Welcome And Foundational Episodes

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 [0:36]

Thank you, Mary, and welcome to Risk Parity Radio. If you are new here and wonder what we are talking about, you may wish to go back and listen to some of the foundational episodes for this program. And the basic foundational episodes are episodes one, three, five, seven, and nine. Yes, it is still in my memory, thanks. 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.riskparty radio.com. Inconceivable! All thanks to our friend Luke, our volunteer in Quebec. Zach Gosh. We'd be helpless without him.

Voices [1:35]

I have always depended on the kindness of strangers.

Mostly Uncle Frank [1:41]

Because other than him, it's just me and Marion here. I'll give you the moon, 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 [1:52]

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]

Light in the French.

Fairfax CASA Story And Fundraiser

Mostly Uncle Frank [2:13]

But now onward, episode 492. We're just gonna do what we do best here, which is attend to your emails. But first and foremost, Queen Mary would like to address you to talk more about Fairfax Casa, the court-appointed special advocates that we are raising money for in March and April. And so without further ado.

Mostly Queen Mary [3:17]

This event began a new chapter in their lives filled with fear and upheaval. After the incident, their father took baby Adriana and left the house. The police were notified by a neighbor, and when the mother called the father to ask for the return of the baby, he threatened to leave the baby in an unknown location. The children's father eventually left the baby at his mother's house and was arrested there by police. As a result of this incident, the Department of Family Services became involved and protective orders were put in place on behalf of the children. The court ordered the father to leave the home, complete services, and assigned a casa to the three children. Extremely guarded, the children and their mother refused to provide any information to the professionals assigned to the case. One afternoon, the DFS worker arrived for an unannounced visit and found an empty apartment with no signs of the family. The landlord confirmed that the family had left. The casa was able to make phone contact with the mom and gain the mother's trust through several video calls. The mother allowed the casa to see the children virtually and to confirm their well-being, but she would not reveal their location. The DFS worker asked the mother to return promptly with the children, but the mother indicated she had left the state to get away from the children's father and would not return. The family was eventually located and the mother agreed to return for a hearing. When the court learned that the parents had violated the protective orders, the decision was made to remove the children from their home and place them in foster care. When the children went into foster care, most of the professionals on the case changed, except for the Casa. The Casa continued to be consistent and reliable in her visits. She fostered relationships with the children who began to feel comfortable confiding in their casa. But the children, who were deeply attached to their mother, struggled with the separation. The mother was spurred into action by the removal of her children. She found a place to stay, she found a job, and worked diligently to get her children back. She attended every visit, every assessment, every therapy session, and completed all the court-ordered services. She proved to everyone that she could protect the children and stay away from their father. She was able to progress to unsupervised visits and obtained an apartment large enough to fit the whole family. Both the mother and the oldest child, Gabriel, frequently reached out to the CASA with questions and relied on the CASA as a source of support. Eventually, the children began a trial home visit with their mother, and there were tears and hugs all around upon their unification. All went so well with the trial home visit that the CASA and the DFS worker recommended that the case be closed at the next hearing. And this sweet family was finally back together again after more than two and a half years with the children in foster care.

Mostly Uncle Frank [6:01]

And so if you'd like to donate to Fairfax Casa, please check out the link in the show notes. There's also one on the support page at www.riskperiorder.com. And remember, if you donate, you get to go to the front of the email line. And now speaking of those emails, I suppose we have to attend to a few of them.

Voices [6:22]

Here I go once again with the email.

Mostly Uncle Frank [6:25]

And first off. First off, we have an email from TJ.

Voices [6:31]

I'm worried, Stacy. It should have been a routine bust.

Mostly Queen Mary [6:34]

You think something went wrong?

Voices [6:35]

I'm beginning to think so. TJ should have called in ten minutes ago.

Mostly Uncle Frank [6:39]

And TJ Wrights?

Mostly Queen Mary [6:41]

Hi, Uncle Frank. Apologies to Aunt Mary for the length of this email.

Voices [6:46]

Mary, Mary, why you bugging?

Mostly Queen Mary [6:54]

Please feel free to cut anything for brevity's sake on the podcast. I got a late start to my career in investing, only getting serious about retirement planning seven years ago after my wife and I and our two dogs moved overseas. First to Casablanca, Morocco, Q Bogart or Bergman.

Voices [7:15]

Looking at you, kid.

Mostly Queen Mary [7:17]

And now Hanoi Vietnam, Q Robin Williams.

Voices [7:20]

Good morning, Vietnam!

Mostly Queen Mary [7:25]

We work in international schools. My wife teaches high school social studies and English language learners, and I am a high school principal and former social studies teacher. We love living abroad and plan to remain overseas for the rest of our lives. I am 46, my wife is 43, and we plan to work another 10 to 15 years. We now save 40% of gross income despite high income tax rates in Vietnam. Geoarbitrage for the win.

Voices [7:53]

That is the straight stuff, O funkmaster.

Mostly Queen Mary [7:57]

I convinced my current school to offer a Roth 401k for U.S. passport holders, so we are saving in there. We also opened taxable brokerage accounts with interactive brokers since opening accounts abroad is difficult. Schwab allows it in many countries, but not in Vietnam. We rolled our public school pension contributions into personal IRAs and expect no Social Security because we have lived outside the U.S. since our mid to late 30s and have virtually no taxable income due to the foreign earned income exclusion. Consequently, our retirement planning has no safety net, no social security, no pension, just our investments. It's an entirely different kind of flying, altogether. It's an entirely different kind of flying. I originally planned the traditional 30 plus years working in public schools to have a good pension and social security like my parents did, but that is not our path anymore.

Voices [8:52]

Forget about it.

Mostly Queen Mary [8:54]

When I began researching, I learned about the 4% rule, but most mainstream advice was just stocks versus bonds and holding two to three years cash, five to seven years bond, and the rest stocks. That seemed lacking, especially since there have been multiple 10 plus year market downturns. As a catching up to Fi Saver, hoping to retire by age 60, I wanted every advantage possible.

Voices [9:20]

No more fun, Solo. You need somebody watching your back at all times.

Mostly Queen Mary [9:25]

All this is why I'm so incredibly grateful to have found you and Risk Parity through your bigger pockets money appearances last summer. Yeah, baby, yeah. I have since binged your podcast, every episode at least once, the foundational ones at least ten times, and repeats of many others. You also introduced me to Paul Merriman and his best in class ETFs and proper accumulation portfolios. Before your show, I only knew about SP or total market funds and Yikes target date funds, which I no longer own thanks to you. I didn't even know what small cap value was until finding your show. Thank you, thank you, thank you, thank you, Uncle Frank.

Voices [10:14]

The best, Jerry, the best.

Mostly Queen Mary [10:16]

After months on portfolio charts and test folio, I built a portfolio I think I can stick with. It is a modified golden ratio style.

Voices [10:25]

The numbers so perfect. Perfect. We find it everywhere, everywhere.

Mostly Queen Mary [10:30]

25% VUG, 20% GLDM, 15% AVUV, 15% ZROZ, 10% AVDV, 10% DBMF, 5% AVES, it is 55% stocks with just over half in value, slightly simulated bond leverage of 12% with ZROZ, international and emerging diversification, and 20% gold. On portfolio charts, using commodities for DBMF, it has a safe withdrawal rate of 6.8% and a PWR of 6% and the highest SWR in the matrix.

Voices [11:18]

Yes, morons.

Mostly Queen Mary [11:20]

Really? On testfolio, back to 1968 with substitutions, I get a 95% SWR of 6.5% and 95% PWR of 5.83%. I am unsure how closely the substitutions track DBMF, AVDV, and AVES that far back. I used GROC to approximate the fallback assets by return and standard deviation. So, after asking Aunt Mary to read this novella, I have a few questions.

Voices [11:51]

Mary, Mary, I need you hugging.

Mostly Queen Mary [12:01]

Does my portfolio have your blessing?

Voices [12:03]

Talk a mata. Do not ask them for mercy.

Mostly Queen Mary [12:07]

Are there better or accurate fallback assets I should use instead in testing? Is there a reason I cannot withdraw 5.5% as long as I have flexible rules like the Bengen floor and ceiling method? We unfortunately have not been able to have children, so we just need it to last our lifetimes while continuing to give 10 to 20% to charities and faith-based organizations.

Voices [12:30]

Yes!

Mostly Queen Mary [12:32]

3. Justin from Risk Parity Chronicles recently wrote Z-R-O-Z is 1.9 to 1 versus TLT. Grok gave me 1.7 to 1.9 to 1. You have historically said 1.5 to 1. Does Justin's research hold up? 4. How do you resist the urge to tinker with portfolios during both accumulation and decumulation? Will the compulsion fade with experience? You have a gambling problem. I recently donated to Fairfax Casa and became a recurring donor to the Father McKenna Center on Patreon. Both you and Aunt Mary deserve great credit for their work you are doing for those worthy causes.

Voices [13:15]

Great success.

Mostly Queen Mary [13:16]

Uncle Frank, I cannot thank you enough. You have given me the tools and the talent to confidently plan for our retirement. And we have the tools, we have the talent. If you ever find yourself in Southeast Asia, I hope we can meet so I can buy you and Merry Dinner as a small token of my gratitude. Best regards, TJ.

Voices [13:44]

TJ, what are you? Were you able to jump on the hood? TJ, what is your rate of travel? I hope you're on a decent hood this time, TJ.

Mostly Uncle Frank [14:07]

Well, first off, thank you for being a donor to both Fairfax Casa and the Father McKenna Center. We'd move you to the front of the email line twice, but then we'd have to go back an episode, and I'm not sure how to do that. That would really be the Twilight Zone now, wouldn't it? Hey. You you want to see something really scary? You bet.

Voices [14:31]

Really? Yeah. Okay, this is this is really, really scary now.

Mostly Uncle Frank [14:37]

It's always interesting to hear what our listeners are doing in the varied experiences they are having in the world. And I know many of you are overseas or have moved overseas or are moving around. Is there a correlation between people who move around and people who are curious about Risk Perry Radio? Well, isn't that the $64,000 question? We do tend to be a curious lot in general. You unlock this door with the key of imagination.

Voices [15:14]

Beyond it is another dimension. A dimension of sound. A dimension of sight.

Blessing The Golden Ratio Variant

Flexible Withdrawals And Inflation Reality

Mostly Uncle Frank [15:23]

But now getting to your questions. Yes, that portfolio you've constructed does seem to have all the nice attributes for a typical drawdown portfolio. It has between 40 something percent and 70 something percent in stocks divided into growth and value using some efficient funds. It has between 15 and 30% in treasury bonds in the form of the 15% in treasury strips. It does have 30% in alternatives, which is a little more than we usually look at, but on the other hand, the treasury strips do function almost as a form of leverage here. So it's well within decent parameters, I would say. So yeah, if you're comfortable with that, you can go with that. It's not clear to me whether you were accumulating in this portfolio or planning on accumulating, or this was just the thing you were planning on moving to when you hit retirement. Now, while you could accumulate in a portfolio like this, and our friend Tyler over at Portfolio Charts has written an article about using these kinds of portfolios for accumulation purposes, and I'll link to that again in the show notes. You would probably get there sooner if you were more aggressive with the stocks, and I'm talking about between 80 and 100% in those. But it's gonna work either way in terms of getting there. So, yeah, something like you've constructed, I think, is going to work just fine. It's a little more aggressive than some of our other portfolios. All that means is that your drawdowns are gonna be a little bit more, not like double, like 25% instead of 20%. It's gonna be kind of like the weird portfolio because really the macro allocation to stocks does have a lot to do with how volatile the portfolio is. But it's also gonna have a higher return profile over the very long term, particularly since you don't seem to have any cash in it. I wasn't sure what you were doing about that, but you will need to make some provision for money to live on, although you can kind of do that separately based on what you actually need, which is kind of closer to what we actually do in retirement. Your question two is there any reason you cannot draw 5.5% from this as long as you have flexible rules like the Bengen floor and ceiling method. No, I think you're fine with that.

Voices [17:41]

So bold strategy, Cotton. Let's see if it pays off for 'em.

ZROZ Versus TLT Duration Debate

Mostly Uncle Frank [17:46]

Because you can really have two things going for you here. Remember, when we test these things, we're testing them on the basis of CPI-based inflation. That is actually not the inflation rate that you should be assuming applies to you in retirement, particularly if you're living in another country and you're working with dollars and they're working with something that is not dollars and not another reserve currency. And also the fact that you can simply pick up stakes and move to another country if necessary leads me to believe your inflation rate is going to be lower than the CPI. And just having that feature, even without talking about flexible withdrawals, will get you from 5% probably to 6%. Certainly gets you to 5.5%. And then if you're willing to have flexible withdrawals, you'll easily be able to manage around a 5.5% withdrawal rate. I suppose the only thing I would want to take into consideration is how much of your spending is mandatory, or you would consider mandatory versus discretionary. Because typically a flexible spending kind of plan is going to work best if your mandatory spending is 60% or less than your total spending. But I'm kind of assuming it probably will be the way you're talking, since you're talking about giving ten to twenty percent to charities anyway, which just builds in flexibility here. Question three. You mentioned Justin's analysis about ZROZ comparing that with TLT. I will link to that in the show notes. I think this is hard to actually do or evaluate because this is not strictly leverage, it is simply comparing durations on a yield curve that could be flatter or steeper or even inverted, which is going to change this ratio all the time. If you do, though, look at the comparison of volatilities in the research he's got, it does look more like 1.5 to 1 to me, at least when I compared them. And where that comes into play the most is when you're actually talking about having a recession. So I would look in particular at 2020 and also 2008 and the early 2000s to check out the volatility comparison there. Because the truth is when we're talking about fairly stable interest rates like we've been having for the past three years or so, these are almost randomly correlated in terms of the ratio you would apply in this circumstance. When this really does matter is when things are moving, and that is either going to be in a scenario like 2022, when interest rates are going up and it's bad, or it's going to be in a scenario like a recession, in which case interest rates are falling. And then that is when you really care about the ratio that you're going to get out of something like ZROZ versus TLT. Because remember, the real reason we're holding these things at all is because they're recession insurance and we're not holding them the further returns. So I'm honestly not sure that non-recessionary periods are that relevant to what we care about here. So, no, I don't dispute the work that Justin has done. It's very interesting work, I think, for anybody who's interested in this.

Voices [21:37]

My, I'll bet you monsters lead interesting lives. I said to my girlfriend just the other day, Gee, I'll bet monsters are interesting, I said.

Mostly Uncle Frank [22:00]

And decumulation.

Voices [22:02]

You can't handle the gambling problem.

Mostly Uncle Frank [22:05]

I think the best solution to that is to take part of your portfolio that you're willing to experiment with and make it a small part of your portfolio, like five percent of it, or certainly less than 10% of it. Or you could have a podcast and create some sample experimental portfolios and kind of go to town with them.

Voices [22:26]

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

Mostly Uncle Frank [22:32]

But if you give yourself permission to fiddle with something, it does relieve the temptation to be messing around with the bulk of your portfolio, and that's really what you want to avoid. I do think some experimentation is a good idea because tweaking your portfolio over long periods of time, I think, is going to be a feature just because we have new ETFs coming out all the time. We have no fee trading, and I think the best ETFs to use today are not necessarily going to be the ones that we'll be looking at in 10 years, particularly with things in the alternative category. For example, there is a new fund that came out last year that is also a replicator fund like DBMF. It is called HFMF, and it's from Bob Elliott's shop, Unlimited Funds. Bob Elliott is an ex-Bridgewater guy that's trying to essentially create a bunch of alternative asset kind of funds. And although that fund is less than a year old, it has shown some promise. It essentially behaves like a more levered version of DBMF, or at least it has so far. I think it's up 20% this year or something like that. It really caught the oil boom. It also does have more exposures than DBMF in terms of different kinds of commodities and things like that. So that's an example of something that we may decide is a better choice, but we just don't have enough data right now to really say anything like that.

Voices [24:05]

I am not less perfect than Lore. I am not less perfect than Lore. Enough.

Mostly Uncle Frank [24:13]

And the same was true with these Avantis funds or DFA ETFs that did not exist 10 years ago. But it's nicer to experiment with those on a very small scale before you roll them out and stick them into a larger portfolio. So feel free to experiment all you want. Just make sure it's not going to bite you in the you know where by just limiting those exposures to something reasonable. Now we don't plan on traveling to Asia anytime soon, but if we do, we would look you up.

Voices [24:51]

Is that me or does that sound like an Elvis Presley movie? Viva Dinang! Oh vivo dinang! Denang me, donang me. I don't want to get a robe and hang me. Hey, it's a little too early for being that loud. Hey, too late.

Mostly Uncle Frank [25:04]

So hopefully that helps. Thank you for being a donor to both Fairfax Casa and the Father McKenna Center. And thank you for your email.

Voices [25:16]

It's still the same old story, a fight for love and glory, a case of do and die. The world will always welcome level as time goes by. Second off.

Mortgage Payoff With Intermediate Portfolio

Mostly Uncle Frank [25:41]

Second off, we have an email from John.

Mostly Queen Mary [25:45]

How about John? That's nice and simple.

Mostly Uncle Frank [25:48]

What are you serious? And John writes.

Mostly Queen Mary [25:52]

Frank, this is John. I recently started listening to the podcast after you were on Paula Pants podcast. I was good saying it. I'm 45 and my family is trending to financial independence. We are about 60% to our FI number. Yeah, baby, yeah! We are on accumulation autopilot, maxing out 401ks, Roth, HSA, and throwing a sizable amount into a brokerage account each month. Our largest expense is our mortgage, approximately $350,000 with a 2.85% interest rate.

Voices [26:28]

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

Mostly Queen Mary [26:32]

We would like to eliminate this monthly expense. I recently took on a part-time teaching position in addition to my normal job. So are you going to get another job? We expect to have passive income from a side business that we invested in next year. I sometimes receive periodic bonuses from my normal job on a quarterly basis. Here's my question. We are entertaining the idea of opening a separate brokerage account that we dump these other income streams in and invest, anticipating $50,000 annually. Once that account reaches our mortgage balance, we would drop the anvil on it. Growth or risk parity type portfolio?

Voices [27:24]

Well, wouldn't he outgrow those jokes? Look, kids are me. Look, I just want him to have a happy childhood too, but long John Silver? I mean, I don't know what to say.

Mostly Uncle Frank [27:33]

Well, I'm glad you're enjoying the podcast, John. And I'm glad you found it. And since this email is from last October, I'm hoping you're still listening to this. Because we are still backed up that far. Surely there must be something you can do.

Voices [27:49]

I'm doing everything I can. And stop calling me Shirley.

Mostly Uncle Frank [27:53]

So, what you're really talking about setting up here is an intermediate accumulation portfolio. And we have talked about this from time to time. The last time we talked about it was in episode 487. But if you go to the podcast page at www.riskparody.com and search intermediate accumulation, you'll find a set of podcasts talking about this very topic.

Voices [28:16]

That's the fact, Jack! That's a fact, Jack!

Mostly Uncle Frank [28:20]

And as the stars would have it, a risk parity style portfolio is in fact a good portfolio for an intermediate accumulation purpose. So our eldest son in particular has used a variation of the Golden Ratio portfolio, one without cash in it, as an intermediate accumulation portfolio from which he then is able to make down payments for a house, which is what he did with part of it. Buy some solar panels, take a vacation, buy a new used car. All of those sorts of things that don't have a particular timeline, but you know you're going to be spending that money in say three to five years, something that's longer than a couple years, but certainly less than 10 years. So the way his setup works is he's got an emergency fund, which is the cash. It's about $10,000. Then he's got this intermediate accumulation portfolio. Then he's got his regular retirement portfolios, and that's all maxed out in the 401ks and the other retirement vehicles, and that's just in index funds and 100% equities. And then in between he's got this accumulation portfolio. So anything more that he's saving and does not need to be in any kind of an emergency fund can go into this intermediate accumulation portfolio. And that's really what you're talking about here, because then you can use that at any point to pay down this mortgage. Or what you might consider is just leaving the accumulation part of it and just taking distributions out of it periodically to actually just pay the mortgage, because that mortgage rate is so low that I would be inclined simply to accumulate that much money in a risk parity style portfolio and then use the portfolio just to make the mortgage payments until they're all gone. Sweet. And the reason this kind of portfolio works so well is because these portfolios typically have a maximum drawdown period of only three to four years. So if you're putting more money into it, you can expect that you're not going to have very long drawdowns when you're taking money out of it. And then having the variety of assets gives you something to pull from as the high thing that you would sell from. When you are using one of these kind of portfolios this way, I would not rebalance it because that just generates taxes. What I would do instead is that as you make more contributions to it, just buy the thing that is low on the totem pole, if you will, and true it up that way. Buy low, sell high. Fear, that's the other guy's problem. But do go back and check out the older episodes about this, starting with 487 and going backwards, because we have talked about it a lot.

Voices [31:14]

I could stand up here and talk on and on like some bow weevil sitting on a stump, bragging to a dog in heat.

Mostly Uncle Frank [31:21]

And anything close to, say, a golden butterfly or golden ratio kind of portfolio would be suitable for this purpose. So hopefully this helps. It is a good idea.

Voices [31:33]

Wow, it's very nice.

Mostly Uncle Frank [31:36]

And thank you for your email.

Voices [31:48]

Last off.

Mostly Uncle Frank [31:50]

Last off, we have an email from Bill, or as he likes to be called these days, Optimus Prime. Maybe I should just call him Optimus Bill. I am Optimus Prime.

Mostly Queen Mary [32:03]

And Optimus Bill writes Uncle Frank, so glad you made it out of Africa. It was an epic adventure. Long live Pinotage.

Speaker [32:12]

That's right.

Mostly Queen Mary [32:15]

I loved Queen Mary's suggestion of testing your courage and survivability by wearing a necklace of Warthog bacon and joining that pride of lions resting on the rock.

Voices [32:25]

The only thing that we we need now, Frank, for your beautiful photos or best photos, is if you maybe go and sit on that rock. Yeah, go over here. Yeah, and uh and hang pieces of meat on yourself. Yeah, I would be taking videos. Make yourself a nice necklace of warthog ribs. Yeah.

Mostly Queen Mary [32:51]

Apparently, you failed the test of middle-aged man courage. Not surprised.

Speaker 5 [32:56]

You can't handle the pop rough!

Mostly Queen Mary [32:59]

A couple of questions that won't cramp your brain or threaten your sensitive ego, my friend and sensei.

Voices [33:05]

Bowdy sensei. Bowdy sensei.

Mostly Queen Mary [33:08]

Since a risk parity style portfolio is invested at the poles of growth/slash value spectrum for volatility and correlation reasons, I assume that is why mid-caps play no role in a risk parity portfolio construction, correct?

Voices [33:23]

You are correct, yes!

Mostly Queen Mary [33:26]

Is there any significant difference between splitting a treasury allocation between short and long durations versus simply using an intermediate duration fund other than a rebalancing opportunity and more complexity? An allocation to international growth slash momentum and international value does not seem to improve the data in backtesting compared to the Golden Ratio portfolio. Can you give me your thoughts on reasons for this? I believe you do have an international value allocation in your portfolio. Why? What are you going to be for Halloween? You'd make a great Ricky Bobby from Teladega Nights.

Voices [34:09]

He said, Go to Jewish. I got a message for all of them, right? Shake and bake.

Mostly Queen Mary [34:16]

I love making annual contributions from our donor advice fund to the Father McKenna Center. Money well spent. Let's catch up to fi together, Bill.

Voices [34:25]

What? Did we just become best friends? Yep.

Mostly Uncle Frank [34:28]

Well, Bill is a donor to the Father McKenna Center and Fairfax Casa, but nevertheless, this email slipped through the cracks. It's from October, and we're only getting to it now. Sorry about that. This is pretty much the worst video ever made. But you send us so many emails. You gotta figure some of them are gonna slip through the cracks.

Voices [34:49]

And it's gone.

Mid Caps And Growth Value Basics

Mostly Uncle Frank [34:51]

So you asked about mid-caps in particular. Yeah, I would not use the mid-cap category as a meaningful category in the context of creating a diversified portfolio. In fact, the size factor is not that interesting by itself. It's the growth versus value that is more interesting. And there's nothing wrong with having some mid-cap value funds or stocks in this kind of portfolio. The real question is how many things do you want to hold? Because there's kind of no limit to the number that you could use if you just follow the basic principle of let's have half of them be growth tilted and half of them be value tilted. So I don't have anything against mid-cap stocks in a portfolio like this. I don't think they are particularly necessary.

Voices [35:39]

Necessary? Is it necessary for me to drink my own urine? Probably not. No, but I do it anyway because it's sterile and I like the taste.

Mostly Uncle Frank [35:51]

It's funny, I do actually carry, though, some stocks that would go into the mid-cap value category, and that is the property and casualty insurance companies that we hold that are also represented by the fund KBWP. Which interestingly enough, Justin at Risk Parity Chronicles just wrote a little article about, which I will link to in the show notes, comparing it with other value options. So you can mid-cap as much as you want.

Voices [36:18]

It's all one big crapshoot, anywho.

Why Split Short And Long Treasurys

International Stocks And Currency Effects

Mostly Uncle Frank [36:21]

Next question: Is there any significant difference between splitting a treasury allocation between short and long durations versus simply using an intermediate duration fund other than rebalancing? Well, that is the key reason you would want a split between those two things would be for rebalancing purposes. And you also have to realize that you're holding those two kind of things for different reasons. So the short-term bonds or cash is literally held there to make your portfolio more conservative and have some cash to spend, or if you're using it as the thing you're funding your life with over the course of the year, that's one way of taking withdrawals out of a portfolio like this. The long-term treasury bonds there are there as recession insurance. And so you really want those to move by themselves during a recession. But splitting these two things by duration just because they perform so differently over time, depending on how interest rates are moving, is a good idea because you do want to have things you can rebalance. That's also why we want to have growth stocks and value stocks so those can be rebalanced. If you have things all in one or compress them all into one thing, then you can't rebalance that. Now taken to an extreme, you'd end up with 20 or 30 funds, but we're talking about going from one to two here, which I think is a good solid reason to diversify the portfolio a little more, assuming that the two categories you're talking about will perform differently at different times, as short and long-term treasury bonds will. And then you mentioned that an allocation to international growth/slash momentum and international value does not seem to improve the data in backtesting compared to the golden ratio portfolio. Well, my thoughts on that are it may be because you're data limited, because those kind of funds have not been around that long. And even the international category, once you go back to say 1986, it's hard to really get something before that that is not constructed. There's kind of a problem with international funds in general that they have changed over time, particularly in their relation to the correlation with US stocks, that if you do go back to the 1970s or 1980s, all international funds were way less correlated with the US than they have been post-1990, really post the fall of the Eastern Bloc. And then you consider the role of China and how that has grown. That was not even an investable thing back in the 1980s. These days I would say the world is smaller. And the main difference between US stocks and international stocks is currency related, that about 40% of the difference between the performances has to do with whether the dollar is stronger that year or weaker that year. A weak dollar favors international stocks like it did in 2025, and a strong dollar favors US stocks like it has for most of the past 15 years or so. U.S. stocks also do have this tech tilt towards them that international stocks really don't have because all of the biggest tech companies, or almost all of them, are US companies. So I would say yes, in a lot of years overall, this should not have that big of a difference over time if you're doing an international growth and value and you're doing a domestic growth and value. The only major difference these days is going to be in these currency fluctuations. So adding the international component here won't necessarily change things, but it might. Because that's the other thing. We don't know what's going to perform the best in the future. And looking at the way 2025 turned out, it sure was a nice time to be holding international stocks, particularly if you were holding them in the small cap value category or that international growth momentum category, because both of those funds were up over 40%, whereas the total international cap-weighted funds were only up about 30%. But that just has to do with the choosing the best funds possible for what you're trying to do. And we do have a lot better choices today and in the past 10 years than we certainly did 20 years ago or any time prior to that. Now, as for Halloween, well, we're just gonna have to wait until next year. Anyway, thank you for these questions. I think they're generally interesting to a lot of people. Sorry I didn't catch this email earlier. Dang!

Voices [41:10]

Idiot!

YouTube Talk Plug And Closing CTA

Mostly Uncle Frank [41:12]

Thank you for being a donor to the Father McKenna Center and to Fairfax Casa. And thank you for your email. I should also mention that Bill and I just did a nice little presentation to one of his little catching up to Fi groups, the one that operates in the Chicago area and southeast Wisconsin.

Voices [41:32]

We zip in, we pick him up, we zip right out again. It's like going into Wisconsin.

Mostly Uncle Frank [41:37]

And we did that presentation on Sunday, last Sunday. I did post it to the Risk Parity Radio YouTube channel. So if you wanted to check that out, it's a couple hours of talking about this stuff generally. I also made a fun slide deck with a Blues Brothers theme to it.

Voices [42:22]

They're not gonna catch us. We're on a mission from God.

Mostly Uncle Frank [42:28]

But 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. Then email us frank at riskpartyraer.com. Or you can go to the website www.riskpartyvadio.com, put your message into the contact form, and I'll get it that way. If you haven't been 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 Party Radio.

Mostly Queen Mary [43:03]

Signing off the Risk Party Radio show is hosted by Frank Flask. The content provided is for everyone. Entertainment and informational purposes only, and does not constitute financial, investment, tax, or legal advice. Please consult with your own advisors before taking any actions based on any information you have heard here, making sure to take into account your own personal circumstances.