Opening Quotes And Show Welcome

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 one, three, five, seven, and nine. 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.riskparty radio.com. Inconceivable. All thanks to our friend Luke, who is our volunteer in Quebec. Zach. 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 move, right? We have no sponsors, we have no guests, and we have no expansion plans.

Voices [1:53]

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

Mostly Uncle Frank [1:55]

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

Voices [2:03]

Top drawer. Really top drawer.

Mostly Uncle Frank [2:07]

Along with a host named after a hot dog.

Voices [2:10]

Light in the French.

Mostly Uncle Frank [2:13]

But now onward, episode 511.

Voices [2:25]

I could have told you that.

Mostly Uncle Frank [2:27]

And so without further ado.

Voices [2:29]

Here I go once again with the email. And first off.

Mostly Uncle Frank [2:35]

First off, we have an email from Luke. Luke from Quebec.

Voices [2:40]

I have to share with you some of Quebec's wonderful culture. And Luke from Quebec writes.

Mostly Queen Mary [2:50]

Hi Mary and Frank. I hope you are doing well. First off, let me thank you for answering my question in episode 499. As always, the information you provided is very helpful. I have another question, and it is more on topic this time, but before we get to that, I wanted to give you a quick update on my portfolio.

Voices [3:13]

But in Quebec, we like to use it as something like an exclamation point, an emphasis, and we insert it everywhere. La la, Fecla, you're pasprend lala, ok là? Lala, écoute-moi là, ok là? Mais là, mais là, mais oui.

Mostly Queen Mary [3:27]

In episode 421, I had mentioned that I was transitioning to a risk parody style portfolio.

Voices [3:33]

Lola, écoute-moi.

Mostly Queen Mary [3:35]

At the time, I was asking for your advice on my projected allocations. It took a while for me to make a decision and spring into action, but I'm happy to report that I finally made the move.

Voices [3:55]

Yes!

Mostly Queen Mary [3:56]

The final result is the following crazy contraption: 10% HXT.to, 15% AVUV, 15% AVDV, 5% UPRO, 2% TQQQ, 18% GLDM, 15% GOVZ, 20% DBMF.

Voices [4:22]

The invention, my dear friends, is 93% perspiration, 6% electricity, 4% evaporation, and 2% butterscotch ripple. That's 105%. Any good?

Mostly Queen Mary [4:39]

I named the portfolio Sacoche in honor of the soundbite you included in the intro of the podcast.

Voices [4:46]

Sacoche. What does that mean? It comes from sur la coche in French, which means on the check mark. Okay? In other words, right on the mark. Bullseye. Awesome, c'est Sacoche. Quel Sacoche? No, no, pas Sakoche. Sacoche, La Sacoche, SC, c'est cool, là, c'est ça, ça veut dire.

Mostly Queen Mary [5:05]

Because Testfolio doesn't include data for Canadian ETFs, I ended up using my own system to perform a back test and historical analysis. I'm attaching a couple of screenshots of the metrics. I was only able to go back to 1995 with the assets of the portfolio. I also performed an analysis going back to 1968 by substituting unavailable assets with other suitable alternatives. I don't have a specific question regarding the portfolio, but your comments and insights would be most welcome. Second off, I was hoping you could provide advice on a relative's finances. Let's call her Sonia.

Voices [5:46]

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

Mostly Queen Mary [5:52]

She's in her mid-70s in good health and currently lives off the Canadian equivalent of Social Security plus a small pension. For various reasons, she's now selling her house and moving into a retirement home. Once that's done, she'll be left with a decent nest egg, mostly in taxable accounts. While she was in her house, her income covered all expenses. But with the additional expense of the retirement home, she will need to withdraw approximately 2% of her investments each year to bridge the gap. The catch is that she is extremely risk averse. CDs are an option, of course, but the tax burden and low returns make them an unattractive choice. What would be an appropriate portfolio for someone who's in the later stages of life and has a low appetite for risk?

Voices [6:38]

Hello, Mrs. Farnickle, how are you today? Making a deposit, are we? Great, we can just put that into your retirement account and make it go to work for you and it's gone.

Mostly Queen Mary [6:48]

What? Is there a way to get fair returns and minimize taxes while keeping volatility and drawdowns in check? She needs to use Canadian ETFs, so she's a bit more limited than if she used US ETFs. She doesn't have access to managed futures nor strips treasury ETFs. Most other asset categories are available, including US and international small cap value, international large cap value, US total stock market, SP 500 or NASDAQ, gold, short-term intermediate and long-term US Treasuries. Any help and advice you can provide will be greatly appreciated. Thanks in advance. All the best to Mary and you, Luke.

Voices [7:30]

So I don't know about you guys, but the more I look at it, the more I feel like Quebicois French is becoming its own dialect. If not already, maybe even its own language. Who knows a hundred years from now what Quebicois French will sound like?

Mostly Uncle Frank [7:45]

Well, first off, Luke, thank you for being a donor to the Father McKenna Center. As most of you know here, we do not have any sponsors on this podcast. We do have a charity we support. It's called the Father McKenna Center, and it supports hungry and homeless people in Washington, D.C. Yes, we're talking about my charity for once, not Mary's for once.

Voices [8:07]

Mary Mary, why you bugging?

Mostly Uncle Frank [8:16]

Anyway, if you donate to the charity, either Fairfax Casa for Mary or the Father McKenna Center for me, you get to go to the front of the email line, which Luke has done here. And you can most easily do that at the support page at www.riskparodyradio.com. But I'll put a link in the show notes as well. But thank you also for being one of our top supporters of the show. Luke is in fact the top man of the Risk Parity Radio podcast.

Voices [8:45]

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

Mostly Uncle Frank [8:53]

Top men. And he is responsible for reformatting our entire website and making it all searchable and nice and importing all of our transcripts from the older show.

Voices [9:06]

The best, Jerry. The best.

Mostly Uncle Frank [9:09]

He's done a tremendous amount of work for this podcast that we appreciate. And it's all been in the context of our business model here.

Voices [9:18]

What's going on? Why are people doing this? Why are they, why are these people, many of whom are technically sophisticated, highly skilled people who have jobs? Okay? They have jobs. They're working at jobs for pay, doing challenging, doing sophisticated technological work. And yet, during their limited discretionary time, they do equally, if not more, technically sophisticated work, not for their employer, but for someone else for free. And then what they create, they give it away rather than sell it. It's gonna be huge.

Backtesting Tools And Leverage Cautions

Mostly Uncle Frank [9:52]

Because if it's free, it's for me. But now let's take a look at your email. Yeah, I do think this construction you've come up with is interesting, and I've seen other listeners come up with similar constructions here. And what these are, they tend to be portfolios that are approximately half stocks or somewhere between, say, 45% stocks and 60% stocks, but they also add some leverage to them and then try to balance out on the non-stock side, usually treasury strips, gold, and managed futures. And these kinds of portfolios do backtest really well. And the stocks usually have some kind of levered component in them, oftentimes using something like UPro or TQQQ, which you've used. And I should say, just so people know what HXT.to is, that is the largest Canadian stocks. So I've been playing around with these things as well. And what I've been doing is taking the data from test folio, because it goes back so far, and you have things like simulated strips, and I even found a simulated UPRO, you can ask your favorite chatbot for those. What I've also done is simulated KBWP, which is property and casualty insurance companies, and manage futures. So if you sign up for Tyler's toolkit at the portfolio charts website, you can make your own tickers there and then use all of his tools to analyze things and save it all there. It'll cost you about five dollars a month. I think it's probably worth it if you're really interested in this kind of stuff. But if you are, what I would do is take what you've got here, sign up for his thing, create simulated tickers for the rest of these things that aren't there already, and then start running variations of this in portfolio charts, because then you can compare it to all sorts of other portfolios, and it gives you projected safe withdrawal rates and things like that. And the projected safe withdrawal rates for these kind of things end up being in the high sixes and low sevens.

Voices [11:50]

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

Mostly Uncle Frank [11:55]

I created one recently I called the Superman portfolio just for fun. That is 13.75% UPRO, 27.5% AVUV, and 13.75% AVDV. So it's 55% in stocks divided into one quarter UPRO, one quarter international small cap value, and 50% domestic or US small cap value. And then on the non-stock side, I have 14% in G O V Z or Z R O Z Treasury strips, 14% in managed futures, and 17% in gold. I don't know how seriously to take any of this stuff, but for me, these are experiments that we can run in Roth accounts, so we're not putting too much money on these things. But these are also similar to that OPTRA portfolio that's in the sample portfolios.

Voices [13:30]

No one can stop me.

Mostly Uncle Frank [13:33]

And I really think this is a going to be an interesting area to explore because it's combining all of the best ideas from having levered ETFs now, like they talk about at Optimized Portfolio, then also using the better small cap value funds from places like Avantis or DFA, and then also using these newer ETFs that cover all these alternative assets. So I'll see if I can put a couple links in the show notes on that. But it would be interesting to me if you did get all of this stuff over to portfolio charts and start running the calculators there, because then you can compare it to a whole bunch of other things. So that's my thought on that.

Voices [14:14]

I'll show them. I'll show them all.

Mostly Uncle Frank [14:17]

Just be careful about these leveraged thingamabobs.

Voices [14:21]

You can't handle the gambling problem.

Low-Risk Retirement Plan With Annuities

Mostly Uncle Frank [14:24]

Now moving over to Sonia.

Voices [14:27]

A really big one here, which is huge.

Mostly Uncle Frank [14:32]

This is actually a very common scenario where you have somebody that's downsizing, has some resources, is actually not spending that much money in retirement and has reached at least age 70s. And usually the best solution here is actually a single premium immediate annuity. And the reason that is is because the payout ratios for somebody that is around age 75 is about 10%. So if she needs 2% of her investments to cover her living expenses, when you add in the pension and Canadian equivalent of Social Security, all you really need to do then is take about 20% or one-fifth of those assets, go by the single premium immediate annuity, and that will cover that whole 2%. And it will also help her sleep very well since essentially all of her expenses on a regular basis are covered by things paying income that are just as safe or better than CDs or other things like that. This is especially useful if she is in good health and is expected to live a long time because annuities are priced based on your actuarial death date. So if you're likely to survive longer than that, you're actually making money essentially or getting a good deal when you buy one of those. Then that also leaves 80% of the nest egg there to be invested in something else. And what you can convince her to invest in, I'm not sure.

Voices [16:00]

What? Sorry, yeah, that's gone. Please step aside for people who actually have money with the bank. Next, please.

Mostly Uncle Frank [16:05]

For somebody like that, something like the Vanguard Wellesley Fund, which I don't know is if is that's available in Canada, but that is like a 35-65 kind of portfolio that she could sleep well with. A Wellington version of that or a simple 60-40 portfolio might be just as good. I would hesitate to suggest anything like what we do here with risk parity style portfolios simply because it has too many moving parts, and for somebody like that, you actually do want to just have one annuity and one fund if that's going to help them psychologically deal with this. So if you were going to help her with it, yeah, she could invest in something that looks like a golden butterfly kind of portfolio, in addition to the annuity.

Voices [16:50]

That is the straight stuff, oh funk master.

Mostly Uncle Frank [16:54]

You want something with a very low ulcer index for somebody like this. But this is also why it's really important to focus on your expenses in retirement and how they break down. In particular, what are your going to be your mandatory expenses that you might cover with things like pensions or annuities and things like that, or cover them in part with things like that? And then what are your truly discretionary expenses? People are sometimes surprised that I would advocate for using annuities, but this is a specific circumstance where it makes a lot of sense. Typically it does not make a lot of sense because you're talking about people that are much younger and who can't get the higher payouts because they're too young for that, or they're investing in some kind of variable nonsense or index nonsense that is just sucking out fees and is trying to be a substitute for a portfolio.

Mostly Queen Mary [17:45]

This whole thing is nonsense.

Mostly Uncle Frank [17:48]

Or something with other complications like life insurance attached to it, which is generally unnecessary for most people. So I don't know exactly what you have in Canada.

Voices [17:57]

A lot of arrows, eh? Elsinore Castle, Elsinore Brewery, Brooke Institute for the Mendelean State. Hey, that's Looney Vinny! Yeah, it sure looks spooky up there. I don't like the look of this at all. Where should we go, Looney Vin or Brewery? I'm taking you to the Looney Vin. I'm going to the Bruin. No way, go to the Brewery. Alright. But then I'm taking you to the Looney Vin.

Mostly Uncle Frank [18:20]

But I'm sure you have something equivalent to single premium immediate annuities. In the U.S., I would go to the immediateannuities.com website and price them there. I have not attempted to see whether there's a Canadian version of that. But I wouldn't be surprised if the rates and payouts are essentially the same because it's all based on basic actuarial tables. But I think she's likely to be very grateful if you can find her a solution like that that says, look, you're going to have all of your money, and you're going to have this other money to cover all of your main expenses. And then the only other things you need to worry about are optional expenses and giving money away, so on and so forth. Back bacon and long underwear. Like they're different profits, right? So hopefully that helps. Thank you for everything you do for this podcast. Including the work on the website and these very interesting emails you send us on occasion. And your French-Canadian sense of humor, of course.

Voices [19:24]

And you can even roll the R to make it that much richer. Chris de Tabernacle, Chris.

Mostly Uncle Frank [19:32]

And thank you for your email. Sakosh.

Voices [19:37]

Second off.

Mostly Uncle Frank [19:39]

Second off, I have an email from Deep. Drummers. Drummers and the Deep. And Deep Rights.

Mostly Queen Mary [19:51]

Hello, Uncle Frank and Aunt Mary. This time I have a question about asset location. We are fortunate enough to save enough into our 403B, 457, HSA, Backdoor Roth, and Taxable Brokerage. We are still in the accumulation phase and currently run a 5050 LCB slash SCV. At this time, we have our 50% allocation in a fund that tracks the SP 500 in our tax-advantaged account. The rest of the 50% is in a taxable brokerage in AVUV. Recently, our employer updated the funds and now we have access to VSCIX. Now the question is how we would go about our asset location. Should we just stick with what we were doing, LCB and Tax Advantaged and AVUV and Taxable? Or VSCIX and Tax Advantaged and LCG and Taxable? Or, better yet, 5050 LCB slash VSCIX in both tax advantaged and taxable? Would AVUV with its active management give any advantage that is worth having in Taxable? Or am I trying to overoptimize because I have nothing better to do in life?

Voices [21:13]

You're not going to amount to jack squats! You're gonna end up eating a steady diet of government cheese and living in a van down by the river.

Mostly Uncle Frank [21:26]

Well, there's actually a short answer to this, and it's probably not the one you're expecting. The fund VSCIX is not a small cap value fund.

Mostly Queen Mary [21:35]

That's not an improvement.

Mostly Uncle Frank [21:38]

Rather, it's just a small cap blend fund that includes both growth and value. And for that reason, I just wouldn't use it at all.

Voices [21:45]

Do you think I got where I am today because I dress like Peter Pan here?

Mostly Uncle Frank [21:50]

If there actually is a small cap value fund in your 401k, maybe you could consider that. It would be something like V S I A X or something similar.

Voices [22:00]

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

Mostly Uncle Frank [22:06]

After that, yes, I think you are over optimizing because it doesn't really matter that much where these things go. The small cap value fund will pay a little bit more in dividends, so if you want to keep the income out of that in the taxable account, that might be a consideration. It's not really significant enough to be meaningful. For convenience purposes, later on, it might be useful to have some of each in both places. But that can easily be remedied at some point in the future. Am I right or am I right? Or am I right? Am I right? So I would just stick with what you're doing, mostly because VSCIX is not a substitute for AVUV or any other small cap value fund.

Voices [22:51]

Forget about it!

Mostly Uncle Frank [22:53]

So hopefully that helps. And thank you for your email.

Voices [23:01]

Last off.

Mostly Uncle Frank [23:03]

Last off an email from Paul. And Paul writes.

Mostly Queen Mary [23:16]

Uncle Frank, I loved those two video summaries you linked in episode 465. Have you thought about doing this with all the recommended intro core podcasts? Or all of them? Thanks for all that you and Mary do. Warm regards, Paul in Alberta, Canada. So are you gonna get another job?

Voices [23:37]

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

AI Summaries With NotebookLM

Mostly Uncle Frank [23:40]

Well, Paul, yes, I've been having a lot of fun with Google Notebook LM, which allows you to put anything you want into a container at Google and then make a bunch of slideshows and videos and other things using artificial intelligence, and it does get better every month, believe it or not. So the ones you're referring to, I did make some time ago, back in I think November or October, and those were with the version that was available at the time. I made videos of episode 436, which is one of the most popular, and episode 441. Our friend Luke in Quebec has also made a few, and we've attached them to various episodes as bonus material. You'll find that on the website every once in a while.

Voices [24:24]

Excellent!

Mostly Uncle Frank [24:26]

But last month I used the updated cinematic version to make another video of episode 436 that turned out really well. Because I told it to make the video in the style of Vincent Van Gogh.

Voices [24:39]

Well, have you heard about the painter Vincent van Gogh? Who loved Colorado, Bladdy Shaw, and in the museum? What have we here? The most soulful painter since Yan Vamir.

Mostly Uncle Frank [24:54]

And I put that up on YouTube with the other episodes, and we'll link to that in the show notes so you can check that out. But yes, I do anticipate making more things with that, but I don't have any schedule and I don't plan on making some kind of regimented set with them. It's not that I'm lazy, it's that I just don't care. But you actually can make them yourself if you'd like, and the way you would do that is go to Notebook LM, then go over to YouTube, pull the podcast off of there, put it in Notebook LM, and then you can instruct it to make various versions of that. Because I've also done this with other people's podcasts and things that I wanted to summarize when I thought they were particularly good. One of the recent ones I did with that is there was a nice podcast done by Andy Pankow with another advisor from his firm where they went through a kind of a list of best practices for advisors, including why you want to be using a total return approach and withdrawal mechanism and not a bucket strategy for various reasons, and how to tax optimize and some other things. So I made some videos and slideshows off of that, including one starring Admiral Akbar, and then one based on I drink your milkshake with Daniel Plainview.

Voices [26:13]

I drink your milkshake. I drink it up every day.

Mostly Uncle Frank [26:18]

I drink it up, I drink it up and I'll put those in the show notes as well for your entertainment. Those are just slideshows, but there also is a summary of that podcast and a video I made. And he told me that there's actually a fake version of him on YouTube now that he's trying to get taken down where they've used his likeness and call it some guy named David Harrison or something like that. So some of this stuff is getting out of hand, but I feel like as long as you're actually crediting where it came from, that's fair use and you're not profiting from it. But I do think using something like Notebook LM is going to be a skill that most people should acquire because it allows you to really take a big pile of material and sift through it very quickly. Whether it's videos or academic papers or SEC filings or whatever else you'd want it to be summarizing. Because the advantage it has is it's only summarizing whatever you put in there. It does not run out and find other stuff about the topic unless you specifically instruct it to do that. So there will be more things in the future. I can't promise you exactly what they will be and when they will appear. It's more done on a whim than anything else. As with a lot of things around here.

Voices [27:36]

Looks like you've been missing a lot of work lately.

Mostly Uncle Frank [27:38]

I wouldn't say I've been missing it, Bob. Good one. But I'm glad you enjoyed them. Hopefully they helped you appreciate the podcast even more. At least without sound bites. And thank you for your email.

Voices [27:55]

I don't find this stuff amusing anymore.

Mostly Uncle Frank [27:59]

But now I see our signal is beginning to fade. If you have comments or questions for me, please send them to Frank at RiskPartyRader.com, and email us frank at riskpartyrader.com. Or you can go to the website www.riskpartyrador.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.