Welcome And How The Show Works

Voices [0:00]

A foolish consistency is the hobgoblin of little mind, 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.riskparody radio.com. Inconceivable. All thanks to our friend Luke, our volunteer in Quebec. 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.

Voices [1:45]

I'll give you the moon, right? I'll take it.

Mostly Uncle Frank [1:48]

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

Voices [1:53]

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

Mostly Uncle Frank [1:55]

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

Voices [2:05]

Really top drawer.

Mostly Uncle Frank [2:07]

Along with a host named after a hot dog.

Voices [2:10]

Lighten up frenches.

Mostly Uncle Frank [2:14]

Well now onward, episode 508. Today on Risk Party 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 portfolio reviews of the eight sample portfolios you can find at www.riskparty.com on the portfolios page.

Voices [2:33]

It doesn't work for me. I gotta have more cowbells. I gotta have more cowbells.

Mostly Uncle Frank [2:39]

But before we get to that, I wanted to report that we have even more donations to Fairfax Casa still coming in.

Voices [2:47]

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

Mostly Uncle Frank [2:51]

And we'll give you a revised total of that in the next episode on Wednesday. But Queen Mary and I thank you again.

Voices [3:05]

Please. That day she was amazed to discover that when he was saying as you wish, what he meant was, I love you. And even more amazing was the day she realized she truly loved him back.

Retiring Soon With 100% Stocks

Mostly Uncle Frank [3:28]

And now to your favorite part of the program, which is of course your emails.

Voices [3:33]

I can't believe it. I couldn't be more excited, I must say.

Mostly Uncle Frank [3:37]

And so without further ado.

Voices [3:39]

Here I go once again with the email.

Mostly Uncle Frank [3:42]

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

Voices [3:48]

Let's get Mikey. Yeah. He hates everything.

Mostly Uncle Frank [3:52]

And Michael writes.

Mostly Queen Mary [3:55]

Yesterday I was looking at portfolio charts and was looking at safe withdrawal rates and saw the Golden Ratio portfolio had a high safe withdrawal rate.

Voices [4:04]

A number so perfect, perfect. We find it everywhere, everywhere.

Mostly Queen Mary [4:09]

Then today I was listening to you on an episode of Bigger Pockets. I'm going to listen to Risk Parity Radio for a while. I'm 67, an attorney, and I'm 100% invested in equity funds. It keeps me up at night, and I worry that I might not be able to comfortably ride out an extended downturn. I will be retiring sometime in the next one to three years. Gold has been something I would never invest in, but I will try to keep an open mind as I listen to your show and explore your website.

Voices [4:45]

Unlike any schooling you've ever been through before. We use the Socratic method here.

Mostly Uncle Frank [4:54]

Well, thank you for writing in, Michael. And yes, you are correct. It is time for you to get out of 100% equities. At least if you don't plan on dying with the most money and not spending much money on the way there.

Voices [5:07]

Why don't I just give you a lecture? Because through my questions you learn to teach yourselves.

Mostly Uncle Frank [5:15]

Because although it's been a very good run for a very long time, there is always a risk that we could have not only a bad year or two, but a whole bad decade. And you really don't want to risk your retirement on that just to be greedy.

Voices [5:29]

Time is money, boy!

Volatility Drawdowns And Ulcer Index

Mostly Uncle Frank [5:31]

And so I don't think we've ever talked about sleep-at-night numbers per se, but maybe it would be a good idea to look at a few of those to answer your question more explicitly as to what kind of portfolio could you go to that would help you sleep more at night. Once you know what Nyquil can do, nothing else will do. One of the ways to measure how volatile a portfolio is, and therefore how much it's likely to keep you up at night, is to simply look at its long-term volatility. And I've created a little test folio link comparing a total market portfolio like the one you have, that's just SP 500, a 6040 portfolio, a Boglehead 3 fund portfolio, and then a golden ratio portfolio, like we might invest in here. And these are all lined up so you can compare some of these sleep at night numbers. So if you look at the volatility column, you'll see that the portfolio you're in right now, a total market portfolio or total equity portfolio has a volatility of over 18%. So that's a high volatility. If you go to something like a Boglehead three fund portfolio with something like 80% in equities in it, you'll see that volatility goes down to something just over 13% in terms of volatility. The lower the better here. Then if you go to a 6040, which is a classic retirement portfolio, that has a volatility of about 10.5%. But then you can go even further down to a risk parity style portfolio, in this case the sample golden ratio portfolio, and that has a volatility of just under 8%. So loosely you should sleep more than twice as well in terms of not worrying about your portfolio if you have something like a golden ratio portfolio instead of what you have. Yes, I know that's a silly comparison. But the idea is that we are moving to something that is less than half as volatile as what you've got right now, but also has a better return profile than either that 6040 portfolio or that three fund portfolio. And you can see that from the analysis as well. Another measure of sleep at night potential is actually called the ULC Index, how likely your portfolio is to give you an ulcer, and the higher the number, the worse it is. And you can also see that from this analysis that the SP 500 has an ulcer index of about 13.5, the way they measure it. The three fund portfolio has an ulcer index of about 10. Then you get to the 6040 portfolio and that has an ulcer index of about six and a half. But then you get to the golden ratio portfolio and the ulcer index goes all the way down to 3.62. So you might say that you are likely to get four times more ulcers holding what you're holding now than a golden ratio portfolio, at least on the basis of this index. Or four times less sleep on that metric.

Voices [8:25]

That is the straight stuff, oh funk master.

Mostly Uncle Frank [8:28]

Another thing you can look at there is the maximum drawdown of these portfolios. And this goes back to 1987. So the maximum drawdown for the portfolio you're holding now is about 55%. Then it goes to about 30% and 40% for the 60-40 and the three fund portfolio. But then when you go to the golden ratio portfolio, it's less than 20%, at least for this period. And so you should be able to sleep pretty well knowing that your portfolio is only likely to suffer 20% type drawdowns at the max if you move to something like this. That's low enough that even if you had some kind of a guardrail strategy, it's probably never going to be triggered. And then finally, another thing you can look at there is what are called the sharpened sortino ratios. And those are essentially a measure of efficiency of the portfolio in terms of balancing risk versus reward. And the higher the number, the better. The Sortino ratio is actually more important for this kind of scenario where you're drawing money out of it and you're worried about the worst-case scenarios. And so the Sortino ratios of the S P 500 portfolio, the or the total market portfolio, and the 6040 and the three fund are all in the 0.75 to 0.8 something in terms of those metrics. But then you go to something like the golden ratio, and the sortino ratio is 1.17. The best, Jerry, the best. Which is just more efficient. And that is actually why you see that the golden ratio portfolio actually performs better than either the 6040 or the three fund in terms of actual returns, even though it's a whole lot less volatile and a whole lot more likely to let you sleep well at night.

Voices [10:11]

That's what I'm talking about.

Mostly Uncle Frank [10:13]

So check out the link and check out those ratios. But that's basically what we have to offer here. And that is the reason gold is in a portfolio like this. It is not to generate returns or we're speculating on it, it's because it is uncorrelated with both stocks and bonds, and so has a tendency to dampen out these things that cause you not to sleep well at night. And the same thing for an alternative asset like managed futures. But that's why they're there, specifically to help you sleep better at night, but not lose too much in terms of returns. So I'm glad you're here. I realize this email is actually from November, so I hope you're still here. Hopefully that helps. And thank you for your email.

Voices [10:57]

He likes it! He likes it.

A Listener Says Goodbye

Mostly Uncle Frank [11:00]

Second off. Second off, we have an email from Jim.

Voices [11:05]

Hey Jim, baby! I see you brought up reinforcements.

Mostly Uncle Frank [11:09]

And Jim writes.

Mostly Queen Mary [11:11]

Hi, Frank. I'm writing one last time to say goodbye and thank you for your content. I think I've absorbed what is useful, discarded what is not, and added what is uniquely my own. I even put up with the sound bites for 400 plus episodes and learned to like them, even though I almost never catch the references, except the Star Trek ones.

Voices [11:33]

Before they went into warp, I transported the whole kit and caboodle into the air engine room, where there'll be no triple at all.

Mostly Queen Mary [11:39]

That said, I feel the podcast has gradually shifted into more of a platform where your ideas are presented as unquestionably superior to other investors, rather than a space for open discussion and exploration.

Voices [11:52]

Now enters His Holiness, Takamato, the Grand Inquisitor of the Spanish Inquisition.

Mostly Queen Mary [12:05]

On top of that, too much time is now spent repeating calls for donations, which takes away from the substance that originally drew me in.

Voices [12:14]

Why will you do this? Because the needs of the one outweigh the needs of the many. I am my own beginning, my own ending. I see no reason for answers to be couched in riddles. I answer as simply as your level of understanding makes possible.

Mostly Queen Mary [13:01]

Thanks again for everything, and best of luck with whatever comes next, Jim.

Voices [13:06]

Well, I'm waiting for you, Jimmy Boy!

Mostly Uncle Frank [13:10]

Well, thank you for stopping by, Jim, and I'm glad you got something out of the podcast, even though it's not your cup of tea.

Voices [13:17]

This is pretty much the worst video ever made.

Mostly Uncle Frank [13:20]

And I do appreciate you putting up with me for 400 plus episodes. A very sick man. But I don't expect everybody's going to like this format.

Voices [13:29]

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

Mostly Uncle Frank [13:33]

So I would never describe this as a must-listen to program. But it did make me think, well, what kind of people like listening to this podcast? Because it does have some popularity in some quarters. And we have over 3,000 listeners now, and I can tell you that, you know, looking at the reviews, they're either five-star or one-star, but they're more like 80, 85% five-star, so the people who like it really like it. As somebody has said before, it's kind of like the Grateful Dead, which is kind of like black licorice. Either you don't care for it or you really, really, really like it a lot.

Voices [14:06]

How can you explain this culture that has followed you? And they're so dedicated, they just are still. I can't explain it. I can't explain it. I think that's the key to it. You know, there's a certain kind of person, you know, maybe in every generation or whatever. I mean, I don't I really don't quite know how to split it up, but there's a certain kind of person that likes what we do. You know, it's like like there's a certain kind of people who like licorice, you know, or there's certain kind of people who like buttermilk or something, you know. And it might not be something everybody likes, but there are certain kind of people that really do like it.

Mostly Uncle Frank [14:34]

But it did make me kind of think, well, what kind of people like this podcast, and what are they actually getting out of it?

Voices [14:40]

We're mutants. There's something wrong with us, something very, very wrong with us. Something seriously wrong with us.

Mostly Uncle Frank [14:50]

So I actually just recorded as a guest on Jesse Kramer's podcast last week, which will come out, I guess, in the next couple months sometime. But one of the questions he had put to me was, Why are you doing this essentially? Why do we have Risk Parity portfolios and what's the purpose of them? Which kind of led me to be thinking about, yeah, well, what are we doing over here at Risk Parity Radio?

Voices [15:12]

I am not less perfect than Lore. I am not less perfect than Lore. Enough! Both of you, sit down.

Mostly Uncle Frank [15:22]

And I'll summarize very briefly what I said. The first thing I said was really the goal of retirement and what we talked about back in episode 436, which I've also made a little video about, is trying to live our best lives in terms of human well-being. And then the next question is, well, how do you use money to do that? Fortunately, we have the answer to that in Daniel Crosby's book, The Soul of Wealth, and he's just referring to other research. But he's got a chapter in there that basically says, you can improve your well-being if you learn to spend money correctly. And besides the necessities of life, the four things to spend money on are relationships, experiences, particularly those that facilitate relationships or positive flow states, paying other people to do things you don't want to do, so you're essentially buying your time back, and then giving money away, either to formal charities or other people, family members, so on and so forth. So if you want to have more money to spend on those things, you want to arrange your assets to allow you to spend more money on those types of things.

Voices [16:20]

Change the polls from plus to minus, and from minus to plus.

Mostly Uncle Frank [16:26]

And that led me to think about well, what are kind of the ways that people fund their retirements? What are the basic approaches in terms of where the money comes from, how they're handling the money, etc.? And these are not mutually exclusive, but to me they boil down into three categories, what I call the three H's. And they are hustling, hoarding, and harvesting. And usually people tend to focus on one of those more than the other two, depending on their preferences and situation in life. So, broadly speaking, if you look at the fire community and early retirees and people that produce content in that area, a lot of them tend to focus on hustling. There's a lot of hustling going on there. People who didn't like their main job or career have tried to get out of it as soon as possible, but then maybe doing something else, and including a lot of the content creators or creating courses or trying to create podcasts or other media and attract sponsors and stuff like that. And some of them are what you would call serial entrepreneurs. And I think if you looked at the sort of the content that is created in that area, you would say they were over-indexed to that. And you would say, in particular, the people producing content mostly seem to be hustling not only to produce the content but to supplement their retirement money. But that also goes for people whose basic plan is never retire. So it's certainly not limited to people in the fire community. Then the next category is the hoarders, which are people that just overaccumulate and oversave. So it doesn't really matter what they do with their portfolios after that, except for what the terminal value is going to be when they're dead.

Voices [18:27]

Dead is dead.

Mostly Uncle Frank [18:29]

And that includes most people in popular personal finance, all of the gurus in popular personal finance have worked longer than they needed to, oftentimes to age 70, so they could save two or three times as much as they actually needed, and then they can just ride off into the sunset or do whatever they want. And that's how communities like the Boglehead community tend to operate. That they have one hammer, and every problem, whether it's financial or not, looks like a nail, and that one hammer is accumulate more money.

Voices [19:00]

Have a time.

Mostly Uncle Frank [19:01]

And then we have harvesters, and I feel like the people that are interested in this podcast tend to be harvesters. Now, the odd thing about harvesters is most harvesters actually weren't good at accumulating money in the first place, so they're kind of slapping it together, if you will. So I think it's relatively rare to have somebody that is very good at accumulating money over a long period of time turn around and say, I want to be a harvester now, I want to maximize spending.

Voices [19:28]

There's something wrong with us, something very, very wrong with us.

Mostly Uncle Frank [19:33]

So the archetype of this model would be somebody like Chuck Feeney, who is Warren Buffett's hero, and that is the person that accumulated something like $8 billion mid-life and then spent the rest of their life giving it away. And he's the one that inspired the billionaire's pledge to get other people to give their money away, at least some of it. But it's a relatively small number of people who are looking at life like that. I do think we over-index here to that preference.

Voices [20:01]

We few.

Mostly Uncle Frank [20:04]

We happy few. We band of brothers. That we really don't want to hoard. We certainly don't want to hustle. I can tell you, most of the people here, once they're done working, they're done working, and they certainly don't want to have another job.

Voices [20:21]

So you're gonna get another job? I don't think I'd like another job.

Mostly Uncle Frank [20:25]

That's why this podcast is a hobby and not a business. At least not a profitable business.

Voices [20:33]

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

Mostly Uncle Frank [20:36]

But I think whether and how you choose to hustle, hoard, andor harvest to me does go back to these four things we identified as why you would want to harvest more money and spend more money on relationships and experiences and buying your time back and giving money away to improve your well-being, essentially. Because the problem with hustling and hoarding is they can interfere with those goals. In fact, I mean hustling is the exact opposite to buying your time back because essentially you're still trading your time for more money.

Voices [21:10]

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

Mostly Uncle Frank [21:14]

So, in order for that to be satisfying, you would have to get more out of relationships experiences through the hustling than you're giving up in terms of your time and other relationships and experiences, because usually, if you're hustling, you're only gonna have good relationships with other people on your hustle. So if your partner is in on it, that can work really well. If your partner is not in on it, that can lead to divorce.

Voices [21:39]

That's not an improvement.

Mostly Uncle Frank [21:40]

The main problem with hoarding is you are actually prioritizing accumulation over all four of those other things.

Voices [21:48]

Do you understand?

Mostly Uncle Frank [21:51]

So you're not getting as much of that as you could. And in particular, it can be very detrimental to relationships.

Voices [21:58]

Then you're no longer loving. You no longer love me. Well, I understand that. In words, never in a way you have changed. But how am I changed towards you? By changing towards the world. Another idol has replaced me in your heart. A golden idol. It's singular. The world who can be so brutally cruel to the poor professes to condemn the pursuit of wealth in the same breath. You fear the world too much. With reason. But I I I am not changed towards you. Aren't you?

Mostly Uncle Frank [22:31]

The Uber family wealth advisor Jim Grubman writes about this and about sort of families mishandling money and mishandling inheritances and things like that. And those sorts of things do cause a lot of strife in families. Once it is known somebody is hoarding money and they're not really doing things with it, you end up building up all kinds of different resentments and then conflicts amongst the people inheriting the money and all sorts of other problems. You also may be wasting time on stuff you don't want to do and that you could pay somebody else to do. And missing out on being able to do things while you still physically can, because one of the other big problems is people just wait too long to do whatever it was they plan to do, whether it's travel or something else. And sometimes their partner's dead by then or can't travel or they can't travel. So hoarding is actually a very risky strategy in terms of being able to maximize well-being if you are putting things off that you wanted to do and you're going to regret not being able to do because you were too busy hoarding instead of offdoing those things. So to me, harvesting is the most effective way to live life in terms of maximizing well-being and avoiding the five regrets of the dying. And the whole purpose of what we're doing here in terms of portfolios and asset arrangement or allocations is to facilitate more harvesting. So that's the how that goes with the why of harvesting. But your mileage may vary, and I can't speak for anyone else's preferences. I do think that, based on the emails I've received here, there is a preference for harvesting, and that is actually why people are here. I mean, besides the snarky David Spade-like humor and digs at people. There's always that.

Voices [24:21]

I got a fan letter here from Indiana, and I'd like to read it to you. It says, Dear David, why are you such an idiot? Every time I see you on TV, I want to punch you in the face. Sincerely, Danny Minton, PMS. Why don't you never do Hollywood Minute anymore? Well, Danny, such a sweet kid. I get a lot of letters like this. I tell you what, for you, since you sound so cool, we will do one. So here we go. Hollywood Minute, 1995, Yearman Review. It's the new Hammer. Hammer felt he needed to toughen up his image. You know it's sad when you have a name like Hammer, and people still think you're too soft. Now get back in the puffy pants and walk away.

Mostly Uncle Frank [25:05]

But anyway, that's a short explanation for why we do what we do around here. And I appreciate it's not everybody's cup of tea, but you know, Dunbar's number is only 150. Dunbar's number is the maximum number of people you could actually have a meaningful relationship. It's determined to be one 150. Since we have over 3,000 listeners, we're well in excess of that. And I'd be happy to continue this even with many fewer people than we already have, and don't see any reason to necessarily grow it. I'd be happy if it did grow. I'm not worried if it doesn't. Because again, it's a hobby. We're not trying to attract lots of sponsors or anything like that.

Voices [25:44]

I got this inkling. I got this idea for a business model. I just want to run it past you. Here's how it would work. You get a bunch of people around the world who are doing highly skilled work, but they're willing to do it for free and volunteer their time 20, sometimes 30 hours a week. Oh, but I'm not done. And then what they create, they give it away rather than sell it. It's gonna be huge.

Mostly Uncle Frank [26:12]

So hopefully that helps somebody think about something. Best of luck to you, also, and whatever comes next for you. And thank you for your email.

Voices [26:26]

The woman who shot Selena was the president of her fan club. This kind of thing makes you stop and think. Why can't Michael Bolton's fan club show some initiative? Michael Bolton? That's me. Wow, is that your real name? Yeah. You know, there's nothing wrong with that name. There was nothing wrong with it until I was about 12 years old, and that no talent clown became famous and started winning Grammys. Why don't you just uh go by Mike instead of Michael? No way. Why should I change? He's the one who sucks. Last off.

Mostly Uncle Frank [27:14]

Last off? I have an email from Optimus Bill.

Voices [27:18]

Oh, I didn't know you were doing one. Oh, sure. I think I've improved on your methods a bit too.

Mostly Uncle Frank [27:25]

This one is actually from last November. And Optimist Bill Wrights.

Mostly Queen Mary [27:29]

Have you discussed the development of these bond letter ETFs on the show? Should be a sexy new way for traditional financial advisors to prove their models are correct and make things simpler to implement. Bill.

Voices [27:43]

A B C A Always B B C closing. Always B closing. Always be closing.

Mostly Uncle Frank [27:54]

Well, Bill, the amount of ink spilled on creative ways to make more bond ladders or buckets of bonds or flower pots full of bonds and cash are just endless. They just they never end. I will link to this in the show notes.

Voices [28:11]

It's like you're unraveling a big cable knit sweater that someone keeps knitting and knitting and knitting and knitting and knitting and knitting and knitting.

Mostly Uncle Frank [28:25]

But it does lead us to be thinking about, well, why does all this stuff exist and why do people spend so much time on it? Because if you look at the entire world, including institutions, as to who buys most of the bonds in the world, and it's things like insurance companies and banks, which make a whole lot of sense because they have a whole lot of short, intermediate, and long-term liabilities that they need to match up, and they have all kinds of regulatory requirements and other requirements that would make it make the most sense for them to invest in a lot of fixed income. But bonds overall are just a sub-optimal asset class. They do not generate particularly good long-term returns. They have this problem of throwing off income that is generally taxable. If you look at the long-term profile bonds, the returns are generally around the 4% range, at least for high quality ones. That compares to something like 10% for the stock market, and then in between that you have things like managed futures and gold that are about at the 7 or 8% mark. So there is a question as to why people use them at all. I mean individuals in retirement. And I've had long discussions about this on various podcasts, including this one. I think if you go back to episodes 14 and 16 about bonds, there's basically three things you can do with bonds in a portfolio, or three things they do. One is diversification, the second one is income, and the third one is stability. Now, we only use bonds really in our portfolios for the purpose of diversification, and therefore we try to limit them and focus on the ones that are the most diversified from our main asset, which is stocks. So that leads us to just using treasury bonds and generally intermediate and long-term treasury bonds, so we don't have to hold so many of them, and we have room for other things in the portfolio that are likely to perform better. But most of what you see out there in retail advisor land is using a lot of bonds for the purpose of stability, short-term bonds and cash and things like that, I'm including cash here, and for income, which again is a very suboptimal use of space in your portfolio, because bonds just don't generate very good total returns, and often the income they generate is taxable at the highest rates. So there is kind of a corollary here that the more bonds you have in your portfolio, the more likely it is to be some kind of inefficient thing that's going to have relatively low long-term returns.

Voices [30:57]

There's $250,000 lining the walls of the banana stand.

Mostly Uncle Frank [31:02]

And I think the real reason that advisors use them, besides familiarity, because for the longest time they were the only thing you could really use to diversify against stocks without having to go out and buy things that weren't sold on exchanges. But the real reason they are used is psychology and marketing.

Voices [31:22]

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

Mostly Uncle Frank [31:29]

Because particularly with somebody that's oversaved anyway, you can afford to be inefficient. And if you can afford to be inefficient, then you can come up with any number of kind of time-segmented type strategies where you've arranged these bonds and cash and buckets and things like that. Because something like that is very easy to present to clients, and it is especially useful for your more neurotic clients, frankly. Talking about neuroticism on the scale as used in the big five personality test. So it is a technical term. And this is also how a lot of buffered and structured products are sold.

Voices [32:07]

A guy don't walk on the lot lest he wants to buy.

Mostly Uncle Frank [32:10]

Not because they're particularly good or efficient, but because they're easy to market. And what they do solve is not a risk problem, but a fear problem, which is the cognitive bias that people have, that they tend to equate possibilities with probabilities and then overweight the wrong thing or miscalculate risk, if you will. So a lot of people tend to be fixated on whether the stock market is going to crash next year or in the next couple years when that's not the real risk. If you knew the stock market was going to crash in the next five years, but just go down and come back up again like it has for the past five years, you would never have any real problem at all with any kind of portfolio. What you're really worried about is a bad decade. But that's not very easy to explain to most people, because the answer to that is not to hold lots of cash and lots of bonds. The answer to that is to hold a more diversified portfolio. And that's not obvious from just looking at it, like a time-segmented ladder bucket and flower pot plan is. And if you know your client is oversaved, which they probably have to be if they're going to pay your AUM fees.

Voices [33:20]

I drink it up every day. I drink it up.

Mostly Uncle Frank [33:24]

It makes sense to use these kinds of strategies involving bond ladders and things like that. They're easier to market. Psychologically, they go down easier. And a great proportion of the clients are what we call level two people. They don't really understand investing anyway. So they're more attracted to shiny objects, magic buttons, or opinions from people that seem like they're authorities on TV or wherever. And a lot of them do fall into that hoarder category where they're not going to spend it anyway. This, you know, classic 80-year-old woman with four million dollars living on social security and not much else, but insists on having most of her assets in CDs to be safe.

Voices [34:07]

Are you stupid or something?

Mostly Uncle Frank [34:10]

Or the more sophisticated version of that where you construct some 30-year tips ladder. It's more sophisticated, but it's the same idea. You have so much money because you're using a hoarding strategy that you can do whatever you want that suits your own personality and preferences and makes you feel as good as you want to feel about the money, or not spending the money. So to me, most of this is not about finance, really. It's about the personal, or the personalities, or the marketing, or the fear, or some combination thereof. And therefore, it makes a useful tool for people to use for those purposes.

Voices [34:52]

Am I right or am I right or am I right? Right, right, right.

Mostly Uncle Frank [34:56]

And finally, I should mention, I don't want to belabor this, but there is no difference between putting bonds in a ladder and putting them in a fund. They don't perform appreciably differently. And I know people swear on that and think that. This drives people like Ben Felix or Irrational Reminder crazy. That and people who insist on dividend paying things and income paying things. That's also an irrational belief system going on there. But there's a good article by Ben Carlson that I will link to in the show notes that just goes through why ladders and funds are not appreciably different. They just feel different because you're not marking to market the individual bonds like you would be with a fund looking at it every day on the exchange. But again, it's all psychology there and really not much finance.

Voices [35:45]

As you all know, first prize is a Cadillac El Dorado. Anybody want to see second prize? Second prize, a set of steak knives. Third prize is your fire.

Mostly Uncle Frank [36:00]

So, no, nobody actually needs bond ladder ETFs in addition to regular bond ladders. There's some limited circumstances, of course, they're useful in. But they are nice, shiny objects that can be presented and sold to level two investors by retail financial advisors and promoted through the media. So they fit very well in that ecosystem.

Voices [36:28]

Watch out for that first step, it's in doozy.

Mostly Uncle Frank [36:32]

Meanwhile, we will just be over here with some more efficient assets harvesting away. Not sure when that'll be. But hopefully you enjoyed that. And it was at least illuminating on some level. And thank you for your email.

Voices [37:12]

Let's talk about something important. Put that coffee down. Coffee's for closes only.

Weekly Sample Portfolio Results

Mostly Uncle Frank [37:24]

And the not really so important thing we get to talk about now is our weekly portfolio reviews of the eight sample portfolios you can find at www.riskperry.com on the portfolios page. It looks like happy days are here again for all kinds of asset classes. Just looking at the markets now for the year so far. The SP 500, represented by the fund VOO, is up 8.47% for the year so far. The NASDAQ 100 has leaped out of its doldrums. Representative fund QQQ is now up 15.92% for the year so far. I think it's these chip manufacturers. Small cap value is still doing quite well.

Voices [38:07]

I'll be honest, fellas, it was sounding great, but I could have used a little more cowbell.

Mostly Uncle Frank [38:13]

Representative fund VIOV is up 14.5% for the year so far. And actually things like AVUV are up a few more percent than that.

Voices [38:22]

I gotta have more cowbell. I gotta have more cowbell.

Mostly Uncle Frank [38:26]

Gold continues to shine. Representative fund GLDM is up 9.51% for the year so far.

Voices [38:33]

I love gold.

Mostly Uncle Frank [38:36]

Long-term treasury bonds are pretty flat. Representative fund VGLT is up 0.10% for the year so far. Rates represented by the fund REET are up 10.4% for the year so far. Commodities continue to be the big winner and leader. Representative fund PDBC is up 36.38% for the year so far. Preferred shares represented by the fund PFFV are up 3.01% for the year so far. And managed futures are managing to do just fine. Representative fund DBMF is up 9.8% for the year so far. And when you see everything going up like this altogether, it usually means there's a weaker dollar.

Voices [39:18]

It's an entirely different kind of flying. Altogether. It's an entirely different kind of flying.

Mostly Uncle Frank [39:24]

And that the Fed is expanding its balance sheet. Which both are true right now.

Voices [39:32]

There's enough cash in the financial system, and there is an infinite amount of cash at the Federal Reserve. An infinite amount of cash at the Federal Reserve. An infinite amount of No, you can't just print more money. I save the economy.

Mostly Uncle Frank [39:53]

Haha. Money printer go boom. But it's funny all the interpretations you get listening to financial media.

Voices [40:08]

Real wrath of God type stuff.

Mostly Uncle Frank [40:11]

Because some people are saying, oh, it's just like 1999 and we're about to have a crash. And other people are saying, no, it's just like 2021 and we're about to have inflation. I did go over and check our Risk Purity Radio Crystal Ball just to see what it said.

Voices [40:26]

My name's Sonia. I'm going to be showing you the crystal ball and how to use it or how I use it.

Mostly Uncle Frank [40:34]

But of course, it gave the same answer, it always does.

Voices [40:38]

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

Mostly Uncle Frank [40:45]

Anyway, moving to these portfolios. First one's the all-seasons, keep this one around as 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 gold and commodities. It's up 1.09% for the month of May. It's up 6.09% year to date, and up 30.78% since inception in July 2020. Moving to these bread and butter kind of portfolios. First one's Gold and Butterfly. This one is 40% in stocks divided into a total stock market fund and a small cap value fund. 40% in treasury bonds divided into long and short, and the remaining 20% in gold, GLDM. It is up 1.29% for the month of May. It's up 6.93% year to date and up 70.6% 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 long-term treasury bonds, 16% in gold, 10% in managed futures, and the remaining 6% in cash and a money market fund. It's up 1.72% for the month of May. It's up 7.43% year to date, and up 65.87% since inception in July 2020. Next one's the Risk Parity Ultimate. Not going to go through all 12 of these funds. This is our kitchen sink portfolio. It's up 1.73% for the month of May. It's up 7.31% year to date, and up 49.95% since inception in July 2020. Now moving to these experimental portfolios. These all involve leveraged funds and are very volatile, so don't try this at home.

Voices [42:39]

You have a gambling problem.

Mostly Uncle Frank [42:42]

First one's the accelerated permanent portfolio. This one is 27.5% in TMF, that's a levered bond fund. 25% in UPRO, a leverage stock fund. 25% in PFFV, a preferred shares fund, and 22.5% in gold in GLDM. It is up 3.32% for the month of May. It's up 7.72% year-to-date and up 32.96% since inception in July 2020. Next one's the aggressive 5050. This is the least diversified and most volatile and levered of these portfolios and worst performer by far. It is one-third in leverage stock fund UPRO, one-third in levered bond fund TMF, and the remaining third in ballast in PFF fee, a preferred shares fund, and VGIT and Intermediate Treasury Bond Fund. It's up 3.62% for the month of May. It's up 6.09% year to date, and up 4.28% since inception in July 2020. Next one's a levered golden ratio. This one's a year younger than the first six. It's 35% in NTSX, that is a composite S P 500 and Treasury Bond Fund, and a 60 40 ratio levered up 1.5 to 1%. So it's kind of like a 90 60 portfolio by. Itself. It's got 15% in AVDV, that is an international small cap value fund, 20% in GLDM, gold, 10% in KMLM, that is a managed futures fund, 10% in TMF, a levered Treasury Bond Fund, and the remaining 10% in UDOW and UTSL, which are levered funds that follow the Dow and Utilities Index. It's up a measly 1.09% for the month of May, but it's up 8.83% year-to-date and up 30.46% since inception in July 2021. And now moving to the last one, the OPTRA portfolio. This is a return-stacked portfolio. One portfolio to rule them all. And it is indeed ruling them all. It's only been around for less than two years. So this one is 16% in UPRO, that's the levered SP 500 fund. 24% in AVGV, which is a worldwide value tilted fund. 24% in GOVZ, a Treasury's Trips Fund, and the remaining 36% in a Managed Futures Fund and a Gold Fund. It's up 2.7% for the month of May. It's up 11.53% year to date so far, and up 43.91% since inception in July 2024. So still moving along at a blistering pace there.

Voices [45:27]

You can't handle the gambling problem.

Email Us Subscribe And Reviews

Mostly Uncle Frank [45:31]

So I hope you found that segment as scintillating as I did. But you can find all of this information in written form at the website on the portfolios page at www.riskperdyradio.com. But now I see your signal is beginning to fade. If you have comments or questions for me, please send them to Frank at RiskPardyRader.com. Email is Frank at RiskPardyRader.com. Or you can go to the website, www.riskpartyradio.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 Party Radio signing off.

Mostly Queen Mary [47:35]

The content provided is for entertainment and informational purposes only, and does not constitute financial investment, tax, or legal advice. Please consult with your own advisors before taking any actions based on any information you have heard here, making sure to take into account your own personal circumstances.