurance companies. So an insurance company will sell a bunch of policies to the public or end user and then may recognize at some point that they're taking too much risk in that area. Say if they insured everybody in a hurricane zone and so they throw off some of that risk by actually buying insurance for themselves. and these end up being kind of very esoteric contracts between two insurance companies. This is where Berkshire Hathaway actually makes a lot of its money. And their wizard there is Ajit Jain, who's worked for Warren Buffett for a very long time and specializes exactly in these kind of risks and pricing them. And that's how they goose their returns over there.

Mostly Voices [21:32]

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

Mostly Uncle Frank [21:36]

I actually do hold a little bit of AGO and combine that with the property and casualty insurance companies that we invest in that are represented by the fund KBWP, although I hold the individual companies themselves. And that can be a nice addition to the value side of your portfolio if you're willing to dice it and divide it down like that. But Those companies and that kind of industry does have a nice history of having similar returns to the stock market, but being very well diversified from the rest of the market and was one of the few sectors that was up in 2022. I think it was up about 10%. And it was nice to be able to sell some of that while the rest of the markets recovered in 2023. But again, it's hard to say that anybody ought to do this simply because there is not a whole lot of data to analyze or to show that it's worked over decades or something like that. Now, as for his statement that richly valued equities will likely imply lower future returns, well, we've heard that story a lot, and it's one of those things that kind of comes true over decades of time, but is completely useless as far as a predictive device. And people who tried to use that Methodology by looking at CAPE ratios in the early 2010s basically miss out on the whole rally because they pulled out saying that the PE ratios were, quote, too high, unquote, in about 2011 or 2012, reduce their exposure to the markets, and then watch them run away to the upside. And so that methodology as a basis for investing has been proven to be a failure. Forget about it. The more interesting question is why is it proven to be a failure? I don't know precisely, but it seems to me that a lot of it has to do with the fact that the composition of markets does change over time and that each industry or sector has its own kind of valuation or average that you would need to investigate. So if you were going to do something like that, I think you would need to divide up the market by sectors specifically, and then determine whether each sector is overvalued or not under your methodology. And you could do that by factors as well. But I think the easier solution is just to hold a few different factored funds and then rebalance them, which is basically what he's trying to do, although he's making it more complicated because he's recognizing that the value in international sectors have underperformed the growth and technology sectors over the past decade. But that doesn't really tell you when they're going to catch up, if they're going to catch up, how they're going to catch up, which ones are going to catch up. Crystal Ball can help you.

Mostly Voices [24:32]

It can guide you.

Mostly Uncle Frank [24:35]

And so that's why it's a fairly useless method for deciding what to invest in. But if you own some of everything and just rebalance it, Then you don't need to have a caped crystal ball that's trying to make these kinds of forecasts and zig and zag.

Mostly Voices [24:50]

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

Mostly Uncle Frank [24:53]

Anyway, no, this is not something for mere mortals to be fooling around with in general. This is something to watch from the sidelines and see how it goes. And then maybe some point in the future, if we have inexpensive ways to invest in it, we might consider it. No more flying solo.

Mostly Voices [25:12]

You need somebody watching your back at all times.

Mostly Uncle Frank [25:16]

So we'll put it in the don't try this at home category, along with excessively leveraged portfolios.

Mostly Voices [25:24]

You can't handle the gambling problem.

Mostly Uncle Frank [25:27]

Thank you for the links and thank you for your email. Now we're going to do something extremely fun. And the extremely fun thing we get to do now are our weekly portfolio reviews of the seven sample portfolios. you can find at www.riskparityradio.com on the portfolios page. And just looking at the markets last week, there was lots of volatility, but not that much movement overall. The S&P 500 was up 1.32% for the week. The NASDAQ was up 2.38% for the week. Small cap value represented by the fund VIoV was actually down last week. It was down 2.45% for the week. Gold looked like it was about to break out again, but then had a huge fall on Friday and ended up down 1.78% for the week. Long-term treasury bonds represented by the fund VG L T were up. They were up 0.88% for the week. REITs represented by the fund R E E T were down 0.43% for the week. Commodities represented by the fund PDBC were one of the worst performers. They were down 2.14% for the week. Preferred shares represented by the fund PFF were down 0.28% for the week. And managed futures represented by the fund DBMF were down 0.40% for the week. And all this translated into not much movement for most of these portfolios. Beginning with our first one, a reference portfolio called the All Seasons. That is only 30% in stocks in a total stock market fund. Looks kind of like a Larry Swedroe portfolio in that respect. It has 55% in treasury bonds in intermediate and long term, and then the remaining 15% is in gold and commodities split. It was up 0.52% for the week. It's up 2.44% year to date and up 4% since inception in July 2020. Now moving to our more bread and butter kind of portfolios involving things that people actually may want to hold in retirement. The first one is a golden butterfly. This one's 40% in stocks divided into small cap value fund and a total stock market fund, 40% in treasury bonds divided into long and short, and 20% in gold. GLDM, it was down 0.4% for the week. probably on the gold. It's up 2.74% year to date and up 23.82% since inception in July 2020. Next one is Golden Ratio. This one's 42% in stocks and three funds. It's got 26% in a long-term treasury bond fund, 16% in gold, 10% in a reit fund, and 6% in a money market. It was up 0.15% for the week, It's up 2.98% year to date and up 20.53% since inception in July 2020. Now moving to our kitchen sink portfolio, the Risk Parity Ultimate that has 15 funds in it that I will not go through. It was up 0.42% for the week. It's up 6.35% year to date and up 14.34% since inception in July 2020. It's interesting after The monthly distribution, which I won't go over, but you can look at on the website, it has exactly the same amount of money this week as it did last week, but for the distribution. And we did do that distribution from the Ethereum component, which is only supposed to be at 1%, but is a bit more than that at the moment.

Mostly Voices [29:06]

You could always use a little more. Am I right or am I right or am I right? Right, right, right.

Mostly Uncle Frank [29:13]

Now moving to these experimental portfolios. The ones I said you should not try at home due to the excessive leverage in them.

Mostly Voices [29:20]

Well, you have a gambling problem.

Mostly Uncle Frank [29:24]

First one is the Accelerated Permanent Portfolio. This has 27.5% in a levered bond fund, TMF, 25% in a levered stock fund, UPRO, 25% in PFFA preferred shares fund, and 22.5% in gold, GLDM. It was up 1.74% for the week. It's up 4.12% year to date and down 4.58% since inception in July 2020. Looks like we may have a rebalancing in this portfolio next week. We'll look at it on the 15th, but right now the Levered Stock Fund is over a third of the portfolio in terms of an allocation which triggers a rebalancing under our rules. So we'll see if it remains there and if that comes to pass and then we'll have an exciting rebalancing to do in the middle of the month. Yes! Moving on here to the aggressive 5050. This is the most leveraged and least diversified of these portfolios. It has 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 a intermediate treasury bond fund. Because it doesn't have any gold in it, it benefited from last week. So it was up 2.52% for the week. It's up 2.85% year to date and down 15.66% since inception in July 2020. And moving to our last one, the levered golden ratio. This one is 35% in a levered composite fund, NTSX. 25% in Gold, GLDM, 15% in a REIT called O, Realty Income Corp, 10% each in a leveraged bond fund, TMF and a leveraged small cap fund, TNA and the remaining 5% in a managed futures fund, KMLM. It was down 0.21% for the week, it's up 1.93% year to date and down 11.79% Since inception in July 2021. So all in all, a pretty boring week. Just what we like to see though. Good times in the summertime.

Mostly Voices [31:40]

In the summertime, when the weather is hot you can stretch right up and touch the sky when the weather's fine youe got women, you got women on your mind have a drink, have a drive go out and see what you can find [Finished] But now I see our signal is beginning to fade.

Mostly Uncle Frank [32:00]

As I mentioned in last episode, I will be running off on hiatus for the next week and a half or so, and so there will not be any podcasts this week or next weekend, but I will be back with you after that. We'll keep the website updated or At least mostly updated. I have a feeling I have a lot of broken links these days. And I keep promising myself to look at them, but I have not been keeping that promise. It's not that I'm lazy. It's that I just don't care. But 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 follow, some stars or a review. That would be great. Thank you once again for tuning in. This is Frank Vasquez with Risk Parity Radio. Signing off.

Mostly Voices [33:16]

We're not bad people, we're not daddy, we're not mean, we love everybody, but we do as we please when the weather's fine. We go fishing or go sailing in the sea. We're always happy, at last we're living here, that's our philosophy. Sing along with us.

Mostly Mary [33:48]

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.