Voices [0:00]

A foolish consistency is the hub goblin of a little mind. Adored by little statesman and philosopher of the mind. If a man does not keep pace with his companions, perhaps it is because he hears a different drummer. A different drummer.

Mostly Queen 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 [0:36]

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. And the basic foundational episodes are episodes 1, 3, 5, 7, and 9. Yes, it is still in my memory banks. We have also created an additional resource, a collection of additional foundational episodes and other popular episodes.

Voices [1:07]

We have top men working on it right now. Ooh.

Mostly Uncle Frank [1:14]

Top men. And you can find those on the episode guide page at www.riskparty radio.com. Inconceivable! All thanks to our friend Luke, our volunteer in Quebec. Sacosh. We'd be helpless without him.

Voices [1:35]

I have always depended on the kindness of strangers.

Mostly Uncle Frank [1:41]

Because other than him, it's just me and Marion here. I'll give you the moon, right?

Voices [1:46]

I'll take it.

Mostly Uncle Frank [1:48]

We have no sponsors, we have no guests, and we have no expansion plans.

Voices [1:53]

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

Mostly Uncle Frank [1:55]

Over the years, our podcast has become very audienced focused, and I must say we do have the finest podcast audience available.

Voices [2:05]

Really top drawer.

Mostly Uncle Frank [2:07]

Along with a host named after a hot dog.

Voices [2:10]

Light in the Francis.

Mostly Uncle Frank [2:13]

But now onward, episode 480. Today on Risk Party Radio, it's time for our weekly portfolio reviews of the eight sample portfolios you can find at www.riskparty.com on the portfolios page. Yeah, it really wasn't all that exciting this week. But not bad either.

Voices [2:35]

Winner winners beginning dinner.

Mostly Uncle Frank [2:40]

But before we get to that, I'm intrigued about this.

Voices [2:44]

I was saying email.

Mostly Uncle Frank [2:47]

And we'll just be doing two emails today. First off. First off, we have an email from Gregory.

Voices [2:56]

This afternoon after school, Greg was smoking a cigarette.

Mostly Uncle Frank [3:01]

And Gregory, right?

Mostly Queen Mary [3:03]

Hi, Frank and Mary. Relatively new listener here and absolutely love the show. Thank you for your generosity and enthusiasm in sharing your insights. I just donated to the Father McKenna Center.

Voices [3:16]

Really top drawer.

Mostly Queen Mary [3:18]

I was curious about your opinion on the use of Simplifies ETF's SPD and or SPYC for an early retirement portfolio. I am 35 and looking to be Coast Fire for a few years while transitioning to a more meaningful but likely far less lucrative line of work, potentially making this a Coast Fire for Life situation. A few ideas have me thinking about whether these ETFs might play a useful role. 1. Mike Green's analysis of the passive flow structure of the market and how this will likely result in a much more volatile and convex market in each direction. 2. I have seen the analysis from Paul Bellinger showing how stocks and long-term treasuries since 1971 have had only low correlation over one-year periods, but as the period lengthens towards three to ten years, they have actually become more and more correlated. If that is correct, it suggests that long-term treasuries primarily function as a short-term crash hedge, surging during a crisis and allowing one to rebalance into stocks at depressed prices. However, since they have only shown uncorrelation and not anti-correlation over one-year periods, they seem like more of a hopeful safe haven, which is what Mark Spitznagel labels them in his book, while out-of-the-money put contracts like those used in SPD and SPYC are explicitly designed to do this. I've also seen some analysis that these days, capital gains taxes are a very significant part of federal tax receipts, and thus it is not unreasonable to postulate that the stock market supports the mod market, which should increase the risk of the two assets being more correlated going forward. The fact that interest rates went up during the tariff tantrum drawdown in 2025 provides some support for this concern. 3. This approach may allow me to hold more equities than would otherwise be prudent, perhaps even removing the long-term treasuries from the portfolio entirely while maintaining comparable or better downside protection and achieving a higher long-term expected return because of the larger equities allocation. Despite the option's decay drag, SPD should still have a higher long-term expected return than TLT. Paul Bellinger's book Engineering Your Early Retirement seems to support removing the long-term treasuries from the portfolio even without this tail risk hedging. He shows that Gold's behavior has been the opposite as was described for long-term treasuries above, that Gold's anti-correlation to U.S. equities has actually grown as the period extends beyond one year toward three to ten years. His analysis shows that since 1971, portfolios with 65 to 80% U.S. stocks and 20-35% gold have delivered returns close to 100% stocks, but with far less volatility and sequence of returns risk and very strong safe withdrawal rates. Given today's high valuations and Mike Green's analysis of how different the market structure has become given the passive flows factor, I thought incorporating tail risk hedging via these ETFs, SPD or SPYC, into this Paul Bellinger strategy may be worthwhile. 4. Perhaps using these ETFs may allow an investor to more comfortably use leveraged products like RSSB and RSST as the tail risk hedges should provide some relief in a liquidity crisis crash if the correlations between stocks, long-term treasuries, and or trend go to one, essentially diversifying your diversifiers. I really appreciate any thoughts you have on this. Thanks again for everything you do. Best regards, Gregory.

Voices [7:10]

Yeah, I guess it is. But it was the first time I ever smoked. I only took a few puffs. I didn't even like it. That doesn't make it any better.

Mostly Uncle Frank [7:21]

Well, first off, thank you for being a donor to the Father McKenna Center. As most of you know here, unless you've been living under a rock, we do not have any sponsors on this program. We do have a charity we support. It's called the Father McKenna Center. It supports hungry and homeless people in Washington, D.C. Full disclosure, I am on the board of the charity and am the current treasurer. But if you give to the charity, you get to go to the front of our email line. Two ways to do that. You can give directly at the Father McKenna website on the donation page, or you can become one of our patrons on Patreon, which you do at the support page at www.riskparader.com. Either way, you get to go to the front of the email line, as Gregory has done here. Lucky. But if you do that, please note in your email that you are a donor, so I can duly move you to the front of the line.

Voices [8:13]

Yes!

Mostly Uncle Frank [8:14]

But now getting to this email. A lot of interesting topics here to talk about.

Voices [8:20]

But wasn't that the whole basis of your grandfather's work, sir? The reanimation of dead tissue. My grandfather was a very sick man.

Mostly Uncle Frank [8:29]

First, the short answer to your question as to whether the ETF's SPD andor SPYC are good ideas for an early retirement portfolio is no. It's most certainly no. And the reason for this is that those kind of tail risk strategies have historically had a negative expectation, which is damaging to a portfolio. So unlike something like bonds or gold, which have a positive expectation and some negative correlation, what you're dealing with here is essentially in those funds a piece of the fund having a negative correlation, but also a negative expectation. So they tend to drag the portfolio down. And I have experimented with these things since about 2013 or 2014 with the first VIX ETFs, and then looking at other ETFs like T A I L from MEB Faber, and I've looked at the ones you've cited as well. And in pretty much all cases, they have this negative expectation. The only way that this would work is if you had some proprietary strategy that allowed you to jump in and out and essentially market time tail risk. Then I could see it working. But to just kind of put it out there as a constant allocation turns it into a portfolio drag. Easiest way to see this, I'll link to this in the show notes. A comparison between SPY, SPD. Actually, I use V O O for the SPY.

Voices [10:02]

Actually, it's a buck and a quarter, quarter staff, but I'm not telling him that.

Mostly Uncle Frank [10:06]

And SPYC over the time they've existed. And I also threw tail in there so you could take a look at that. And you'll see that these all just underperform the SP 500 to the tune of two to four percent per year. And that is just way too much of a drag to be thinking you could use these in a successful way. So I appreciate that Simplify is trying to invent funds that do this in a way that's useful. But these new products haven't met that challenge yet. And if you look at Tail in particular, you'll see a constant negative expectation and negative performance on Tail as long as it's existed, which is a similar kind of fund or idea.

Voices [10:51]

Uh what? The money in your account. It didn't do too well, it's gone.

Mostly Uncle Frank [10:56]

So no, I would not use anything like that in your retirement portfolio or really in any portfolio. Now let's get to these more specific questions. First one was about Mike Green's analysis of the passive flow structure of the market and how this is likely to result in a more volatile and convex market in each direction. Well, yeah, I've read and seen a lot of Mike Green's analysis, and he's a brilliant guy. But these kind of particular observations are too vague to be useful or actionable in any meaningful way that would cause you to go out and choose a product off the shelf to deal with this problem. First of all, he's mostly talking about the rise of index investing and the distortions that is essentially causing. If you're familiar with complexity theory and complex adaptive systems, he's essentially saying that the rise of a lot of indexing by the public creates fragility in the system, in Nassim Taleb terms. And that's all fine and good, but it doesn't give you any means of making any kind of decision about your portfolio other than how can we just deal with this with standard diversification? And the way you traditionally deal with this issue in terms of standard diversification is recognize you shouldn't be investing just in large cap-weighted funds that represent the total market, that are this source of this index fund problem. We've already solved that problem essentially by allocating half of our stocks to value stock funds. And that has traditionally been the solution. So when the Nifty 50 blew up in the 1970s, what saved you after that period was holding value stocks. When the dot-com bust came in 2000 and all of those stocks went into the tank and all those large cap index funds, what saved you in that environment was holding an allocation to value stocks. And there is no reason to believe or suggest that that will not work again. It worked again recently in 2022, when you saw a big downturn in the growth side of things, and value stocks held up fine, and some of them even went up in value if you were holding things like energy or property and casualty insurance companies. That's what I'm talking about. So, to the extent you need a solution to this problem, it's already built into the kind of portfolios we have. That is why you hold value stocks in your retirement portfolio, small cap value or other value.

Voices [13:33]

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

Mostly Uncle Frank [13:37]

You'll get better ultimate performance out of small cap value than you will out of large cap value, but both will effectively serve this purpose of reducing the volatility on the stock side of your portfolio.

Voices [13:50]

I could have used a little more cowbell.

Mostly Uncle Frank [13:53]

All right, your next two points two and three concern this person named Paul Bellinger, who I was not familiar with, but I did look up. He runs a YouTube channel. He wrote this little book. Basically, he's another product of popular personal finance these days. And that's how you should view someone like that. You should view me in that light as well.

Voices [14:13]

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

Mostly Uncle Frank [14:17]

And so the question always with people who are in popular personal finances first, what are their incentives? Do they make money off this and how are they making it? And then second, do they have things that back up what they are saying that are not by people in popular personal finance, that are outside of that, that are from people like the Ray Dalios and the Bill Bangins of the world, who have either managed billions of dollars and or done a lot of serious academic research. So I did do some back and forth research with a couple of AI bots about Paul Bellinger and what he says and what his book says. So this might be a little inaccurate because I didn't go read his stuff and look at all his stuff. But Paul Bellinger is either an engineer or a former engineer, such as myself, who wrote a book in 2022 and also has a YouTube channel where he advocates for the use of golden portfolios, but recognize he's got a conflict there because he also gets paid by monetary metals, which is part of the physical gold complex, if you will. So there's a conflict of interest there. He does not have any particular background in managing money or as an academic in finances. And what I found that also he does not seem to have a good grounding in things like correlations and how they work and why they work the way they do. So, question two, you had was about some analysis he did where he looked at long-term treasury bonds and their correlations with the stock market, and he decided that one-year periods were not the relevant period, but the relevant period he was looking at mostly was three to ten years, where they seem to be more correlated with stocks. And that is part of the reason he tends to conclude that you shouldn't be using treasury bonds, you should be using gold more as a diversifier in your portfolio. To me, this suggests he hasn't done much research and doesn't really understand how this works and why it works.

Voices [16:28]

That's not how it works. That's not how any of this works.

Mostly Uncle Frank [16:32]

And I'll show you where that research is because we've linked to it before. First, the question is why are we holding treasury bonds in one of these risk parity style portfolios, in one of these diversified portfolios? As I've said many times before, we are not holding them for returns. We are certainly not holding them for returns. So that's not the driving issue and why you would put other things in there. We are holding them as recession insurance. Recession insurance. Now, how do recessions work? Recessions come historically about 15% of the time, 15% of the years. How long do recessions last? Recessions typically last one to two years. They almost never last three to ten years, as his analysis was going after. So he's got the wrong relevant period. The right relevant period for assessing whether treasury bonds should be in your portfolio or not is in the context of how long these recessions last and then what they do during those recessions. And what they do during those recessions is exhibit negative correlation with the stock market. How do we know this? Well, we don't make this up, we don't do our own analysis, we go look it up because other people have done this before. And so I want you to go, and I'm not going to link to these in the show notes. I actually want you to go and look this up. So go to the links page at www.riskperiary.com and type in the name Moisa, M-O-I-S-E. And it's going to link to a paper by an academic named Claudia Moisa. And that paper is called Flights to Safety, Volatility, Risk, and Monetary Policy. And it analyzes the correlations between treasury bonds and stocks, particularly in bouts of high volatility as you see during recessions. Now you can read the paper. It's difficult to understand if you're not familiar with this kind of stuff. But all I really want you to do at this point is to go towards the end of the paper where she's got all this data. It's mounds and mounds of data, and that's what you really want to be looking at here. Because people like this have already done the analysis that you need to be looking at. You don't need to have Paul Bellinger do some hokey three to ten year thing.

Voices [18:55]

Forget about it.

Mostly Uncle Frank [18:56]

So if you go to figure one, which is around page 51 of this paper, and there's two little graphs here, what this shows you is the correlation between treasury bonds and the stock market going all the way back to the 1950s. And what you see there is every time there is a recession. Every time in the 50s, 60s, 70s, 80s, 90s, 2000s, 2010s, and today. Every time there is a recession, long-term treasury bonds, treasury bonds in general, exhibit negative correlation with stocks. And that means they go up in value when stocks go down.

Voices [19:35]

Did you see the memo about this?

Mostly Uncle Frank [19:38]

And we don't really care what they're doing when we're not having a recession because that's not what they're there for. They're there for the recessions because half the time stocks go down, it's because there is a recession. And the other half is things like 2022. But things like 2022 are a once in 40 year event. They're not a 15% of the time event. So that is the correlation that matters. That is the time frame that matters. And that is why you hold treasury bonds if you really want to have a diversified portfolio. Because otherwise, you don't have anything for recession insurance. And if you try to use tail risk strategies as recession insurance, you're just putting a drag on the whole portfolio all the time. Whereas treasury bonds are going to have a positive expectation. So in order for your tail risk strategy to be better, you would have to show that the tail risk strategy has a better expectation generally overall over bonds. And you can't do that because it's not true, it's never been true, and it's probably never going to be true.

Voices [20:42]

Forget about it.

Mostly Uncle Frank [20:43]

Now, your other suggestion at the end of that question is that this time is different. You claim it's not unreasonable to postulate that stock market supports the bond market, which should increase the risk of the two assets being more correlated going forward. I'm sorry, there's no real basis for that statement. And this is something you need to not do, which is make up some kind of narrative about what you think is going on, turn that into a crystal ball, and use that as a basis for making decisions about your portfolio. Don't tell stories to decide what to do. Don't make predictions out of your own personal beliefs or watching anybody on YouTube who's telling a story to decide what to do.

Voices [21:27]

A crystal ball can help you.

Mostly Uncle Frank [21:31]

Use concrete data sources from people that have experience in the business and know what they're doing. Okay, here is the other background that you may be missing, and I think Paul Bellinger is certainly missing. And this comes from Ray Dalio, and basically anybody that's managed billions of dollars and is looking at macro conditions to decide what would be the best investment. And this is the four quadrant model of growth on one axis and inflation on the other axis, leading you to four quadrants. This is the model that tells you why things are correlated. Different things in different quadrants that do well tell you what's correlated. And the correlations are dependent on what kind of economic weather you're experiencing. And those kinds of weather are basically low growth, low inflation, that would be your recession scenarios. You can have high growth and high inflation, or you can have high growth and low inflation, or declining inflation, I should say, or low growth and increasing inflation. And different assets perform well in each one of those things. And whenever you're in a place where one asset performs well and the other one doesn't, that's when you have negative correlations. When there are several are performing well, that's when you have positive correlations. So stocks tend to perform well 70% of the time, and these are generally positive growth environments and low or moderate inflation environments. Treasury bonds perform well in negative growth and negative inflation environments. Alternatives tend to perform well in outlier situations, where you either have really high inflation or really low inflation, and growth may be skewed as well. Particularly things like managed futures do well in those kinds of environments. So managed futures do well in an environment like 2008 and an environment like 2022. So here's some more homework. Go to that links page at www.riskparty.com, put in the word quadrant, and you will find a paper written by Bridgewater from 2008 or 2009, which describes this whole framework. And then you'll also find a nice article written by one of our listeners on a blog where he basically recapitulates all of this information and has a very nice mock-up of the four quadrant model with the two axes. So if you didn't understand this or didn't know about it before, then you don't know how to analyze correlations. It's basic background that the professional use, and anybody who is talking about this has to have this grounding in order to have a cogent thought about it. I don't think Paul Bellinger does, honestly. At least nothing I've seen shows that he's aware of this, has studied it, or is relying on this kind of analysis, this kind of background for the correlation analysis and the thoughts about using gold or bonds and when to use them. Now, if you're looking for a real reliable source, somebody who understands this and can explain it, you need to go find Bob Elliott. The person is Bob Elliott. He used to manage billions of dollars at Bridgewater, and now he's been creating funds and doing a number of other things. He has been on the Afford Anything podcast, he's been on the Excess Returns podcast, he's been on the compound podcast with Josh Brown and Ben Carlson. But he can explain how this all works very cogently and how he's used it professionally and how he constructs his own portfolio. And what is his portfolio? His portfolio is basically a risk parity style portfolio. He's got stocks, bonds, and gold and alternatives. So that is the kind of person that you should be relying on as your source of information and guidance. And his solution is hold all of the above because they perform differently in different economic environments as expressed in the quadrant model, which shows us how this actually all works. Didn't you get that memo? So, in your point three, you mentioned Bellinger's book, Engineering Your Early Retirement, seems to support removing the long-term treasury bonds from the portfolio, even without this tail risk hedging. Well, that's because he's uninformed. Bob Elliott will tell you that yes, it is true over the course of since the 1970s when gold was tradable, if you would have had a portfolio that is stocks and bonds and one that is stocks and gold, over time they performed about the same. But if you were looking for something with a high safe withdrawal rate, the better choice is to have all three in the portfolio. The other mistake I saw, at least from my inquiries into what Paul Bellinger was saying in this book about retirement portfolios, is that he was relying on average returns for a lot of his analysis and then saying you could buffer that with cash or something like that. As we know from real analysis from people like Bill Bangin, you are not going to improve the safe withdrawal rate of your portfolio by holding piles of cash. If you hold more than 10% of cash in a portfolio, it is going to reduce the safe withdrawal rate over time. So all of these popular personal finance people, and there are a whole lot of them these days, talking about their buckets, ladders, and flower pots full of cash, they're violating the first rule of safe withdrawal rates. They have not studied Bill Bang's work. That's the expert. That is the grounding. So just like if you need to talk about correlations, you better understand and be articulate in the four quadrant model. For understanding safe withdrawal rates, you better be articulated and understand what Bill Bangin's research has shown us over the past 30 years and been confirmed recently. And one of those things is pretty much an ironclad rule is that don't put more than 10% in cash in your portfolio. There's $250,000 lining the walls of the banana stand. And rearranging or relabeling assets in buckets, ladders, or flower pots does not make them perform better. If you lick all the lollipops on the good ship lollipop that are going to taste a certain way, rearranging them is not going to make the ship go faster or taste better. And so Bellinger's book is highly mistaken there, but this is very common for people in popular personal finance, and we see it over and over again.

Voices [28:28]

Wrong? Wrong! Right? Wrong! Wrong!

Mostly Uncle Frank [28:32]

It is one of the bad pennies that keeps turning up because it's also popularized by a lot of financial advisors who like to use these strategies because it caters to people's fears, makes them feel better psychologically to use buckets, ladders, and flower pots.

Voices [28:48]

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

Mostly Uncle Frank [28:55]

So put away your Paul Bellinger, go study Bob Elliott with respect to these issues, and you'll get the real deal from somebody who knows what they're talking about and has known what they're talking about for decades now. And so going to your last point four, perhaps using these ETFs may allow an investor to more comfortably use leverage products like RSSB and RSST. And no, I don't think that's correct. I don't think using those products would make you feel more comfortable. And I don't think those products are going to help you for the reasons I've already stated. I suppose in closing here, I know I sounded a little bit harsh about some of this stuff, but really it sounds like you want to go up a level from popular personal finance into really understanding how this stuff works and why it works. And in order to do that, you need to stop looking at people in popular personal finance like this Paul Bellinger.

Voices [29:49]

I really didn't even want the cigarette. I just wanted to go along. Be one of the guys. Listen, you can't do something that you know is wrong just to go along with the guys. It's stupid. Yeah, it's not a very good excuse. I'm afraid it's no excuse.

Mostly Uncle Frank [30:05]

You need to go to the Bob Elliott's, to the Ray Dalios, to the Bill Bengans, look at the actual research.

Voices [30:12]

No more flying solo. You need somebody watching your back at all times.

Mostly Uncle Frank [30:18]

A lot of it we have cited on this program over and over again. You'll find a number of those links, like I said, at the links page at www.riskperior.com, or you can search the podcast for the topic. And if there is a podcast, there's probably going to be a link to some kind of academic or other cogent data type analysis. Because if you want to really be a better investor, you have to approach this in this way. This is what I learned also as a lawyer working with financial and economic experts.

Voices [30:51]

Unlike any schooling you've ever been through before.

Mostly Uncle Frank [30:55]

Is that you don't get to make up your own facts. You don't get to pull them off some shelf somewhere.

Voices [31:00]

We use the Socratic method here.

Mostly Uncle Frank [31:03]

You need to get an actual expert in the room or be reading something from an actual expert. And also you don't get to say things yourself. You have to have backup for everything you say. And so that's one of the reasons that I don't attempt to do individual analyses or come up with these kinds of analyses myself. I always go to find some expert report or something to rely on that I can point to that is not my own work.

Voices [31:32]

Does that make you different than most everybody else? And the answer is yes.

Mostly Uncle Frank [31:37]

And that's why I also I don't want people to believe me. I want them to go and do the analyses themselves. I want them to be using tools like portfolio visualizer, portfolio charts, test folio, those sorts of things. So they don't need to rely on my say-so. I'm just telling you this is what the evidence shows. Because as a do-it-yourself investor, you want to be a synthesizer of the very best information you can find. And you need to ruthlessly apply Bruce Lee's adage whenever you're confronted with some material like this. Take what is useful, discard what is useless, add something uniquely your own, but make sure that uniquely your own stuff is a very small part of it. So I know I've been hard on you with respect to this topic, but my purpose is to show you how to analyze this and how to deal with material like this, and to give you the tools for the proper grounding in these sorts of things from the real experts. So when you're dealing with popular personal finance personalities, you can easily dismiss stuff because you can see where their information or ideas are lacking from the get-go.

Voices [32:50]

You come in here with a skull full of mush, and you leave thinking like a lawyer.

Mostly Uncle Frank [32:58]

So it's a very interesting set of topics. Thank you for being a donor to the Father McKenna Center, and thank you for your email.

Voices [33:13]

Second off.

Mostly Uncle Frank [33:14]

Last off. Second and last off, we have an email from Isaiah. Shirley, you can't be serious. I am serious. And don't call me Shirley. And Isaiah writes.

Mostly Queen Mary [33:28]

Hi, Frank and Mary. My wife and I are about five years out from retirement and working on a plan to transition our portfolio from accumulation focused to drawdown focused. In a previous email, I struggled to accurately convey what we currently own. That experience made me recognize a blind spot in my own knowledge of our situation. I knew dollar values and tax buckets, but couldn't articulate asset class or factor exposure of our holdings accurately. A tool that I found useful in fixing that blind spot is Portfolio Tracker, a Google Sheets-based project built and maintained by Dan Buckle and discussed on the Bogleheads forum. It is a nice blend of manual input and configuration for flexibility, with pre-built functionality to aggregate and analyze the data once you've input it. Specifically, it helps me aggregate our disparate holdings across eight different retirement accounts to answer the question, what do we actually own? I would recommend it to anyone in your audience who wants this kind of aggregation with a lot less work than building a spreadsheet from scratch, but more control and no account syncing headaches of a tool like Empower. The sheet uses a three-level taxonomy of asset categorization. Top level assets, class categories, asset classes, specific asset, e.g. VTV. Each level is user configurable, and the attached document shows how my taxonomy is currently configured. Target allocation is set at the asset class level. I'm curious what you would view as the best approach to use for constructing the taxonomy. Use more asset classes to accurately capture what an asset is, or use fewer asset classes to group things that are similar together for target allocation purposes. Some examples from my wife's 401k and how I currently have them classified are shown below. SCHB Schwab U.S. Broad Market ETF, U.S. Large Cap Blend. VFIAX, Vanguard 500 Index Fund Admiral Shares, U.S. Large Cap Blend. VTRIX, Vanguard International Value Fund Investor Shares, Developed International. MRSKX, MFS Research International Fund, Class R6, Emerging International. VSMAX, Vanguard Small Cap Index Fund Admiral Shares, U.S. Small Cap Blend. PDGIX T Row Price Dividend Growth Fund I Class, U.S. Large Cap Blend. VIMAX, Vanguard Mid Cap Index Fund Admiral Shares, U.S. MidCap Blend, VVIAX Vanguard Value Index Fund Admiral Shares U.S. Large Cap Value. TBCIX T Row Price Blue Chip Growth Fund I Class TBCIX T Row Price Blue Chip Growth Fund I Class US Large Cap Growth RNWGX American Fund's New World Fund Class R X Emerging International LMOIX ClearBridge Small Cap Growth Fund Class IS US Small Cap Growth LG M N X Loomis Sales Global Allocation Fund Class N, Developed International PTRI X. Do you say PIMCO or PIM C O PMCO PTTRX, PIMCO Total Return Fund Institutional Class, Intermediate Term Treasuries. Thanks for All You Do, Isaiah. P.S., If it will be helpful to understand what I'm asking, I can share my full spreadsheet. Just let me know what Google account to share it with.

Voices [37:25]

Mary, Mary, I need you again.

Mostly Uncle Frank [37:34]

Well, first off, thank you for also being a donor to the Father McKenna Center. Isaiah has chosen the Patronon Patreon route, which you can do through uh the website as I mentioned before.

Voices [37:45]

Groovy baby.

Mostly Uncle Frank [37:47]

But just getting to your email now. Email is really about classification of funds or stocks to categorize them for the purpose of assessing your level of diversification and whether you need to buy more grow things or value things or large things or small things or whatever. Yes, if you have a a bunch of legacy funds or other things, you do need to classify them in some way.

Voices [38:12]

That is the straight stuff, oh funk master.

Mostly Uncle Frank [38:16]

And just for all the listeners' edification, he sent an attachment from this portfolio tracker tool, which goes from top-level categories of stocks, bonds, short-term, other two class categories, which breaks down the stocks into US and international and then further breaks them down. And then you get down to the factor categories of growth and value and size and different kinds of international stocks and different kinds of bonds by duration.

Voices [38:45]

I'm putting you to sleep.

Mostly Uncle Frank [38:47]

So yes, that tool you cited to portfolio tracker is an interesting tool, and I know it's been around for a while and a lot of people have used it. I think it's more complicated than what you need, but there's nothing wrong with using something like that to help you sort through what you've got or analyze what you've got. And I'll link to that in the show notes so people can check that out. So I think this mostly did a pretty good job at sorting these funds that you mentioned and you listed into their basic categories. I would like to see, though, at least on the international side, a better division between small and large and growth and value instead of just developed and emerging, which is not as useful a way to separate them out. However, the way I prefer to do this is just using Morningstar. Because if you put funds into Morningstar and then go to the portfolio page of that, it will give you the breakdowns of large versus small growth versus value. And then also, if you wanted things like momentum or a few other factors, they are listed there as well. So you could categorize these in as many factor ways as you want. For the purpose of what we do here, the most important thing, particularly on the stock side, is. Growth versus value. And if something is in the middle, I actually just look at the growth versus value indicators on Morningstar and decide whether it's more growth or more value because I actually do want to divide things up that way for the purpose of seeing how much I have. So having something that is in the blend category is not a very useful designation. I would rather say, well, if it's more closer to growth, I'm going to call that growth. And if it's more closer to value, I'm going to call that value. Because ultimately, in terms of portfolio construction, what I'm generally looking for there is a split between growth and value overall. I think small versus large is a lot less interesting. And mid doesn't really tell you anything about the fund in particular. The reason small versus large becomes interesting is when you combine it with growth and value, because something that is in the large cap growth or the small cap value category tends to have pretty good performance characteristics overall and generally is at least as good as the overall market, if not better. The large cap value category tends to have lower overall returns, but also lower volatility. So you can use that category selectively to reduce the volatility of your portfolio. And then if you go down to small cap growth, that is actually something that's undesirable in most cases because it's got a lot of volatility and not necessarily even better returns at all when you compare it to the overall market. So that's why I've used the size characteristic as the secondary characteristic. And then I view international versus domestic as actually a tertiary characteristic. And the reason it's a tertiary characteristic and not a primary characteristic is because so much of the difference between US and international is simply having to do with currency fluctuations, which don't really have anything to do with what kind of stocks these are, what kind of businesses they are, or what they're doing. About 40% of the performance differences between international and domestic have to do with whether the US dollar is performing well or worse against that particular currency. And that is a side event and a random event. So I don't think it's that useful in terms of diversifying the stock portfolio in particular, or the stock portion of the portfolio, I should say. So when there's little movement in the currencies, you'll see them perform pretty much the same or very close to the same. It's only when you get big movements in the currencies that you see the big differences, like last year. Last year the US dollar went down 10% or more against most other currencies, and that hadn't happened in about a decade. So it's a relatively rare event to see something like that, and you shouldn't count on it reoccurring necessarily. I think you should treat the performance of currencies as almost a random weather event and not something that you can predict at all.

Voices [43:03]

It's a twister! It's a twister!

Mostly Uncle Frank [43:08]

So then I suppose the next question, and what you may be wondering is, you know, how fine of a point do we need to have here in terms of these kind of allocations? And I think the answer is not very fine at all because we are talking about a world of uncertainty. So more calculating, getting more and more detailed as to how much more value this one is than this one is probably not a useful exercise. What you are more interested in, the broad strokes of knowing that when you have a recession or a 2022 and growth goes into the tank, you're going to get some relief or positive performance out of the value side of your portfolio. And that's what you're really concerned about. You're not really that concerned about what goes on the 70 to 75% of the time when stocks are all going up, because then it's just, well, which one's going up more this year? What you're really concerned about in terms of lowering volatility and getting a higher safe withdrawal rate is what happens in those down markets. And that's why, again, growth versus value is probably the most important factors to be dealing with here. So you can certainly do that kind of exercise with this tool and then size your growth allocation and your value allocation accordingly, and then add in your size factors and then add in your international growth versus value as well. And whether you use this tool or just use Morningstar or some other tool, you can actually find this stuff in Portfolio Visualizer, although it's not as easy to access. But anyway you choose to do this would be just fine, and I think the one you've come up with should work just fine as well, which is why I'm linking to this portfolio tracker because some of our other listeners may like to use it too.

Voices [44:48]

Wow, is it very nice?

Mostly Uncle Frank [44:51]

So thank you for bringing it to our attention. Rest assured you are on the right track here, and thank you for your email.

Voices [45:10]

Now we are going to do something extremely fun.

Mostly Uncle Frank [45:13]

And the extremely fun thing we get to do now is our weekly portfolio reviews of the eight sample portfolios you can find at www.riskpartyware.com on the portfolios page.

Voices [45:25]

Great success.

Mostly Uncle Frank [45:28]

And just looking at these markets so far this year. SP 500 represented by VOO is up 1.43% for the year so far. The NASDAQ 100, represented by QQQ, is actually lagging, is only up 1.13% for the year so far. Meanwhile, small cap value is the best performer so far this year.

Voices [46:01]

I gotta have more cowbell.

Mostly Uncle Frank [46:03]

I guess we'll be hearing a lot more from Christopher Walken this year if this keeps going on.

Voices [46:07]

Guess what? I got a fever. And the only prescription is more cowbell.

Mostly Uncle Frank [46:14]

Gold represented by GLDM is up 6.26% for the year so far.

Voices [46:19]

I love gold.

Mostly Uncle Frank [46:23]

Long-term treasury bonds represented by VGLT are up 0.48%. REITs represented by REET are up 3.73%. Commodities represented by PDBC are up 3.62%. Preferred shares represented by the fund PFFV are up 1.67%. And managed futures are managing to have a good year so far. Representative fund DBMF is up 2.32% for the year. Moving to these portfolios, first one's the all seasons. This is a reference portfolio. It's only got 30% in stocks in it and a total stock market fund. 55% in intermediate and long-term treasury bonds, and the remaining 15% in gold and commodities. It's up 1.56% for the month and the year so far, and up 25.19% since inception in July 2020. Next one's a golden butterfly. This one is 40% in stocks and 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's up 3.35% for the month and the year so far, and up 64.89% since inception in July 2020. Next one's golden ratio.

Voices [47:45]

Secrets, secrets, secrets, secrets. The golden ratio.

Mostly Uncle Frank [47:50]

The golden ratio.99% since inception in July 2020. Next one's a Risk Parity Ultimate. It's kind of our kitchen sink portfolio. I'm not going to go through all 12 of these funds, but it's up 3.09% for the month of January and the year, and up 44.06% since inception in July 2020. Now moving to these experimental portfolios. These all involve leveraged funds.

Voices [48:50]

You have a gambling problem.

Mostly Uncle Frank [48:52]

So they're quite volatile. First one's the accelerated permanent portfolio. This one is 27.5% in a levered bond fund. TMF, 25% in a leverage stock fund UPRO, 25% in PFFV, a preferred shares fund, and 22.5% in gold. It's up 3.51% for the month so far and the year so far, and up 27.77% since inception in July 2020. Next one's the aggressive 5050. This is the most levered and least diversified of these portfolios. It's one-third in a levered stock fund UPRO, one-third in a levered bond fund TMF, and the remaining third divided into an intermediate treasury bond fund and a preferred shares fund. It's up 1.97% for the month and the year, and up 0.23% since inception in July 2020. Next one's a levered golden ratio. This one is a year younger than the first six. It is 35% in NTSX, which is a composite SP 500 and Treasury Bond Fund levered up 1.5 to 1%. It's got 15% in AVDV, that's an international small cap value fund, 20% in gold, GLDM, 10% in a managed futures fund, KMLM, 10% in TMF, which is a levered bond fund, and the remaining 10% in UDAO and UTSL, which are levered DAO and Utilities funds. It's up 3.58% for the month of January and the year so far, and up 24.16% since inception in July 2021. And the last one is the Opter Portfolio. One portfolio to rule them all.

Voices [50:35]

One ring to rule them all. One ring to find them.

Mostly Uncle Frank [50:56]

This is the newest one. It's only been around since July 2024. It's 16% in UPRO, that's a levered SP 500 fund. 24% in AVGV, which is a worldwide value-tilted fund, 24% in GOVZ, which is a Treasury Strips From the remaining 36% divided into gold and managed futures. It's up 3.95% for the month of January and the year so far.

Voices [51:25]

Wow, is that very nice.

Mostly Uncle Frank [51:28]

And up 34.12% since inception in July 2024. So still off to the races. It's kind of interesting watching the kind of rotations of different assets performing better in the new year than they did in the prior year, at least relatively speaking. But that's the way it goes. But now I see our signal is beginning to fade. If you have comments or questions for me, please send them to Frank at RiskPartyRader.com. That email is Frank at RiskPartyRadar.com. Or you can go to the website www.riskparty.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. That would be great. Okay. Thank you once again for tuning in. This is Frank Vasquez with Risk Party Radio. Signing off.