Mostly 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 Mary [0:19]

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 episode 63 of Risk Parity Radio. Today on Risk Parity Radio, it is time for our weekly portfolio review of the six sample portfolios that you can find at www.riskparityradio.com on the portfolios page. But before we get to that, we need to take a look at the mailbag and then address the large crowd that appears to have gathered on my lawn in the past day and a half. I'll explain that momentarily. But first, going to the mailbag, we have a message from Craig. And Craig writes, hi Frank, I would be really interested to read the SEC filings on the international and emerging market flavors of NTSX. If you still have Brandy's link and could share, thanks so much for covering this. I find the use of futures in NTSX to be more appealing than the 2x or 3x funds due to leverage decay, and I would like to learn more. Okay, so this refers back to our episodes. I think they're 59 and 61, but I haven't looked that up. But anyway, we had two episodes about the ETF, NTSX that a couple listeners had inquired upon, and one of our listeners had also provided me a couple of links to new funds that are going to be similar to the to NTSX. And so I will put those links in the show notes so you can have a look at that. And thank you, Craig, for bringing that to my attention. And now to the crowd on the lawn. What I mean by that is it appears that in the past day I've gone from slightly over 7,000 downloads to well over 8,000 downloads, and I can only attribute that to two things in the past. day or in the past week, Brad and Jonathan at Choose FI mentioned this podcast on their very popular and very useful Choose FI podcast. And then my friend Diana Merriam also mentioned me on Optimal Finance Daily. And so welcome if you came from those directions. I will explain a little bit what this podcast is about. for the new listeners. But before I get to that, I wanted to mention Diana Merriam's economy conference. She's putting together this conference for people interested in financial independence and it is going to be in Cincinnati in November. And when I think of Cincinnati, oh, I think of the memories. I'm living on the air in Cincinnati. Wait a second. Those are somebody else's memories. I actually don't have any memories of Cincinnati or not many. I have a cousin that lives nearby in Covington, though, and it's a nice place. I've been there a couple of times. And I think I will be doing a little breakout session for the old people. We'll be having it at four o'clock in the afternoon to catch the early birds. Special, and I'm just kidding there, but it should be a lot of fun. It's one of the things I'm looking forward to in retirement is to participating in more of those sorts of things. And if you want to look that up, she's got a lot of stuff out there. Economy is spelled E-C-O-N-O-M-E with the M-E at the end. So if you're looking for it, you'll find it there. And I think there's some kind of special going on right now if you're interested. And no, I'm not compensated or have any affiliation with it other than Diane is just a friend of mine. Now, to address the people on the lawn who just arrived and wondering what they're doing here in my field of dreams. What this podcast is about, it's a very specialized podcast and it's designed to deal with the issue of what do you do once you've accumulated all of the assets that you think you need to accumulate to be retired or to be financially independent or just to want to have a safe portfolio that you can draw down on going forward. And so what we are about here is Talking about those kinds of portfolios, the idea of risk parity, which is not my idea, it's been kicking around for almost 30 years now, is the central focus of this in terms of having a process to decide how to put together one of these portfolios, how to mix them in a way, and also how to evaluate new investments, not only on their own, but also how they would mix or perform with whatever else is that you own. And so, if you want to get a better flavor for that, go all the way back to episode one, which we started last July, and that will explain that. And then you'll find another series of episodes talking about the process, and also talking about various investments like bonds and REITs and other things. And we take suggestions and I analyze various types of investments, for instance, that ETF, NTSX that somebody brought to my, two people brought to my attention. And so we talked about that in a couple of episodes. The other thing that goes on here is we do have these sample portfolios that are live and that we analyze every week and we are drawing down from them as we go monthly. And so this will give you a flavor for how this feels, if you will, and how one of these or some of these kinds of portfolios perform. And our sample portfolios go from one that is overly conservative to two that are overly aggressive or experimental is what we call them. And we have three in the middle that are sort of more in the sweet spot as to something that you'd probably want to hold or consider holding. We are going to now go through our weekly portfolio review of those sample portfolios that you'll find at the website and you can look at these are actual portfolios that I keep at Fidelity and manage there. in accordance with the investor policy statements that you'll also find at the website. So you can see exactly how they are being managed, how much we are taking out of them, and how the process of rebalancing will work for each one of them. So going to our sample portfolios for this week, first we take a look at what the markets did themselves as a reference point. and just going through that list, the S&P 500 was up 2.64% for the week, the Nasdaq was up 3.09%, gold was up 1.63%, long-term treasury bonds represented by the ETF, TLT, were down 1.91%, and REITs represented by the Global REIT Fund, R E E T, were up 3.82%. Commodities were up again, not as much this week. We used the fund PDBC to represent those, and those were up 0.39%, and preferred shares represented by the ETF PFF were up 0.37%. Just one other note on this, the small cap value stocks that have been going crazy recently were represented by the ETF VIoV were up again last week 6.69%, which is kind of ridiculous, but it is what it is and that's why we have some of those in our sample portfolios because you never know which sector of the market is going to be performing the best in any given week, month, or year. Now going to our sample portfolios, we start with the All Seasons Portfolio. This is our most conservative reference portfolio. In fact, we view this portfolio as being a bit too conservative and bond heavy, but it is out there as something that is held to be representative of risk parity style investing, although I don't really think that it is. Given that Tony Robbins constructed it and not a fund manager. So it has 30% in stocks represented by a total stock market fund, VTI. It has 55% in treasury bonds in it. 40% of that is in long-term treasuries and 15% of that is in intermediate-term treasuries. And then for the remaining 15%, 7.5% of that is in gold represented by GLDM and 7.5% is in commodities represented by PDVC in our sample portfolio. And it is up 0.6% for the week. It is up 2.25% since inception last July. So it is, you know, basically hanging in there holding on. It's scheduled for a 4% annual withdrawal rate and it's meeting that but just barely. for the time it's been in existence. You can see that it really is having difficulties because of the increasing interest rates with the bonds and how many bonds that are in this portfolio, which is a contrast to our other portfolios. And so getting those other portfolios, our next one in one of our sort of core three risk parity style portfolios is the Golden Butterfly. And this one is 40% in stocks divided into the Vanguard Total Stock Market Fund, VTI, and the small-cap value fund, VIOV. And then it's got 40% in bonds divided into long-term treasuries, TLT, and short-term treasuries, SHY, 20% each. And then 20% of it is in the gold fund, GLDM. Now this one is performing well. It was up 2.88% last week, which is a lot. We usually see our portfolios only moving less than 1% per week because we're looking for low volatility portfolios, but occasionally they get bumps like this. It is up 17. 5% since inception last July, and it really is riding high on that small cap value fund, which is up 82.75% since inception last July and now comprises nearly 30% of this portfolio. We will get to rebalance out of that and we are taking our distributions from that during the month. But you can see that although some of the parts of this portfolio are in the negative, such as the long-term Treasuries, is riding high on these Small Cap Value Fund. Going to our next sample portfolio, which is the Golden Ratio Portfolio, which is one of my concoctions. This one is 42% in stocks, which we have divided into 14% each in a Vanguard Large Cap Growth Fund, a Vanguard Small Cap Value Fund, that same one, and a low volatility fund from iShares called USMV. It has 26% in long-term treasuries represented by TLT. Then it's got 16% in gold, GLDM, 10% in REITs. We're using the International REIT Fund just for simplicity's purposes to cover all our bases. And that is REET. It's another iShares fund. And then this one has 6% in cash. So it's got a built-in cash buffer that we take the distributions out of for this one for simplicity's sake. And it was up 2.68% last week. It is up 13.46% since inception last July. So is doing very well and is very well able to support its 5% draw rate annually. And again, this one is riding high on those small cap value fund, which has grown from 14% of the fund to 23.4% of the fund or their portfolio, I should say. But that will also be rebalanced when we get to rebalancing of this on its anniversary this next July. Now moving to our next risk parity style portfolio, the risk parity ultimate. This one is the most complex it has 12 funds in it. I'm not going to go through all of them here right now, but it's got about 40% in stock funds, 25% in treasury bond funds, and then it's got 10% in REITs, 10% in gold, and 12.5% in a preferred shares fund PFF, and then it's got a small allocation of 2.5% to a volatility fund VXX, which is the worst performer of the bunch. Good thing it's only 2.5% of it. This one's also riding high on that VIOLV, which is up 83.3% in this portfolio according to this. and it's got another leveraged fund, UPRO, that comprises just a small portion of it that is up 77% since inception last July, and then its worst performers are that volatility fund down 56% and a leveraged bond fund, which is down 46%. But anyway, although lots of these components are volatile, and have moved a lot. If you put them together and they're diversified, you get a very smoothed out portfolio. We are taking drawdowns from this at a rate of 6% annually. Last week it was up 2.4%, which is a large move for this portfolio. It is up 11.68% since inception last July, and so is doing pretty much exactly what it's supposed to do. And now we are moving to our two experimental portfolios and for your new listeners these portfolios are experiments because they involve leveraged funds and they tend to be very volatile and suffering a bit these days. We'll see whether they recover. We are removing from them at a rate of 8% annually just to put them through their paces. The first one we have is the Accelerated Permanent Portfolio. And I should say you will find prior episodes where we discuss each one of these portfolios in detail if you're interested in particular ones. Just go to the website and the portfolios page. You can search all of the episodes and find ones about each portfolio. And so this Accelerated Permanent Portfolio has 25% in leveraged stock fund, UPRO. 27.5% in a leveraged bond fund, TMF, and then it's got 22.5% in gold, GLDM, and 25% in the preferred shares fund, PFF. It was up 1.47% last week. It is up 4.17% since inception last July. And what you can see from this compared to the other ones is it does not have a separate small cap value component to it, and that UPRO follows a total stock market or a large cap growth, which a total stock market fund is largely large cap growth, which has not been doing as well recently. And so you can see both having leverage and less diversification makes this more volatile and it hasn't been performing as well. these days, although at times it has been the best performer in the bunch and at times it has been the worst performer in the bunch. And now it's back down again, so it's only up 4.17% since inception last July. And we'll be interested in seeing how this plays out, but that's why it is an experimental portfolio. And then our last portfolio, which is our most volatile one, it's called the aggressive 50/50. This one has 33% in that leveraged stock fund, UPRO, 33% in the leveraged bond fund, TMF, and then kind of as ballast, it's got 17% in PFF, that preferred shares fund, and 17% in a Vanguard intermediate treasury bond fund. The reason it's called 5050, it's basically half stocks and half bonds. if you break it out that way. And this one was up 2.09% last week. It is up 6.41% since inception last July. So it has righted the ship. It had been up as much as about 14% and then it was down to 4 or 5% since inception and now it's back up to 6.41% and we'll see how this goes. Now, this one also, interestingly, its investor policy statement calls for it to be rebalanced on bands. And the way we do this is we look at this portfolio every month on the middle of the month, the 15th. And if the components have moved more than 7.5% from their base allocations, then we rebalance it. And right now, this one has moved that far. So assuming it stays where it is through Monday, right now the UPRO, the leveraged stock fund comprises 43. 94% of this fund. The base allocation is 33% and the TMF comprises only 21.28% of the portfolio right now. And that's also got a base allocation of 33%. the other two components are near their 17% base allocations. So it is likely we will be rebalancing this after Monday, but we will see because we do want to follow our investor policy statement to the letter. That's how it's done. We'll be selling high and buying low because that is the purpose of rebalancing. But now I see our signal is beginning to fade and so it is time for me to say goodbye. I wanted to thank again all of our loyal listeners and all of our new listeners. I hope this is something you find interesting. It may not be that interesting for you depending on where you are in your journey to financial independence, but hopefully at some point you will want to come back and think about these things as your pile accumulates and you're wondering how to manage it once you get there. Now if you have questions or comments, I welcome them. You can send them by email to frank@riskparityradio.com that's frank@riskparityradio.com or you can just go to the website www.riskparityradio.com and fill out the little contact form and I will get your message that way. Thank you once again for tuning in. This is Frank Vasquez with Risk Parity Radio. Signing off.

Mostly Mary [21:53]

The Risk Parity 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.