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 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 [0:37]

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.

Mostly Uncle Frank [1:14]

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

Voices [1:36]

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, alright?

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 audience focused, and I must say we do have the finest podcast audience available.

Voices [2:03]

Top drawer. Really top drawer.

Mostly Uncle Frank [2:07]

Along with a host named after a hot dog.

Voices [2:10]

Lighten the Francis.

Mostly Uncle Frank [2:14]

Now onward, episode 489. Turn on Risk Parity Radio.

Voices [2:19]

It's time for the grand unveiling of money.

Mostly Uncle Frank [2:23]

Which means we'll be doing our weekly and monthly portfolio reviews of the eight sample portfolios you can find at www.riskparody.com on the portfolios page.

Voices [2:35]

I love gold. But before we get to that I'm intrigued by this. I will say email.

Mostly Uncle Frank [2:47]

And first off. First off of an email from Jeffrey. This guy's been stunned since a third grade. And Jeffrey, right?

Mostly Queen Mary [3:00]

Mary, a copy of my donation to Fairfax Casa is attached, and I'm happy to support an organization helping children through difficult times.

Voices [3:08]

Why? What have children ever done for me?

Mostly Queen Mary [3:11]

A friend of mine and his wife have been going through the process of becoming foster parents in Virginia. To say some of the stories I've heard are eye-opening is quite an understatement. The heart and drive it takes to maintain consistency for these kids is admirable. Thank you and the group for what you do.

Voices [3:28]

They will keep on turning. They're rolling. Road it. Rolling. Road it. Rollin' on River. They don't believe.

Mostly Queen Mary [3:47]

Frank, I wrote to you several months ago, and you responded in episode 478 to my question where I mentioned Freck and Direct Indexing. I continue to dabble with the product and the idea of it, and I am sold on this platform for the long term for the large cap growth I've bought into. They currently offer a small cap option, but not a small cap value. I've asked if they might and was met with a solid maybe. As excited as I would be to have that option, I have mixed feelings if I should consider it if made available. I asked my favorite AI bot to help me understand the ins and outs of direct indexing small cap stocks, and the only thing it confirmed for me was that I asked great questions. That's not an improvement. In a normal small cap index fund, the winners graduate out and the churning happens inside the ETF wrapper. In a direct index option, it seems they do something similar, but I can't find explicitly stated how it's handled. An AI references generic white papers stating they optimize for a small tracking error instead of the actual index in order to be more tax efficient, which is somewhat concerning. Ultimately, the main benefit I see in direct indexing is the tax loss harvesting. But I can't make sense of how a small cap value direct index would ever have significantly more paper losses than an equivalent ETF if the winners keep getting sold, therefore wiping out many losses. Am I off on my understanding of this? I appreciate your input. P.S. Looking forward to meeting both of you at Economy next month. Thanks, Jeff from West Virginia, which I call the best Virginia.

Voices [5:30]

He got a Leo pretty male thing. That's the truth.

Mostly Queen Mary [5:37]

PPS, I remember Frank mentioning liking to hear what people's backgrounds are, and I forgotten to mention it both times. I work in the construction industry, and my company and I regularly work in the Northern Virginia area and beyond, building buildings, some of which I'm sure you've seen around. Thanks.

Voices [5:56]

Oh an only.

Mostly Uncle Frank [5:59]

Well, first off, Jeffrey, thank you for being a donor to Fairfax Casa. And Mary, thanks you too. What'd you wish, Mary? As most of you know here, we do not have any sponsors on this program. We do have some charities we support, namely two charities, and we are working for raising money for Fairfax Casa now, which is Mary's charity, the court appointed special advocates of Fairfax County. And she's been talking about that extensively in the last couple episodes, and we'll have more of that in future episodes. But for now, thank you for donating to Fairfax Casa. And that does advance you to the front of the email line, even in front of our other charity donors, the Father McKenna Center, at least for the next couple of months here. If you'd like to donate to Fairfax Casa, go to the show notes and there will be a link there to donate to Fairfax Casa. It's also on our support page at www.riskperityware.com as well as the link for the Father McKenna Center. We are also looking forward to seeing some of you at the Economy Conference in March in Cincinnati.

Voices [7:11]

I'm living on the air in Cincinnati.

Mostly Uncle Frank [7:15]

I've just been informed I'll be doing my presentation twice, both on Saturday and Sunday, on the main stage in the afternoon.

Voices [7:27]

Really top drawer.

Mostly Uncle Frank [7:29]

We are also planning on having a little informal get-together for Risk Parity Radio listeners on March 20th in the Solaire Hotel, in their main lounge dining area near the reception at three o'clock in the afternoon. And hopefully we'll have a couple of door prizes to hand out at that time.

Voices [7:49]

Yes.

Mostly Uncle Frank [7:50]

So if you're coming to the conference, please do stop in on Friday if you're there at the Solaire Hotel at 3 p.m.

Voices [7:58]

I know why we have reservations. I don't think you do.

Mostly Uncle Frank [8:01]

Now, getting to your question about doing direct indexing of small cap value, I think that would be a relatively difficult prospect and very cumbersome and confusing. It's interesting. I just actually did a podcast for Bigger Pockets Money about small cap value funds and the various indexes, or indices if you prefer, that are used to construct these funds. But when you look at the indexes that are used for this, they typically have a lower cutoff because they don't include micro cap companies, and then an upper cutoff, in which case, yes, they kind of graduate out. If a company gets too big, it will be taken out of the fund itself. Which makes for some interesting activities or actions in some of these things. At one point during the meme stock craze, GameStop, which is a small cap value stock, or was before people started treating it like a meme stock, did become large enough that it graduated out of the small cap value funds that it was in. But as a consequence of the way these are set up, there are generally very low allocations to most of the stocks in a small cap value fund. Usually the max is around 1% of something. And so these look more like equally weighted funds than a cap weighted fund. Which means you would have to hold a lot more stocks to mimic one of these as opposed to mimicking a large cap weighted fund where 50% of the fund is taken up by only about 20 stocks or even less. And if you want to get a flavor for what's in small cap value funds or any funds, you can go to the fund web pages and look at the details, or you can just go to Morningstar, put the fund in there, and go to the positions, and it will show you the top 25 holdings in any given fund, as well as the percentages of the fund that are held in that security. So yeah, I don't see much point in trying to direct index a small cap value fund or any kind of small cap fund. Really, the point of that is to hold hundreds or thousands of different small cap companies and not have a concentration. It seems to me that direct indexing, to the extent it works, would only work well with a large cap cap weighted fund or something like a sector fund that is focused on one particular sector, like the energy sector, because those are also cap weighted. In which case you can replicate the fund by only holding a relatively few number of stocks. So do have a listen to that Bigger Pockets Money podcast because I do explain the difference between the Russell Small Cap Value Index and the CRSP and the S P 500, which I've done here before, I think at some point, probably episode 401 is my guess. And I also talk about how funds like AVUV are constructed, which is essentially using a proprietary index, but it's still treated like an index in that it's an algorithmically run fund for efficiency purposes. And if you're going back to your AI bot again, I would ask them to tell them about how the index is constructed, whichever index you're looking at, and then also ask it whether it has a profitability factor and to compare the various indices, because that's the major differences between these indices as to whether there's a profitability factor or quality factor incorporated or not. So I think your assessment of this is correct, and that it's probably not worth doing.

Voices [11:38]

You are correct, sir, yes.

Mostly Uncle Frank [11:41]

And also thank you for telling us about your work life.

Voices [11:44]

Why, someone left this job half done. Can we fix it? Yes, we can! Ain't nobody finishing nothing! I'm sorry. Who are you? We're from the union, and we say you don't have the right equipment for this job. We have all the equipment we need. Really? You got a talking briefcase full of hundred dollar bills over there?

Mostly Uncle Frank [12:07]

Because I do find that interesting. I think there are a wide variety of the types of people who listen to this podcast wider than I would have suspected.

Voices [12:18]

Abby someone. Abby who? Abby normal. Abby normal.

Mostly Uncle Frank [12:29]

It's not just all tech workers and engineers, although there are a lot of those. We also have people that own a variety of small businesses. We have doctors and people in small practices involving psychology, and people who work for the government or the military. Andor the military, I should say. But that certainly makes for some interesting questions from various corners of the world.

Voices [13:17]

Welcome to All Things Scottish. Our slogan is if it's no Scottish, it's CLAP!

Mostly Uncle Frank [13:23]

I think the one thing our listeners do have in common is a great cynicism about the financial services industry.

Voices [13:30]

Always be closing. Always be closing.

Mostly Uncle Frank [13:35]

And many of the people I've talked to basically have a kind of PTSD reaction to experiences they've had with various financial advisors who put them in complicated or expensive things that do not function very well.

Voices [13:49]

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

Mostly Uncle Frank [13:55]

And are very poorly explained or not explained at all.

Voices [13:59]

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

Mostly Uncle Frank [14:03]

But I digress.

Voices [14:05]

I drink your milkshake. I drink it up!

Mostly Uncle Frank [14:13]

Anyway. Hope this helps. Thank you for being a donor to Fairfax Casa. And thank you for your email.

Voices [14:23]

You know, whenever I see an opportunity now, I charge it like a bull. Ned the bull, that's me now. It's all one big crap shoot, anywho. Tell me, have you ever heard of single premium life? Because I think that really could be the ticket for you. Second off.

Mostly Uncle Frank [14:38]

Second off, we have an email from Brian. Hey Brian, can't place a wager? And Brian writes.

Mostly Queen Mary [14:46]

Hi, Frank and Mary. Thank you for the incredible resource you are for DIYers and the growing, largely thanks to you, risk parity community. It's a conspiracy man! Attached, you will find my donation to the Father McKenna Center. Groovy baby! My question regards modifying the golden ratio for accumulators. I'm curious about your thoughts on the following variations of the golden ratio compared to the 50-50 U.S. large cap growth and U.S. small cap value split for accumulators. As I know you are aware, capital markets theory suggests an investor should build the optimal portfolio or highest sharp portfolio, and if they desire a higher return, borrow at a risk-free rate lever to increase risk and expected return. By comparison, the conventional approach without leverage is to reduce or get rid of diversifiers and concentrate into stocks. But that comes at a high cost in terms of expected volatility and drawdowns. With this theory in mind, and with the latest in ETF technology, I've put together how an investor could lever up the golden ratio portfolio by 1.25x or 1.5x and compared those portfolios to a 50-50 US large growth small value split. The below table summarized allocations to the Golden Ratio, Golden Ratio 1.25X, and Golden Ratio 1.5x with a column specifying testfolio STEM tickers as well as real-world ETFs that mirror this exposure. My apologies, Mary. I don't expect you to recite these tables, although I guess now Frank's gonna have me do it. And the following link compares the performance of these portfolios to the 50-50 accumulator split. A few comments on the allocations. The 1.25 golden ratio portfolio ends up being a levered portfolio with 117% net exposure, taking the 94% investment of the golden ratio, excluding cash, and increasing weights to all holdings by 25%. The leverage is achieved through the ticker GDE SIM, which is a simulation of a Wisdom Tree ETF, GDE, that allocates to 90% gold and 90% SP. This holding accomplishes the gold target plus a significant portion of the large growth position. The 1.5 golden ratio ends up being levered to 141% notional exposure. The leverage is accomplished through a combination of GDE using ZROZ slash G O V Z instead of TLT for a levered bond experience, plus an allocation to SP plus trend products, of which there are now several.67%, SP plus MF 7.5%, ZROZ SIM 26%, Cash X 0.83% for a total of 100%. Q to a potential gambling problem, but as expected and according to theory, the levered golden ratio portfolios increase returns and risk proportionally while preserving the high sharp ratio of the unlevered golden ratio portfolio, nearly 0.85. And since 1992, the golden ratio 1.5x has outperformed the 50-50 accumulator split by 1% per year with less risk, 12% versus over 18% volatility, and the worst drawdown of 23% compared to 55% for the 50-50 split. So, while I wouldn't necessarily recommend jumping into a 1.5x golden ratio portfolio, I'm curious if you think these modestly levered portfolios could be an appropriate alternative for accumulators. This notional exposure is also very similar to the OPTRA portfolio, but using the return-stacked GDE and SP plus managed futures products instead of the triple leveraged SP fund. As a final comment, this strategy could somewhat simplify the transition from an accumulation portfolio to a decumulation portfolio. An investor would reduce exposure across the board and increase or eliminate leverage as they approach their retirement and or fire number. Thanks again, Brian.

Voices [19:50]

A number so perfect, perfect. Everywhere. Sacred geometry, a mathematical property hardwired into nature. The golden ratio. The golden ratio. What's the answer? What's the answer? What's the answer, Mr. Sacred Geometry? Sacred Geometry. The Golden Ratio.

Mostly Uncle Frank [20:20]

The Golden Ratio. Well, first off, Brian, thank you for being a donor to the Father McKenna Center. Just to toot that horn a little bit, the Father McKenna Center serves hungry and homeless people in Washington, D.C. And full disclosure, I am the board of the charity and am the current treasurer. And if you give to the charity, you get to go to the front of the email line, but not quite to the front of the email line because we have to put Fairfax Casa first for March and April. But we will be running our top of the t-shirt campaign coming up this summer again. So stay tuned for that, starting in late May or early June. In the meantime, we will take your donations and move you to the front of the email line, or close to it. And I'll also link to that in the show notes and it's on our support page at www.riskperdib.com. So I'm gonna spill the beans on you a little bit, Brian. Brian is actually the financial advisor for our friend Bill Yount, who runs the Catching Up to Fi podcast, and has recently become financially independent and is working on downsizing his medical practice. But the reason I'm spilling the beans on you, Brian, is you've made some nice little videos that explain risk parity style of investing, how it fits into the efficient frontier, and related topics such as alternative assets. And those are on a little YouTube channel that Brian has created for his financial services practice. I will link to that in the show notes because I think it's instructive. It tracks a lot of the stuff we talk about around here, and also may be useful for some of you to show to friends, family, whomever. Because Brian is a CFA and has institutional experience. Experience. And so it at least on paper is a higher authority than yours truly.

Voices [22:06]

Who elected you leader of this outfit? Well, Pete, I figured it should be the one with the capacity for abstract thought. But if that ain't the consensus view, then hell, let's put it to a vote. Suits me. I'm voting for yours truly. Well, I'm voting for yours truly, too.

Mostly Uncle Frank [22:23]

Okay. I'm with you fellas. So you can check that out. Now, getting to your question. First, I did not have Mary read everything here. If you said something yet again, well, I do see that you've got at least one link to test folio here, and I will include that in the show notes. But that's the easiest way to show our listeners portfolios is to put it into testfolio and send a link with your email so that Mary does not have to read everything.

Voices [22:53]

Mary, Mary, I need your hug.

Mostly Uncle Frank [23:01]

But the answer to your question is, yeah, I do believe that using a more diversified portfolio and adding leverage to it is one of the ways to effectively get a better return than a total stock market portfolio, at least in theory, but I think it's going to be more possible in practice given the kinds of funds that we've got now, ETFs that we didn't have, say, 10 years ago. And Ben Felix actually has a video about leverage that I've linked to before and we'll link to again. I think the real question is how much leverage and then what form to take it in, whether to do it in margin or use some of these ETFs that incorporate it or some other mechanism. We did talk about margin versus ETF leverage back in episode 361. And in fact, if you go and search leverage or margin in the podcast page at www.riskpertier.com, you will find a lot of episodes where we've talked about some of these issues. But I don't know what the answer is to this as to what's the best way to do this. I'm not a smart man. I do think it's going to look something like that OPTRA portfolio, at least in its simplest form. That basically you can take some stock combination that involves some leverage and say an S P 500 fund and then some value tilted funds, maybe AVUV and AVDV. We're using a more conservative fund in that OPRA portfolio. And then also having allocations to gold managed futures and treasury strips funds. And those combine more than one asset in a leveraged form. So the older ones are the wisdom tree ones like NTSX, which is the SP 500, and Treasury bonds levered up 1.5 to 1, or GDE, which is the S P 500, and gold levered up about 1.8 to 1. Believe it or not, there's one that is golden Bitcoin now. But there's also now these return-stacked funds, ETFs, like RSST that you've mentioned, which is the SP 500 and Managed Futures. And these are in addition to the older short-term trading things like UPRO that can also be used in longer-term portfolios. So there's a whole variety of options here to use. I am not sure which ones are the best ones. I do like it for management purposes to keep the assets separate and not use these composite funds, but that's more of a personal preference on my part, not because I have any proof that that's a better approach than using the composite funds. Now there's also a question of the amount of leverage that would be the best amount to hold. And I think it's somewhere between 1.25 and 2, is my best guess. People have observed that Berkshire Hathaway is effectively leveraged 1.7 to 1 when you take into account the insurance float. And a lot of leveraged funds or leveraged portfolios do have leverage in that kind of range. If you look at the levered risk parity funds, RPAR and UPAR, those are levered up, I think, 1.2 to 1 and 1.8 to 1. Now, if you look at our experimental sample portfolios, the first two, the accelerated permanent portfolio and the aggressive 50-50, are both over-levered. They're levered over two to one. And they're not very well constructed, frankly.

unknown [27:01]

Gosh!

Voices [27:02]

Such an idiot.

Mostly Uncle Frank [27:04]

And you can see in those how that leverage, as well as drawing down off of them, has contributed to lots of volatility and substandard performances. Then if you look at something like the levered golden ratio, which is levered up about 1.6 to 1, or the OPTRA portfolio, which is levered closer to 1.4 to 1, those are actually some of our best performers, at least recently. And those are also experimenting with a lot of these newer funds because they are experiments. At least I would not be comfortable with that. On the other hand, we do have people here that are very comfortable with lots and lots of leverage, like 100% you pro.

Voices [28:07]

You can't handle the gambling problem.

Mostly Uncle Frank [28:10]

But not all gambling problems are created equal. One thing I think you should do, particularly with some of these composite funds, is do compare them to an equivalent two fund setup. So if you're looking at something like RSST, I would be comparing that to something like a combination of UPro and DBMF. And particularly with that fund, I'm not sure their managed futures strategy is all that good, honestly, because it does not seem like it has performed as well as you would think it should if it was just following something like DBMF as its managed future strategy. And that I think is going to be an inherent problem with a lot of these composite funds, that unless they're in something that is well established, it's difficult to know whether what they're doing inside it is really a good idea. And I have problems with funds like RPAR and UPAR, because I don't think some of what they're doing inside of it is actually the best idea. So the ultimate answer is yes, I think you're on to something here, but I don't know what the best parameters for it are going to be. I think if you're thinking about using this in an accumulation portfolio, I probably would segregate it and put it in the Roth portion of something you're working with. This is a perfect thing to use in a long-term Roth IRA that's not most or all of your money, because then you don't have to deal with the tax consequences of rebalancing it. The advantage of using a lot of leverage is you'll get more rebalancing opportunities.

Voices [29:53]

That's the fact jack!

Mostly Uncle Frank [29:56]

Something like NTSX, which you know is the S P 500, and basically a composite treasury bond fund, or GDE, which you know is the S P 500, and a straight investment to gold. I think those are less problematic, but they also do have potential drawbacks, and I would be comparing any of these kind of funds to equivalents, which I'll do an example of in the show notes so you can look at it on testfolio. But honestly, I think this is something we'll be knowing more about and appreciating better within the next five or ten years. And some younger fellow like you is probably going to crack this code.

Voices [30:36]

Fortune favors the brave.

Mostly Uncle Frank [30:39]

As for us, we're gonna try and keep our own holdings relatively conservative from here on out. We do have a couple of smaller Roth IRAs where I've created things that look kind of like the opera portfolio in them. But that's well less than 10% of our overall investments. Anyway, if you're more interested in what we've said about this so far, I would do some searches in the back catalog of this podcast because we've talked about this a lot, and there are a lot of articles and things in there. So I'd search not only the podcast itself, but also the links page because we've cited a lot of articles about using leverage and portfolios. Thank you for helping my friend Bill.

Voices [31:22]

Hey, what's going on here? Why are they taking all my furniture? Well, all that coke you bought last night was real expensive. You're broke. Sorry, Mr. Bimble, but we'll have to sell the house. Mr. Bimble, where are you going? Um, I'm going back to New York when I wanted. Say, that's quite a long trip. Yeah, thanks to you and Slugo, I can't even afford to fly anymore.

Mostly Uncle Frank [31:51]

Thank you for being a donor to the Father McKenna Center. And thank you for your email.

Voices [31:58]

So, Brian, we're even now, right? Ready to start a new life in England. I've got my money, your wounds have healed up nicely. What do you say we let bygones be bygones? You shot me in both my knees, then lit me on fire.

Mostly Uncle Frank [32:11]

Last off. Last off, we have an email from Eric.

Mostly Queen Mary [32:16]

No way.

Mostly Uncle Frank [32:17]

And Eric writes.

Mostly Queen Mary [32:19]

Hi, Frank and Mary. I made a donation to the Father McKenna Center. I found Risk Parity Radio not too long ago and have been working my way through your episodes, and I have to say it has become my go-to podcast for investing knowledge and insight.

Voices [32:34]

The best, Jerry.

Mostly Queen Mary [32:35]

The best. So before I continue, thank you both for all that you do and the work that you put into making this podcast. I have one question regarding planning for retirement. As I said, I am working my way through your episodes. So if you've already addressed this, feel free to just point me to a particular episode and I will go and listen to it. I tried searching for my topic on the website, but nothing really popped up. My wife and I are about 10 years away from retiring, and so we are starting to look at how much money we will need in order to retire and how much money we will need to do the different things we would like to do in retirement. I think we are close to having enough saved to retire, but I want to make sure before we pull the plug on working, our initial thought is for maybe the first 10 years of retirement to go traveling around on mini trips and vacations to see different places and things.

Voices [33:28]

Have you ever been in a Turkish prison?

Mostly Queen Mary [33:32]

Our thought is to budget roughly $10,000 a year for this.

Voices [33:36]

You like movies about gladiators.

Mostly Queen Mary [33:39]

My question is, how would a person, when plotting out how much money they would need in retirement, add an expense like this to their overall retirement number, since it will only be an expense that they will incur for the first 10 years or so of retirement? I'm not sure if I'm overthinking this, but this is how my brain is wired.

Voices [33:57]

You are talking about the nonsensical ravings of a lunatic mind.

Mostly Queen Mary [34:02]

How does a person, when looking at roughly how much money they think they're going to need to retire, plan and budget for one-time larger expenses? Things like traveling or buying a new car or the like. Thanks again for all that you both do, Eric.

Voices [34:17]

Now, can I afford it? Has been gamified, which means you're gonna get to listen to the caller. You're gonna say, Show me the money to yourself anyway, and then you're gonna get to approve or deny it. You think you're gonna be right or wrong? Let's go and try it right now. Yeah.

Mostly Uncle Frank [34:38]

Well, Eric, yeah, the short answer is you probably are overthinking it, at least for something like this, where you're planning on spending essentially a fixed amount in a short period of time, because the easiest way to do it is simply add $100,000 to your pot that you think you need and spend it as you go for the first 10 years. It's not the most efficient way to approach it, but that actually gives you a baseline that at least you can do that as one model. I would certainly use that as one of your models is simply let's just save an extra $100,000 in cash because we know we're going to spend an extra $10K a year for the first 10 years of our retirement. And this is kind of the same approach we made with respect to things like our kids' college money, because we hadn't paid for all of that when I retired, but we did have that blocked off and basically just sitting in accounts and we knew how much that was going to be. And since money is fungible, that really applies to any category here, whether it's college or a boat or travel. The only real issue there is whether it's flexible, whether it's discretionary or not, or whether you definitely want to spend the money or could decide not to spend the money. Now, the more technical way of doing this kind of calculation is to use a retirement calculator, a Monte Carlo simulator, like the financial goals one over at Portfolio Visualizer, in which case you put in cash flows into that, both positive and negative. So you can essentially say we're having this negative cash flow that is $10,000 more for the first 10 years, and then it's going to go down by 10,000 for time immemorial thereafter. And you can essentially do that in any retirement calculator, because it's it's essentially just a spreadsheet kind of a function. And that will give you a more technically accurate model, although in reality it's probably not that much more accurate since short-term returns are going to be volatile anyway. Now, I suppose a secondary question would be how to invest that money. You could keep it all in cash. I would keep at least the first three years in cash and perhaps the first five years. You could construct some kind of a bond ladder if you really wanted to. I'm not sure it's going to make that much of a difference when you're talking about $10,000 a year. Or you could just say, well, for the first five years, we will make that all in cash and then just incorporate the rest of this into our regular portfolio with the idea that we are going to be kind of peeling an extra 10 out of the portfolio for a few years, at least on years it goes up, and putting that into this cash pile that we're spending down. You can think of kind of infinite varieties of the ways to do this, but ultimately it's probably not going to matter a whole lot in the grand scheme of things, unless this is a very large portion of your expenses. And I don't think it is. So I would just model this in a couple of different ways. But this did lead me to some broader questions and research I've been doing primarily to prepare for the economy conference. My presentation is going to be on forecasting and the correct use of base rates in forecasting.

Voices [37:57]

Crystal ball can help you, it can guide you.

Mostly Uncle Frank [38:01]

And whenever you're talking about base rates, you are talking about what is the typical experience of your reference class here, retirees say over age 50, which we have a lot of good research on. And the most recent excellent research from JP Morgan shows that it is interesting that for a middle class retiree, there is typically this spending bump right at retirement for people buying things or doing extensive travel or doing something that generally costs more than they may have been spending right away. There is not that kind of bump for affluent retirees. They tend not to increase their spending in particular right at retirement. Now, after that, real spending tends to go down over the course of the rest of your life after retirement, after age 50 in particular. And the most recent research, see if I can find this video, a financial advisor named Aaron, who created a video about the retirement spending smile and whether it was really a retirement spending smile or not. Because the truth is, for the median retiree or most retirees, there is no upward smirk or smile at the end of life. It just kind of tails off because most people actually don't have huge expenses at the end of life. That's a very small number of people, less than 15%, that actually experience a big uptake in expenses towards the end of life. And there's a lot of bad information out there about this, frankly, trying to scare people into buying long-term care insurance products and doing other things that probably aren't really good forecasting at all.

Voices [39:44]

A guy don't walk on the lot lest he wants to buy. They're sitting out there waiting to give you their money. Are you gonna take it?

Mostly Uncle Frank [39:52]

But going back to the front end of this, it's gonna be pretty safe to say that almost everybody's gonna be in the same reference class after age 50. The real question is about people who retire earlier than that, that are really early retirees in their 40s or even 30s, because they are going to be in a in a different reference class, kind of like the way you're thinking about it, that you know there's going to be more expenses in the near term than in the later term. And the experience of inflation is probably going to be different in the early term than it is in the later term, in which case you would need to model those separately or use a calculator that allows you to make a switch at some point. Because for most people, if they have children, their total family expenses tend to peak around the time those kids are high school or early college. And so there may be a different trajectory or different reference class for people who are having those kind of experiences. Like my friend Scott Trench over at Bigger Pockets, who's retiring at age 35 and has small children. But even people like that are going to end up in the same reference class for most of the rest of their life. It's just that earlier period that probably needs to be modeled a little bit differently. If you really want to come up with a shortcut, the shortcut is if you can assess when you think your biggest real spending year is going to be. Suppose you have kids that are ages 10, 8, and 6 right now, you might anticipate your highest spending year is going to be in 10 or 12 years. If you can figure out what that is likely to be in real dollars, that becomes an anchor that you can model everything else off of. Because if you know when your highest spending year in today's dollars is going to be, and use that as the baseline of your spending, that automatically gives you a buffer because it's never going to be more than that. This does get pretty theoretical the further out you go, however, because well, it's pretty easy to predict what your likely expenses are going to be in the next few years, because they're probably not going to be that much different than what you're spending right now, unless you're making big changes in your lifestyle. It's not nearly as easy to forecast anything that's more than 10 years away. So, but what you're talking about doing here does sound very typical, like the JP Morgan findings, that there often is this kind of bump right at retirement where there's more spending and then it tails off after that over time. And just anecdotally, I can tell you that some people really, really like traveling and they want to do more and more of it. A lot of people want to curtail it, they find out they don't like it as much, or they don't want to live a nomadic lifestyle with like they thought they might have, and they either just don't travel at all or nearly as much, or they really focus on quality of travel and not quantity of travel, which is probably the bucket that Mary and I fall into.

Voices [43:00]

Like the time I caught the ferry over to Shelbyville, I needed a new heel for my shoe. So I decided to go to Morganville, which is what they call Shelbyville in those days. So I tied an onion to my belt, which was the style at the time.

Mostly Uncle Frank [43:19]

So you may eventually find that that ten thousand dollars you're thinking of spending on travel, that you either don't really want to spend that much money on travel after doing it for a couple of years, or you might want to spend more, but you'll be able to make adjustments elsewhere in your expenses, because you'll find that a lot of them are just discretionary and don't need to occur the same in every year. Anyway, those are a whole bunch of rambling thoughts. That's probably making this sound more complicated than it is.

Voices [43:49]

This is pretty much the worst video ever made.

Mostly Uncle Frank [43:52]

I think the real answer is the first one that I gave you that no, this does not need to be that complicated.

Voices [44:00]

Good about it.

Mostly Uncle Frank [44:01]

And it's certainly not big and scary at all.

Voices [44:04]

Coma? Why I go in and out of coma is all the So hopefully that helps.

Mostly Uncle Frank [44:12]

Thank you for being a donor to the Father McKenna Center. And thank you for your email. Now we are going to do something extremely fun. 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.riskper.com on the portfolios page. We'll also be talking about our monthly distributions for March.

Voices [44:38]

Show me the money! Jerry, you better yell! Show me the money!

Mostly Uncle Frank [44:43]

We're just taking a look at where these markets are this year so far. The SP 500 represented by the fund VOO is up 0.62% for the year so far. So pretty much flat. The NASDAQ 100, represented by the fund QQQ, is actually down 1.14% for the year so far. So is the big loser so far. That hasn't happened in a really long time. But it does go to show you that markets do change, and you never know what you're gonna get in a particular year. Small cap value represented by the fund VIOV is up 7.92% for the year so far. Gold represented by the fund GLDM is still the big winner. It's winning even better now. Or more.

Voices [45:50]

This is gold, Mr. Bond. I think you've made your point, Goldfinger. Thank you for the demonstration.

Mostly Uncle Frank [45:57]

It is up 21.99% for the year so far.

Voices [46:02]

And that's the way uh uh I like it. Casey on the shunshine band.

Mostly Uncle Frank [46:08]

Long-term treasury bonds represented by the fund VGLT are up 4.06%. Wreaths represented by the fund REET are up 9.22%, so they're doing even better than small cap value. Commodities represented by the fund PDBC are up 12.6%. Preferred shares represented by the fund PFFV are up 1.55% for the year so far. And managed futures represented by the fund DBMF are managing to have quite a good year. They are up 12.15% for the year so far. So it's a big year for the alternatives so far. No one can stop me. But now turning to the sample portfolios.

Voices [46:56]

It was a very good year.

Mostly Uncle Frank [47:03]

And the first one is the all-seasons portfolio. This is a reference portfolio we keep around mostly for comparison purposes. It is only 30% in stocks 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 2.69% for the month of February. That's up 4.94% year to date and up 29.37% since inception in July 2020. For March, we'll be distributing $35 out of it. It'll come out of cash. It's at a 4% annualized rate. So that'll be $103 year to date and $2,177 since inception in July 2020. All these portfolios started at about $10,000. Moving to our more bread and butter kind of portfolios here. First one's Golden Butterfly. This one is 40% in stocks divided into total stock market fund and a small cap value fund. 40% in treasury bonds divided into long and short, and 20% in gold. It is up 3% for the month of February. It is up 7.64% year to date for 2026, and up 71.74% since inception in July 2020. For the month of March, we'll be withdrawing $54. That's going to come out of the Gold Fund, GLDM. It's at a 5% annualized rate, and that'll be $158 year to date and $3,021 since inception in July 2020. Next one's Golden Ratio. The Golden Ratio. The Golden Ratio.

Voices [48:46]

Ha ha!

Mostly Uncle Frank [48:48]

This one's 42% in stocks divided into a large cap growth fund and a small cap value fund, 26% in treasury bonds, 16% in gold, 10% in managed futures, and 6% in a money market fund, from which we take our distributions. It is up 2.91% for the month of February. It's up 6.93% year to date and up 65.03% since inception in July 2020. For the month of March, we'll be withdrawing $52 out of it. It does come out of the cash. And that'll be $152 year to date and $2,955 since inception in July 2020. Next one's the Risk Parity Ultimate. It's kind of our kitchen sink portfolio with a little bit of everything in it. I'm not going to be going through all 12 of these funds, but it's up 3.24% for the month of February. It's up 7.00% year to date, and up 49.52% since Inception July 2020. For the month of March, we'll be taking $56 out of it. It's going to come out of GLDM again. Not surprisingly. This is at a 6% annualized rate, and that'll be $163 year to date and $3,130 since inception in July 2020. Now moving to these experimental portfolios, all involving leveraged funds. Don't try this at home. First one's the accelerated permanent portfolio. This one is 27.5% in TMF, that is a levered bond fund. 25% in UPRO, that's a levered stock fund. 25% in PFFV, a preferred shares fund, and 22.5% in gold, Jill DM. It was up 4.09% for the month of February. It's up 8.95% year to date and up 34.48% since inception in July 2020. For the month of March, we'll be withdrawing $46 out of it. It's going to come out of the accumulated cash. It's at a 6% annualized rate. And that is $134 year-to-date and $3,241 since inception in July 2020. Next one's the Aggressive 50-50. This is the most levered and least diversified of these portfolios, and also the worst performer. It is one-third in a leverage 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. So it's basically half stocks and half bonds. It's up 3.17% for the month of February. It's up 4.3% year to date and up 2.52% since inception in July 2020. We'll be withdrawing $35 out of it for the month of March to come out of accumulated cash. That'll be $103 year to date and $3,166 since inception in July 2020. Moving to our next one. It's a year younger than the first six. This is the Levered Golden Ratio Portfolio. It's 35% in a composite levered fund called NTSX, that's the S P 500 and Treasury Bonds. 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, the levered Treasury Bond Fund, and the remaining 10% divided into UDOW and UTSL, which are levered funds following the Dow and a Utilities Index, respectively. It was up 6.31% for the month of February. This was our big winner for the month of February. It's also our big winner this year. It's up 11.23% year to date and up 33.33% since inception. This one returned over $10,000 last month, and so in accordance with its distribution schedule, we're going back up to a 7% annualized distribution from a 5% distribution in the past when it was below its starting point. That'll be a $61 distribution for March from GLDM from gold and at a 7% annualized rate. It's $141 year-to-date and $2,121 since inception in July 2021. And now moving to our last portfolio, the OPTRA portfolio. One portfolio to rule them all. And in the darkness, I then in the land of all where the shadows lie. This is a return stack portfolio that we were talking about earlier in this episode. It is 16% in UPRO, that's a levered SP 500 fund, three times levered, 24% in AVGV, which is a worldwide value tilted fund, 24% in GOVZ, which is a Treasury Strips Fund, and the remaining 36% divided into Gold and Managed Futures. It was up 4.98% for the month of February. It's up 11.01% for the year of 2026 so far, and up 43.24% since inception in July 2024. It's only about a year and a half old. That's for March. That's at a 6% annualized rate. It'll be $186 year to date and $1,081 since inception in July 2024. So it has been a very good year so far for all these portfolios, particularly the levered ones.

Voices [55:07]

We'd ride in limousine.

Mostly Uncle Frank [55:13]

But somehow I don't think they're going to be up forty to sixty percent for the year, which is what would happen if they continued to perform at the pace they've been performing for the past two months. So I'm not really expecting that to continue or continued for long. But still they are doing much better than the overall markets. And it's interesting, these kind of portfolios tend to have only two down years out of ten, whereas a stock market portfolio or a stock and bond portfolio is going to be down about three years out of ten. And so just that one year of difference really does make a big difference in terms of lower volatility overall. And that's what we may be looking at this year. At least we are so far.

Voices [56:00]

Inside, you can feel the difference and feel the difference. You can see then feel the difference. You can stop, stop, and see that you can stop, you can see the difference.

Mostly Uncle Frank [56:14]

But I think that's enough for one episode. And now I see our signal is beginning to fade. If you have comments or questions for me, please send them to Frank at RiskParodyRadio.com, then email us frank at riskparodyradio.com. Or you can go to the website at www.riskparody.com. Put your message into the contact form and I'll get it that way. If you haven't had a chance to do it, please go to your favorite podcast provider and like, subscribe, give me some stars, a follow, a review. That would be great. Okay. Thank you once again for tuning in. This is Frank Vasquez with Risk Parity Radio signing off.

Mostly Queen Mary [58:04]

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.