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

Welcome And Where To Start

Voices [0:18]

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 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.riskparty radio.com. Inconceivable. And all thanks to our friend Luke, our volunteer in Quebec. Sacosh. 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.

Voices [1:44]

I'll give you the moon, alright? 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 audienced focused, and I must say we do have the finest podcast audience available.

Voices [2:04]

Really top drawer.

Mostly Uncle Frank [2:07]

Along with a host named after a hot dog.

Voices [2:10]

Lighten up Francis.

Mostly Uncle Frank [2:13]

But now onward, episode 512. Today on Risk Party Radio, it's time for our weekly portfolio reviews of the eight sample portfolios you can find at www.riskparty.com on the portfolios page. But before we get to that, first we have a little announcement.

DC Service Day Announcement

Voices [2:35]

Excellent!

Mostly Uncle Frank [2:36]

This one is about a charitable event being held in the DC area on June 14th. And it's not my charitable event for once. Or Mary's. This is from Ryan at the Phi Service Corps. Now the Phi Service Corps is a group run by Ryan who go to various cities and do various charitable works, usually for a weekend or a week or a short period of time. And he schedules them and he has a website and you can sign up for them there. I will link to all that in the show notes. But they are having a service day at the DC Central Kitchen, where they'll be serving some meals that morning. They tried to get us at the Father McKenna Center, but we're not open on Saturdays and Sundays. At least not most of the time.

Voices [3:24]

Sunday, Sunday, Sunday!

Mostly Uncle Frank [3:26]

So they're gonna have their event, do a little service project, and then I believe they're going to go to a nationals game, that's Major League Baseball, in the afternoon on June 14th.

Voices [3:40]

Get your hot dogs!

Mostly Uncle Frank [3:42]

So, since we are always happy to support other charitable ventures here, we thought we'd make this announcement.

Voices [3:49]

You on the motorcycle! You two girls! Tell your friend!

Mostly Uncle Frank [3:56]

And if you're interested, you can check out the link in the show notes.

Voices [4:00]

We'll sell you the whole seat, but you'll only need the end. Be there.

Mostly Uncle Frank [4:06]

But now, next off.

Voices [4:08]

I'm intrigued by this. How you say emails.

Mostly Uncle Frank [4:13]

And first off.

Listener Worries About Going All Stocks

Mostly Uncle Frank [4:16]

First off of an email from TJ.

Voices [4:20]

You think something went wrong? I'm beginning to think so. TJ should have called in ten minutes ago.

Mostly Uncle Frank [4:25]

And TJ writes.

Mostly Queen Mary [4:27]

Hello, Frank and Mary. Thank you both so much for responding to my last email. Though I must say that the last answer I was expecting to get from a risk parity radio was for me to consider going all in on stocks. To clarify my original email, my initial investments in individual growth stocks actually almost completely avoided investing in the magnificent seven stocks. So I don't think my admittedly lucky picks based on novice level research and dart throwing intuition were solely due to following the growth herd. Lucky? In fact, one of the main reasons I started investing in individual stocks was to avoid the incredibly high concentration in Mag 7 stocks that many US ETFs have. I don't like putting the majority of my eggs in one or even seven baskets. My growth portfolio has also noticeably outperformed growth funds like VUG and SCHG over the same limited time period for whatever that is worth. Although I am not at all adverse to shifting the majority of my funds to ETFs as you suggested, and I had already started doing. But all that aside, it seems incredibly risky to put all of my precious few eggs in the stock basket. I have read that when stock valuations are this high, stocks tend to perform poorly over the following decade. Many economic folks whose opinions I have read or heard in podcasts seem to be claiming that this time will be different due to AI. But even if AI can create massive profits from its potential efficiency increases without creating massive negative economic consequences from the millions of human jobs it would likely then replace, only some of the companies involved will be AI winners. This will likely lead to many more AI losers. In a period with so much potential for profound change and economic uncertainty, it seems very risky for me to go all in on stocks on the assumption I will not suffer a significant sequence of return impact in the tiny window that I have to make most of my annual contributions lead to the most likely positive returns. The more my investments can earn, the more comfortable my modest retirement will be. But it seems to me that a significant or extended drawdown could be far more catastrophic than the slightly increased discomfort caused by missing out on potential, but far from guaranteed maximum upside returns. I will definitely be looking into the catching up to five podcast you recommended. But does it really not make sense for a risk-adverse investor like myself who needs decent returns, but really can't afford any significant losses to apply some risk parity tools to my portfolio? It seems those tools would provide some useful insurance to help smooth out the sequence of return risks. They might even match or exceed the performance of stocks if we end up in a less than ideal 10-year stock growth window. To my obviously inexperienced investor mind, it seems that the cost of insurance is worth a small to even modest reduction to the maximum possible upside. Is this really not the case? Thank you, TJ.

Voices [7:47]

TJ, what happened? Where were you? Were you able to jump on the hood? Oh yeah. Wait a pum, wait a pum. TJ, what is your rate of travel? I hope you're on a decent hood this time, TJ.

Savings Rate Matters More Than Picks

Mostly Uncle Frank [8:10]

Well, first off, TJ, thank you for being a donor to the Father McKenna Center. As most of you know here, we don't have any sponsors on this program. We do have a charity we support. A couple of charities, but the one we're talking about now is the Father McKenna Center. It supports hungry and homeless people in Washington, D.C. And full disclosure, I am the board of the charity and I'm the current treasurer. If you give to the charity, you get to go to the front of the email line. And I should have moved TJ to the front of the line. This is from last December. I did move your first email to the front of the line, but you didn't mention your donation to the second one, and therefore it's been languishing there since December.

Voices [8:49]

Are you stupid or something?

Mostly Uncle Frank [8:51]

So do please mention that in your email because I don't always catch those. I'm not a smart man. But if you'd like to do that, I'll put a link to that in the show notes. And you can also do it through our support page at www.riskperdiot.com. But now getting to your email. This is referring back to your first email in episode 470.

Voices [9:14]

A long time ago in a galaxy far, far away.

Mostly Uncle Frank [9:20]

And first let's talk about where you are. From that email, I gathered that you were late catching up to Fi, which is why I'd recommended checking out the Catching Up to Fi podcast and materials for you. But that also you were essentially starting from zero and trying to become financially independent in about 10 years, or at least get close. And I think you're under the impression that if you're behind, what you need to do is find better investments and that's how you're going to make it there, that's not the case at all.

Voices [9:49]

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

Mostly Uncle Frank [9:53]

There are no magic investing buttons you get to push when you get behind.

Voices [9:58]

Forget about it.

Mostly Uncle Frank [9:59]

Really, what makes a difference is your savings rate, frankly. So if you want to go from zero saved to financially independent in 10 years, it usually requires about a 50% savings rate after taxes. And what you invest in is not going to matter that much at all for the first few years because you just don't have a big enough pile or pool for it to matter that much. So trying to pick investments when you don't have much invested is not actually a very useful task. You really need to focus on the savings first and then the investing. And that's how this works. Just something basic.

Voices [10:55]

That is the straight stuff, oh funk master.

Mostly Uncle Frank [10:58]

I realize you've had some luck in picking individual stocks.

Voices [11:03]

Oh, there it is. Winner winner, beginning dinner.

Mostly Uncle Frank [11:09]

That doesn't make it a good decision or a good process. That is called resulting when you say, Oh, I had a good result here, therefore it must have been a good process. No, picking those stocks was never a good process. You just got lucky. Anybody can get lucky. You've got to ask yourself a question: do I feel lucky? In your case, I could imagine in recent times, if you look at, say, tech stocks, if you invested in software, you probably lost a lot of money recently. However, if you invested in chip manufacturers, you made gobs and gobs of money recently.

Voices [11:45]

You're thinking that he fire six shots or only five. Now, to tell you the truth, I forgot myself and all this excitement.

Mostly Uncle Frank [11:54]

Now, I don't know anybody a year ago who was making these predictions. At least they don't talk to me, and I don't hear them on common programs.

Voices [12:03]

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 [12:10]

That the software stocks were gonna basically dump by up to 80%, and these chip stocks like Micron and Western Digital were gonna go up eight or tenfold. But whether you are on one side of that or the other, that was just luck. And that's just an example because I don't know what you actually invested in, you didn't tell us.

Voices [12:35]

You've got to ask yourself one question. Do I feel like it? Well, do you bunk?

Mostly Uncle Frank [12:42]

So that was never a good process. And yes, I realize what you're trying to do is pick these magic investments and hope they grow real fast so you can get to financial independence really fast. But chances are it's not going to work out that way. If you really want to guarantee your success, you do need to be using index funds like the ones we talked about. But that is also a good example of why we would call someone like you a level two investor. We talked about this, the four levels of investors back in episodes 459 and 491, if you want to go review those. But essentially, level two investors do not have a lot of experience in investing. They know they should, they want to. What they get fixated on are a couple of things. First, get fixated on what's in the financial media. They're easy to sell products to because they believe that there are magic button investments out there and shiny object investments out there that's going to make their money go faster.

Voices [13:48]

Now the crystal ball has been used since ancient times. It's used for scrying, healing, and meditation.

Mostly Uncle Frank [13:57]

And that is the belief that's not true.

Voices [14:00]

Forget about it!

Mostly Uncle Frank [14:02]

If you think you have found something like that, you haven't found it.

Voices [14:07]

At times you may feel that you have found the correct answer. I assure you that this is a total delusion on your part.

Mostly Uncle Frank [14:15]

What you've found is something that you got lucky with. And as I say, anybody can get lucky. Even if you pick up a brown object, it could have a great performance in the next period.

Voices [14:28]

This is the one that I tend to use more often. I have a calcite ball and I have a black obsidian one here.

Mostly Uncle Frank [14:38]

The other common characteristic of level two investors is they focus on opinions. They're constantly running around trying to find expert opinions about what's going to happen next, looking for experts with crystal balls.

Voices [14:52]

A really big one here, which is huge.

Mostly Uncle Frank [14:56]

Who are hopefully going to tell them something about the future that they can then act on.

Voices [15:01]

Now the crystal ball has been used since ancient times. It's used for scrying, healing, and meditation.

Mostly Uncle Frank [15:10]

And what that usually results in is someone jumping from popular argument, meme, opinion one to another, and generally underperforming indexes over time. Because one way to underperform indexes is to continually jump to the most popular opinion or thing at the time.

Voices [15:28]

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

Mostly Uncle Frank [15:32]

And

Why CAPE Forecasts Keep Failing

Mostly Uncle Frank [15:33]

that goes particularly to this sentence you wrote. I have read that when stock valuations are high, stocks tend to perform poorly over the following decade. Okay, that is a popular opinion that you can use cape ratios to make predictions about the future of the stock market.

Voices [15:51]

Now you can also use the bull to connect to the spirit world.

Mostly Uncle Frank [15:55]

It became very popular after the great financial crisis. And so everybody was trying to do this, and everybody thought this was the latest, greatest thing, because if you looked backwards in time, it would have worked. The problem with looking backwards in time is that risk does not exist in the past. Risk only exists in the future. And so anything you think is a great crystal ball, like a cape ratio, needs to be working prospectively. And so you need to go back and say, okay, it was predicted on this date at this time, and then this happened after that. And what we know about this methodology and these kind of opinions is that they have not worked. They haven't worked since the great financial crisis and since they became popular.

Voices [16:42]

Many men have tried.

Mostly Uncle Frank [16:45]

They tried and failed.

Voices [16:47]

They tried and died.

Mostly Uncle Frank [16:50]

And so first this goes to your process. Your level two process is to simply take people's opinions and go, oh, they're important. They must be right. Because Vanguard's one of these people that makes these erroneous predictions, and we'll talk about that in a second. What you should do, and what somebody at a level three or a level four would do, would be to say, okay, that's a crystal ball. Has this crystal ball worked in the past? Can I go on to my chatbot and do some investigating and find out whether somebody made predictions using this crystal ball sometime in the past and they actually came true in the future? Not looking backwards, but looking forwards. And if you were to do that, as I just did in preparation for this podcast, I went to Gemini at chatbot and put in queries about predictions using the Cape Ratio from famous predictors like Vanguard. And what did we learn from that? What is the truth about this method?

Voices [17:48]

You can't handle the truth!

Mostly Uncle Frank [17:50]

Well, let me read you just what Gemini told me an hour ago. Vanguard's proprietary Vanguard Capital Markets model, VCMM, has systematically and notoriously underpredicted U.S. large cap and growth equity returns. Throughout the 2010s and early 2020s, the model routinely issued 10-year annualized outlooks calling for mediocre nominal returns in the 3% to 6% range. In reality, the SP 500 blew past these expectations, returning roughly 11% to 14% plus annualized. The model wasn't malfunctioning, rather, the structural design and statistical assumptions ran headfirst into an unprecedented macroeconomic regime shift.

Voices [18:41]

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

Mostly Uncle Frank [18:45]

In other words, the model was wrong.

Voices [18:48]

Wrong!

Mostly Uncle Frank [18:49]

And not only was it wrong, wrong, you could have done a whole lot better just by using historical averages. And that is the real test. If the crystal ball is not significantly better than historical averages, you should not be using it. And once it fails, you should stop using it. Because the definition of insanity is doing the same thing over and over again, like Vanguard and all these Cape Ratio junkies.

Voices [19:19]

Bing!

Mostly Uncle Frank [19:20]

And expecting a different result. Bing again! If you are ever correct in the future, it's because you're lucky, not because you found a crystal ball that works. Get over it.

Voices [19:33]

No more flying, Solo.

Mostly Uncle Frank [19:35]

Alright, what is the first reason given for why the Vanguard model failed? There's actually four, I'm not gonna read through all of them, but the first one is the one we're talking about: the mean reversion trap or valuation bias. And it says the theoretical core of Vanguard's equity model is a valuation awareness. It calculates the cyclically adjusted price to earnings cape ratio and runs regression models, assuming that asset prices will eventually revert towards their long-term historical fair value mean over a 10-year horizon. Isn't that the opinion you heard about, that you read about, that you just accepted without doing any research? That is level two behavior. You don't accept opinions just because somebody says they're an expert, especially about predictions. You gotta do more than that.

Voices [20:28]

You need somebody watching your back at all times.

Mostly Uncle Frank [20:32]

Moving on. If valuations are stretched today, the model automatically drags down failure return projections to account for expected multiple contractions. However, from 2010 onward, the US stock market completely defied historical mean reversion. Meaning the mean reversion crystal ball did not work. It cracked, it broke, it died. Moving on. Valuations didn't contract, they expanded from the high teens to above 30 and sustained those elevated levels for over a decade. So none of this, oh, it hasn't had time. It's gonna work someday. No. The prediction was it was supposed to work within a decade, it didn't work, the opposite happened. The model failed, the crystal ball cracked, it broke, it's terrible. Nobody should be using it, including you.

Voices [21:35]

Do you think anybody wants a roundhouse kicked to the face while I'm wearing these bad boys? Forget about it.

Mostly Uncle Frank [21:48]

Its midpoint projections remained permanently pessimistic. Failure on a grand scale.

Voices [21:56]

Everyone in this room is now dumber for having. Listen to it. I award you no points, and may God have mercy on your soul.

Mostly Uncle Frank [22:07]

Now, only the most obtusely stubborn people are still claiming that they can predict the future using CAPE ratios. And there are lots of them, and they keep trying to redo the ratio and all sorts of other things like that. The most knowledgeable people have just really abandoned that as a method of predicting things. So people like Oswat the Motoran, who's a professor at NYU and like the god of all things valuation, uses a different methodology entirely now. And when he did his most recent calculations, which are in his blog, basically said that things actually look pretty normal as far as valuations are concerned. If you use a better methodology, at least that's what he said at the beginning of the year. Other people like Michael Batnick, Ed Rittholt's Wealth Management, have written extensively on this. I'll link to something that we talked about in episode 461, an article he wrote about the basic reasons Cape Crystal balls don't work. But you can check those out. If you'd like additional information, or you can just use your favorite chat bot, you'll find all this stuff as well. So if that's what your theory or grounding or assumptions are about why you think stocks are going to go down in the future, that is a useless theory.

Voices [23:23]

That is the worst idea I've ever heard in my life, Tom.

Mostly Uncle Frank [23:26]

Yes. Yes, it's horrible, this idea. You might as well just be using historical averages because you're going to be less wrong if you use historical averages. And by historical average, I mean the stock market goes up about seven out of ten years, and on average, it goes up between ten and eleven percent in nominal terms. That's the prediction you should just make every single year and then stop trying to predict after that. Dump your nonsense. Now the rest of what you wrote about AI bubbles and such is no better. It's no better. But if you want to solve this problem without having to consult crystal balls and make predictions, there's a very easy way to solve for it.

Use Diversification Instead Of Predictions

Mostly Uncle Frank [24:11]

It's called diversification. And it actually does work. The last time it worked was in 2022. What kind of diversification am I talking about? I'm talking about diversifying between growth and value. Growth and value. So you make half of your stocks in the growth side, maybe a large cap value fund, and then half of them in a value tilt, like a small cap value fund, like AVUV or something like that. If you do that, guess what?

Voices [24:39]

Guess what?

Mostly Uncle Frank [24:40]

The cape ratio of your portfolio, your personal portfolio, is gonna be lower. It's not gonna be overinflated. And if you run into a period like 2022, those value stocks are gonna be flat, they might even be up. They're not gonna be down 20-30% like the growth stocks will be. Same thing happened in the early 2000s, same thing happened in the late 1970s. That's how you solve this problem. You don't get out crystal balls, put capes around them, do a little dance, and hope that they do something for you.

Voices [25:14]

The gods have chosen to Shibalva.

Mostly Uncle Frank [25:25]

So if that's what you are actually worried about, the solution is combine your growth stocks with a small cap value allocation, and you're done. But you have to take that risk in your circumstance because you haven't saved enough. You need to take more risk. That's why you need to hold more stocks until you've actually accumulated a nest egg that then is worth diversifying into these other assets and creating something that looks more like a risk parity style portfolio. But you got to get at least halfway there. And you cannot expect high returns without taking risk. So if you are willing to spend more time working, then you could go straight to a risk parity style portfolio. I will link to an article in the show notes about how that would work using the Golden Ratio portfolio. I would not hold any cash in that. I would substitute the 6% in cash, I'd put international stocks in there. You could do a combination of IDMO, which is a growth momentum fund, and AVDV, which is a small cap value fund for that allocation. So, yes, you could do something like that. Or we had another listener who was doing something like a 70% stock portfolio and then 30% in other assets. You can divide that into treasury bonds, gold, and managed futures. But the truth is you are more likely to get there sooner if you have 100% stocks.

Voices [27:08]

You are correct, sir. Yes.

Mostly Uncle Frank [27:11]

So I would start with that, get to at least a third of what you need, maybe half of what you need, and then you can start adding other assets and taking risk off the table. Because it is that savings rate that is ultimately going to matter, not which investments you pick, at least for the first half of your financial independence journey. But the good news is if you can save enough money and just get it into index funds and other funds like we've talked about, you will make this. You can do this. So my friend Bill at Catching Up to Phi is exactly what he did. So did Jackie at Catching Up to Phi. So of other people over there, I would check out episode 100 of that podcast because that gives a kind of good background and talks about stories of people who are similar to where you are and how they did it. There's more than one way to skin this cat as far as the investments are concerned, but there is only one way as far as the savings rate is concerned, and it just needs to be high. That's the reality and the lesson you need to take with you. So, hopefully that helps. Thank you for being a donor to the Father McKenna Center. Sorry I didn't get to your email again earlier. But thank you for that email.

Voices [28:32]

Second off.

Building A Growth Portfolio From Real Estate

Mostly Uncle Frank [28:33]

Second off? I have an email from Jose.

Mostly Queen Mary [28:37]

No way.

Mostly Uncle Frank [28:38]

And Jose writes.

Mostly Queen Mary [28:40]

Hi, Frank. I have been looking for someone to explain portfolio construction like you for a very long time. I was wondering if you have any resources for constructing growth-oriented portfolio. For context, my wife and I are high earners, about a million dollars, have low fixed cost, under $13,000 a month, and are looking to build a portfolio that can help us compound for a while. We are 35 years old. We have built a pretty sizable real estate asset portfolio of single-family home rentals, approximately 60% of our portfolio, and want to bring that down to more like 20% while investing in the market. Our portfolio is currently a combination of VTI, VSUX, and gold managed by Wealthfront. How should we think about allocation and how to adjust our portfolio to align closer to a growth portfolio with uncorrelated assets considering our circumstances? I have started to look into trend ETFs, factor investing, manage futures, but honestly don't know where to go from here. Thank you, Jose.

Voices [29:56]

What else could I do?

Mostly Uncle Frank [30:08]

Alright, Jose. Well, the good news is you're in good shape. You're making a lot of money. You shouldn't have any trouble doing this. You're starting a lot earlier than our last emailer. But the first thing you need to do is get rid of Wealthfront.

Voices [30:22]

And it's gone. Poof.

Mostly Uncle Frank [30:25]

Wealthfront's a robo thingy. They're charging you money essentially for doing nothing or doing something counterproductive. No, any of that nonsense about tax loss harvesting or whatever else are babbling about these days over there. Wealthfront sucks. Don't use Wealthfront. Don't use Wealthfront. Don't use other robo thingies. Don't use target date funds. Stop looking for magic buttons and shiny objects.

Voices [30:51]

Fact drunk and stupid is no way to go through life, sir.

Mostly Uncle Frank [30:54]

Wealthfront does not have magic buttons. That is the problem. That is a level two thought process. I need to go to some robo thingy or advisor thingy that it's gonna have these magic buttons behind it. It's gonna tax loss harvest my way to fame and fortune. No, it's not.

Voices [31:12]

Are you stupid or something?

Mostly Uncle Frank [31:14]

Get your money out of there. Put it at a nice regular brokerage, like a Fidelity, a Schwab, a Vanguard, an interactive brokerage if you're feeling adventurous, but get it out of there and get it somewhere where you just buy some ETFs. Now, you are in an interesting position in that you've got all this money in real estate, so you really do want to focus hard on building out an equity allocation since it doesn't sound like you have much of one compared to the real estate. And that is just going whole hog on some basic stock funds. So if you want to perform better than VTI, don't hold VTI by itself. A better choice would be a large cap growth fund and a small cap value fund. On the large cap growth fund, you could go VUG, you could go SCHG, that's a Schwab version of a large cap growth fund, you can go IWY. Or you could actually stick with the VTI if it's going to cause you tax problems to sell it. On the small cap value fund, AVUV is probably your best choice. It's at the top of Merriman's list. I'll link to that in again in the show notes. They put a new one out, best in class funds. So use those two instead of VTI. If you're going to go international, do not use VXUS for many reasons we've talked about. It's not actually that well diversified. It holds a lot of large cap value kind of things in it, so it doesn't grow as much. What you want to use there again is something on the large cap growth side and something on the small cap value side. A good fund and one I use is IDMO. It's labeled as a momentum fund. It's really a growth fund for the most part. You can use that as the large cap growth side. On the small cap value side, AVDV is a very good fund. And the combination of those two funds is gonna blow the socks off VXUS. I'll give you a couple of test folio links comparing the US side and the international side separately, since the US side there's just much more data for that. But the difference is obvious.

Voices [33:17]

Inside, you can feel the difference. Feel the difference, difference, difference. You can see then feel the difference.

Mostly Uncle Frank [33:26]

And having two funds instead of one in both those circumstances is not only going to improve your returns, it's gonna reduce your overall risk. So it's a win-win. And no, that's not a prediction. It's an observation using historical probabilities and base rates, because that's how you're supposed to do forecasting. The rest of these things, you don't need them right now, especially in your circumstance where you're young, you can take a lot of risk, and you have not already made significant investments in equities. I would save those for later.

Voices [34:00]

Well, uh, how are we supposed to know when that is? You won't.

Mostly Uncle Frank [34:05]

I'll let you know. And that's also the thing. The truth is the most important decision you make here is putting all your money in equity index funds. It's less important whether you did it at Wealthfront or not. It's less important if you bought the funds I was talking about or the funds you already have. Because the macroallocation principle says the most important thing is the macro allocation. So if it's 100% equities and 0% other things, that's probably going to do better than most other things. I would not buy any more gold. Not right now. You don't really need that. That is really a diversifier. I know it's performed really well in the past couple years, but typically you do not expect that to outperform stocks and you keep it in your portfolio as a diversifier. Now, if you've already bought some and you don't want to sell it because it'll cause you a tax problem, I would just keep what you have and not buy any more. But if you have it in an IRA, I'd probably sell it and buy stocks instead, at least where you are right now. And then you can do that for a few years, and while you're doing that, you can learn more about all these other assets. You don't need to learn everything at once here, and you don't need to learn everything before you start investing. Because the accumulation side of this equation is frankly very easy. Just get some low-cost funds, put money into them, keep putting money into them, watch them grow, look back at them in a decade, and then figure out what to do from there. If you buy the kinds of funds that I'm talking about and already have a growth and value split, that will help you later on, particularly in taxable accounts. But if these things are in IRAs and you can just switch them at any time, it matters even less. If you want to listen to a podcast that I made for new investors, since we don't talk about the accumulation phase as much here, even though we are today, go back and listen to episode 208, which is a Wizard of Oz themed program for beginning investors. And hopefully you'll enjoy that and get something out of it.

Voices [36:02]

You ungrateful creatures, think yourselves lucky that I'm giving you audience tomorrow instead of 20 years from now. Pay no attention to that man behind the curtain.

Mostly Uncle Frank [36:24]

But hopefully at least some of what I said helps. And thank you for your email.

The RPR Anonymous Listener Roll Call

Mostly Uncle Frank [36:47]

Last of Last of Uh, we have an email from Optimus Bill.

Voices [36:54]

Oh, I don't know, you were doing one.

Mostly Queen Mary [36:56]

Oh, sure. I think I've improved on your methods a bit too.

Mostly Uncle Frank [37:01]

And Optimus Bill writes.

Mostly Queen Mary [37:03]

Team Vasquez, and a quick follow-up to my last email. I forgot to tell you that I am curious if possible to know or find out how many crazy people like me have listened to all Risk Parity Radio episodes.

Voices [37:18]

Very sick man.

Mostly Queen Mary [37:20]

Maybe all of us who have done so could email you to attest to our addiction so that we may be saved and join an RPR Anonymous Recovery program. Optimus Mr. Bill.

Mostly Uncle Frank [37:39]

Well now, Optimus Bill is in fact my good friend Bill from Catching Up to Phi. I am Optimus Bill who tends to pepper us with emails when he's not serving patients in the emergency room where he works.

Voices [37:54]

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

Mostly Uncle Frank [38:00]

This is actually just the postscript to an email that I haven't read yet. But I had this idea, I had this inkling when I read this. And I thought it might be fun for us to do.

Voices [38:12]

I got this inkling. I got this idea for a business model. I just want to run it past you. What do you mean, funny? Funny how? How am I funny?

Mostly Uncle Frank [38:23]

So here's how it would work. Bill wants to know how many crazy people like him have listened to all of the episodes. What I think we should do is respond to him directly. So Bill has his own podcast with his own email, Bill at Catching Up to Fi. And I invite you all, all of you who have listened to all 500 odd Risk Parity Radio podcasts, to send an email to Bill and tell him about your experience. Or at least tell him that you are one of them.

Voices [38:55]

Yes!

Mostly Uncle Frank [38:56]

And then we can have Bill count them up for us. Because guess what?

Voices [39:01]

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

Mostly Uncle Frank [39:03]

And then perhaps you can form the Catching Up to Fi RPR Anonymous Recovery Program. But I'll link to that in the show notes. Well, let's start the insanity. Giddy up. And so in the meantime, thank you for being a good friend, Optimus Bill. Thank you for being a donor to both Fairfax Casa and the Father Bekana Center. And thank you for playing.

Voices [39:41]

And now for something completely different.

Market Snapshot Across Asset Classes

Mostly Uncle Frank [39:44]

And the something completely different is our weekly portfolio reviews of the eight sample portfolios you can find at www.riskpartyware.com on the portfolios page. Just looking at where the markets are this year. The SP 500, represented by VOO, is now up 9.67% for the year so far. The NASDAQ 100, represented by QQQ, is leading the way at 16.95% for the year so far. Well, not quite leading the way, but very close. Small cap value, represented by the fund VIOV, is up 14.17% for the year so far. Gold has leveled off.

Voices [40:26]

I think you've made your point, Goldfinger. Thank you for the demonstration.

Mostly Uncle Frank [40:29]

Representative fund GLDM is only up 4.5% for the year so far. Long-term treasury bonds represented by the fund VGLT are down 1.52% for the year so far. Rates represented by the fund REET are up 10.44%. Commodities are the big winner.

Voices [40:48]

I'm an oil man.

Mostly Uncle Frank [40:50]

Representative fund PDBC is up 37.36% for the year so far. It's all about oil.

Voices [40:57]

Oil!

Mostly Uncle Frank [41:01]

Preferred shares represented by the fund PFFV are up 2.73% for the year so far. And managed futures are managing to be up. Representative fund DBMF is now up 11.23% for the year so far. It's an interesting asset class right now because it is now long oil, short gold, and short treasury bonds. In addition to being long most stocks, but it's kind of a chameleon as trends change. That's why it's so diversified from everything else.

Returns For Core Sample Portfolios

Mostly Uncle Frank [41:45]

First one's this reference portfolio, the all seasons. It is only 30% in stocks and a total stock market fund, 55% in intermediate and long-term treasury bonds, and the remaining 15% in golden commodities. It's up 0.36 for the month of May. It's up 5.32% year to date and up 29.84% since inception in July 2020. Moving to these more bread and butter kind of portfolios. First one's golden butterfly. This one's 40% in stocks, divided into a total stock market fund and a small cap value fund, 40% in treasury bonds divided into long and short, and the remaining 20% in gold. It is up 0.08 for the month of May. It's up 5.65% year to date, and up 68.56% since inception in July 2020. Next one's the golden ratio.

Voices [42:36]

A number so perfect.

Mostly Uncle Frank [42:39]

Perfect. This one is 42% in stocks divided into a small cap value fund and a large cap growth fund, 26% in long-term treasury bonds, 16% in gold, 10% in managed futures, and 6% in cash in a money market fund. It's up 0.67% for the month of May, it's up 6.32% year to date, and up 64.16% since inception in July 2020. Next one's the Risk Parity Ultimate, our kitchen sink portfolio. I'm not going to go through all 12 of these funds. It's up 0.88% for the month of May. It's up 6.40% year to date, and up 48.69% since inception in July 2020. Now moving to these experimental portfolios.

Leveraged Portfolios And OPTRA Update

Mostly Uncle Frank [43:35]

These all involve leverage funds. So don't try this at home, even though I know some of you do.

Voices [43:42]

You can't handle the gambling problem.

Mostly Uncle Frank [43:45]

First one's the accelerated permanent portfolio. It is 27.5% in TMF, that's a levered bond fund. 25% in UPRO, that's a levered S P 500 fund, 25% in PFFV, and 22.5% in gold. The M. It's up 1.71% for the month of May. It's up 6.04% year to date, and up 30.88% since inception in July 2020. Next one's the Aggressive 5050. This is the most levered and least diversified of these portfolios and the worst performer by far. It's one-third in a Levered Stock Fund UPRO, one-third in a levered bond fund TMF, the remaining third in ballast in a preferred shares fund and an intermediate treasury bond fund. It's up 2.88% for the month of May. It's up 5.34% year to date, and up 3.54% since inception in July 2020. Next one's the Levered Golden Ratio. It's a year younger than the first six. It is 35% in NTSX, that is a composite fund of S P 500 and Treasury bonds levered up 1.5 to 1. 15% in AVDV, it's an international small cap value fund. 20% in gold, GLDM, 10% in managed futures, KMLM, 10% in TMF, that's a levered bond fund, and remaining 10%, and UDOW and UTSL, which are levered down utilities funds. It's up 0.2% for the month of May. It's up 7.88% year to date, and up 29.31% since inception in July 2020. And the last one is our newest one, the OPTRA portfolio, one portfolio to rule them all. This is a return stack style portfolio. It's 16% in UPRO, that is a levered SP 500 fund. 24% in AVGV, that's a worldwide value tilted fund, 24% in GOVZ, a Treasury Strips fund, and the remaining 36% divided into gold and a managed futures fund. It's up 2.25% for the month of May. It's up 11.04% year to date, and up 43.28% since inception in July 2024. So it is indeed ruling them all.

How To Reach Us And Wrap Up

Mostly Uncle Frank [46:21]

And now I see our signal is beginning to fade. If you have comments or questions for me, please send them to Frank at RiskPardyRear.com.com. Or you can go to the website www.riskpartyreader.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.

Voices [46:57]

I had seven thoughts at the start. I said to myself, come to your heart. For the longest time.

Final Disclaimer

Mostly Queen Mary [48:12]

The Risk Parody Radio Show is hosted by Frank Vasquez. 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.