Not Uncle Frank [0:01]

A foolish consistency is the hobgoblin of little minds, adored by little statesmen and philosophers and divines.

Mostly Uncle Frank [0:10]

If a man does not keep pace with his companions, perhaps it is because he hears a different drummer, a different drummer.

Not Uncle Frank [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 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. There are basically two kinds of people that like to hang out in this little dive bar.

Not Uncle Frank [1:00]

You see, in this world there's two kinds of people, my friend.

Mostly Uncle Frank [1:03]

You see, in this world there's two kinds of people my friend, the smaller group are those who actually think the host is funny, regardless of the content of the podcast. Funny how? How am I funny? These include friends and family and a number of people named Abby Abby someone.

Not Uncle Frank [1:23]

Abby who.

Mostly Uncle Frank [1:26]

Abby normal, abby, someone Abby who? Abby normal, abby normal. The larger group includes a number of highly successful do-it-yourself investors, many of whom have accumulated multi-million dollar portfolios over a period of years.

Not Uncle Frank [1:43]

The best, jerry the best.

Mostly Uncle Frank [1:47]

And they are here to share information and to gather information to help them continue managing their portfolios as they go forward, particularly as they get to their distribution or decumulation phases of their financial life. What we do is, if we need that extra push over the cliff you know what we do Put it up to 11. 11, exactly. But whomever you are, you are welcome here. I have a feeling we're not in Kansas anymore. But now onward to episode 361. Today on Risk Parity Radio.

Not Uncle Frank [2:25]

It's time for the grand unveiling of money.

Mostly Uncle Frank [2:29]

Which means we'll be doing our weekly portfolio reviews of the eight sample portfolios you can find at wwwriskparityradiocom on the portfolios page. But before we get to that, I'm intrigued by this how you say Emails, and First off. First off, we have an email from Chris Ain't nothing wrong with that.

Not Uncle Frank [2:56]

And Chris writes Love the show and the soundbites. I am currently maxing my tax-advantaged accounts and putting my excess savings into a risk parity taxable account. 55-45 mix of total market, small value utilities, extended long treasury, gold managed futures and a splash of Bitcoin.

Mostly Uncle Frank [3:18]

Shirley, you can't be serious. I am serious, and don't call me Shirley.

Not Uncle Frank [3:23]

What's your opinion on using a safe slash, responsible leverage via margin or box spreads? From my research it appears that the optimal amount of leverage is between 20% to 30%. The best rates I could find were at interactive brokers pro account at 6.5% or box spreads around 4.1% for December 2027. Any other ideas to juice the returns a hair and notch them up to 11? Lol, these go to 11. Chris.

Mostly Uncle Frank [3:56]

Cross is the Mac Daddy and Chris is the Daddy Mac. Ah, one of my favorite kinds of listeners, the ones who like to play around with leverage. You have a gambling problem. But before we talk about your email, let me first thank you for donating to the Father McKenna Center, which is why your email has gone to the front of the line. That's what you get for donating.

Not Uncle Frank [4:23]

Top drawer, really top drawer.

Mostly Uncle Frank [4:27]

For those of you who have been living under a rock or have not listened to this podcast before, we do not have any sponsors here, but we do have a charity we support. It's called the Father McKenna Center and it supports hungry and homeless people in Washington DC. Full disclosure. I am on the board of the charity and am the current treasurer, so we've been running a two-for-one promotion for the past month Double your pleasure, double your fun.

Mostly Uncle Frank [4:56]

So I was on a podcast called the Financial Quarterback last month and they offered to match up to $10,000 in donations last month, and they offered to match up to $10,000 in donations. I am pleased to report we have crossed that threshold and it didn't take very long, and I really want to thank all of you for contributing to that. I haven't got the exact total yet, but I know it's over $10,000. And I will let you know once I know what that is and then how we're going to get the money from the financial quarterback, because I haven't worked that out either, although I have contacted them to let them know that we've made it already. Yes, so this was a great community effort by our very small community and I want to thank all of you for supporting it.

Not Uncle Frank [5:43]

The best, Jerry the best.

Mostly Uncle Frank [5:46]

But now let's get to your email. So we've actually talked about this before and I had a listener, ron, who went and looked at the issue of is it better to take leverage through margin or is it better to use leveraged ETFs.

Not Uncle Frank [6:06]

What do you think would win in a fight between Daddy Mac and the Mac Daddy?

Mostly Uncle Frank [6:12]

And that is episode 259 and also episode 264. And you'll want to go back and listen to those. I think where we would come out now is that the margin rates are a bit too high to make it make sense to be using margin instead of using levered ETFs. And when I talk about levered ETFs, I'm talking about things like NTSX, which is a composite levered ETF, and things like UPRO, which is the S&P 500 levered up three times. If you want a review of all of those, go to Optimized Portfolios. That website has all sorts of information about leveraged ETFs and levered portfolios. But we've also talked about this in episodes 322 about levered ETFs and 319 about optimal leverage, and also episode 318. So I would go and listen to all of those five episodes I've mentioned and look at the items in the show notes. There there are some good articles about this stuff, but where we would come out today is to say you'd probably be better off using levered ETFs than taking margin. I do agree that if you're going to take margin, the best rates you're going to find are going to be at interactive brokers. I'm not familiar enough with box spreads to tell you how to use them, although I am aware of them, but I think 4.1% would be more than what Ron found was kind of the tipping point for using levered ETFs versus margin, which is more around 2% to 3% is what he found, and I'm referring to episode 259 again Now. Is the optimal leverage between 20% and 30%? The answer is, I don't know. The articles that I've read seem to suggest that it's somewhere between 1.5% and 2%, but I think that it depends a lot on what is in the portfolio actually. So I'm not sure that there's any optimal amount of leverage, just generically. There's an interesting paper out there floating around called Warren Buffett's Alpha, which I think was written by the people at Alpha Architect, which suggested that his success is related to how Berkshire Hathaway is leveraged due to the flow to the insurance company money they have in there, and it's about 1.7 to 1.

Mostly Uncle Frank [8:36]

Now, in answer to your question of whether it would be safe to use 20% to 30% leverage in a margin account, say on a mix as you described, that is, 55% stocks and 45% other things, yes, I think that is going to be within safety metrics, particularly if you're doing it at interactive brokers, because their margin allowances are so large that you would never come close to hitting them with that amount of leverage in a portfolio, unless we have World War III, but then all bets are off All right. Now a friend of mine named Jay is going to be landing jets on aircraft carriers in the Navy there and he's going to have a nuclear bum between his legs and he's going to paint my face on that nuclear bum and on the side it's going to say Mojo says hi, but then we'll have other things to worry about. I think when I let that sucker fly, all the bad folks gonna die. Gonna put my face on a nuclear bomb.

Mostly Uncle Frank [9:39]

But honestly, if you're only taking 20 to 30 percent leverage, it's probably going to be easiest to do that just with a couple of levered ETFs in there somewhere. Your extended long-term treasuries do, in effect, give you a kind of leverage in that sector already. So I'd make sure that you count that, if you will, because those tend to act like they are a standard long-term treasury bond fund levered up 1.5 to 1, long-term treasury bond fund levered up 1.5 to 1, which is interesting to me, because to me what it suggests is that what you are suggesting is actually a portfolio that I would consider levered more like 1.5 to 1 if you include the effect of the extended duration strips funds. So it may look something like that Optra portfolio. You can't handle the gambling problem.

Mostly Uncle Frank [10:27]

But I will be curious to see what you decide to do. I'd go back and listen to those episodes and look at the things that I've cited there, and it'll give you some other ideas. Perhaps, if you follow these easy tips, you'll be fine. First obey the law Very interesting stuff, and thank you for be fine. First obey the law Very interesting stuff, and thank you for your email. Some of the things I've said may not apply to you. Some of the things I've said may offend you, but no matter who you are, you must remember this one thing you have a gambling problem. Second off, second off.

Not Uncle Frank [11:08]

We have an email from Andrew and Andrew writes Hello Frank, Thank you for your response to my last question that you answered in episode 334. It was very informative. We are within five years to our drawdown phase and would like to start buying into a risk parity portfolio. Our fine number is roughly $1.5 million and we have saved up about half of that in VTSAX. Our question is how to decide which assets to buy into each month over the next five years. Our current methodology is to compare the five asset classes in the golden butterfly portfolio and look at their past one-year return. Is that far enough and purchase the lowest that month until we fill that asset class. The thought is to try to buy low, but we were wondering if this makes sense or if we are just juggling crystal balls. Thanks for all your knowledge, Andrew.

Mostly Uncle Frank [12:14]

Think big, think positive, never show any sign of weakness, always go for the throat, buy low, sell high Fear that's the other guy's problem. Well, it's a very good question, andrew, and the answer is it probably doesn't matter. Ha ha, and yes, it is a question of just juggling crystal balls, given the time frame you are talking about.

Mostly Uncle Frank [12:53]

You can actually feel the energy from your ball by just putting your hands in and out, because there is going to be no relationship necessarily between recent performance and upcoming performance, which is good to know, because then it allows you to simply do what is most comfortable for you and not be thinking that there's some optimal way of doing this, that you're missing, because you're really not.

Not Uncle Frank [13:21]

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

Mostly Uncle Frank [13:26]

I think the only modification I would make on it is to build out the short-term bond part of this last, because that is in that portfolio more as a stabilizer than anything else. It's much less volatile and much less likely to generate significant returns than any of the other parts of that portfolio because it's the closest thing to a cash-like allocation. So I think I would build out the other four allocations first and then build out the short-term bonds last. But on the other hand, the opposite approach would be to fill that part up first, which would actually be the most conservative way of approaching this. But then it might all take a little longer to get there and you can see why. At this point we are really talking about crystal balls, about what might perform well in the near future.

Not Uncle Frank [14:18]

As you can see, I've got several here.

Mostly Uncle Frank [14:22]

A really big one here, which is huge, and you know what our Risk Parity Radio crystal ball always has to say about that.

Not Uncle Frank [14:31]

We don't know. What do we know? You don't know, I don't know, nobody knows. Anyway, you know, you don't know, I don't know, nobody knows.

Mostly Uncle Frank [14:38]

Anyway, you're definitely on the right track and thank you for your email. You just don't know how to wear the mantle of popularity dude, what foolishness will I think of now? Last off. Last off, we have an email from Jenzo.

Not Uncle Frank [14:56]

It's showtime, I'll sacrifice your swordsman of Lansdor and I'll summon Jenzo.

Mostly Uncle Frank [15:03]

And Jenzo writes.

Not Uncle Frank [15:05]

Hi Frank and Mary. My spouse and I have various tax-sheltered and retirement accounts, including 401ks, iras and HSAs, that our wealth is split fairly evenly between. As I've previously mentioned, I invest across my own accounts in a risk parity style portfolio that includes factor and leveraged ETFs. My spouse's accounts, however, have always been in Vanguard and Fidelity target date funds. The only tweaking I do with these is occasionally push back the target date to keep them on the more aggressive side. I view these target date funds as suboptimal.

Not Uncle Frank [15:44]

However, I've never tinkered with my spouse's accounts for ethical reasons. My concern is with the unlikely hypothetical scenario in which my spouse and I were to separate. Scenario in which my spouse and I were to separate If they held, for example, a factor-tilted portfolio that had underperformed a market-weighted one as a result of my hand. I don't think I'd be okay with that, even if it was theoretically a superior portfolio per unit of risk. I wonder if you've come across this dilemma before and if you could share any insight you might have. I'm not considering changing my course of action, just asking for your thoughts, as it strikes me as an interesting dilemma. Thanks, jenzo. Jenzo, strut your stuff.

Mostly Uncle Frank [16:26]

Well, that is somewhat of a predicament, as we talked about at length in episode 333,. Yes, these target date funds are going to be suboptimal because they're really not designed for anyone in particular and in most circumstances, it just makes you take longer to get to financial independence if you use them. Vanguard and Fidelity are less bad than others, although Fidelity has really bad and less bad versions, because it has two sets of target date funds, or at least two, one of which is managed and one of which is indexed, and you need to figure out which ones that she is in, because the managed ones are actually really bad anyway. If you want to hear me rant more about that, you can go back to episode 333 for all the details and an academic paper showing just how bad these things are. I want you to be nice Now.

Mostly Uncle Frank [17:28]

Have I encountered this before? Specifically, most of the people that I've talked to directly combine their assets, which makes a whole lot more sense in a marriage for management purposes, but I'm aware that not all couples do that. The simplest thing to do would be to simply ask her or him, because if you have permission and you have an agreement, then you don't really have a problem to worry about here. You do not have a legal fiduciary duty to manage your spouse's financial accounts in a certain way, so this is more about the ethics of honesty and transparency than anything else, because what is known as financial infidelity is actually one of the major causes of divorces. It's usually in the form of hiding debt, but it could be a number of any other things, where one spouse is doing something that the other spouse would not want or would not approve of. I'm trying to think whether there's any examples of this from Ramit Setty's podcast, where he has all these couples on and there probably is one, but I just don't know which one it is. If you haven't listened to that podcast, I definitely would start listening to it and flip through the back catalog to find people who have significant investments because they are the most likely to have separate accounts or be doing different things. Hopefully you can convince your spouse to stop using target date funds, whether they're going to go to a risk parity style portfolio or not. Didn't you get that memo?

Mostly Uncle Frank [19:00]

But it may be better just to sit down and have a more wide-ranging conversation as to your joint financial plans together and how you expect to get there together. Mary and I actually have a money meeting every month where we look at what we had spent last month and we do track it relatively loosely and talk about upcoming expenses and then, more rarely, talk about our overall asset situation. And it doesn't need to be a big deal. Our meeting takes about 15 to 20 minutes, although we do come prepared in the meeting, if you will, by looking at the forecast for next month and making the adjustments in a joint budget spreadsheet that we keep, and it's just a free template from Google where I've added a sheet to put budget items in in categories. I know there's much more detailed softwares out there that you can use, but I think it's actually better to keep this as simple as possible, because typically one spouse will be interested in the nuts and bolts of the tracking and how it all works and the other one could care less about that and just kind of wants to know what's going on. So I think less is more in a lot of these kind of discussions.

Mostly Uncle Frank [20:22]

If you're looking for good couples material generally to help improve your marriage, I would check out the Gottman books. John Gottman is an expert in this sort of thing. There's a book out there called Eight Dates and it is basically eight chapters talking about various aspects of joint lives that you'd want to talk about. One chapter is here are a whole bunch of questions about finances. Let's get together and talk about this. Another one is about children, and let's talk about that. Another one is about you know goals and dreams. Let's talk about that. But the idea of it is you both read this chapter and then you go sit and have some kind of date somewhere and talk about that topic so you can understand what your partner wants or believes and facilitate communicating better about these important topics.

Not Uncle Frank [21:13]

What we've got here is failure to communicate.

Mostly Uncle Frank [21:19]

And that may also be a good way to get into this, because maybe you get that book and you each pick a chapter that you want to talk about first, because I am sure there is a chapter in there that you would not really want to talk about and he or she does want to talk about, whereas you may want to focus on the finance chapter, but there's going to be a chapter in there for everyone. So I'm afraid that's the best I've got for you. I'm not going to try and turn this into Ramit Sethi's couples podcast Now. Mary's suggestion is more direct, which is if you're nice to your spouse, you probably won't have to get separated.

Not Uncle Frank [21:56]

That's the fact, Jack. That's the fact, Jack.

Mostly Uncle Frank [22:00]

So take them out to dinner, give them flowers if they'd like that or something else, and then you won't have anything to worry about in that department. Mary, mary, I need your huggin', but it is always interesting to think about and a good thing to think about, and thank you for your email.

Mostly Uncle Frank [22:25]

Now we're going to do something extremely fun, and the extremely fun thing we get to now are the weekly portfolio reviews of the eight sample portfolios you can find at wwwriskparadisecom on the portfolios page, and it is a fun week to do this. Everything went up, believe it or not, which is highly unusual, but it does happen sometimes, and I guess the news was this was the best week for the stock market since last November, or something like that. Anyway, looking at all the markets collectively before we get to the portfolios, the S&P 500 was up 3.93% for the week. The NASDAQ was up 5.29% for the week. Small cap value is up. Our representative fund, viov, was up 2.91% for the week. Gold continues on a tear.

Not Uncle Frank [23:17]

I love gold.

Mostly Uncle Frank [23:21]

I think it's up over 20% this year. It was up 3.09% last week and is at all-time highs, I believe.

Not Uncle Frank [23:32]

And that's the way.

Mostly Uncle Frank [23:33]

I like it. Kc on the Sunshine Band. Long-term treasury bonds, represented by the fund VGLT were up 1.04% for the week. Reits, represented by the fund REET, were up 0.84% for the week. Commodities, represented by the fund PDBC, were up marginally. They were up 0.15% for the week. Preferred shares, represented by the fund PFF were up 0.15% for the week. Preferred shares, represented by the fund PFF were up 1.14% for the week and managed futures also managed to be up. Our representative fund DBMF, was up 2.53% for the week.

Mostly Uncle Frank [24:09]

Now moving to these portfolios. First one is the All Seasons. This is a reference portfolio that's only 30% in stocks and a total stock market fund, 55% in intermediate and long-term treasury bonds and 15% in gold and commodities. It was up 1.84% for the week. It's up 7.84% year-to-date and up 9.48% since inception in July 2020. Year-to-date and up 9.48% since inception in July 2020.

Mostly Uncle Frank [24:41]

Now moving to these kind of bread-and-butter portfolios that somebody might actually hold in a decumulation or retirement scenario. First one's Golden Butterfly. This one is 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 the remaining 20% in gold. Gldm it was up 2.21% for the week. It's up 8.87% year to date and up 31.21% since inception in July 2020. Next one's golden ratio. This one is 42% in stocks and three funds, including some large cap growth and small cap value. It's got 26% in long-term treasury bonds, 16% in gold, 10% in a REIT fund and 6% in a money market fund. In cash, it was up 2.31% for the week. It's up 10.11% year-to-date and up 28.88% since inception in July 2020. Next one is the risk parity ultimate. It's our kitchen sink portfolio. I'm not going to go through all 15 of these funds, but it was also up. It's up 2.8% for the week. It's up 11.92% year-to-date and up 19.81% since inception in July 2020.

Mostly Uncle Frank [26:00]

Now moving to these experimental portfolios involving leveraged funds. Don't try this at home. As fun as it might sound well, it's more fun this week than it has been in many other weeks. Funny, how? How am I funny? First one's the accelerated permanent portfolio. That is 27.5% in a levered bond fund TMF 25% in a levered stock fund UPRO 25% in PFF, a preferred shares fund and 22.5% in gold. It was up 4.74% for the week. It's up 14.34% year-to-date and up 4.78% since inception in July 2020.

Mostly Uncle Frank [26:43]

Next one is our least diversified and most levered portfolio. It's called the aggressive 50-50. It's essentially half stocks and half bonds, so it's one-third in a levered stock fund UPRO, one-third in a levered stock fund UPRO, one third in a levered bond fund TMF, and the remaining third divided into a preferred shares fund and an intermediate treasury bond fund. It was up 5.39% for the week the big winner. It's up 12.72% year to date, but down 7.56% since inception in July 2020.

Mostly Uncle Frank [27:16]

Next one is one of our newer portfolios the levered golden ratio. This one's 35% in a composite levered fund called NTSX that's, the S&P 500 and treasury bonds, 25% in gold, 15% in a REIT O, 10% each in a levered bond fund TMF, and a levered small cap fund TNA, and the remaining 5% in a managed futures fund, kmlm. It was up 3.26% for the week. It's up 11.36% year-to-date and down 3.62% since inception in July 2021. This one started at a very inauspicious time, but it's almost fully recovered and it's a good example of what happens when you start your retirement right before a crash like in 2022. And now, moving to our last one, the Optra portfolio, the new kid on the block. One portfolio to rule them all. Forget about it. It's won a 16% in a leveraged stock fund UPRO, 24% in a composite worldwide value fund, avgv from Avantis, 24% in a strips fund, treasury Bonds, govz, and the remaining 36% divided into gold and a managed futures fund DBMF and GLDM. It was up 4.09% for the week. It's up 3.16% year to date and up 3.16% since inception in July 2024.

Mostly Uncle Frank [28:55]

These last couple of weeks have been a good example of why you need to follow Jack Bogle's old adage don't do something, just stand there, which generally works quite well when you are dealing with downturns in financial markets, like we saw earlier this month, because recoveries do happen. They usually don't happen that quickly, but they do occur if you just wait. And it is highly normal to have at least one 10% drawdown during every stock market year, even the good years like this one. That is the straight stuff. Oh funk master. But I know I'm preaching to the choir here with this audience, so I'll stop.

Not Uncle Frank [29:40]

Hello, this is Chuck to remind Bill to shut up.

Mostly Uncle Frank [29:46]

Because now I see our signal is beginning to fade. If you have comments or questions for me, please send them to frank at riskparodyradarcom. That email is frank at riskparityradiocom. Or you can go to the website, wwwriskparityradiocom. 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. Okay, thank you once again for tuning in. This is Frank Vasquez with Risk Parity Radio Signing off. Gonna, put my face on a nuclear bomb.

Not Uncle Frank [30:30]

All them commies, better get up and run.

Mostly Uncle Frank [30:33]

We let that sucker fly, all bad folks gonna die. Gonna put my face on. We'll be right back on your head. Don't be pushing the button. I don't want to die.

Not Uncle Frank [31:08]

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.