In this episode we answer emails from Jeremy, Brad, and James. We discuss a more aggressive risk-parity portfolio similar to the Weird Portfolio, the problems with data analysis and recency bias and considerations in accounting for Social Security or pensions in retirement portfolio planning.
And THEN we our go through our weekly portfolio reviews of the eight sample portfolios you can find at Portfolios | Risk Parity Radio.
Additional links:
Jeremy's Portfolio on Portfolio Visualizer: https://www.portfoliovisualizer.com/backtest-asset-class-allocation?s=y&sl=LDhLHuhVF5zOKfTZckLT7
Weird Portfolio: Weird Portfolio – Portfolio Charts
Testfolio Portfolio Comparison (90/10 vs. 50/50): https://testfol.io/?s=2TDnqWEw5FE
Bogle Interview (re Social Security): Jack Bogle on Index Funds, Vanguard, and Investing Advice
Kitces Interview (re Social Security): Social Security: Part of Your Asset Allocation?
Breathless AI-Bot Summary:
"A foolish consistency is the hobgoblin of little minds," begins this episode, capturing the essence of breaking away from conventional investment thinking. Stepping into Frank's metaphorical "dive bar of personal finance," listeners are treated to an exploration of portfolio diversification during turbulent market conditions.
Frank tackles three thought-provoking listener questions that challenge common investing assumptions. First, he analyzes a balanced portfolio proposal with equal allocations to large-cap growth, small-cap value, REITs, long-term treasuries, and gold, explaining why this more aggressive risk parity approach shows promising safe withdrawal rates. The conversation shifts to the dangers of recency bias when a listener questions the underperformance of a 50-50 small-cap value/large-cap growth portfolio over just five years. Frank emphasizes that even a decade of data can be "just noise" when evaluating investment strategies, reminding us to focus on performance during challenging market periods rather than recent returns.
Perhaps most compelling is Frank's fresh perspective on integrating Social Security into financial planning. Challenging the notion that Social Security should be viewed as fixed-income allocation, he suggests treating it more like an annuity that reduces expenses rather than an asset within your portfolio. This shifts the conversation from wealth preservation to life maximization, encouraging retirees to consider increasing discretionary spending rather than hoarding assets.
The weekly portfolio review reveals a fascinating market story: while the S&P 500 has fallen 8.64% year-to-date and small-cap value has plummeted 19.69%, gold has surged 23.12%. This perfect illustration of risk parity principles shows how properly diversified portfolios maintain remarkable stability despite individual asset volatility. The unlevered sample portfolios remain down less than 1% year-to-date, demonstrating the power of hearing that "different drummer" when constructing your investment approach.
Have questions about building your own diversified portfolio? Email frank@riskparityradio.com or visit the website to connect directly. Don't forget to subscribe and leave a review wherever you listen to podcasts!
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Voices (00:01):
A foolish consistency, is the hobgoblin of little minds
, adored by little statesmen andphilosophers and divines.
If a man does not keep pacewith his companions, perhaps it
is because he hears a differentdrummer, a different drummer.
Mary and Voices (00:19):
And now, coming to you from dead center on your
dial, welcome to Risk ParityRadio, where we explore
alternatives and assetallocations for the
do-it-yourself investorBroadcasting to you now from the
comfort of his easy chair.
Here is your host, frankVasquez.
Mostly Uncle Frank (00:37):
Thank you, Mary, and welcome to Risk Parity
Radio.
If you have just stumbled inhere, you will find that this
podcast is kind of like a divebar of personal finance and
do-it-yourself investing.
Voices (00:52):
Expect the unexpected.
Mostly Uncle Frank (00:55):
It's a relatively small place.
It's just me and Mary in hereand we only have a few
mismatched bar stools and someeasy chairs.
We have no sponsors, we have noguests and we have no expansion
plans.
Voices (01:10):
I don't think I'd like another job.
Mostly Uncle Frank (01:13):
What we do have is a little free library of
updated and unconflictedinformation for do-it-yourself
investors.
Voices (01:23):
Now, who's up for a trip to the library tomorrow?
Mostly Uncle Frank (01:27):
So please enjoy our mostly cold beer
served in cans and our coffeeserved in old chipped and
cracked mugs, along with whatour little free library has to
offer.
Welcome of the eight sampleportfolios you can find at
(02:02):
wwwriskparryweavercom on theportfolios page.
Voices (02:07):
I love gold.
Mostly Uncle Frank (02:11):
Yeah, well, we better love gold, because not
much else is doing that well.
Voices (02:16):
And that's the way.
Uh-huh, uh-huh, I like it.
Casey and the Sunshine Band.
But before we get to that, I'mintrigued by this how you say
Emails.
Mostly Uncle Frank (02:30):
And First off.
First off, we have an emailfrom Jeremy.
Voices (02:36):
He's a real nowhere man Sitting in his nowhere land
Making all his nowhere plans fornobody.
Mary and Voices (02:51):
And jeremy writes hello, frank and mary.
I enjoy the podcast and havebeen listening for several weeks
now.
I was messing around with thegolden ratio and golden
butterfly portfolios.
Recently on portfolio charts Ifound a different combination
that is perplexing me andwondered about your thoughts on
it.
I've run a comparison and ithas a 6.6 safe withdrawal rate
(03:13):
for 30 years, which is largerthan the other two.
Am I missing somethingimportant?
I really enjoy your show andperspective.
Thanks, jeremy.
Voices (03:23):
I must complete my bust .
Two novels finish my blueprints, begin my beguine, hey Jeremy
most of you always talk in rhyme.
If I spoke prose, you'd allfind out.
I don't know what I talk about.
Mostly Uncle Frank (03:35):
All right, so just so we can all orient
ourselves, what Jeremy isrunning in this simulation is a
portfolio that is 20% large capgrowth, 20% small cap value, 20%
REITs, 20% long-term treasurybonds and 20% gold.
And yes, jeremy, I think thatportfolio should perform pretty
(03:57):
well.
It's very similar to what iscalled the weird portfolio from
Value Stock Geek, which you canfind at Portfolio Charts as well
.
If you do look at yourportfolio visualizer simulation,
you'll see that essentiallyit's just a more aggressive kind
of risk parity style portfolio,since it's got effectively 60%
in stocks in it, whereassomething like the Golden Ratio
(04:20):
and Golden Butterfly are lookingat 40 and 50 percent-ish
allocations to riskier assetslike that, and you can see a
little bit of that.
If you look at the portfoliovisualizer analysis I will link
to in the show notes, you'll seethat the sharp and sortino
ratios of the golden butterflyand golden ratio are higher than
(04:42):
your proposed portfolio, eventhough your proposed portfolio
performs better, and that justmeans you have a more aggressive
allocation.
The other big differencebetween your proposal and these
other ones is that you do nothave any short-term bonds or
cash-like instruments in there,which also will tend to dampen
(05:04):
the performance both involatility and in returns in the
golden butterfly and goldenratio portfolios, and I suppose
you should also bear in mindthat if you run this in
Portfolio Visualizer, the readdata only goes back to 1994, so
you're limited in thatcircumstance.
I would also play around with itat the Testfolio site because
(05:26):
you may be able to get somedifferent time frames out of it
there, but it looks good to me.
I should say I would not relyon the 6.6% number as a absolute
number, simply because the datafor portfolio charts does not
go back into the 1960s or the1930s, so I always tend to
(05:49):
mentally subtract about half apercent from whatever number I
get in portfolio charts when I'mthinking about what would I
really think the limit of thisthing is.
Anyway, thank you forpresenting that to us.
I hope other people will findit useful to use or to play with
.
This is what I would hopepeople would do with this
information here not to simplycopy, but to add something of
(06:12):
their own.
Either way is pretty good,though, and thank you for your
email.
Voices (06:18):
So little time, so much to know.
Hey fellas, look the footnotesfor my 19th book.
This is my standard procedurefor doing it, and while I
compose it, I'm also reviewingit.
A boob for all seasons.
How can he lose?
Well, your notice is good.
It's my policy never to read myreviews.
There must be a word for whathe is.
Mostly Uncle Frank (06:40):
Second off.
Second off an email from Brad.
Voices (06:45):
You worked at All-American Burger.
Seven months ago.
Uh, I knew it.
Mary and Voices (06:53):
And Brad writes Hi Frank, I have two portfolios
.
I always had a 90% total marketand 10% small cap blend IJR.
However, from listening to yourepisodes, I created another
account where I hold 50% smallcap value and 50% large cap
growth Consistently for the pastfive years.
(07:15):
The 50-50 account hasunderperformed my 90-10
portfolio.
I've been adding only to thelatter, but I'm wondering if I
shouldn't go back to my original90 10 mix.
Is the cowbell really worth itand my result is only
circumstantial, or is cowbelloverrated?
I know your answer, but I wantto brain tease you anyway.
Thanks, brad.
Voices (07:37):
Babies.
Before we're done here, y'allbe wearing gold plated diapers
done here, y'all be wearinggold-plated diapers.
Mostly Uncle Frank (07:49):
Well, the issue really is that you're only
looking at five years of data,and Fama and Ken French in
particular have famously saidthat even only 10 years of data
is just noise in terms of thesekinds of analyses.
So a five-year analysis isreally kind of meaningless,
because if you take any givenfive years, you'll find
different combinations of thingsthat perform the best within
(08:10):
that time frame.
So no, it doesn't mean anythingit doesn't work for me.
Voices (08:16):
I gotta have more cowbell.
Mostly Uncle Frank (08:18):
I gotta have more cowbell what you really
most care about are performancesin the worst periods, like the
early 2000s or the 1970s orthings like that, because if
you're just looking at the bestperiods, I can tell you that
anything that's large-cap growthis probably going to outperform
just about anything else.
The end of the story.
Voices (08:40):
That's the fact, Jack.
That's the fact, Jack.
That's the fact, Jack.
That's the fact, Jack.
Mostly Uncle Frank (08:44):
The problem with allocations like that is
you can run into periods likethe early 2000s.
Those first three years werebrutal for growth stocks of all
shapes and sizes, whereas valuestocks didn't do so bad and
actually look pretty good, andthe same thing for a year like
2022.
(09:05):
The problem is you just don'tknow when you're going to have
those kind of years in thefuture.
I don't know.
Voices (09:12):
You don't know, you're not a doctor.
Mostly Uncle Frank (09:15):
So what you're really just showing here
is what's called recency bias.
Voices (09:19):
That and a nickel.
Get your hot cup a jack squat.
Mostly Uncle Frank (09:25):
Which is exactly what most amateur
investors do.
They look at the last one toten years and try to pick things
based on that, thinking thatwhatever's happened in the last
one to ten years is going to bepredictive of the future.
And it usually isn't, and theyusually underperform their own
holdings due to that habit orprocedure.
Mary and Voices (09:45):
That's not an improvement.
Mostly Uncle Frank (09:47):
I did run these for comparison purposes in
the Testfolio site and it goesback to 1994 for these two
particular things and you cansee the difference that the
50-50 portfolio is the betterone in most of the time frames
that you could model there,including the longest one.
So I'll let you check that out.
You can contemplate yourrecency bias.
Voices (10:11):
You're not going to amount to jack squats.
You're going to end up eating asteady diet of government
cheese and living in a van downby the river.
Mostly Uncle Frank (10:24):
And thank you for your email.
Voices (10:27):
Guess what.
I got a fever and the onlyprescription is more cowbell.
All right, Hamilton.
Mostly Uncle Frank (10:38):
Last off.
Last off, an email from James.
Voices (10:43):
Hey Jim baby.
Mostly Uncle Frank (10:45):
And James writes Hi Frank.
Mary and Voices (10:48):
How do you factor Social Security income
into a financial plan slashasset allocation?
Bogle and Kitsis seem to haveadvised to count the present
value of future SSI payments asa fixed income allocation to
your portfolio.
This approach would steer aninvestor towards a higher equity
allocation to balance out thatfixed income exposure.
Option B would be only considerhow much less you will need to
(11:12):
draw down from your portfolio inthe future, resulting in a
smaller necessary portfolio size.
Asset allocation considerationsin this context are unchanged.
The investor just needs asmaller asset pool due to the
SSI income reducing overallwithdrawal needs.
Are you in the camp of option B?
If you're in camp A, countingit as an asset within the
(11:34):
portfolio, how would you defineits contribution?
Certainly not the 100% nominaltreasuries because of the
inflation adjustment aspect 80%treasuries and 20% gold.
As a side note, anytime I'velooked at the present value of
future projected SSI, I'veapplied a discount to the value
to account for risks of meanstesting, higher taxation or just
(11:56):
generally lower benefits infuture decades Probably a
worthwhile consideration foryounger listeners.
Links to the Bogle and Kitsisinterviews below Best James.
Voices (12:07):
I see you brought up reinforcements.
Well, I'm waiting for you,Jimmy boy.
Mostly Uncle Frank (12:14):
Well, this is a very interesting question.
I actually don't think it'sappropriate to just look at a
pension payment as a fixedincome allocation in a portfolio
, because you can't rebalance it.
It is actually akin to anannuity, and so, in order to
value it, you would go tosomeplace like
(12:36):
immediateannuitiescom, playaround with that and see what it
would cost to buy a similarannuity that would have a
similar payment stream.
I much prefer option B as apractical matter, where you're
simply reducing your expenses bythe amount of this payment
stream.
However, I don't agree with yourassertions or your limitation
(12:59):
in option B that assetallocations considerations in
this context are unchanged,because ultimately, what you
would need to do here is look athow much of this income stream
is covering things like yourmandatory expenses.
So it's not just looking at itin a raw sense, because if the
(13:23):
only expenses left to be coveredby the portfolio are all
discretionary, then you canprobably be more aggressive with
that portfolio, but that'sgoing to be more of a preference
.
And then you get to thisquestion of well, what is the
goal of the portfolio if asubstantial part of the expenses
(13:43):
are covered by Social Securityor the payment stream?
And this is where, in reality,people's goals often for that
are to do nothing with it andleave it for their heirs.
That's kind of the sad truth ofit, and I do think it's sad
when people sit on money likethat and don't spend it while
they're alive like that anddon't spend it while they're
(14:09):
alive.
Voices (14:09):
I'm a grumpy old man.
I don't like everything the wayit is now, compared to the way
it used to be.
In my day we had radio and youcouldn't see anything and it was
primitive and lousy and weliked it.
Mostly Uncle Frank (14:18):
And so, if you're one of those people, you
should be holding 100% equitiesor Warren Buffett's 90-10 kind
of portfolio, because thepurpose of that money, then is
no longer for current spendingbut to maximize it at death.
Voices (14:35):
Death stalks you at every turn.
Mostly Uncle Frank (14:38):
Now, if you're on the opposite end of
the spectrum, where you'relooking at that portfolio as
something that you can spend outof and you're going to try to
maximize the spending out of it,then you're going to be looking
for portfolios that have thehighest safe withdrawal rate and
you are actually going toincrease your spending, your
(14:59):
discretionary spending, to matchwhatever you feel like you can
maximally spend out of thisdiversified portfolio.
And that would be the choicethat I would make and that we
are making effectively is thatwhen we start getting more money
out of social security andstuff, if we still have an
excess of funds which I expectwe probably will we will just
(15:21):
spend more money at that point.
Voices (15:24):
More money, more money, more money.
Mostly Uncle Frank (15:27):
Or give it away, and that is the wild card
here.
I don't think that is beingconsidered, because this is
thinking of your expenses assome fixed amount that you've
(15:48):
already set, independent of theassets, whereas I think that you
could set your spending basedon the assets in your allocation
, and I think that is actually apreferable way to effectively
maximize life and it's reallywhat we plan on doing.
(16:17):
It's also what we do now.
If we have excess income, itgoes into more spending.
It doesn't go into morehoarding, at least after the tax
man takes his cut what guy in asuit?
no, it's a tax collector so, tosummarize my answer, it is
(16:41):
option b, with a modification ofspending to increase it based
on the type of portfolio held,so as to maximize spending
during retirement.
Your mileage may vary and maybe different if your priority is
(17:02):
hoarding and not spending.
Voices (17:13):
Today, everybody, everybody spoiled run.
When I was a boy, we didn'thave these video games.
We made up our own games likechew the bark off the tree.
You and your friends would finda nice oak tree and you start
chewing the skin off of it andthere were no winners.
Everybody was a loser.
It rotted your teeth and leftyour intestines scarred and
knotted.
And that's the way it was andwe liked it.
We loved it.
Mostly Uncle Frank (17:34):
I would not attempt to model Social Security
as a fixed income allocation,because it's akin to an annuity.
It's not an asset that you canhold, rebalance, purchase more
of or do anything like a typicalfixed income asset that you
could do.
So I don't think that analogyis apt To me.
It only really makes sense inthe kind of hoarding scenario
(17:57):
where your goal is to maximizethe amount of money at death.
Voices (18:04):
There it is, death.
Mostly Uncle Frank (18:06):
In which case, maybe you do think of that
as your fixed income and thenget more aggressive on the
portfolio side so as to maximizeyour net worth when you're dead
.
Voices (18:18):
Dead is dead.
Mostly Uncle Frank (18:20):
Probably wasn't the answer you were
expecting, although some of youprobably expected it.
Voices (18:25):
Expect the unexpected.
Mostly Uncle Frank (18:28):
But it was a very interesting question.
Voices (18:30):
Flippity flu.
Mostly Uncle Frank (18:32):
Hopefully that helps and thank you for
your email.
Voices (18:36):
In my day.
We didn't know what to say whenwe were mad, so we just made up
things like flippity flubecause we were idiots and
that's how it was Just a bunchof people flying out of car
windows in their burning pajamas, shouting into a melon and
chewing on trees.
And that's the way it was andwe liked it.
(18:57):
Now we're going to do somethingextremely fun.
Mostly Uncle Frank (19:00):
And the extremely fun thing we get to do
now is our weekly portfolioreviews of the eight sample
portfolios you can find atwwwriskparryweavercom on the
portfolios page.
The financial markets continueto be extremely volatile, but
this has resulted in not reallymuch movement year to date for
(19:22):
most of these portfolios.
It's kind of a snooze festactually when you look at the
results.
Boring Looking at those markets.
The S&P 500, represented by VOO, is down 8.64% for the year.
The NASDAQ, represented by thefund QQQ, is down 10.99% for the
(19:44):
year.
Small cap value continues to bethe worst performer this year.
Representative fund VIOV isdown 19.69% for the year.
Small cap value continues to bethe worst performer this year.
Representative fund VIOV isdown 19.69% for the year, but
gold continues to be the bigwinner this year.
Voices (19:57):
This is gold, Mr Bond.
All my life I've been in lovewith its color, its brilliance,
its divine heaviness.
I welcome any enterprise thatwill increase my stock.
Mostly Uncle Fra (20:11):
Representative Fund GLDM is up 23.12% for the
year.
Voices (20:18):
I think you've made your point.
Goldfinger, Thank you for thedemonstration.
Do you expect me to talk?
No, Mr Bond, I expect you todie.
Mostly Uncle Frank (20:27):
Long-term Treasury bonds, represented by
the fund VGLT, were downsubstantially last week but are
still up 0.66% for the year.
Reits, represented by the fundREET, are down 4.6% this year.
Commodities, represented by thefund PDBC are down 2.31% for
the year.
Preferred shares, representedby the fund PFFV are down 3.24%
(20:48):
for the year.
Preferred shares represented bythe fund PFFV are down 3.24%
for the year and managed futures, represented by the fund DBMF,
are down 3.57% for the year.
Moving to these portfolios,first one's the all-seasons
portfolios, or referenceportfolio.
It's only got 30% in stocks ina total stock market fund, vti,
55% in intermediate andlong-term treasury bonds and the
(21:11):
remaining 15% in gold andcommodities.
It is down 3.24% for April.
So far, it's down 0.69%year-to-date and up 7.81% since
inception in July 2020.
Now, moving to these kind ofbread and butter portfolios.
Next one's the golden butterfly.
This one is 40% in stocksdivided into a total stock
(21:33):
market fund and a small capvalue fund, 40% in treasury
bonds divided into long andshort and the remaining 20% in
gold.
It is down 2.82% month to datefor April, down 0.72% year to
date and up 32.96% sinceinception in July 2020.
Next one's the golden ratio.
(21:53):
This one's 42% in stocks dividedinto a large cap growth fund
and a small cap value fund 26%in long-term treasury bonds, 16%
in gold, 10% in a managedfutures fund and 6% in cash.
Percent in gold, 10 percent ina managed futures fund and 6
percent in cash.
It is down 3.12 percent monthto date, for April and pretty
much down that year to date.
(22:14):
It's down 3.15 percent year todate and up 25.85 percent since
inception in July 2020.
Next one's the risk parityultimate.
I won't go through all 14 ofthese funds, but it is down
4.19% month-to-date for April,meaning it's down 3.54%
year-to-date and up 17.01% sinceinception, july 2020.
(22:35):
Now, moving to theseexperimental portfolios, where
we see some scary stuff, becausethese involve leveraged funds
and are not something you shouldbe trying at home.
Voices (22:47):
We got a scary one for you this week.
Mostly Uncle Frank (22:50):
First one's the accelerated permanent
portfolio.
This one is 27.5% in a leveredbond fund TMF, 25% in a levered
stock fund UPRO, 25% in PFFV, apreferred shares fund, and 22.5%
in gold GLDM.
Although it's up to 28% in goldright now, it is down 7.59%
(23:11):
month to date, which means it'sdown 3.92% year to date and down
2.93% since inception in July2020.
Next one's the aggressive 50-50.
This is the worst performer ofthese portfolios.
It has the most leverage in itand the least diversification,
and it all shows.
So this one's one-third in alevered stock fund UPRO,
(23:33):
one-third in a levered bond fundTMF, and the remaining third
divided into PFFV, a preferredshares fund, and VGIT, a
intermediate treasury bond fund.
It is down 10.59% month-to-date.
It is down 11.96% year-to-dateand down 22.46% since inception
in July 2020.
(23:53):
And the next one's one of thenewer portfolios the levered
golden ratio.
This one is 35% in a compositelevered fund called NTSX that's,
the S&P 500 and Treasury bondslevered up 1.5 to 1.
In treasury bonds, levered up1.5 to 1.
20% in gold GLDM, 15% in ainternational small cap value
(24:15):
fund called AVDV, 10% in KMLM,which is a managed futures fund,
10% in a levered bond fund TMF,and the remaining 10% divided
into two levered funds UDOW,which tracks the Dow, and UTSL,
which is a utilities fund.
It is down 4.22% month-to-datefor April.
It's down 1.91% year-to-dateand down 6.24% since inception
(24:38):
in July 2021.
And now, moving to the lastportfolio, the Optra portfolio,
which is the newest one.
This one is 16% in a leveredstock fund Upro, 24% in a
composite worldwide value fundAVGV, 24% in a treasury bond
strips fund GOVZ, and theremaining 36% divided into gold
(25:02):
and managed futures.
It is down 4.86% month to date.
It's down 4.86% month-to-date.
It's down 3.91% year-to-dateand down 1.11% since inception
in July 2024.
And that concludes our weeklyportfolio reviews.
You would think theseportfolios would move a lot more
with the recent market turmoil,but it's really the
(25:24):
diversification in them havingthings that are going up a lot
like gold and things that aregoing down a lot like stocks
that result in a pretty flatperformance, at least for the
unlevered ones, which are reallythe ones we care about the most
anyway.
So what does this mean for thefuture?
Well, we can consult our littlecrystal ball here.
Mary and Voices (25:48):
My name's Sonia .
I'm going to be showing you thecrystal ball and how to use it,
or how I use it.
Mostly Uncle Frank (25:55):
But you know the Risk Parity Radio crystal
ball always tends to say thesame thing.
It's like a magic eight ballthat gets stuck.
Mary and Voices (26:03):
A crystal ball can help you, it can guide you.
Mostly Uncle Frank (26:08):
And here's what it has to say today.
Voices (26:11):
We don't know.
What do we know?
You don't know, I don't know,nobody knows.
Mostly Uncle Frank (26:18):
All we really know at this point is
that we will have somesignificant rebalancings to do.
When it comes time for that,we'll be selling a lot of gold
and buying a lot of stocks andother things.
Buy low sell high Fear.
That's the other guy's problem.
Most of that is going to happenin July for at least the first
four portfolios, but now I seeour signal is beginning to fade.
(26:41):
If you have comments orquestions for me, please send
them to frank atriskparityradiocom.
That email is frank atriskparityradiocom.
Or you can go to the website,wwwriskparityradiocom.
Put your message into thecontact form and I'll get it
that way.
If you haven't had a chance todo it, please go to your
favorite podcast provider andlike, subscribe and give me some
(27:04):
stars, a follow or a review.
Voices (27:07):
That would be great.
Mostly Uncle Frank (27:08):
Okay, thank you once again for tuning in.
This is Frank Vasquez with RiskParry Radio Signing off.
Voices (27:17):
No real man.
Please listen, you don't knowwhat you're missing.
No real man, the world will actyour command.
He's a real Nowhere man Sittingin his Nowhere Land Making all
(27:43):
his Nowhere plans for nobody.
Making all his nowhere plansfor nobody.
Making all his nowhere plansfor nobody.
Making all his nowhere plansfor nobody.
Mary and Voices (28:10):
The Risk Parody Radio Show is hosted by Frank
Vasquez.
The content provided is forentertainment and informational
purposes only and does notconstitute financial, investment
tax or legal advice.
Please consult with your ownadvisors before taking any
actions based on any informationyou have heard here, making
sure to take into account yourown personal circumstances.
A foolish consistency, is the hobgoblin of little minds
, adored by little statesmen andphilosophers and divines.
If a man does not keep pacewith his companions, perhaps it
is because he hears a differentdrummer, a different drummer.
Mary and Voices (00:19):
And now, coming to you from dead center on your
dial, welcome to Risk ParityRadio, where we explore
alternatives and assetallocations for the
do-it-yourself investorBroadcasting to you now from the
comfort of his easy chair.
Here is your host, frankVasquez.
Mostly Uncle Frank (00:37):
Thank you, Mary, and welcome to Risk Parity
Radio.
If you have just stumbled inhere, you will find that this
podcast is kind of like a divebar of personal finance and
do-it-yourself investing.
Voices (00:52):
Expect the unexpected.
Mostly Uncle Frank (00:55):
It's a relatively small place.
It's just me and Mary in hereand we only have a few
mismatched bar stools and someeasy chairs.
We have no sponsors, we have noguests and we have no expansion
plans.
Voices (01:10):
I don't think I'd like another job.
Mostly Uncle Frank (01:13):
What we do have is a little free library of
updated and unconflictedinformation for do-it-yourself
investors.
Voices (01:23):
Now, who's up for a trip to the library tomorrow?
Mostly Uncle Frank (01:27):
So please enjoy our mostly cold beer
served in cans and our coffeeserved in old chipped and
cracked mugs, along with whatour little free library has to
offer.
Welcome of the eight sampleportfolios you can find at
(02:02):
wwwriskparryweavercom on theportfolios page.
Voices (02:07):
I love gold.
Mostly Uncle Frank (02:11):
Yeah, well, we better love gold, because not
much else is doing that well.
Voices (02:16):
And that's the way.
Uh-huh, uh-huh, I like it.
Casey and the Sunshine Band.
But before we get to that, I'mintrigued by this how you say
Emails.
Mostly Uncle Frank (02:30):
And First off.
First off, we have an emailfrom Jeremy.
Voices (02:36):
He's a real nowhere man Sitting in his nowhere land
Making all his nowhere plans fornobody.
Mary and Voices (02:51):
And jeremy writes hello, frank and mary.
I enjoy the podcast and havebeen listening for several weeks
now.
I was messing around with thegolden ratio and golden
butterfly portfolios.
Recently on portfolio charts Ifound a different combination
that is perplexing me andwondered about your thoughts on
it.
I've run a comparison and ithas a 6.6 safe withdrawal rate
(03:13):
for 30 years, which is largerthan the other two.
Am I missing somethingimportant?
I really enjoy your show andperspective.
Thanks, jeremy.
Voices (03:23):
I must complete my bust .
Two novels finish my blueprints, begin my beguine, hey Jeremy
most of you always talk in rhyme.
If I spoke prose, you'd allfind out.
I don't know what I talk about.
Mostly Uncle Frank (03:35):
All right, so just so we can all orient
ourselves, what Jeremy isrunning in this simulation is a
portfolio that is 20% large capgrowth, 20% small cap value, 20%
REITs, 20% long-term treasurybonds and 20% gold.
And yes, jeremy, I think thatportfolio should perform pretty
(03:57):
well.
It's very similar to what iscalled the weird portfolio from
Value Stock Geek, which you canfind at Portfolio Charts as well
.
If you do look at yourportfolio visualizer simulation,
you'll see that essentiallyit's just a more aggressive kind
of risk parity style portfolio,since it's got effectively 60%
in stocks in it, whereassomething like the Golden Ratio
(04:20):
and Golden Butterfly are lookingat 40 and 50 percent-ish
allocations to riskier assetslike that, and you can see a
little bit of that.
If you look at the portfoliovisualizer analysis I will link
to in the show notes, you'll seethat the sharp and sortino
ratios of the golden butterflyand golden ratio are higher than
(04:42):
your proposed portfolio, eventhough your proposed portfolio
performs better, and that justmeans you have a more aggressive
allocation.
The other big differencebetween your proposal and these
other ones is that you do nothave any short-term bonds or
cash-like instruments in there,which also will tend to dampen
(05:04):
the performance both involatility and in returns in the
golden butterfly and goldenratio portfolios, and I suppose
you should also bear in mindthat if you run this in
Portfolio Visualizer, the readdata only goes back to 1994, so
you're limited in thatcircumstance.
I would also play around with itat the Testfolio site because
(05:26):
you may be able to get somedifferent time frames out of it
there, but it looks good to me.
I should say I would not relyon the 6.6% number as a absolute
number, simply because the datafor portfolio charts does not
go back into the 1960s or the1930s, so I always tend to
(05:49):
mentally subtract about half apercent from whatever number I
get in portfolio charts when I'mthinking about what would I
really think the limit of thisthing is.
Anyway, thank you forpresenting that to us.
I hope other people will findit useful to use or to play with
.
This is what I would hopepeople would do with this
information here not to simplycopy, but to add something of
(06:12):
their own.
Either way is pretty good,though, and thank you for your
email.
Voices (06:18):
So little time, so much to know.
Hey fellas, look the footnotesfor my 19th book.
This is my standard procedurefor doing it, and while I
compose it, I'm also reviewingit.
A boob for all seasons.
How can he lose?
Well, your notice is good.
It's my policy never to read myreviews.
There must be a word for whathe is.
Mostly Uncle Frank (06:40):
Second off.
Second off an email from Brad.
Voices (06:45):
You worked at All-American Burger.
Seven months ago.
Uh, I knew it.
Mary and Voices (06:53):
And Brad writes Hi Frank, I have two portfolios
.
I always had a 90% total marketand 10% small cap blend IJR.
However, from listening to yourepisodes, I created another
account where I hold 50% smallcap value and 50% large cap
growth Consistently for the pastfive years.
(07:15):
The 50-50 account hasunderperformed my 90-10
portfolio.
I've been adding only to thelatter, but I'm wondering if I
shouldn't go back to my original90 10 mix.
Is the cowbell really worth itand my result is only
circumstantial, or is cowbelloverrated?
I know your answer, but I wantto brain tease you anyway.
Thanks, brad.
Voices (07:37):
Babies.
Before we're done here, y'allbe wearing gold plated diapers
done here, y'all be wearinggold-plated diapers.
Mostly Uncle Frank (07:49):
Well, the issue really is that you're only
looking at five years of data,and Fama and Ken French in
particular have famously saidthat even only 10 years of data
is just noise in terms of thesekinds of analyses.
So a five-year analysis isreally kind of meaningless,
because if you take any givenfive years, you'll find
different combinations of thingsthat perform the best within
(08:10):
that time frame.
So no, it doesn't mean anythingit doesn't work for me.
Voices (08:16):
I gotta have more cowbell.
Mostly Uncle Frank (08:18):
I gotta have more cowbell what you really
most care about are performancesin the worst periods, like the
early 2000s or the 1970s orthings like that, because if
you're just looking at the bestperiods, I can tell you that
anything that's large-cap growthis probably going to outperform
just about anything else.
The end of the story.
Voices (08:40):
That's the fact, Jack.
That's the fact, Jack.
That's the fact, Jack.
That's the fact, Jack.
Mostly Uncle Frank (08:44):
The problem with allocations like that is
you can run into periods likethe early 2000s.
Those first three years werebrutal for growth stocks of all
shapes and sizes, whereas valuestocks didn't do so bad and
actually look pretty good, andthe same thing for a year like
2022.
(09:05):
The problem is you just don'tknow when you're going to have
those kind of years in thefuture.
I don't know.
Voices (09:12):
You don't know, you're not a doctor.
Mostly Uncle Frank (09:15):
So what you're really just showing here
is what's called recency bias.
Voices (09:19):
That and a nickel.
Get your hot cup a jack squat.
Mostly Uncle Frank (09:25):
Which is exactly what most amateur
investors do.
They look at the last one toten years and try to pick things
based on that, thinking thatwhatever's happened in the last
one to ten years is going to bepredictive of the future.
And it usually isn't, and theyusually underperform their own
holdings due to that habit orprocedure.
Mary and Voices (09:45):
That's not an improvement.
Mostly Uncle Frank (09:47):
I did run these for comparison purposes in
the Testfolio site and it goesback to 1994 for these two
particular things and you cansee the difference that the
50-50 portfolio is the betterone in most of the time frames
that you could model there,including the longest one.
So I'll let you check that out.
You can contemplate yourrecency bias.
Voices (10:11):
You're not going to amount to jack squats.
You're going to end up eating asteady diet of government
cheese and living in a van downby the river.
Mostly Uncle Frank (10:24):
And thank you for your email.
Voices (10:27):
Guess what.
I got a fever and the onlyprescription is more cowbell.
All right, Hamilton.
Mostly Uncle Frank (10:38):
Last off.
Last off, an email from James.
Voices (10:43):
Hey Jim baby.
Mostly Uncle Frank (10:45):
And James writes Hi Frank.
Mary and Voices (10:48):
How do you factor Social Security income
into a financial plan slashasset allocation?
Bogle and Kitsis seem to haveadvised to count the present
value of future SSI payments asa fixed income allocation to
your portfolio.
This approach would steer aninvestor towards a higher equity
allocation to balance out thatfixed income exposure.
Option B would be only considerhow much less you will need to
(11:12):
draw down from your portfolio inthe future, resulting in a
smaller necessary portfolio size.
Asset allocation considerationsin this context are unchanged.
The investor just needs asmaller asset pool due to the
SSI income reducing overallwithdrawal needs.
Are you in the camp of option B?
If you're in camp A, countingit as an asset within the
(11:34):
portfolio, how would you defineits contribution?
Certainly not the 100% nominaltreasuries because of the
inflation adjustment aspect 80%treasuries and 20% gold.
As a side note, anytime I'velooked at the present value of
future projected SSI, I'veapplied a discount to the value
to account for risks of meanstesting, higher taxation or just
(11:56):
generally lower benefits infuture decades Probably a
worthwhile consideration foryounger listeners.
Links to the Bogle and Kitsisinterviews below Best James.
Voices (12:07):
I see you brought up reinforcements.
Well, I'm waiting for you,Jimmy boy.
Mostly Uncle Frank (12:14):
Well, this is a very interesting question.
I actually don't think it'sappropriate to just look at a
pension payment as a fixedincome allocation in a portfolio
, because you can't rebalance it.
It is actually akin to anannuity, and so, in order to
value it, you would go tosomeplace like
(12:36):
immediateannuitiescom, playaround with that and see what it
would cost to buy a similarannuity that would have a
similar payment stream.
I much prefer option B as apractical matter, where you're
simply reducing your expenses bythe amount of this payment
stream.
However, I don't agree with yourassertions or your limitation
(12:59):
in option B that assetallocations considerations in
this context are unchanged,because ultimately, what you
would need to do here is look athow much of this income stream
is covering things like yourmandatory expenses.
So it's not just looking at itin a raw sense, because if the
(13:23):
only expenses left to be coveredby the portfolio are all
discretionary, then you canprobably be more aggressive with
that portfolio, but that'sgoing to be more of a preference
.
And then you get to thisquestion of well, what is the
goal of the portfolio if asubstantial part of the expenses
(13:43):
are covered by Social Securityor the payment stream?
And this is where, in reality,people's goals often for that
are to do nothing with it andleave it for their heirs.
That's kind of the sad truth ofit, and I do think it's sad
when people sit on money likethat and don't spend it while
they're alive like that anddon't spend it while they're
(14:09):
alive.
Voices (14:09):
I'm a grumpy old man.
I don't like everything the wayit is now, compared to the way
it used to be.
In my day we had radio and youcouldn't see anything and it was
primitive and lousy and weliked it.
Mostly Uncle Frank (14:18):
And so, if you're one of those people, you
should be holding 100% equitiesor Warren Buffett's 90-10 kind
of portfolio, because thepurpose of that money, then is
no longer for current spendingbut to maximize it at death.
Voices (14:35):
Death stalks you at every turn.
Mostly Uncle Frank (14:38):
Now, if you're on the opposite end of
the spectrum, where you'relooking at that portfolio as
something that you can spend outof and you're going to try to
maximize the spending out of it,then you're going to be looking
for portfolios that have thehighest safe withdrawal rate and
you are actually going toincrease your spending, your
(14:59):
discretionary spending, to matchwhatever you feel like you can
maximally spend out of thisdiversified portfolio.
And that would be the choicethat I would make and that we
are making effectively is thatwhen we start getting more money
out of social security andstuff, if we still have an
excess of funds which I expectwe probably will we will just
(15:21):
spend more money at that point.
Voices (15:24):
More money, more money, more money.
Mostly Uncle Frank (15:27):
Or give it away, and that is the wild card
here.
I don't think that is beingconsidered, because this is
thinking of your expenses assome fixed amount that you've
(15:48):
already set, independent of theassets, whereas I think that you
could set your spending basedon the assets in your allocation
, and I think that is actually apreferable way to effectively
maximize life and it's reallywhat we plan on doing.
(16:17):
It's also what we do now.
If we have excess income, itgoes into more spending.
It doesn't go into morehoarding, at least after the tax
man takes his cut what guy in asuit?
no, it's a tax collector so, tosummarize my answer, it is
(16:41):
option b, with a modification ofspending to increase it based
on the type of portfolio held,so as to maximize spending
during retirement.
Your mileage may vary and maybe different if your priority is
(17:02):
hoarding and not spending.
Voices (17:13):
Today, everybody, everybody spoiled run.
When I was a boy, we didn'thave these video games.
We made up our own games likechew the bark off the tree.
You and your friends would finda nice oak tree and you start
chewing the skin off of it andthere were no winners.
Everybody was a loser.
It rotted your teeth and leftyour intestines scarred and
knotted.
And that's the way it was andwe liked it.
We loved it.
Mostly Uncle Frank (17:34):
I would not attempt to model Social Security
as a fixed income allocation,because it's akin to an annuity.
It's not an asset that you canhold, rebalance, purchase more
of or do anything like a typicalfixed income asset that you
could do.
So I don't think that analogyis apt To me.
It only really makes sense inthe kind of hoarding scenario
(17:57):
where your goal is to maximizethe amount of money at death.
Voices (18:04):
There it is, death.
Mostly Uncle Frank (18:06):
In which case, maybe you do think of that
as your fixed income and thenget more aggressive on the
portfolio side so as to maximizeyour net worth when you're dead
.
Voices (18:18):
Dead is dead.
Mostly Uncle Frank (18:20):
Probably wasn't the answer you were
expecting, although some of youprobably expected it.
Voices (18:25):
Expect the unexpected.
Mostly Uncle Frank (18:28):
But it was a very interesting question.
Voices (18:30):
Flippity flu.
Mostly Uncle Frank (18:32):
Hopefully that helps and thank you for
your email.
Voices (18:36):
In my day.
We didn't know what to say whenwe were mad, so we just made up
things like flippity flubecause we were idiots and
that's how it was Just a bunchof people flying out of car
windows in their burning pajamas, shouting into a melon and
chewing on trees.
And that's the way it was andwe liked it.
(18:57):
Now we're going to do somethingextremely fun.
Mostly Uncle Frank (19:00):
And the extremely fun thing we get to do
now is our weekly portfolioreviews of the eight sample
portfolios you can find atwwwriskparryweavercom on the
portfolios page.
The financial markets continueto be extremely volatile, but
this has resulted in not reallymuch movement year to date for
(19:22):
most of these portfolios.
It's kind of a snooze festactually when you look at the
results.
Boring Looking at those markets.
The S&P 500, represented by VOO, is down 8.64% for the year.
The NASDAQ, represented by thefund QQQ, is down 10.99% for the
(19:44):
year.
Small cap value continues to bethe worst performer this year.
Representative fund VIOV isdown 19.69% for the year.
Small cap value continues to bethe worst performer this year.
Representative fund VIOV isdown 19.69% for the year, but
gold continues to be the bigwinner this year.
Voices (19:57):
This is gold, Mr Bond.
All my life I've been in lovewith its color, its brilliance,
its divine heaviness.
I welcome any enterprise thatwill increase my stock.
Mostly Uncle Fra (20:11):
Representative Fund GLDM is up 23.12% for the
year.
Voices (20:18):
I think you've made your point.
Goldfinger, Thank you for thedemonstration.
Do you expect me to talk?
No, Mr Bond, I expect you todie.
Mostly Uncle Frank (20:27):
Long-term Treasury bonds, represented by
the fund VGLT, were downsubstantially last week but are
still up 0.66% for the year.
Reits, represented by the fundREET, are down 4.6% this year.
Commodities, represented by thefund PDBC are down 2.31% for
the year.
Preferred shares, representedby the fund PFFV are down 3.24%
(20:48):
for the year.
Preferred shares represented bythe fund PFFV are down 3.24%
for the year and managed futures, represented by the fund DBMF,
are down 3.57% for the year.
Moving to these portfolios,first one's the all-seasons
portfolios, or referenceportfolio.
It's only got 30% in stocks ina total stock market fund, vti,
55% in intermediate andlong-term treasury bonds and the
(21:11):
remaining 15% in gold andcommodities.
It is down 3.24% for April.
So far, it's down 0.69%year-to-date and up 7.81% since
inception in July 2020.
Now, moving to these kind ofbread and butter portfolios.
Next one's the golden butterfly.
This one is 40% in stocksdivided into a total stock
(21:33):
market fund and a small capvalue fund, 40% in treasury
bonds divided into long andshort and the remaining 20% in
gold.
It is down 2.82% month to datefor April, down 0.72% year to
date and up 32.96% sinceinception in July 2020.
Next one's the golden ratio.
(21:53):
This one's 42% in stocks dividedinto a large cap growth fund
and a small cap value fund 26%in long-term treasury bonds, 16%
in gold, 10% in a managedfutures fund and 6% in cash.
Percent in gold, 10 percent ina managed futures fund and 6
percent in cash.
It is down 3.12 percent monthto date, for April and pretty
much down that year to date.
(22:14):
It's down 3.15 percent year todate and up 25.85 percent since
inception in July 2020.
Next one's the risk parityultimate.
I won't go through all 14 ofthese funds, but it is down
4.19% month-to-date for April,meaning it's down 3.54%
year-to-date and up 17.01% sinceinception, july 2020.
(22:35):
Now, moving to theseexperimental portfolios, where
we see some scary stuff, becausethese involve leveraged funds
and are not something you shouldbe trying at home.
Voices (22:47):
We got a scary one for you this week.
Mostly Uncle Frank (22:50):
First one's the accelerated permanent
portfolio.
This one is 27.5% in a leveredbond fund TMF, 25% in a levered
stock fund UPRO, 25% in PFFV, apreferred shares fund, and 22.5%
in gold GLDM.
Although it's up to 28% in goldright now, it is down 7.59%
(23:11):
month to date, which means it'sdown 3.92% year to date and down
2.93% since inception in July2020.
Next one's the aggressive 50-50.
This is the worst performer ofthese portfolios.
It has the most leverage in itand the least diversification,
and it all shows.
So this one's one-third in alevered stock fund UPRO,
(23:33):
one-third in a levered bond fundTMF, and the remaining third
divided into PFFV, a preferredshares fund, and VGIT, a
intermediate treasury bond fund.
It is down 10.59% month-to-date.
It is down 11.96% year-to-dateand down 22.46% since inception
in July 2020.
(23:53):
And the next one's one of thenewer portfolios the levered
golden ratio.
This one is 35% in a compositelevered fund called NTSX that's,
the S&P 500 and Treasury bondslevered up 1.5 to 1.
In treasury bonds, levered up1.5 to 1.
20% in gold GLDM, 15% in ainternational small cap value
(24:15):
fund called AVDV, 10% in KMLM,which is a managed futures fund,
10% in a levered bond fund TMF,and the remaining 10% divided
into two levered funds UDOW,which tracks the Dow, and UTSL,
which is a utilities fund.
It is down 4.22% month-to-datefor April.
It's down 1.91% year-to-dateand down 6.24% since inception
(24:38):
in July 2021.
And now, moving to the lastportfolio, the Optra portfolio,
which is the newest one.
This one is 16% in a leveredstock fund Upro, 24% in a
composite worldwide value fundAVGV, 24% in a treasury bond
strips fund GOVZ, and theremaining 36% divided into gold
(25:02):
and managed futures.
It is down 4.86% month to date.
It's down 4.86% month-to-date.
It's down 3.91% year-to-dateand down 1.11% since inception
in July 2024.
And that concludes our weeklyportfolio reviews.
You would think theseportfolios would move a lot more
with the recent market turmoil,but it's really the
(25:24):
diversification in them havingthings that are going up a lot
like gold and things that aregoing down a lot like stocks
that result in a pretty flatperformance, at least for the
unlevered ones, which are reallythe ones we care about the most
anyway.
So what does this mean for thefuture?
Well, we can consult our littlecrystal ball here.
Mary and Voices (25:48):
My name's Sonia .
I'm going to be showing you thecrystal ball and how to use it,
or how I use it.
Mostly Uncle Frank (25:55):
But you know the Risk Parity Radio crystal
ball always tends to say thesame thing.
It's like a magic eight ballthat gets stuck.
Mary and Voices (26:03):
A crystal ball can help you, it can guide you.
Mostly Uncle Frank (26:08):
And here's what it has to say today.
Voices (26:11):
We don't know.
What do we know?
You don't know, I don't know,nobody knows.
Mostly Uncle Frank (26:18):
All we really know at this point is
that we will have somesignificant rebalancings to do.
When it comes time for that,we'll be selling a lot of gold
and buying a lot of stocks andother things.
Buy low sell high Fear.
That's the other guy's problem.
Most of that is going to happenin July for at least the first
four portfolios, but now I seeour signal is beginning to fade.
(26:41):
If you have comments orquestions for me, please send
them to frank atriskparityradiocom.
That email is frank atriskparityradiocom.
Or you can go to the website,wwwriskparityradiocom.
Put your message into thecontact form and I'll get it
that way.
If you haven't had a chance todo it, please go to your
favorite podcast provider andlike, subscribe and give me some
(27:04):
stars, a follow or a review.
Voices (27:07):
That would be great.
Mostly Uncle Frank (27:08):
Okay, thank you once again for tuning in.
This is Frank Vasquez with RiskParry Radio Signing off.
Voices (27:17):
No real man.
Please listen, you don't knowwhat you're missing.
No real man, the world will actyour command.
He's a real Nowhere man Sittingin his Nowhere Land Making all
(27:43):
his Nowhere plans for nobody.
Making all his nowhere plansfor nobody.
Making all his nowhere plansfor nobody.
Making all his nowhere plansfor nobody.
Mary and Voices (28:10):
The Risk Parody Radio Show is hosted by Frank
Vasquez.
The content provided is forentertainment and informational
purposes only and does notconstitute financial, investment
tax or legal advice.
Please consult with your ownadvisors before taking any
actions based on any informationyou have heard here, making
sure to take into account yourown personal circumstances.
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