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. Lighten up, Francis. But now, onward, episode 353. Today on Risk Parity Radio, Merry New Year, Happy New Year.

Mostly Voices [1:49]

In this country we say Happy New Year. Ha ha ha ha ha ha ha. Thank you for connecting my English with stinks. I am Nanja Iboko, exchange student from Cameroon. Ha ha ha ha ha ha ha.

Mostly Uncle Frank [2:04]

Yes, it is the last episode of season four of this program. And as we do it this time of year, we will be doing the annual rebalancings. of four of the sample portfolios that are on a calendar rebalancing schedule. Happy New Year! And we'll also be talking about our weekly portfolio reviews of all eight of them, which you can find at www.riskparityradio.com on the portfolios page. But before we get to that, we have our little promotional announcement Yes! As you know, if you listened to the last episode and other episodes, this podcast does not have any sponsors, but it does support a charity called the Father McKenna Center. And the Father McKenna Center serves hungry and homeless people in Washington, D.C. Full disclosure, I am on the board and am the current treasurer. We are running a promotion these days because of an appearance I'll be making on a podcast called the Financial Quarterback Show. Soon, the financial quarterback has offered to match donations to the Father McKenna Center for up to $10,000 total. We've already begun receiving some of them, but I would appreciate if we would receive a few more. You could always use a little more.

Mostly Voices [3:30]

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

Mostly Uncle Frank [3:33]

So what you need to do to participate and help us out is to go to the donation page at the Father McKenna Center, which I will link to in the show notes. and make your donation. And when you do, make a little note in the dedication box that it is for the financial quarterback match. And they will duly count those up until we get to $10,000. And hopefully we'll get to even more than that. And if you want to learn more about the Father McKenna Center, you can do so at those web pages. We are a 501 organization. We are extremely efficient because we do not have any overhead for facilities. Our facilities are provided by the high school that is attached to the Father McKenna Center, or rather the Father McKenna Center is attached to the high school. And it's in the basement of an old church. So we run a soup kitchen and a food pantry and other programs to help hungry and homeless people that we serve. We have a very small staff, but we also have hundreds of volunteers that work with the Center, including a lot of the high school students. And so we would be grateful for any support you can give. And as an added feature and bonus, if you do donate to the Father McKenna Center, you get to go to the front of our email line for getting your questions answered, which we are not doing today, but we are doing most days. And I see we already have one of those in the past couple of days, which will be next in line. Yeah, baby, yeah! The rest of you probably will have to wait six to eight weeks for your email to be answered, because that's how long the queue is these days. And so ends our promotional announcement for today.

Mostly Voices [5:23]

And it's gone!

Mostly Uncle Frank [5:28]

Now we're going to do something extremely fun. And the extremely fun thing we get to do is what I first mentioned, which is a combination of our weekly portfolio reviews of the eight sample portfolios you can find at www.riskparityradio.com, and then also a review of the rebalancings we will be doing for the first four portfolios that are rebalanced on an annualized basis. So just looking at the markets last week, A very bad week for a lot of things. Not so bad for our portfolios though. The S&P 500 was down 1.97% for the week. The Nasdaq was the worst performer. It was down 3.65% for the week. Small cap value was up last week.

Mostly Voices [6:17]

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

Mostly Uncle Frank [6:20]

Small cap value represented by the fund VIOV was up 2.56% for the week. demonstrating its diversification properties from the overall stock market. Gold was down slightly. Gold was down 0.61% for the week. Long-term treasury bonds represented by the fund VGLT were down 0.85% for the week. REITs also had a good week though. REITs were up. Our representative fund R EET was up 0.82% for the week. Preferred shares represented by the fund PFF were down 0.38% for the week. Commodities represented by the fund, PBDC were down 2.78% for the week. And managed futures were also down. Our representative fund, DBMF was down 1.43% for the week following along with the commodities. Moving to our sample portfolios. First one is a reference portfolio that we keep around for reference purposes. It's called the All Seasons. It is only 30% in stocks in a total stock market fund, VTI. 40% in long-term treasury bonds, that's VGIT. 15% in intermediate treasury bonds, that's VGIT. And the remaining 15% divided equally into commodities, PBDC, and gold, GLDM. It was down 1.14% for the week. It's up 4.99% year to date and up 6.59% since inception in July 2020. This is the first one we'll be rebalancing. Let's talk about rebalancing just a little bit for those who are unfamiliar with this process. Now, as you would imagine for any portfolio that you are holding, over time the assets perform differently and so the percentages of each asset becomes different than the ones you started with. Now, in order to remedy that and to maintain the same kind of portfolio, it is generally a good management technique to rebalance your portfolio from time to time. And rebalancing in this context means putting it back from wherever it is now to its original configuration. What that forces you to do is essentially sell winners and buy losers. So you're selling high and buying low as an automatic process. Now, I need to differentiate that process, rebalancing, from reallocating because unfortunately, those terms are becoming very confused in investing. Both amateurs and professional sites I see refer to rebalancing when they mean reallocating. if you are reallocating, you are actually changing the makeup of your portfolio. You are saying, I don't want this asset or as much of this asset, but I want more of a different asset and you are making an actual change to the portfolio. That is not something you should be doing very often, if at all, and be doing very carefully, because the idea of holding any particular portfolio is that you hold it through thick and thin and you are not jumping in and out of funds. What typically happens is people reallocate based on recent performance or outperformance of some other asset. They say, oh, that looks good. I want some of that. Let me sell something that isn't doing as well in my portfolio and buy some of that. If you engage in that kind of activity, that is exactly the reason that most amateurs underperform even their own assets that they're holding, and they underperform indexes by 1 to 4%. So that is a very bad practice to be reallocating a lot and reallocating based on FOMO or new ideas or current conditions or any sort of crystal ball you may be employing.

Mostly Voices [10:23]

Now, the crystal ball has been used since ancient times.

Mostly Uncle Frank [10:26]

It's used for scrying, healing, and meditation. Now, the main reason you would reallocate a portfolio is if there are changes going on in your own financial life. So, for example, you are going from accumulating assets to decumulating assets. That certainly calls for a reallocation of the portfolio. Anytime there's a change in your life that would cause you to want to have a more aggressive or less aggressive portfolio, is a time to consider reallocation. But it's based on your own personal financial situation. It's not based on crystal balls or things you find floating around out there in the world that might cause you to like some asset or not like some asset on a particular day. The other reason that you might reallocate is just because you've learned more and have a better idea of what you want to do. But that must also be approached circumspectly, because you only want to be reallocating once every few years or decade. You do not want to be doing that on a regular basis every time you get another bright idea. But it could be as simple as there being a new fund that does what one of your old funds is doing except does it cheaper. That would be a good reason to reallocate to that fund. Or there may be some tax loss harvesting going on or something else like that. Because reallocations within an asset class, say going from one stock fund to another stock fund, are not going to have that big of an impact on an overall portfolio. What will have a big impact is if you are completely changing asset classes with a large part of your portfolio. And those kind of reallocations need to be looked at circumspectly. So we will actually be doing a couple of reallocations today, some small ones in one of the portfolios. But for the most part, we are just simply rebalancing these portfolios and putting them back to where they were and not changing their strategic allocations in any way. So what is the process for rebalancing? Well, it's simple algebra and arithmetic, really. What you do first is look at the entire value of the portfolio, including whatever excess cash it may be holding due to recent distributions. and you are going to multiply that figure by the percentages that you targeted to hold for each of the assets in your portfolio to find out what the target percentage is of them today, which you are then going to compare to where they actually are today. Now, one thing, if you are taking distributions or withdrawals out of your portfolio, it is a convenient thing to do at this time to also Carve off some cash. For most of these portfolios, we're just carving off enough cash for next month's distribution. One of our portfolios, we carve off much more than that because we are using that as an annual distribution. And those are two different ways of approaching portfolio management. Either you're looking at it every month or every quarter and selling assets based on what's doing well, or you're just doing this kind of once a year saying, let me carve off all of the money I'm going to need as expenses and withdrawals for the next year. Just do it all at once when you rebalance and then you just don't look at the portfolio for the rest of the year. That's a much more efficient way of doing things. It may not be optimal. It's probably optimal to be looking at it more often. Although I don't think there's going to be a whole lot of difference simply because your monthly distributions are not going to be a very big percentage of your overall portfolio in any event. So just looking at these All Seasons portfolio and all of this is going to be laid out on the website as well. There is a total of $9,250 in that portfolio right now. We're going to carve off $40 of that for the next monthly distribution and so work with a total of 9210. Now we multiply that by the target allocation for each of the assets. So for the fund VTI, which is the total market fund, our target allocation is 30%. When we multiply 30% times 9210, we get 2763. For VGIT, it's 40%. Multiplying that out, you get a target allocation of 3684. For VGIT, that's a 15% allocation. Multiplying 9210 by 15% gives you 1382. And then for the gold and commodities, we end up with 691 for each of those for the 7.5% allocation to each one of those. Now we compare those target amounts to what's actually in there now. And then we're either going to buy or sell that asset to get it to its target. So in this case, the outperformers right now, based on the percentages, were the gold fund and the total stock market fund. So we're going to be selling out of those. We're going to be selling $394 worth out of the Total Market Fund and $92 worth out of the Gold Allocation. And then we're going to be buying the other three assets in the portfolio, which are below their target allocations. So we'll be buying $73 worth of the Commodities Fund, PDVC, $39 worth of the Intermediate Treasury Bond, VGIT, and $379 worth of the long-term treasury bond fund, VG L T. Now, obviously, if you were working with a real portfolio, these numbers would be a lot bigger. You know, I thought you'd be bigger. But these are sample portfolios based on an initial starting balance of about $10,000 for each one of them. It's interesting that before about 2020, it would not have been possible to construct a sample portfolio like this and do this kind of management. But because Fidelity has no fee trading and you can buy fractional shares of anything down to the value of a dollar, it is now reasonably efficient to do that even with smaller portfolios. And so we will be doing those transactions on Monday when the market opens. But now let's move to the next one. One of what we call our bread and butter portfolios, something that somebody might actually use as the basis for a decumulation portfolio. And the first one is called the Golden Butterfly. This one has five funds in it and it's got a 20% target allocation to each fund. So it's got 20% in a total market fund, VTI, 20% in a small cap value fund, VIOV, 20% in a long-term treasury bond, VGLT, 20% in a short-term treasury bond fund, SHY, and 20% in a gold fund, GLDM. It was down 0.16% for the week. It's up 8% year to date and up 28.38% since inception in July 2020. There is currently $10,515 in this portfolio and peeling off enough for a distribution we're going to be rebalancing $10,465 of it. And so when we multiply that figure by 20% we get a target allocation of $2,093 for each of the five components. So looking at what's been performing better and what's been performing worse the Gold and Total Market Fund have been the high performers in the last period So we'll be selling $200 worth of the Total Market Fund, VTI, and $197 worth of the Gold Fund, GLDM, and then be buying the three other ones. We're buying $14 worth of the small cap value fund, which has recovered quite well recently and is catching back up with the Total Market Fund. $117 of the short-term bond fund, SHY, and $256 of the long-term treasury bond, VGLT. And we'll do that on Monday and it will rebalance it back to its original allocations. But now we can move to our next portfolio, sample portfolio, the golden ratio. This one was down 0.56% last week. It's up 7.02% year to date and up 25.26% since inception in July 2020. In terms of target allocations, this has 42% in broad-based index funds in three funds. One of those is a large cap growth fund, VUG, so 14% to that. 14% to VIOV, which is a small cap value fund. And then we have 14% devoted to USMV, which is actually a low volatility fund. But in terms of Fama French factors, it performs like a large cap value fund leaning towards a large cap blend fund. This portfolio also has 26% in long term treasury bonds. That's in the fund VGLT. It has 16% in gold. That's in GLDM. 10% in a REIT fund. That's R-E-E-T. and then 6% in a money market fund in cash. And just a couple of notes on that. First, as I mentioned, we had a portfolio where we take the cash and put it aside and just use that cash for withdrawals for the entire year. That is the way this portfolio is being managed. So for all of the other assets, we literally only make this one adjustment one time of the year, then for the rest of the year, all we do is take money out of the cash portion of this and we're going to be replenishing that this year. Now, that method of management is actually what the original bucket strategy was invented by a financial advisor called Harold Evensky, who found that by carving off an allocation to cash periodically and leaving the rest of the portfolio alone, it calmed his clients down so that they were not tempted to be fiddling around with the rest of the portfolio since they knew they had the cash for the next year, the next period. And so this is a very simple way of managing a portfolio that's very effective and also makes it so that if you don't want to look at the portfolio, you don't have to because you already have the cash there and you can just spend that and then only look at the portfolio once a year. for this rebalancing process. And you can do that with any portfolio really. We're just doing it with this one to give a good idea of what this method works and how it works as opposed to the other method that we use for most of the portfolios, which is to actually look at the assets each month and take from the best performer for the distributions. So since we are doing it that way, we do not need to carve off a monthly distribution, but can reallocate based on the entire balance of this portfolio, which is $10,258. And we'll get to that in a minute. The other note that I wanted to make on this is that we talked about this about a year and a half ago that we wanted to do a reallocation in this portfolio to incorporate a managed futures fund instead of the reit fund, which is just another way of implementing this kind of portfolio. Remember, these are sample portfolios that are not intended to be the be all and end all. The main characteristic of this portfolio is the ratios of the stocks to bonds to gold to other things, which is 42% to 26% to 16% to 10% to 6%, which adds up to 100. But all of those are also in the proportions of the ancient golden ratio. So the reallocation we propose to make over a year and a half ago was to swap the managed futures fund DBMF in for the REET fund. Now we decided not to do that at that time because we did not want to be essentially selling low and buying high, which really probably would have been the practical result of making that transaction at that point in time. So we decided that we were going to wait for that reallocation either to when the REIT fund substantially outperformed the substitute fund, the Managed Futures Fund. And it's performed better since then, but has not really caught up if you look at it since the portfolio was constructed. And the other good time to do that would be when the portfolio itself got back to its all-time highs. And it's getting close actually when you consider the distributions that we've taken out since then. but it's not there yet, and so we will not be making that reallocation right now. Now when we do do that reallocation, we will probably make the stock portion of this a little bit more aggressive since we're taking out the REITs, which are stocks. So what I'll probably be doing then is taking out that large cap value fund from the stock portion, which is the most conservative of those three funds, and then reallocating that to the small cap value and the large cap growth fund. But again, all of that is for the future. And I look at this periodically to see where it is in comparison to a portfolio where we would have started with the Vanguard Futures Fund in it. And I'll let you know when we get to a good point where it makes sense to do that. But all of that waiting is really to avoid the psychology of jumping around from fun to fun just because you see another shiny object.

Mostly Voices [24:30]

You can't handle the crystal ball.

Mostly Uncle Frank [24:34]

Because whether this fund had 10% in REITs or 10% in a managed futures fund is not going to be the be-all break point of this kind of a portfolio. I do think that having the managed futures fund will give it slightly better diversification over time than the REIT fund is giving it. And it would be more interesting for pedagogical purposes as a sample portfolio than it's current configuration. So now getting to the actual mechanics of this. So for our three stock funds, VUG, VIoV, and USMV, I should say our three index funds, those will be 14% allocations each, so that'll be $1,436 for each one of those. The 26% allocation for VGLT is going to be 2,667. The 16% allocation for GLDM is going to be 1,641. and then the 10% allocation for the REIT is 1026 and for the cash that'll be left over it'll be about $615. So currently there is only $314 left in that cash money market. So the biggest thing we're doing here is replenishing that. But in terms of selling winners and buying losers, the winners last year this is interesting because it does record for the whole year since we haven't done any transactions in it for the whole year. So the biggest winner was the large cap growth fund, VUG, and we'll be selling 291 dollars worth of that. The next biggest winner last year was gold, a GLDM, and we'll be selling 252 dollars out of that. And then the third winner was that low volatility fund, USMV. We'll be selling $129 worth out of that. Now to the losers that will be buying, shouldn't necessarily say losers, but the lower performers and VIoV, the small cap value fund, although it's done really well recently, was a lower performer last year. We'll be buying $15 worth of that. The REIT fund was a lower performer last year. We'll be buying $24 worth of that. And then the worst performer last year was the long-term treasury bonds, VGIT, and we'll be buying $333 worth of that in addition to buying about $300 worth of the money market fund. And so those transactions on Monday will complete the rebalancing for this. We will not need to touch it again for another year and we will simply be taking our monthly distributions out of the money market fund. But if that rate fund continues to improve and have a bang up year in the near future, we will be making that other reallocation swap at some point. Just don't hold your breath on that. And I think that leads to another point when you're thinking about holding a portfolio for the long term. A year really isn't a very long time. You should be thinking about this in sort of minimum three to five year increments. What you're really thinking about more is the next decade and not really the next year or the next couple of years because there can be a lot of volatility within a few years. These kinds of portfolios though, particularly things like the golden butterfly and golden ratio, do have a tendency to recover if they've had a bad year within three to five years in the worst case scenarios. And 2022 was a worst case scenario for basically any kind of stock bond portfolio, including these. But we do see that the portfolios are recovering out of that as we speak, which is what we would expect to happen over time. Now moving on to our next one, the risk parity ultimate. which is a festival of complication. It is overly complicated because we use this portfolio as kind of a kitchen sink just to put in examples of all sorts of things that you might hold in a portfolio like this, even though I don't think anyone would really want to hold all of these things. But since we don't do it very often, let me give you the rundown of what is actually in this portfolio. We do tweak it from time to time as we will do again this year. On the stock side of things, we have 10% in a large cap growth fund, VUG. We have 15% in a small cap value fund, VIoV. We have 5% in a low volatility fund, that USMV. We have 5% in UPRO, which is a levered S&P 500 fund. which kind of plays like that large cap growth fund. We have 5% in a REIT fund, REET, and we have 5% in a fund that invests in domestic Chinese companies called KBA, which is extremely diversified from the rest of these stock funds. And then we also have 5% in a preferred shares fund, PFF, but I'm going to put that aside for the moment. and talk about that with the alternatives. So although those stock funds sound like just a mishmash of funds, the overriding macro allocation principle going on there is to have approximately half in growth related funds and half in value tilted funds. And so when you combine the UPRO, which is growth, because it's leveraged, it is like having a 15% allocation to the S&P 500 with the VUG, which is also growth. So you end up with a 25% effective allocation to large cap growth there. And then on the value side, we have 15% in the VIOV, 5% in the USMV, and 5% in the REIT fund. And that is also 25% essentially allocated to value tilted things. The Chinese shares fund kind of just stands on its own because it behaves much differently than the other ones do. But that is the macro allocation principle behind those allocations. And so you see that as an effective allocation to stocks of about 55%, if you include all those funds, and the leverage. Now, on the straight bond side of things, we have two funds that are treasury bond funds. One is VGLT, which is a long-term treasury bond fund, and the other one is TMF. which is a levered version of a long-term treasury bond fund. There's 5% in TMF and 15% in VGLT. And so that adds up to an effective allocation of about 30% to long-term treasury bonds. Now, you might also include PFF in that allocation, but PFF is kind of a cross between a stock fund and a bond fund the way it performs. which is why we kind of plop it off to the side. But then if you look at those base macro allocations, we're looking at a 55% effective allocation to stocks and a 30% effective allocation to the long-term treasury bonds. So what do we have left? What we have left are an assortment of alternatives and what are those? Right now we're looking at 15% in a gold fund, GLDM, 5% in a managed futures fund, DBMF, 5% in a commodities fund, C-O-M, that is long only essentially, and then 3% to a long short fund called BTAL that we talked about in episode 114 if you are interested in that. But it's basically long value and short growth is how it's mostly constructed and tends to go up when the stock market is going down or whether value is outperforming growth. And then we also have 2% devoted to cryptocurrencies, 1% in Bitcoin and 1% in Ether. Those are currently held in a separate account because the ETFs for those were not or are not available right now. Once we have ETFs for both of those we will merge them back into the main account because I think it makes more sense to use ETFs for these purposes. But right now they're in a separate Fidelity crypto account because Fidelity allows you to trade crypto, at least Bitcoin and Ether. And so all of those allocations together add up to about another 30%. So when you look at this portfolio with all the leverage from a macro allocation perspective, it's about 55% in stocks divided into growth and value, 30% in long-term treasury bonds, 30% in Alternatives, and then we need to have this just extra 5% in a preferred shares fund. Now before I forget, for the week this was down 0.58%. It is up 9.89% year to date and up 17.78% since inception in July 2020. When you have a portfolio like this you get what's called a lot of tracking error and all that means is that it does perform a lot differently at different times than, say, a standard 60/40 kind of portfolio because of all the variation it's got in it. It performs more like something you might see from AQR or something like that. And it's actually the best performer this year so far of all these portfolios. And a lot of that has to do with the performance of the cryptocurrencies, which we have also been taking distributions from for the past several months, which has been very convenient to harvest. Ooh, how convenient.

Mostly Voices [34:08]

But when you have a volatile and speculative asset like that in a portfolio,

Mostly Uncle Frank [34:13]

you will get these gigantic outperformances or underperformances, which is why you want to keep it to a very small percentage of the portfolio and then opportunistically harvest it when you do get those kind of speculative pops. So the total in this portfolio is 9,381 currently. And after subtracting off some money for the next distribution, we'll be rebalancing the amount of 9,330. And I won't go through all of these things, but basically all the ones that are at 5% have a target allocation of 466. All the ones that are at 15% have a target allocation of 1,399. And 10% allocations would be 933. The 3% allocation is $279. That's for the BTAL. And then for the two allocations to cryptocurrencies, those are going to be down to $93 for those at 1% each. As I mentioned, we will actually be doing a little reallocating in this portfolio, a little tweaking. We're basically just doing two things. I'm going to take out the FundCom C-O-M which is a commodities fund with a kind of a trend following aspect to it in that it only buys things when they're going up and does not go short on any commodities. And that seems to be fairly duplicative of DBMF, although not as good basically is what it is. So we're just going to get rid of that and take that 5% allocation and allocate it to DBMF. And that is a good example of basically just saying, We have a better mousetrap, if you will, that is doing the same kind of thing. So let's just use the better mousetrap instead of the less effective mousetrap. And that really doesn't change the overall macro allocations of the portfolio at all. The other better mousetrap we're going to incorporate here is with the preferred shares fund. We had been using PFF. I had been following other preferred shares funds because PFF has a relatively high expense ratio. and found that PFFV, which is another preferred shares fund that invests mostly in variable securities, but they're all the same kinds of big banks and things that PFF invests in, but it has a lower expense ratio and seems to just do better overall. So we're just going to swap that out. We're going to get rid of PFF and put in PFFV for that allocation. And again, that is a example of finding a better mousetrap. Now you need to be careful if you're doing that in real life, if you're working with a taxable account because there could be tax consequences in doing something like that. But if you are not concerned with taxes or you're dealing with something in a retirement account then you can swap whenever it makes sense and you find a better fund that does the same thing. And I do expect that actually to be a trend in the next decade or so because since about 2019 when they changed the rules for ETFs. And then now that we've gone to no fee trading, there just been a whole lot more ETFs rolled out that we didn't have before that are better than some of the prior ones. Either the expense ratios are less or there's a better construction or something else is better. So that's something that you do want to be looking at periodically. And it's kind of the icing on the cake, if you will. Obviously, if you stick with something that's been working well for a very long time, it will probably continue to work just as well. So this is not something you need to be getting too fixated on. So I'm not going to go through every one of these transactions we're going to do on Monday. Let me just summarize sort of which ones are we selling from and which ones are we buying from. Because the ones we're selling from are the winners, essentially, last year. So we're selling from the large cap growth fund, VUG, from the low volatility fund, USMV, from UPRO, the levered S&P 500 fund, from GLDM, the gold fund. We would be selling from DBMF, except we are adding to it because we're taking out the allocation to comm and actually the BTAL fund we would be selling from, but only $2 since it's about the the same allocation it was last year already. And then the other sales will actually come from these two crypto funds, the Bitcoin and the Ether fund, which had both doubled or more than doubled in value at some point and we've been selling down for the past few months, but there's still a little bit of selling to do there to get them down to their 1% allocations. So what are we buying? What were the relative losers last year? One was small cap value, that VIoV fund. The Treasury bonds were buying more of those in both of those funds. The REIT fund were buying a little bit of that. The preferred shares fund were buying a little bit of that. The Chinese shares fund were buying some of that. And that's about it, really. But you can look at all of those specifics on the website if you are interested in the intricate mechanical details of that. Now, as I had mentioned, it's certainly not necessary to be holding this many funds and probably nobody would really want to hold this many funds in their portfolio. But one interesting thing would be, well, how does this compare to what I'm actually holding in real life? And I do hold a lot of these things, some of them just more on an experimental or curiosity basis. But I'm kind of a glutton for punishment when it comes to that. So I do hold some BTAL along with a fund called EUO, which is an inverse Euro fund against the dollar, and both of those are essentially funds that perform well when the volatility of the stock market is high. I do hold some DBMF. I do hold some gold. I hold a tiny bit of KBA, which is that Chinese shares fund in one of our retirement accounts. There's also a broader fund, international fund that I use called EMQQ, which is international tech or emerging market tech. which holds similar things to some of these Chinese shares funds along with a number of companies from other countries across the world. In that international category, I also use fund like AVDV and AVES, which are both Avantis funds. And I do think those are very good funds, particularly on the international side because they have more filters to get rid of a lot of just bad companies. And I think Avantis and DFA in particular do a much better job with international stocks and allocations than you will find in basic international large cap index funds like VXUS or something like that. Moving down this list, I do hold some PFFV, also just more for experimental purposes than anything else. We've got small allocations still to some REITs, but make sure you keep those in your retirement accounts because they throw off a lot of ordinary income. I've found that managed futures tend to do a better job than REITs in that slot in terms of overall diversification with the rest of the portfolio. I hold a little bit of TMF and UPRO. That's just purely experimental things going on in a Roth IRA that we don't intend to use for anything really. I do not currently hold any USMV, which is that low volatility fund. However, I do hold other value tilted things that are similar to that in terms of overall risk reward. One of those being an allocation to property and casualty insurance companies and then just some allocations to some large cap value stocks on a quality basis. And those are my experiments in direct indexing, which we can talk about sometime and I really wouldn't recommend unless you like fiddling around with lots of stuff like I do. And I do hold lots of large cap growth and small cap value, that's for sure. And I suppose you're wondering, well, do you hold any crypto? Yes, we do on a very experimental basis in one of our accounts. And what we do there is when it's below 1% of the portfolio in that particular account, we buy more of it. And then when it gets to be over 2%, we start selling it. And that is also just an experimental operation to take advantage of its volatility. It has been profitable the past year here in particular, but I view that more as a form of entertainment than actual investing.

Mostly Voices [42:57]

You have a gambling problem.

Mostly Uncle Frank [43:00]

Anyway, moving to the rest of these portfolios that we are not rebalancing this week, these are the experimental ones. involving levered funds.

Mostly Voices [43:08]

Well, you have a gambling problem. First one's the Accelerated Permanent Portfolio. This one's 27.

Mostly Uncle Frank [43:15]

5% in a levered bond fund, TMF, 25% in a levered stock fund, UPRO, 25% in PFF, a preferred shares fund. And we probably will swap that one out too for PFFV the next time we rebalance this. And 22.5% in the gold fund GLDM. This one was down 2.71% last week. Didn't like all that large cap. It's up 8.8% year to date and down 0.29% since inception in July 2020. Next one's the aggressive 5050. This is the least diversified and most levered of these portfolios. Always is very volatile. It's one third in a leveraged stock fund, UPRO, one third in a leveraged bond fund, TMF, and the remaining third in Ballast and A preferred shares fund, PFF, and an intermediate treasury bond fund, VGIT. It was down 3.44% for the week. It's up 7.37% year to date, down 11.95% since inception in July 2020. Next one's a levered golden ratio. And this one has the largest allocation to small caps of any of these portfolios, and so was the best performer. last week if you can imagine that. So it's got 35% in a composite fund NTSX that is the S&P 500 and treasury bonds levered up 1.5 to 1, 15% in EREIT O, 25% in Gold GLDM, 5% in Managed Futures Fund KMLM, and then 10% each in a levered small cap fund TNA and a levered bond fund TMF. It was down just 0.15% for the week, so almost flat. It's up 8.55% year to date and down 6.06% since inception in July 2021. And if we do see that big rotation into small caps from large caps that everybody seems to be talking about these days, then you will see this portfolio catch up very quickly with some of the other ones. And again, you would attribute that to what you would call tracking error, because over time you would expect small and large caps to perform relatively similarly, although performing better than the other one at different times. And small caps, particularly a fund like TNA, which includes small cap growth, will often just have these random outperformances where small caps go up 20% in a very short period of time, like two months or something like that. The one thing you can't do is actually predict when that's going to happen. So it is a buy, hold, rebalance into it and wait kind of operation that kind of marches to the beat of its own drum, if you will.

Mostly Voices [46:06]

And now moving to our last one, the one we just put out there

Mostly Uncle Frank [46:10]

this month, The Optima Portfolio, one portfolio to rule all. Yes, that's a joke. You can't handle the tractor. This one is 16% in a levered stock fund, Upro, that's the S&P 500, 24% in a composite value fund called AVGV, which is a mixture of all of Avantis's value funds, both domestic and international. Then it's got 24% in a Strips Treasury Bond Fund, GOVZ, and the remaining 36% divided into Gold, GLDM, 18%, and Managed Futures, DBMF, also 18%. It was down 1.86% for the week. It's up 1.74% for the month, for the year, and since inception in July 2024. That was its first down week, but I think this was the worst week in the stock market since at least April, if not longer. But now I see our signal is beginning to fade. This was a long episode with lots of letters and numbers and calculations and Descriptions. As I mentioned, it is all laid out in text on the Portfolios page at the website www.riskparityradio.com and so you can check it out there at your leisure. Yes, you take my dreams like the one that you just interrupted. It was marvelous. I was foreclosing the mortgage on a lifelong friend and I was creating a poverty pocket right in the heart of Beverly Hills. We'll be making all those transactions on Monday, and then we will be beginning season five of Risk Parity Radio starting next week. Woo hoo!

Mostly Voices [48:06]

Looks like I picked the wrong week to quit amphetamines.

Mostly Uncle Frank [48:10]

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 in the contact form and I'll get it that way eventually. 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 or a review. That would be great. Mmmkay? Don't forget to also go to the Father McKenna website, make a donation, put in the financial quarterback so we can get that match. And thank you once again for tuning in. This is Frank Vasquez with Risk Parity Radio. Signing off.

Mostly Voices [48:52]

Looking good, Billy Ray. Feeling good, Lewis.

Mostly Mary [49:18]

the risk parody 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.