Welcome And Show Guide

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. 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. Zachar. 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. 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]

Lighten up, Francis.

Mostly Uncle Frank [2:13]

But now onward, episode 491. Today on Risk Parody Radio, I think we're looking at a little infestation here. Which means we'll be doing our weekly portfolio reviews of the eight sample portfolios you can find at www.riskparody.com on the portfolios page. But before we get to that, first we're gonna have a little Queen Mary segment.

Voices [2:44]

Mary Mary, I need you hugging.

Mostly Uncle Frank [2:52]

Because Mary would like to thank you all for your generosity, and I will let her speak to that. Then we'll be doing some emails, and then we'll get to the portfolio reviews. And so without further ado. And Mary has some things she'd like to tell you. So here she is.

Mostly Queen Mary [3:52]

Before we dive into today's emails, I want to take a moment to update listeners on our CASA campaign. On Wednesday morning, I was overjoyed to learn from the CASA staff that our fabulous Risk Parity Radio audience has already donated over $13,000 to Fairfax CASA. And if I was overjoyed on Wednesday morning, I was absolutely elated on Wednesday night when our anonymous benefactor, who we refer to as Matthew 6.3, reached out to offer a $20,000 match for this campaign. When Frank showed me the email, I laughed, and then I cried, and then I did a little bit of both. I am truly overwhelmed by the generosity of this audience, and really can't thank you enough on behalf of the children who are served by Fairfax Casa. So thank you to everyone who has already joined me at my end of the beach to throw the littlest starfish back into the sea. And I invite more of you to join me on my end of the beach over the next coming months. Thank you.

Voices [4:51]

What'd you wish, Mary? What do you wish when you threw that ro Oh no? Come on, tell me. If I don't, it might not come through. What is it you want, Mary? What do you want? You you want the moon? Just say the word and I'll throw a lasso around and pull it down.

Mostly Uncle Frank [5:07]

And as Mary said, we are extremely grateful for everything you've done for us. And for our charities. We really do believe we have the finest podcast audience available.

Voices [5:20]

Really top drawer.

Mostly Uncle Frank [5:22]

So we'll be leaving those links to the donation pages in the show notes so you can check that out and donate at your leisure.

Voices [5:33]

Great success.

Mostly Uncle Frank [5:36]

Now let's go on to our second segment here.

Voices [5:39]

I'm intrigued by this. How you say emails. And first off.

Mostly Uncle Frank [5:46]

First off, we have an email from Bill, who seems to be suffering some delusions of grandeur and wants to be called Optimus Prime these days.

Mostly Queen Mary [6:11]

Uncle Frank and Queen Mary, I hope the beaches of Belize were warm and refreshing. Ah, the luxuries of time freedom.

Voices [6:19]

All we need to do is get your confidence back so you can make me more money.

Mostly Queen Mary [6:24]

With Fi on my side, the challenge is now trusting the plan, math, and gliding into a sustainably value-based and manageable four-day shifts regimen in the emergency department before Elvis exits the building.

Voices [6:40]

Industrial strength level. Awesome.

Mostly Queen Mary [6:45]

Thank you for the lovely response to my previous email regarding the Fog of Fi. I have one comment and one question. Based on prior podcasts regarding charitable giving, the McKenna Man portfolio, and the advantages of the new kit on the block, Donor Advised Fund DAFI, I have moved my donor advice fund from Modelity to DAFE. This is for several reasons. One, Adam Nash, the CEO and co-founder of DAFI, is a disruptor in the industry and has democratized this traditionally institutional space, making the powers of a donor advised fund accessible to the general public.

Voices [7:21]

Defend this family on a box.

Mostly Queen Mary [7:25]

We recently recorded a podcast with him on catching up to FI, and I encourage your listeners to watch for it to drop in March. 2. Institutional donor advice funds like Fidelity and Vanguard have had a high barrier/slash cost with $5,000 and $25,000 hurdles respectively. Fidelity has recently eliminated theirs. The funds also typically operate on a traditional 0.6% AUM management fee model. DAFI operated on a membership model depending on the level of service slash options that a donor desires. These start at $0.3 and cap out at $40 per month. They have a comparative fee calculator on their site. They are dramatically cheaper as your account grows larger. Their structure resembles that of the flat fee model in the financial services industry. They also have many features that other donor-advised funds do not provide. This includes standard and custom portfolios, social giving by including family, friends, and community to participate in your giving, the ability to create campaigns for your charities, and more. I invite the Risk Parity community to check out their website at www.daffey.org. I was able to mimic my Optimus Prime portfolio with the exact ETFs I use, minus the Managed Futures Fund at DBMF. I encouraged Adam to include this asset class as well to consider standard leverage funds, especially since he has Bitcoin in their stable of hundreds of funds. 3. Establishing your own risk parity portfolio at DAFI enables donors to practice drawdown at a 5 to 6% sustainable safe perpetual giving rate to create their own foundation that allows generational giving. 4. I have easily automated perpetual monthly giving to Casa and the Father McKenna Center attributed to Risk Parity Radio with a prime numbered amount. Easy peasy. Donors from your audience can easily do so as well. It's fun buying impactful happy happy joy joy.

Voices [9:24]

It's the happy happy joy joy song.

Mostly Queen Mary [9:44]

The question. What are your thoughts on adding a little additional volatility in uncorrelated LT bonds and additional gold exposure in order to increase risk slash growth slash volatility on the equity side of the portfolio? How much DROZ would be needed to offset the 4% allocation increase to equities and the 2% allocation increase to gold? Does bond leverage act differently than equity leverage? I would do this tactical reallocation with the next equity correction. Interested in your thoughts. Thank you both for your mentorship and friendship. I would have never thought that entering the financial literacy space and our chance collision at FinCon 2019 would have had such an impact on my personal and financial life. Bing and bing again.

Voices [11:15]

Watch out for that first step, it's and doozy!

Mostly Queen Mary [11:19]

Sincerely, Mr. Bill, I would actually prefer to go by the pseudonym Optimus Prime going forward. It gives you an opportunity to use some juicy Transformer clips. Mr. Bill's shrill voice is so annoying.

Voices [11:33]

Oh hey everybody, it's me, Mr. Bill, and I'm on the way to the studio to take my new show. You already know your guardian Bumblebee.

Mostly Uncle Frank [12:04]

A donor to both Fairfax Casa and the Father McKenna Center. Through your Daffy Donor Advised Fund, no less.

Voices [12:12]

Double your pleasure, double your fun with double good, double good double mint gum.

Mostly Uncle Frank [12:21]

As always, your donations have moved you to the front of our email line, which is what we have to offer. Alright, donor advised funds. Thank you for telling us about Daffy. It does sound like the best in class these days, as far as donor-advised funds are concerned.

Voices [12:38]

With my trusty quarter staff. Actually, it's the buck and a quarter, quarter staff, but I'm not telling him that. Ho, ha, cart, turn, parry, dodge, steal, frost.

Mostly Uncle Frank [12:55]

Donor advised funds are a very useful mechanism for timing charitable donations without having to commit to a particular charity. And then you can almost set up your own little foundation where you give to charities later as time goes on. But oftentimes concentrating donations all in one year is desirable for tax purposes. And typically you can either donate cash or donate shares into a donor-advised fund. And I see that many of our listeners who donate do do so through donor-advised funds. So I think a lot of people have already gotten the memo. Didn't you get that memo? But I think this is kind of an opaque area in that not everybody really knows what's available out there. And I think Daffy has sort of jumped to the head of the line in terms of services and costs and all those things. Bill or uh Optimus Prime. I am Optimus Prime, is also the host of the Catching Up to Fi podcast and recently did a nice interview of the CEO of DAFI, and I will link to that in the show notes. I thought that was very informative and very useful for people who have charitable intents in mind, particularly to traditional 501c3 charities in the United States. And if you've been thinking about setting up a donor's bias fund, maybe now is the time and DAFI is the place. But I will link to that podcast in the show notes so people can check that out, because it's got some other links to DAFI and other things. So thank you for bringing that to our attention because I think a lot of people will find that very useful.

Voices [14:37]

Will D Frickin' Die!

Using ZROZ To Free Allocation

Mostly Uncle Frank [14:41]

Now getting to your question. This is an interesting question because as many listeners have discovered, and as you see in some of our experimental portfolios, you can in effect use a treasury strips fund, like ZROZ or GOVZ or EDV, as a substitute for a long-term treasury bond fund. And it almost acts like it has a form of leverage due to the durations that the duration of something like VGLT or TLT is about 17 years. The duration of one of these strips funds is about 25 years. So as a consequence, when overall interest rates move, the value of the strips fund tends to move by one and a half times the value of the ordinary long-term treasury bond fund. So it's not exactly leverage, but it kind of works that way. It is kind of a noisy thing. So in the past few years, when interest rates have not moved much, you haven't seen really that effect because the returns have been very low. Where you end up seeing that effect is when interest rates are actually moving significantly and there is significant movement in treasury bond funds. Which was very positive in years like 2020 in the spring or 2008, but very negative in environments like 2022. So doing a little math here, essentially you're saying you want to decrease the long-term treasury bond holding you have right now, which is 29% in VGLT, to free up essentially six percent of room in the portfolio to allocate to other things. And so mathematically, the way you would do that is you would take 19% of your VGLT, turn that into 13% in ZROZ, leaving you with 10% in VGLT. And since 19 minus 13 is six, it does free up six percent that you could allocate to other things in the portfolio. And it's not the same thing as direct leverage, but it does have a similar effect over time. So hopefully that answers your question. I did want to say I'm also very grateful for your friendship and the couple's friendship that we've formed between Mary and I and you and Karen. Which has been very rewarding already, and I hope will continue until we can't continue anymore. But that does mean I get to make fun of you.

Voices [17:13]

What are you doing?

Mostly Uncle Frank [17:14]

I'm bearing you.

Voices [17:15]

I'm alive! You're waking a neighbor! Shut up!

Mostly Uncle Frank [17:20]

Because that will allow us to hit two of the three cures for the five regrets of the dying, as Bronny Ware says. Those three cures are relationships, humor, and belief in some kind of higher power. Okay, name your favorite dinosaur.

Voices [17:37]

Velociraptor.

Mostly Uncle Frank [17:39]

Alright. If you were a chick, who's the one guy you would sleep with? John Samos.

Voices [17:44]

What? Did we just become best friends? Yep.

Mostly Uncle Frank [17:46]

We're not doing much for the higher power here, but we are doing pretty well with the relationships and the humor, I would say.

Voices [17:56]

Can we turn our beds into bunk beds? It'll give us so much extra space in our room to do activities. You're adults, you can do what you want. This is the funnest night ever.

Mostly Uncle Frank [18:06]

Anyway, thank you for your friendship. Thank you for your donations to Fairfax Casa and the Father McKenna Center. And thank you for your email.

Voices [18:17]

Who is this gentleman sitting behind you? Hello, Miss Lady. You can't shut your shut your mouth. You shouldn't tell the person who is interviewing you to shut their mouth. You're sounding stupid now. I'm sorry, what is it? You're just coming off stupid. Please leave this office. Do we get any sort of souvenir? Get out of my office! Second off.

Mostly Uncle Frank [18:37]

Second off? We have an email from Mark.

Voices [18:42]

All hail the commander of his majesty's Roman legions, the brave and noble Marcus Vindictus.

Mostly Uncle Frank [18:50]

And Mark writes.

Mostly Queen Mary [18:53]

Frank, I'm so happy I discovered your podcast. Thank you. Your rant on target date funds was appreciated. I'm a target date guy because I overthink everything. I would love to craft my own slick portfolio, but it feels so daunting, primarily due to FOMO and fear of mistakes that I would be responsible for. And it's gone. I have been a J. David Stein subscriber for a few years and he is over my head. Can you point me to a reference podcast resource that will help me craft my own aggressive-ish portfolio for my looming retirement 22-ish years from now, as I am 47 years old slash young currently? I like the idea of a risk parody type investment portfolio, but with my timeline, I should be more aggressive if I trust math, which is hard to do as I am a medical professional and science is messy. I am a scientist, not a philosopher. The white coat investor says pick one and gives 150 options. My goal is to have a portfolio that I understand enough, but don't overthink. Any input would be appreciated. I am only just dipping my toes into your podcast and have listened to the ones you suggest to start. One, three, seven, nine, twelve, etc. My question is, where to next? Seems like no matter my exposure, I never feel confident. You are much appreciated. Sincerely, Mark.

Voices [20:24]

Alive. It's alive. It's alive.

Mostly Uncle Frank [20:32]

Well, Mark, thank you for discovering our little podcast. And I'm glad you're enjoying it.

Voices [20:38]

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

Four Levels Of Investors

Mostly Uncle Frank [20:44]

Now you're asking for a reference podcast or resource that will help you craft your own aggressive-ish portfolio for looming retirement twenty-two years-ish from now. I think your question presupposes that this is a hard decision or will take a lot of effort or study or something like that. And the answer is it's really not. And I can give you a simple portfolio work just fine. There are many, many portfolios that'll work just fine for this purpose. But I think we need to frame where you are in terms of your investing knowledge. And this really goes back to what we talked about in episode 459 about the four levels of investors. And just to summarize that taxonomy, at level one, we're talking about people that are not investing because they have not solved their debt problems. These are the people that need Dave Ramsey. They have debt problems, they fixate on their credit score or qualifying for loans or things like that. But they're fundamentally spending as much or more than they make, so they can't really invest. And that is essentially over half of the US population. Most of the time, these people aren't even paying any attention to investing, or maybe even not their money itself. If you listen to Remit Sedi's Couples podcasts. Frequently, there are people that he has on that fall into this category. The next level is level two. Level two is comprised of people that know investing is a good idea, they have enough money to invest, but they've convinced themselves it's very complicated and they need lots of help. So people in this category are generally fixated on two things: either shiny objects or magic investing buttons or some combination thereof. Shiny objects are like this one fund or this one thing that is going to solve my problems. A target date fund is a shiny object. So are various annuity products and other insurance products, dividend investing funds, these new fangled options contracts. A lot of what Ben Felix now calls ETF slop falls into this category. I'll link to that video in the show notes. I think that's it very informative. On the magic button side here, people in this level tend to think that advisors have magic buttons they can push to make your money go faster. They're doing complicated things, zigging and zagging. People in this category are the most heavily marketed to by the financial services industry, and most of financial media is directed at people in this category because they can be sold to.

Voices [23:20]

Always be closing. Always be closing.

Mostly Uncle Frank [23:26]

You can get them to buy all kinds of things.

Voices [23:34]

Are you gonna take it?

Mostly Uncle Frank [23:36]

And they're constantly second-guessing themselves and switching horses, which is really their main problem, actually. But at bottom, they have a belief that finances are too complicated for them to learn, therefore, they don't want to spend their time learning. What they spend their time doing is asking a whole bunch of different people for opinions and then just kind of picking one that feels good. At level three, you have people that have figured out that there really aren't any shiny objects or magic investing buttons that any normal person could push or should be trying to push. And so they become good accumulators. They're usually fixated on accumulation. Above all else, the way to solve financial problems, in their view, is to simply spend less. And they are fixated on simplicity. And this is generally the category that encompasses all of traditional personal finance, the Boglehead community, and people like that.

Voices [24:33]

But Mr. Howell, I want to spend it to make people happy. Well, that's a very noble sentiment, very warm and generous, but stupid.

Mostly Uncle Frank [24:40]

And at level four, then you have people that are comfortable with finances and want to apply financial principles to solve specific problems. And people at that level will work with professionals, particularly tax professionals, but they want to direct what these people are actually doing, as opposed to going to somebody who's just going to tell them what to do. They are not fixated on finding the simplest solution, they want to find the best solution. And that's primarily who this podcast is directed at, which is why our audience is probably always going to be very small. If you wonder whether you're on that level or not, I'm going to give you a podcast, a recent podcast, that is a conversation between Jim O'Shaughnessy and Cliff Asnus. And if you listen to that and understand it and get it and know what they're talking about and agree with their approaches, you're probably on level four. And you've probably read one or more books by Mark Maubassan because he's a professor at, I think, Columbia, who has read everything in the world and basically can summarize all the high points of behavioral finance, actual finance, and complex adaptive systems into a coherent whole. So go back and listen to episode 459 if you're interested in that. It is clear to me, based on what you've written, that you are on level two. Because you've concluded correctly that target date funds are not the shiny object or magic investing button that they're often made out to be. But you're wondering if there is another shiny object or magic investing button you can push to make your money go faster for the next 20 years. And you've cited the White Coat Investor famous article about 150 portfolios better than yours. That is essentially a level three person talking to level two people. That's what that article represents. And it's basically saying you shouldn't treat these individual portfolios like they are magic investing buttons or shiny objects that you can just pick up off the shelf and we know for a fact that this one's gonna work better than that one because we don't know that. But all you really need to apply to get a decent answer, and there are many decent answers, that's the other thing you need to recognize. There isn't one answer for you. There's a whole bunch of different ones that are gonna work just fine. They generally have all one thing in common. And if you want to understand why they have this thing in common, what you need to go read is chapters 18 and 19 of Jack Bogle's Common Sense Investing. And what that is about is what we call the macroallocation principle. And what the macro allocation principle says is that the biggest choice you are making in constructing a portfolio is what are the big assets that you are putting into it? How much cash, how many bonds, how many stocks, are there alternatives, what are they, and what are the percentages? That one decision is the big decision that you are really making here, and that is the important decision. The specifics of what is in that asset class are much less important, and particularly when you're in your accumulation phase and don't really care much about volatility, all you really care about is decent returns, it becomes even less important. So, what do we know from applying the macroallocation principle? What the macro allocation principle basically says, what you get from those chapters, is that all 6040 portfolios are going to have similar performance characteristics, at least as to returns over time. All 7030s are going to be like that, all 8020s, all 9010s, and this particularly applies in the accumulation context when the focus is on overall returns. So, what that really tells you is that if your goal is to maximize overall returns and you're not concerned with volatility as you're not being 22 years away from retirement, you really want to be in 100% stocks. That's the big decision. That's the important decision. There isn't any other important decision here. Because after you've made that decision, you can implement it in a hundred different ways, probably. But that is also why the target date fund is a bad choice for you. Because it is not the right macro allocations. It's got bonds in it, it's changing all the time, it's getting more conservative all the time. It's a bad choice for what you are trying to do. That is also why some of these other shiny objects are bad choices. Dividend funds, income funds, those are bad choices. Annuity products, those are bad choices. Because the only way that you are going to beat a 100% stock portfolio is either taking leverage, which I don't recommend because you need to be level four to understand how to do that and the risks involved. Or taking a concentration in something you think is going to outperform the market. And I don't recommend you do that either because it takes too much skill. That's why people like Warren Buffett are famous. They're actually good at that. So if you're not going to take leverage and if you're not going to pretend you have skills you don't have, the most natural choice is to have a hundred percent stock portfolio that is composed of index funds. And that's where you get to the dozens, if not hundreds, of combinations of those things. Because the truth is you don't know and you can't know which combination of index funds, whether it's one or ten, is going to be the best performing combination over the next 22 years. You don't know that, you can't know that, so stop trying to know that.

Voices [30:27]

Forget about it.

Macroallocation And 100% Equities

Mostly Uncle Frank [30:29]

So you could just hold a total stock market fund, like a BTSAX or a VTI or a SP 500 fund, or even a Nasdaq fund, and combine that with some other total international fund or something like that. You could do that. That's probably gonna work. But now I can give you something that I think will perform at least as well as that and perhaps better, and will also help you segue 20 years down the line to a retirement portfolio. Because basically, you can take the stock portion of most retirement portfolios and just use that as your accumulation portfolio. And so to me, that would be the simplest idea overall, because then you won't have to make big transitions on the other end. So, what does that look like? Well, it can be as simple as two funds. One fund can be a large cap growth fund, and that would be something like VUG or IWY or the Schwab version of that, SCHG, or if you already have a lot of money in a total stock market fund or an S P 500 fund, that'll work for that purpose as well. They're not that much different. So put 50% of your money in that, and then just take the other 50% and put it in a small cap value fund. Today I would suggest AVUV is the best option for that. And you could go with those two funds, and if you go to test folio and look at this two fund portfolio over the past hundred years, you'll see it outperforms most other combinations that people will give you if you look at those 150 portfolios in the Whitecoat Investor. It will do better than most of those, at least historically. Now, if you want to add an international component to that, the most common and popular one would be a total international fund like VXUS. That is actually not the best choice you can make these days. There are better choices since that fund came out 20 years ago or whatever it was. Instead of choosing that, I would choose another two-fund combo that is essentially a large cap growth and a small cap value fund. So something like IDMO for the large cap growth. It's labeled a momentum fund, but it's kind of what it does. And then you can use AVDV as the small cap value fund. So there is a two or four fund combination that will work just fine for your purposes right now and going forward, and that you can work with when you get to retirement age. And notice the important thing about it it's 100% equities. That's the important thing about it. It's 100% equities, it's the macro allocation principle. It's not which fund it is, it's not even which sector it is. It doesn't matter whether it's a Vanguard fund or a Schwab fund or somebody else's fund. There are no shiny objects here. These are not magic investing buttons. There's nothing complicated to learn here. This is not complicated at all. So you can take that or you can go pick some other combination of 100% equities, but that's what I would recommend. But here's the rub. Whatever you pick, you need to stick with that. Because the real reason amateurs underperform, particularly level two people, is they keep looking for more shiny objects or magic investing buttons as they go along. And every time something comes up in the news and they're watching financial news, you shouldn't be doing that. No TV for you, no financial TV. They want to say this time is different, and oh, I need to go and invest in this now. Here's another opinion, here's another guru, here's another thing, I'll jump from fund to fund. It is the jumping from fund to fund that causes amateurs on level two to underperform their own investments.

Voices [34:12]

Hello, hello, anybody home?

Mostly Uncle Frank [34:17]

This is the reason that Vanguard shows that amateur investors tend to underperform indexes by somewhere between two and four percent. It is all about jumping in and out of funds like this. This is also the reason that Vanguard and other people in the financial services industry say, Oh, you need us. You need us because you're stupid. You're stupid jumping around and you need us. Well, I suggest that you don't need them. What you need to do is not be stupid. Fat, drunk, and stupid is no way to go through life, so and the way you can not be stupid is pick a reasonable set of funds between one and four, and then stick with them for the next 20 years.

Voices [35:02]

And uh, I'll go ahead and make sure you get another copy of that memo.

Mostly Uncle Frank [35:06]

Okay. Add to the ones that are low and rebalance them once a year. Even that's not a big deal or something to be obsessed with. So start with that. If you want to move to level three, then you do need to read the standard personal finance kind of books, which would be things like The Simple Path to Wealth, William Bernstein's books, like the four pillars of investing, Jack Bogle's Common Sense Investing. Any of those kind of books will get you to level three. But what you really learn from those books is that there are no shiny objects, there are no magic investing buttons, so stop looking around for that stuff.

Voices [35:47]

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

Mostly Uncle Frank [35:50]

It is the search for that and the overcomplication with that, and uh looking at everybody's different opinions and picking one opinion of the year based on current popularity. That is why people stay in level two and they don't get to level three. That is also why they overpay financial advisors or buy services they don't need. Because in the back of their minds, they think financial advisors have magic investing buttons that they're going to push for them.

Voices [36:17]

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

Mostly Uncle Frank [36:25]

Now, as for other episodes to listen to here, really most of this podcast is not for somebody who is accumulating where you are right now. Because most of this is talking about how to construct portfolios for people to draw down on that allow them to take the most money out of it. And so most of what we talk about here is pretty irrelevant to what you're doing. I would listen to episode 208, which is a Wizard of Oz themed introduction to investing. You already know many of the things there, but it will give you another way to appreciate the siren song and danger of looking for shiny objects and magic investing buttons. I think your goal should be in the next year to get to level three in your understanding of investing. It's not that hard. It's not going to take that long. And basically anybody who's capable of getting a high school degree can get to level three. Because once you get to level three, you will feel confident that you're not missing anything. There isn't a shiny object or magic investing button that you need to go find or pay somebody to find for you. So thank you for writing in. We do not get to talk about these topics that often. I hope you find this helpful and thank you for your email.

Voices [37:44]

On the button of the bone.

Mostly Uncle Frank [38:05]

Last off, we have an email from Ryan.

Mostly Queen Mary [38:08]

No way.

Mostly Uncle Frank [38:10]

And Ryan, right?

Mostly Queen Mary [38:11]

Hi, Frank and Mary. Near the end of episode 457, you said, welcome to the 2020s, where you can get anything you want just through ETFs. This got me thinking, are there ETFs of any of the risk parity portfolios that you follow? I know your audience is a DYI audience, and it really speaks to me as a DYI investor in the accumulation phase. However, when I get older, I may be looking to further simplify things. I know there would be a higher cost for an all-in-one solution like this, but I may be willing to pay some basis points in order to have it on autopilot for myself and my wife after I'm gone. It might also make it easier for me to handle my parents' finances as they age into retirement if there was an option like this. I plan on using the Golden Butterfly and would be particularly interested in any low-cost ETFs that follow that framework. Thanks for your time and sharing your thoughts, Ryan.

Voices [39:12]

Pure energy.

Simple Two-Fund Equity Blueprint

Mostly Uncle Frank [39:18]

Alright, Ryan, thank you for writing in. And there are two answers to your question. Are there ETFs with risk parity portfolios in them? And the answer is Yes. But the real question is, are they likely to be helpful for you in constructing a retirement portfolio or some other kind of portfolio that you would want to use? And the answer to that is no, probably not. But let's get into the details so you can understand why. So there are a variety of funds that contain risk parity portfolios. There is one from Fidelity called FAPSX. That's a mutual fund. There are two that have a little bit of leverage in them. One is RPAR, another one is UPAR, and there's a relatively new one that's from Bridgewater itself. It's called ALLW. There are also older mutual funds from AQR, like AQRIX. And you will find other variations on those themes. Now, all of those portfolios follow what you would call classic risk parity principles as pioneered by Bridgewater and others. And what those portfolios are actually trying to do is literally balance out the volatilities of all of the assets in the portfolio to create something that is extremely efficient on the efficient frontier. And that is really the goal of those portfolios is to balance out those volatilities. And then the idea is you would often add leverage to that because you usually end up with some kind of very conservative portfolio that is very bond heavy. So oftentimes, like in RPAR or UPAR, they're adding some leverage to that to actually bump it up to get a decent return out of it. So what these end up looking like is the all seasons portfolio. That sample portfolio, the first one, that is a representation of classic risk parity funds. It does not have any leverage in it. Because that is the portfolio that Ray Dalio told Tony Robbins would be a representative risk parity portfolio back when Tony Robbins wrote Money Master the Game, I think 12 years ago. So what is the problem with that portfolio or these other portfolios we've been talking about? The problem is they probably don't match any goal that you actually have. Because most people are typically trying to do one of two things. They're either trying to accumulate as much money as possible, in which case, in most cases, they'd be better off just with 100% equities, like we talked about with the last emailer, because they don't really care about the volatility. They just care about the returns.

Voices [42:03]

I don't care about the children. I just care about their parents' money.

Mostly Uncle Frank [42:08]

Or they are trying to do something like maximize a safe withdrawal rate, like we're trying to do here. And those portfolios really don't do that either. They're not designed for that. They are designed for this very theoretical balancing of volatilities or risk profiles within the portfolios. So in order to tweak a portfolio like that and make it better for something like drawing down on, we need to follow the principles of Bill Bangin. See, we're doing the Bruce Lee thing here. We're taking what is useful from one thing, discarding what is useless, and then adding something uniquely to our own, or in this case, adding something from a different place. So things like the golden butterfly or golden ratio or these other risk parity style portfolios are combinations of that risk parity idea with other ideas that lend themselves to the particular purpose that we're going after. Because that's the purpose of finance, not to create some theoretical masterpiece, but to match financial behaviors with financial goals. And no, I'm not aware of any funds out there that are explicitly trying to maximize a safe withdrawal rate by applying risk parity principles. I wouldn't be surprised if somebody doesn't come up with something like that someday, but I'm not aware of anything like that out there right now. You might look at something like HEFT, which is the Hedgeye Fourth Turning Fund. But I consider that more thematic than anything else. Forget about it. That's a new fund that came out last year that I'm aware of. The other problem I see with these risk parity funds that are off the uh shelf is that most of them are too complicated. They have too many things in them, they have too many things. Going on. And that actually, in my mind, detracts from their returns and their performances. At this stage, you were much better off constructing your own variation of this. And it's really not that hard when you think about it. It may be unfamiliar, but it's not that hard. Just listening to an interview with Larry Swedro, who has a more complicated portfolio involving more esoteric things. But he basically said that really anybody who's managing their own investments can handle like seven funds or something like that. And if you're saying that's too hard, you're really just not trying very hard.

Voices [44:37]

Gosh! Idiot.

Mostly Uncle Frank [44:40]

So rather than trying to find a fund, if you didn't want to do this yourself, I would just find an advisor to do it. And there are a few of them that are doing this already, as my friend Bill has hired and has talked about. And we've mentioned here recently. Go back one or two episodes. But I would not be looking for an all-in-one fund. And I think that practice of people running around looking for all-in-one funds to do this, that, or the other is actually a bad practice. It's actually not something people should be doing. It's elevating this simplicity god over everything else. But you really don't want that. You want something that is in pieces mostly for tax management purposes, but also for rebalancing purposes. You can't rebalance something that's just all one thing. You can't tax manage it. You can't separate the bonds and put them in your retirement accounts and put your stocks in the taxable brokerage accounts. You can't do any of that stuff. And that stuff's really important if you're really talking about managing your assets. You should never sign up for paying extra taxes just so you can worship some god of simplicity.

Voices [45:48]

The gods have chosen Tu Shibalba. Okay.

Mostly Uncle Frank [46:01]

Now, if you really were looking for one fund solutions and you didn't really care about maximizing your withdrawals, you just wanted something that would work basically, with moderate withdrawals of around 4%, something like that, you can do that with something like the Vanguard Wellington Fund. That's one fund. It's been around for about a hundred years. It's basically a combination of large cap value stocks and a bunch of different bonds. It's not exciting, but it does work for the kind of purpose that people are often talking about. If they have some older person and they've got some money and they need to put it somewhere and they want a conservative portfolio they can draw on, the Vanguard Wellington Fund works a whole lot better than what I see most advisors doing. In fact, that's one of my tests when I look at some plan is is this better than the Vanguard Wellington Fund? And when you look at what most advisors are giving most people, the answer is usually no, it's not.

Voices [47:00]

You can't handle the truth.

Avoiding Shiny Objects And Drift

Mostly Uncle Frank [47:03]

If you want something that's on the conservative side, you can go to the Vanguard Wellesley Fund. That is going to have performance characteristics like that, all seasons kind of portfolio. And that would be similar to some of these risk parity style portfolios that are in these ETFs, the ones without leverage. But if you're just looking for a one-fund solution that you can reasonably spend about 4% out of and be highly unlikely to have any problem with that, the Vanguard Wellington Fund or the Vanguard Wellesley Fund or some combination of those two funds, that would actually work just fine for your 85-year-old parents or whomever. And the truth is it's probably going to be a lot better than the things that most other people are suggesting. It's certainly going to be better than complicated things with buckets, ladders, and flower pots in them.

Voices [47:52]

Haha, you fool! You fell victim to one of the classic blunders.

Mostly Uncle Frank [47:56]

For some reason, everybody over 60 still thinks that they need to be fiddling around with CDs, as if we're living in 1989 or something like that.

Voices [48:06]

Forget about it.

Mostly Uncle Frank [48:08]

Don't do things like that. It's gonna make you things more complicated and less liquid. And don't fixate on simplicity above all else. That is not the goal in life. That should not be the goal in your financial life.

Voices [48:22]

Everything should be made as simple as possible, but not simpler.

Mostly Uncle Frank [48:27]

Because the simplest thing to do is just not spend money. Live on your social security and not spend any of your money. Believe it or not, it's like what 80% of retirees who are safe for retirement are doing. David Bach reports that 80% of retirees with retirement accounts are not withdrawing from them until they're taking RMDs, until they're forced to take RMDs. And that's sad. But the reason they're doing that is fear and simplicity. It's simple not to spend money. But your goal shouldn't be to live the simplest life or have your parents live the simplest life. It should be to live the best life you can using the money to live that life. And that may involve an hour or two a month dealing with your finances. So I urge you to sit down and really define what your goals are. Because if your goal is I want the simplest thing possible, you're not thinking very hard. You're not going to live your best life. Think again.

Voices [49:27]

Well, let's start the insanity.

Mostly Uncle Frank [49:30]

You can do better, and if you don't do better, you're going to have regrets. I think your choice, the golden butterfly, is probably going to work fine, and it's simple enough for pretty much anyone to manage. If you want to make the management simpler, just take all of your withdrawals out of the short-term bond fund for the year and rebalance it once a year, and that'll make it even simpler. You will find that the portfolio part of this is actually the simplest part. Because the hard stuff all has to do with taxes and claiming Social Security and dealing with all of the rules and regulations you have to follow. And there's just no getting around that. Either you need to hire somebody to deal with that stuff or you need to learn enough to do it yourself. And that's not going to be simple. So you might just give up on the simplicity idea at all to begin with. Because whatever you're doing in your portfolio is going to be a whole lot simpler than dealing with all of those taxes and other regulations that you're going to have to deal with anyway. So, interesting questions. Hope that helps. And thank you for your email.

Voices [50:40]

And now for something completely different. What is it?

Mostly Uncle Frank [50:58]

Well, yes, the bees did descend upon the markets last week with a new war. Why can't there be just not war? Anyway, just looking at the pummeling the markets took last week. The SP 500, represented by the fund VOO, is now down 1.39% for the year so far. The NASDAQ 100, represented by QQQ, is now down 2.37% for the year so far. Actually, is the big loser in this list. Small cap value represented by the fund VIOV took a pummel last week, but it's still up 4.47% for the year so far.

Voices [51:34]

I could have used a little more cowbell.

Mostly Uncle Frank [51:37]

Gold represented by the fund GLDM also dropped a couple of percent last week, but it's still up 19.44% for the year so far.

Voices [51:47]

I love gold.

Are Risk Parity ETFs Useful

Mostly Uncle Frank [51:51]

Long-term treasury bonds represented by the fund VGLT are up 1.89% for the year so far. Rates represented by the fund RE ET are up 5.57% for the year so far. Now the big winner is commodities. Preferred shares represented by the fund at PFFV are up 1.61% for the year so far. And managed futures are managing to be up 9.8% for the year so far, at least for our representative fund DBMF. That fund's interesting to watch because it does reset every week based on the replication schedule they have. And you can actually look and see what's in it every week if you really want to. There's a little spreadsheet on the DBMF website. But you can see how it gets out of bad trends and gets back into moving trends. So it was down substantially early in the week and then was substantially up at the end of the week, I think, after they've shifted their holdings in that fund. Anyway, now moving to our sample portfolios. First one is that all seasons portfolio, a reference portfolio. It's only 30% in stocks and a total stock market fund, 55% in intermediate and long-term treasury bonds, and the remaining 15% in golden commodities that are kind of holding the portfolio up these days. It was down 1.05% last week. That's for the month of March. It's up 3.84% year to date and up 28.01% since inception in July 2020. Moving to the more bread and butter kind of portfolios. First one's golden butterfly. This one's 40% in stocks, divided into a total stock market fund and a small cap value fund. 40% in treasury bonds divided into long and short, and the remaining 20% in gold, GLDM. It was down 2% last week for the month of March. It's up 5.49% year-to-date, and up 68.31% since inception in July 2020. Next one's Golden Ratio. This one is 42% in stocks, divided into a large cap growth fund and a small cap value fund. 26% in treasury bonds, long-term treasury bonds, 16% in gold, 10% in managed futures, and the remaining 6% in a money market fund and cash. It was down 1.97% last week, that's for the month of March. It's up 4.82% year to date, and up 61.84% since inception in July 2020. Next one's the Risk Perry Ultimate, kind of our kitchen sink. I'm not going to go through all 12 of these funds. It was down 2.31% last week, that's for the month of March. It's up 4.53% year to date, and up 46.08% since inception in July 2020. Moving to these experimental portfolios that all involve leverage funds. It's up 4.72% year-to-date and up 29.26% since inception in July 2020. Next one's the aggressive 50-50. This is the most levered and least diversified of these portfolios, which has contributed to making it the worst performer by far. It is one-third in a levered stock fund UPRO, one-third in a levered bond fund TMF, and the remaining third divided into a preferred shares fund and an intermediate treasury bond fund as ballast. It was down 4.47% for the month of March, which is last week. It's down 0.36% year to date and down 2.06% since inception in July 2020. Next one is the levered golden ratio. This one is a year younger than the first six. It is 35% in a composite levered fund called NTSX, that's the SP 500 and Treasury Bonds. 15% in AVDV, which is an international small cap value fund, 20% in GLDM, that's gold, 10% in a managed futures fund KMLM, 10% in TMF, which is a levered bond fund, and the remaining 10% in UDOW and UTSL, which are a levered Dow fund and a levered utilities fund. It was also down 3.47% last week, that's for the month of March, but it's still up 7.37% year to date and up 28.7% since inception in July 2021. And the last one is the Opter Portfolio, the newest one. This one is a return stack portfolio. It is 16% in UPRO, that's a levered SP 500 fund, 24% in AVGV, that is a worldwide value tilted fund, 24% in GUVZ, that's a Treasury Strips Fund, and the remaining 36% divided into gold and managed futures. It was also down 3.73% last week, that's for the month of March, but it's still up 6.87% year to date and up 37.89% since inception in July 2024. And that concludes our portfolio reviews for the worst week since either last October or last April, depending on who you talk to and what you're looking at specifically. So what's going to happen next? Well, we can consult our crystal ball here. But you know what our crystal ball always says.

Voices [58:20]

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

Mostly Uncle Frank [58:26]

I would expect things to smooth out or iron out eventually, may not be next week. It's been a good year for alternative assets so far, and events like this make it likely that it's going to continue to be a good year for alternative assets, especially if there is a long-term trend in something like oil. I would expect a lot more volatility, but we'll sit and do nothing. Our portfolios are fine.

Voices [58:51]

Well, what about you now? What would you do? Nothing. Nothing, huh? I would relax, I would sit on my ass all day. I would do nothing.

Mostly Uncle Frank [59:05]

And we have enough different things in them that something is going to do well even if most things are not doing well. 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 RiskPardyRader.com.com. Or you can go to the website www.riskparty radio.com, put your message into the contact form, and I'll get it all that way. If you have any other chance to do it, please go to your favorite podcast provider and like subscribe and give some stars, a follow, a review. That would be great. Okay. Thank you once again for tuning in. This is Frank Vasquez with Risk Party Radio signing off.