In this episode we answer emails from Luc, Ellen and Andrew. We discuss Luc's target portfolio, the process for evaluating and choosing new assets for a portfolio -- comparing why managed futures pass the test, while covered call fund and TIPs funds don't --, what's actually in our personal variation of the Golden Ratio portfolio, finding old podcast episodes and basic rebalancing principles as to timing. And learn some Canadian French and Minnesota vernacular along the way.
Links:
Andrew Beer Interview on Masters In Business Podcast: Andrew Beer on the Hedge Fund … - Masters in Business - Apple Podcasts
RPR Episode 40 on YouTube: Episode 40: Answering A Question About Big ERN's Gold Analysis From Joseph K.
Kitces Article on Rebalancing: Optimal Rebalancing – Time Horizons Vs Tolerance Bands
Breathless Unedited AI-Bot Summary:
What makes a truly resilient portfolio? In this revealing episode, Frank Vasquez pulls back the curtain on both theoretical and practical aspects of risk parity investing through thoughtful listener questions.
When a software engineer from French-speaking Canada shares his leveraged risk parity portfolio, Frank offers nuanced guidance on balancing potential returns with sustainability. Rather than dismissing leverage entirely, he suggests a more measured approach—reducing exposure to funds like UPRO while maintaining their rebalancing benefits. This practical compromise exemplifies Frank's philosophy of building portfolios that remain psychologically manageable through market turbulence.
The conversation takes a fascinating turn as Frank reveals his framework for evaluating new investment opportunities. Unlike many advisors who chase trends, his three-question methodology ensures only truly valuable assets earn portfolio space. His explanation of why managed futures succeeded where TIPS failed demonstrates how professional-grade analysis can be applied to personal investing. "The truth is," Frank notes, "a lot of otherwise viable or interesting strategies actually just don't fit into what we're trying to do here."
Perhaps most valuable is Frank's unprecedented breakdown of his personal portfolio holdings. Beyond the expected allocations to stocks, bonds, gold and alternatives, he shares his experiments with direct indexing of property and casualty insurance companies—a Warren Buffett-inspired approach that provided positive returns even during 2022's difficult markets. This rare glimpse into a professional's actual implementation bridges the gap between theory and practice.
Whether you're questioning how often to rebalance, wondering about international exposure, or simply curious about how a professional approaches their own money, this episode delivers actionable insights while maintaining Frank's trademark blend of humor and wisdom. Ready to build a portfolio that marches to a different drummer? This is the roadmap you've been waiting for.
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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.
Mostly Mary (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 are new here and wonderwhat we are talking about, you
may wish to go back and listento some of the foundational
episodes for this program.
Voices (00:50):
Yeah, baby, yeah.
Mostly Uncle Frank (00:52):
And the basic foundational episodes are
episodes 1, 3, 5, 7, and 9.
Some of our listeners,including Karen and Chris, have
identified additional episodesthat you may consider
foundational, and those areepisodes 12, 14, 16, 19, 21, 56,
(01:13):
82, and 184.
Whoa, and you probably shouldcheck those out too, because we
have the finest podcast audienceavailable.
Mostly Mary (01:26):
Top drawer, really top drawer.
Mostly Uncle Frank (01:31):
Along with a host named after a hot dog.
Voices (01:34):
Lighten up Francis.
Mostly Uncle Frank (01:37):
But now onward to episode 421.
Today, on Risk Parity Radio,we're just going to do what we
do best here, which is answeryour emails.
Voices (01:47):
You can't handle the dogs and cats living together.
Mostly Uncle Frank (01:51):
And so without further ado.
Voices (01:53):
Here I go once again with the email.
Mostly Uncle Frank (01:57):
And First off.
First off, we have an emailfrom Luke.
Voices (02:19):
Luke from French-speaking Canada
everywhere.
Là là fait que là il veut pascomprendre.
Là là, ok là, là là, écoute-moi.
Là, ok là, mais là, ben là, benoui, comprenez-vous là.
Mostly Uncle Frank (02:30):
And.
Mostly Mary (02:31):
Luke writes Hi Frank, you completely changed my
investing life for the better,of course.
Uh, what?
It's gone.
It's all gone.
The money in your account itdidn't do too well, it's gone.
I started listening to yourpodcast three years ago and have
been hooked ever since.
I've applied a lot of yourteachings, but I'm still
(02:51):
learning, so let me bow to mysensei.
Mostly Uncle Frank (02:57):
Bow to your sensei.
Mostly Mary (02:57):
Bow to your sensei.
I'm a 46-year-old softwareengineer and have been blessed
with an amazing wife, twofantastic daughters who are now
teens teens and an emotionallyneedy cat.
I'm from the French-speakingpart of Canada.
(03:18):
English is my second language,so you'll have to forgive me if
I make grammatical errors.
Due to my personal situation,it's impossible for me to know
how soon I will be in with mywithdrawal phase.
I have therefore alreadystarted to move to a risk parity
style portfolio.
My portfolio is currently a bitof a mess because I have a mix
of Canadian and US ETFs.
(03:38):
However, my target portfolio isthe following.
My target portfolio is thefollowing 10% UPRO, 15% AVUV,
15% AVDV, 20% ZROZ, 5% GLDM, 15%KILOTO that's, gold hedged to
the Canadian dollar.
(03:59):
20% alternative split equallyacross DBMF, kmlm and GASP BTAL.
Voices (04:07):
Shirley, you can't be serious.
I am serious, and don't call meShirley.
Mostly Mary (04:16):
With the allocation to UPRO, this results in a
light leverage of 1.2x.
The allocation to gold hedgedto the Canadian dollar is based
on analysis of historicalbacktests, taking into account
currency fluctuations.
I'd be happy to share thisanalysis in a future email.
Hopefully Mary is not out ofbreath at this point.
I am not.
Mostly Uncle Frank (04:33):
Mary, Mary, I need your huggin'.
Mostly Mary (04:37):
Here come my questions.
1.
Any thoughts or generalcomments on my target portfolio?
Any thoughts or generalcomments on my target portfolio?
Do you think it would be moreprudent to drop the leverage and
go with 25% VUG, slash, 12%AVUV, slash 12.5% AVDV for my
stock allocation and spread theremaining 50% evenly across
(05:00):
other asset classes?
Two as I've learned newinformation from your podcast
and other sources, my targetportfolio has evolved.
I also noticed that you'vegradually incorporated new ideas
into your model portfolios.
For example, if I recallcorrectly, you didn't use
managed futures when you startedyour podcast.
However, you now recommend themand have incorporated them in
(05:24):
your model portfolios.
How do you decide if a new assetor a previously overlooked
asset is worth adding to theportfolio?
How often would you recommendincorporating new ideas in a
portfolio?
Three in a recent episode yousaid you have an allocation to
IDMO.
I don't remember you sharingthat before.
It reminded me that you'vementioned the importance of
(05:46):
looking at a financial expert'sactual portfolio when
considering their advice.
Over the years, you'veperiodically talked about some
of your holdings, but I don'tremember you giving a more
complete picture of the assetsyou hold and in what proportion
percentages.
Would you be open to share moredetails in your portfolio.
We can then all apply the BruceLee principle on what you share
(06:08):
.
I hope your podcast continuesfor a very long time.
Mostly Uncle Frank (06:14):
Since before your son burned hot in space
and before your race was born, Ihave awaited a question.
Mostly Mary (06:23):
I'm looking forward to at least 400 more episodes
of Risk Parody Radio.
Thanks in advance and all thebest, luke.
Mostly Uncle Frank (06:31):
I guess it's time we all learned how French
is spoken in Canada, given thetrade wars and everything else
going on.
Voices (06:39):
Number three, the famous religious swears, Les sacs.
You see, historically Quebechas had a deep love for religion
.
That's embedded in its societyand culture.
No, it's more of a history ofconflict with the church that
has turned some religious wordsinto profanity, swears, insults,
For example, Chris Christ, ortabarnak tabernacle, carlis, the
(07:02):
chalice and esti.
In fact, you can use them asverbs and nouns.
That's how complex it is.
Esti de carlis de tabarnak,Ferme ta yeule.
Esti, Je m'en crisse, je m'encarlisse Crisse, moins patience.
Esti Crisse-les dans lespoubelles.
Esti, and you can even roll theR to make it that much richer.
Crisse de.
Mostly Uncle Frank (07:23):
And now that we're done with that little
frolic and detour.
First off, I'd like to thankyou for being one of our donors
to the Father McKenna Center.
As most of you know, we do nothave any sponsors on this
podcast.
We do have a charity we support.
It's called the Father McKennaCenter and it supports hungry
and homeless people inWashington DC.
(07:43):
Full disclosure I am on theboard and I'm the current
treasurer, but if you give tothe charity, you get to go to
the front of the email line, asLuke has done here.
Oh, no, and there are a coupleof ways to do that.
You can go to the FatherMcKenna donation page itself,
which I will link to in the shownotes.
Or you can go to the supportpage at wwwriskparadiocom and
(08:07):
join our patrons on Patreon whoare regular donors.
Either way, you can go to thefront of the line that way.
Just make sure to mention it inyour email when you send it to
me so I can duly move you to thefront of the line, or have my
crack team work on that.
Voices (08:26):
We have top men working on it right now.
Who?
Top men.
Mostly Uncle Frank (08:37):
All right, you're in an interesting spot
here with some interestingquestions and first, to clarify
for everyone, the spot you're inis that you seem to have
accumulated a significant amountof money so that you are close
to being financially independent, in which case it's appropriate
to shift to a retirement-styleportfolio, at least with the
(08:58):
money you intend to live off ofwhich you have done, of which
you have done.
It is also true that somepeople choose to accumulate in
these kinds of portfoliosbecause they are less volatile
and less unpleasant to watch goup and down, even though it's
going to take a little longer toget where you need to go if
you're trying to accumulate in arisk parity style portfolio.
(09:19):
Getting to your specificquestions on your target
portfolio yes, it all lookspretty good, although your
question about the leverage is agood one, because I'm not that
comfortable using leveragedfunds for any meaningful amount
in a portfolio, even though Iknow some people do and have
done it successfully.
Voices (09:40):
You have a gambling problem.
Mostly Uncle Frank (09:43):
And we do have experimental portfolios,
some of which are moresuccessful than others.
Voices (09:48):
Well, you have a gambling problem.
Mostly Uncle Frank (09:52):
I would have to say that our portfolio does
look more like 50% in stocks andthen 50% in bonds and
alternatives, as you haveproposed here basically.
As you have proposed here,basically, you might consider
doing a little bit of both here,and what I mean by that is
reducing your exposure to theleverage fund by half, so it
would be only a 5% exposure, andthen making adjustments in the
(10:15):
rest of the portfolio to matchthat.
And if you have a little bit ofUPRO and then some large cap
growth, that kind of go together, it will actually give you more
rebalancing options when youget to those sorts of things
which may be of some use to you.
But either way, it looks likeyou are certainly on the right
track here.
Voices (10:36):
You are correct, sir.
Yes.
Mostly Uncle Frank (10:39):
Your second question is very interesting,
which is how do I decide if anew asset or previously
overlooked asset is worth addingto a portfolio?
And you mentioned managedfutures.
If you look back, the historyof the discussion of managed
futures on this podcast goesback to early January of 2021,
when the podcast was only a fewmonths old.
(11:00):
When the podcast was only a fewmonths old and we discussed
what was relatively new at thetime DBMF, a managed futures
fund, based on an interview byBarry Ritholtz of Andrew Beer,
who is the person who foundedthat fund, and it was
interesting.
The interview was not all aboutDBMF at the time, it was just
(11:20):
kind of an extra thing theytalked about.
But the question is, why did Ipick up on that and not on
something else?
And a lot of it has to do withthe history of the asset class
itself, because some assetclasses have a good long history
of either being able to perform, being uncorrelated with other
assets or some combination ofthose sorts of things.
(11:42):
Managed futures is one of thosethings that has been around and
been successfully used by a lotof traders and a lot of hedge
fund operators for a very longtime, and Cliff Asness and AQR
have a lot of articles andthings about that.
If you really want to know allabout that, I suggest you start
listening to a podcast calledTop Traders, unplugged.
(12:04):
Now we can compare that, whichhas a good long history of being
a viable strategy, to somethingwith a long history of not
(12:25):
being a very good strategy atall.
An example of that would bethese covered call funds which
have been around in variousguises since the 1980s and
really have not added much to aportfolio other than being
expensive and eventuallydecaying.
So when people have mentionedthose, my reaction has been the
opposite, because I know thosedo not have a good long history
(12:47):
of good and useful performance.
And so that's the questionFirst, does this particular
strategy have some kind ofhistory to it, and what is that
history?
So that's the first question.
The next question is hassomething occurred that makes
this strategy more viable thanit used to be and with managed
(13:09):
futures?
The main problem with it priorto recent years and these new
ETFs is that you either had todo it yourself, which is
complicated and takes a lot oftime, and I actually did do some
of this back in the 1990s, so Iknow what it's about, even
though we were working on phonesthen and not on computers.
(13:31):
But the other problem with itin the past few decades has been
, if you wanted to have somebodyelse do it, it was very
expensive.
(13:51):
The funds were very expensive.
A lot of them were inaccessiblebecause they were offered as
partnerships or something likethat, and the mutual funds that
were available usually had feesthat were in excess of 2% and
sometimes in excess of 3% and itreally was not that useful a
strategy if the fees are thathigh because the returns are
(14:13):
somewhere between stocks andbonds on the long-term time
frame.
So what DBMF and some of thesenewer funds have offered is a
much less expensive way to getinto these sorts of things.
It's still an expensive fund.
It's about 0.8 or 0.85, I think, is the expense ratio which is
kind of typical on these thingsright now.
(14:33):
But compared to 2% or 3%, it'svery much a lowered fee, which
is also ameliorated by the factthat you're not going to hold
this as a huge part of yourportfolio it's not going to be
half your portfolio or something.
So the fee in terms of theoverall portfolio is not going
to be that high.
And then it does have a highenough return to support that,
(14:54):
given its very favorablecorrelation coefficients with
both stocks and bonds, which areessentially zero, and plus the
fact it tends to perform best ineither severely deflationary
environments or severelyinflationary environments.
So all of those characteristicsmade it more viable.
(15:15):
And then there's kind of a thirdquestion that I always have in
my mind Is this something thatprofessionals are actually using
respected people and they'renot fly-by-night operators
trying to sell you something,and in this case we're talking
about somebody who has been inthe investment business for, I
think, now three decades, whoappeared on the Barry Ritholtz
(15:37):
podcast, which is called Mastersin Business, where everybody
from Warren Buffett and CharlieMunger to Jack Bogle and anybody
you've ever heard of hasappeared on that podcast.
So if you want to hear frompeople who are working at the
highest levels of the investmentprofession, that is a good
source for listening or learningabout these sorts of things.
(15:59):
If I had only heard about it onsome personal finance podcast
or from some people who are notprofessionals, then I would
certainly discount it severely,because the goal here has always
been to take the best ideasfrom the real professionals who
manage billions of dollars.
Voices (16:18):
The best, Jerry the best .
Mostly Uncle Frank (16:20):
Simplify those down I'm not a smart man.
Simplify those down I'm not asmart man and put them in such a
way that they are useful to ado-it-yourself investor,
particularly in a retirementcontext.
But you really have to startwith people who know what they
are talking about and have beenin this as a paid profession for
a good long period of time.
Now, your next question, orsub-question, was how often
(16:43):
would you recommendincorporating new ideas in a
portfolio?
The answer to that is not veryoften like on the order of once
a decade, or once every fiveyears, at least in any kind of
substantial amount, because thetruth is a lot of otherwise
viable or interesting strategiesactually just don't fit into
what we're trying to do here.
(17:05):
Forget about it, because theywould take up space in a
portfolio for something that isalready doing something we want,
and not give us the same bangfor your buck.
So, for instance, that's one ofthe reasons that I don't think
TIPS funds are very useful inthese kind of portfolios and
I've discussed that before butbasically they do not shield a
(17:25):
portfolio from inflation in anymeaningful manner.
They only shield themselvesfrom inflation when you're
comparing them to nominal bondsor cash.
But they are bonds, but they'rejust not very good bonds.
So it's one of those thingsthat, yeah, in theory you might
be able to use it for something,but when you try to use it in
practice, it doesn't do any jobwell.
Voices (17:46):
You had only one job.
Mostly Uncle Frank (17:49):
Whereas something like managed futures
does several jobs well that arenot done by the other assets in
the portfolio, and so that's why, in years like 2022, when most
traditional assets were down orflat something like managed
futures did quite well.
Voices (18:06):
That's the fact, Jack.
That's the fact, Jack.
Mostly Uncle Frank (18:10):
And you'll find that's true of most kind of
crisis periods where there'seither a lot of inflation or a
lot of deflation going on.
Contrast that with somethinglike tips in 2022, which were
awful the money in your account.
It didn't do too well, it'sgone.
They did not shield anybody'sportfolio from inflation and, in
(18:31):
fact, detracted or madepeople's portfolios worse.
Mostly Mary (18:35):
That's not an improvement.
Mostly Uncle Frank (18:37):
So that is also a very important question
ultimately is does this reallyhave a place in a portfolio?
When we're trying to constructa retirement portfolio to have a
high safe withdrawal rate, whatwould you say you do here?
And in many cases, a lot ofthese assets just don't do
anything well enough that youwould make space in the
(18:59):
portfolio just to have something.
Now I will add one caveat here.
I was really talking aboutmaking a major allocation to an
asset class.
I'm a very curious person, so Idon't mind holding little bits
and pieces of all kinds ofthings, and that is basically
what I use that 6% in the goldenratio portfolio for, Instead of
(19:24):
it holding it in cash like inthe sample portfolio.
That's where we put all of ourodds and ends, if you will, and
before I would want to add asignificant allocation in a
portfolio to anything, I wouldwant to hold it in a very small
quantity for some period of time, at least a year or two, just
to get an idea of what it's like.
So I've done that over theyears with various volatility
(19:47):
funds and funds that invest inthe strength of the US dollar,
some crypto-type related stuffand other experimental things.
Mostly Mary (19:58):
Are you saying that I put an abnormal brain?
Voices (20:04):
into a seven and a half foot long 54-inch wide gorilla.
Is that what you're telling me?
Mostly Uncle Frank (20:19):
And most of these things I just ditch after
a while because they don't seemto be doing anything useful in
particular.
But that's more of the hobbycomponent to investing that I
engage in, which is why I alsowant to limit that to a very
small part of our portfolio, soit's really not affecting the
overall performance of anything.
You need somebody watching yourback at all times.
(20:42):
I wouldn't think that's of verymuch interest to most people,
unless you're just reallycurious about this stuff.
But if you're really curiousabout this stuff, like I am,
just remember that curiositykilled the cat At my age the
mind starts playing tricks.
Voices (20:59):
So, ah, death, that's only the cat, oh.
Mostly Uncle Frank (21:04):
And you don't have nine lives.
So you want to make yourcuriosity only a small part of
what you're doing, so that itdoesn't come up to bite you.
All right, your last questionwith your reference to the
allocation to IDMO I-D-M-O,which is actually a
(21:28):
international momentum fundlarge cap momentum but it
behaves like a niceinternational large cap growth
fund, and the reason that cameup is because some of our
listeners were asking about suchthings, and so that is one of
the options.
That is actually something thatI do hold in part.
Of that 6% that I've beentalking about, a lot of that 6%
(21:50):
is actually in our portfoliodevoted to these international
funds, either internationalvalue funds or international
growth funds, and althoughAvantis has some very nice
international value funds, likeAV DV, the international growth
side is much more spotty.
So you have things that arelabeled international growth
(22:11):
funds, like EFG, then you havethings that are international
growth funds in practice, likeIDMO, and then you have other
things that are designed to belike international tech funds,
like EMQQ, which is a emergingmarkets tech fund, along with
some of these Chinese sharesfunds that we've talked about in
the past.
So I find all of these thingsinteresting and hold small
(22:34):
allocations to them, but they donot form a large part of our
portfolio in a significant way.
Now some of our listeners dowant to have more international
exposures, in which case I stillrecommend that your stock
(22:55):
exposure be divided essentiallyinto the growth side and the
value side and then, in thegrowth side, figure out well how
much of that is US and how muchof that is international or
other country, and then, on thevalue side, do the same exercise
, and it looks like that'ssomething you've done and will
probably work out just fine.
Size, and it looks like that'ssomething you've done and will
probably work out just fine.
(23:17):
So, getting to what our currentportfolio looks like, well, it
is based on the golden ratioportfolio, largely so.
The base part of it is that 42%in stocks, which is divided
into growth and value.
On the growth side, it's a lotof VUG, a little bit of IWY and
a tiny bit of UPRO, which Iwould include in that category,
(23:37):
as well as really from the 6%allocation.
We have some of these fundslike IDMO that add to this
allocation.
Now, the value side of thingsin our portfolio is more
diversified than just holding asmall cap value fund, as I
mentioned before, in addition toholding a substantial
(23:58):
allocation to small cap value,we also hold a substantial
allocation to property andcasualty insurance companies
which fit into the world asmid-cap value.
And the reason I've been holdingthese has a lot to do with
Warren Buffett, because thelesson that I learned from
Warren Buffett that most peoplehave not learned is that having
(24:20):
insurance companies as a largepart of a portfolio tends to
bring a lot of balance and goodperformance because, in addition
to being stable and profitable,they also tend to be less
correlated to the rest of themarket than a lot of other
things.
So the way we've approachedthat is.
There is a fund called KBWPwhich invests in property and
(24:42):
casualty insurance companies.
These are things like Allstateand Chubb and Progressive, with
a name like Smucker's, it has tobe good aggressive With a name
like Smucker's, it has to begood.
So I don't hold that funddirectly because it's expensive.
I think it's cheaper than itused to be, but it's still like
0.35.
We actually hold thosecompanies individually.
So it's a basket of theseproperty and casualty insurance
(25:07):
companies and if you want thelist of them, just go look at
the first 10 holdings in KBWPand that's pretty much what
we've got.
This is one of my minorexperiments in what it's called
direct indexing, where you holdthe individual companies in a
allocation as opposed to simplya fund, and it can be helpful
for tax loss harvesting andtaxable accounts, but I can tell
(25:29):
you it does make our situationmore complicated Inconceivable.
That was also one of theallocations, though that was up
in 2022.
It was up about 10%, so itreally does have some
interesting diversificationproperties.
I had also looked at lifeinsurance companies as part of
that allocation, but decided notto go with those Because I
(25:53):
think there's actually moremoney or profitability to be
made on the property andcasualty insurance side of
things, for an interestingreason that life insurance is
actually very predictable.
Using something called theGompertz mortality curve, it's
relatively easy to know whenpopulations are going to die and
since everybody can know it,it's easy to price.
Life insurance, property andcasualty insurance is much more
(26:15):
difficult to price, and so thecompanies that can do it well,
like Progressive, are veryprofitable companies, and I
think that's only going toimprove with the use of
artificial intelligence.
Now, the other allocation thatwe hold on the value side, on
the stock value side, is alsokind of an experiment in direct
(26:36):
indexing, and it's large capvalue companies.
So what I did there is alsolook and find a large cap value
fund that has had a very goodtrack record of picking these
sorts of things.
But instead of buying the fundand the fund is called PARWX
used to be the ParnassusEndeavor Fund, now it's called
(26:57):
the Parnassus Large Cap ValueFund and I basically looked
inside of that and took the top25 holdings and there are things
like Oracle and S&P Global andJohn Deere and stuff like that
and S&P Global and John Deereand stuff like that, and so
those also make up an allocationin our taxable account as part
of our large-cap value holdings,and that also does help with
(27:19):
tax-loss harvesting having thoseindividual companies to be able
to buy and sell.
So you can see, on the stockside of things, I've added some
unnecessary complexity to ourportfolio.
Mostly Mary (27:33):
I think I've improved on your methods a bit
too.
I employed some Chiara Scuroshading.
Mostly Uncle Frank (27:38):
But I've tried to do it in such a way
that it will have mostlypositive effects and not very
much tinkering effects.
And no, I don't think anybodyreally needs to do that.
But I know that a lot of peopledo like to tinker with their
portfolios, in which case it isgood to set up some guardrails
around what you're doing, so youknow it's within a framework
(28:01):
and isn't going to mess thingsup.
Voices (28:04):
So that means that every single day that you see me.
That's on the worst day of mylife.
What about today?
Is today the worst day of yourlife?
Mostly Uncle Frank (28:15):
Yeah, Wow that's messed up.
Okay, in addition to the stockallocation, which is the 42%,
and the golden ratio, to whichwe've added the 6%, because a
lot of the things I've hold inthere are international stock
funds like AVDV, we also havethe 26% in long-term treasury
(28:39):
bonds, essentially, and that's amixture of things like VGLT and
then also things like ZROZ,which allows us to actually hold
a little bit less in there than26% nominal.
And then we hold 16% in gold,which is mostly in GLDM, 10% in
managed futures, which is mostlyin DBMF, but also some KMLM,
(28:59):
and that's about it.
I think I've also mentionedthat we do have a couple of
smaller Roth accounts that I usefor experimental portfolios
because we don't intend to usethem for anything in particular,
and hopefully they will grow tobe something very large and be
like the last things we would betouching, and that's really the
place we're fiddling aroundwith things like you, pro.
(29:21):
So hopefully that gives you anoverview.
I'm sure I've missed somethingand you should apply bruce lee
principles to that.
Those principles are take whatis useful, discard what is
useless and add somethinguniquely your own.
And what you should definitelydiscard is most of the
(29:47):
complexities I've added to thesesorts of things because they're
completely unnecessary for whatwe are actually needing or
trying to do, although I'vetried to make sure that they do
not interfere with our ultimategoals and are organized in the
(30:10):
overall allocations that we want.
In terms of macro allocations,I think you're going to be just
fine if you stick to muchsimpler formulations that are
(30:32):
similar to things like thegolden butterfly and golden
ratio sample portfolios.
And, as to your final comment,I hope your podcast continues
for a very long time.
I'm looking forward to at least400 more episodes of Risk
Parity Radio and, yeah, I'mhoping it does too.
I really set out to make thisabout a 10-year project, and
(30:52):
we're only in year five rightnow.
Voices (30:55):
It does sound like fun.
I can't wait to start pawingthrough my garbage like some
starving raccoon.
Mostly Uncle Frank (31:02):
One of the reasons I'm able to keep it up
is that it's a very minimalistoperation.
It's not that I'm lazy.
Voices (31:10):
It's that, I just don't care.
Mostly Uncle Frank (31:13):
It usually takes less than 10 hours a week,
even doing two podcasts, butthat's one of the reasons we
have no sponsors, we have noguests and we have no expansion
plans.
Voices (31:24):
So are you gonna get another job?
I don't think I'd like anotherjob.
Mostly Uncle Frank (31:29):
Because I do want this to be sustainable and
fun as a retirement hobby andnot turn into another job.
Voices (31:36):
Looks like you've been missing a lot of work lately.
I wouldn't say I've beenmissing it, Bob.
Good one.
Mostly Uncle Frank (31:44):
We have seen slow growth over the years, but
it's been nice growth becauseI'm really appreciative of the
kinds of podcast listeners thatwe've attracted.
It seems like there are about2,000 regular listeners now,
somewhere between 1,500 and2,000.
We are up to 900 and somethousand downloads and should
(32:04):
hit a million downloads sometimelater this year, which I always
have to laugh, because in orderfor a podcast to be
commercially viable, it needs tobe having more like hundreds of
thousands of downloads a monthor millions of downloads a month
.
But even having only a mere 20to 30 000 downloads a month puts
me in the top one percent ofall podcasts, which just tells
(32:28):
you that there are a whole lotof podcasts out there that
nobody's listening to forgetabout it but thank you for your
support, luke, and thank you foryour email and as I had already
lived a little bit in france, Iwanted to discover something
else.
Voices (32:45):
so for a year, I decided to improve my French in Quebec.
Yeah, but no one had warned me,in fact, that this is not where
you need to improve your French.
And I realized very quicklythat going to Quebec to improve
your French is a bit like goingto England to improve your
cuisine we have the sameingredients, but we do anything
(33:08):
with them.
Mostly Uncle Frank (33:11):
Well, that was a long one.
I think we do have time for acouple of short ones here.
So getting to the next one,second off, second off.
Mostly Mary (33:22):
We have an email from Ellen, and Ellen writes how
do I get to a specific podcast,for example, how do I get to
podcast number 40?
To be clear, the search bardoes not seem to be working.
Okay, turn it on.
Voices (33:42):
Kill, kill, turn it off, turn it off.
It's a piece of crap.
It doesn't work.
I could have told you that.
Mostly Uncle Frank (33:59):
Well, there are several ways of accessing
the podcast.
It looks like you're strugglingwith the main podcast page.
I'm sorry about that.
I don't have any explanationfor it.
I'll put my crack team on itthough.
Voices (34:12):
We have top men working on it right now.
Mostly Uncle Frank (34:20):
Top men, if you're having trouble there.
It is also distributed fairlywidely to Apple Podcasts, to
Spotify and to YouTube and itmay be easiest for most people
just to go to YouTube.
And there is a Risk ParityRadio channel and all the
podcasts are there.
Oh, skitsign it.
(34:40):
You can search the number andprobably find it pretty quickly.
The other place you can findall of the podcasts on one web
page is the RSS feed page, whichis also accessible from the
podcast page atwwwriskprioritycom.
Just follow that link whichappears in the text near the top
, and that will take you to avery long web page with all 421
(35:06):
podcasts on it and all of theshow notes.
So don't try to open it on yourphone, open it on a browser.
But you can find everythingthere in one place and you can
even search it for particulartopics with that control F
function.
Voices (35:21):
Yes.
Mostly Uncle Frank (35:23):
So hopefully that helps you find things and
thank you for your email, gosh,last off.
Last off, an email from Andy,and Andy writes Hi, frank.
Mostly Mary (35:48):
I've been following your work for about a year now
and I'm a very loyal listener,top drawer, really top drawer.
Using what we have learned fromthe podcast, my wife and I have
recently converted to a riskparity style portfolio.
I have one question, though howoften should we rebalance the
portfolio, assuming that we'reabout five years from taking
(36:10):
distributions out of it?
Thanks for all that you do,andy from Minnesota.
Voices (36:16):
Well, hey there, I didn't see you.
My name is Pat and, if it's allright, I'd like to take a
moment to introduce you to a fewwords you might hear in
Minnesota.
Number one hot dish.
In Minnesota, hot dish is whatyou might call a casserole, but
it can also be any dish withmeat, canned green beans, canned
corn, canned cream of mushroomsoup and, of course, tater tots,
(36:39):
corn canned cream of mushroomsoup and, of course, tater tots.
Number two that's different InMinnesota.
Saying that's different is ourway of saying.
Mostly Uncle Frank (36:47):
I don't like it in a polite way, for example
, you might try your neighbor'shot dish and say that's
different.
Well, andy, these are not thatmuch different from most other
(37:14):
kinds of portfolios.
So once a year is a goodguideline for rebalancing and
you could do it.
More says is that once a yearseems to work pretty well and if
you do it more often than that,it probably doesn't make much
of a difference, although itwon't hurt you If you are still
adding to the portfolio.
You can simply just add towhatever allocation is low and
that will essentially do yourrebalancing along the way.
(37:37):
And that would probably beuseful if you're talking about a
taxable account, because youwant to reduce the number of
transactions in your taxableaccounts to avoid unnecessary
taxes.
The other way people haveapproached rebalancing is with
what are called rebalancing bans, and that is also described in
the Michael Kitsis article thatI'm going to link to.
(37:57):
But essentially that is whereyou actually look at the
percentages to see how far outof line your current percentages
are versus your targetallocations.
So, for example, since gold hasperformed so well in the recent
past, if you look at somethinglike the current sample
portfolio of the goldenbutterfly or the golden ratio,
(38:21):
current sample portfolio of thegolden butterfly or the golden
ratio, you'll see that thepercentage of gold overall in
the portfolio is more than 20%of its target allocation.
If you were on a rebalancingband plan, that would probably
be enough to trigger arebalancing the whole portfolio,
and so that's the other way ofdoing things.
We do manage some of theexperimental portfolios using
(38:42):
that kind of rebalancing bandmanagement, so if you want to
take a look at those, you'll getan idea for how it works.
I don't really think it'snecessary in your case.
It is more something for peoplethat just like to be more
hands-on with their portfolios.
As long as you are rebalancingit once a year or thereabouts,
(39:04):
things should work out just fine.
Hopefully that helps, and thankyou for your email.
Voices (39:11):
Number four oh for cute.
Oh for cute basicallytranslates to how wonderful Sure
.
You can say it about a dog or ababy, but you can also say it
about an antique shop or a quiltor a grey duck.
Number five you betcha.
This last one is reallyimportant because you betcha is
how Minnesotans say you'rewelcome.
(39:32):
For instance, you might say,hey, pat, thanks for taking so
much time out of your day tomake this video, and I might
respond you betcha.
Mostly Uncle Frank (39:45):
But now I see our signal is beginning to
fade.
If you have comments orquestions for me, please send
them to frank atriskparryradarcom.
That email is frank atriskparryradarcom.
Or you can go to the website,wwwriskparryradarcom.
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
(40:06):
favorite podcast provider andlike, subscribe and make some
stars a follower of you.
That would be great.
Okay, thank you once again fortuning in.
This is Frank Vasquez with RiskParty Radio signing off Round
and round.
Voices (40:25):
We'll love a fun way.
Just give it time.
Round and round.
What comes around goes around.
I'll tell you why.
Round and round Will love orfire away.
(40:48):
Just give it time, time, time,time.
What comes around goes around.
I'll tell you why, why, why,why Round and round.
Mostly Mary (41:18):
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.
Mostly Mary (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 are new here and wonderwhat we are talking about, you
may wish to go back and listento some of the foundational
episodes for this program.
Voices (00:50):
Yeah, baby, yeah.
Mostly Uncle Frank (00:52):
And the basic foundational episodes are
episodes 1, 3, 5, 7, and 9.
Some of our listeners,including Karen and Chris, have
identified additional episodesthat you may consider
foundational, and those areepisodes 12, 14, 16, 19, 21, 56,
(01:13):
82, and 184.
Whoa, and you probably shouldcheck those out too, because we
have the finest podcast audienceavailable.
Mostly Mary (01:26):
Top drawer, really top drawer.
Mostly Uncle Frank (01:31):
Along with a host named after a hot dog.
Voices (01:34):
Lighten up Francis.
Mostly Uncle Frank (01:37):
But now onward to episode 421.
Today, on Risk Parity Radio,we're just going to do what we
do best here, which is answeryour emails.
Voices (01:47):
You can't handle the dogs and cats living together.
Mostly Uncle Frank (01:51):
And so without further ado.
Voices (01:53):
Here I go once again with the email.
Mostly Uncle Frank (01:57):
And First off.
First off, we have an emailfrom Luke.
Voices (02:19):
Luke from French-speaking Canada
everywhere.
Là là fait que là il veut pascomprendre.
Là là, ok là, là là, écoute-moi.
Là, ok là, mais là, ben là, benoui, comprenez-vous là.
Mostly Uncle Frank (02:30):
And.
Mostly Mary (02:31):
Luke writes Hi Frank, you completely changed my
investing life for the better,of course.
Uh, what?
It's gone.
It's all gone.
The money in your account itdidn't do too well, it's gone.
I started listening to yourpodcast three years ago and have
been hooked ever since.
I've applied a lot of yourteachings, but I'm still
(02:51):
learning, so let me bow to mysensei.
Mostly Uncle Frank (02:57):
Bow to your sensei.
Mostly Mary (02:57):
Bow to your sensei.
I'm a 46-year-old softwareengineer and have been blessed
with an amazing wife, twofantastic daughters who are now
teens teens and an emotionallyneedy cat.
I'm from the French-speakingpart of Canada.
(03:18):
English is my second language,so you'll have to forgive me if
I make grammatical errors.
Due to my personal situation,it's impossible for me to know
how soon I will be in with mywithdrawal phase.
I have therefore alreadystarted to move to a risk parity
style portfolio.
My portfolio is currently a bitof a mess because I have a mix
of Canadian and US ETFs.
(03:38):
However, my target portfolio isthe following.
My target portfolio is thefollowing 10% UPRO, 15% AVUV,
15% AVDV, 20% ZROZ, 5% GLDM, 15%KILOTO that's, gold hedged to
the Canadian dollar.
(03:59):
20% alternative split equallyacross DBMF, kmlm and GASP BTAL.
Voices (04:07):
Shirley, you can't be serious.
I am serious, and don't call meShirley.
Mostly Mary (04:16):
With the allocation to UPRO, this results in a
light leverage of 1.2x.
The allocation to gold hedgedto the Canadian dollar is based
on analysis of historicalbacktests, taking into account
currency fluctuations.
I'd be happy to share thisanalysis in a future email.
Hopefully Mary is not out ofbreath at this point.
I am not.
Mostly Uncle Frank (04:33):
Mary, Mary, I need your huggin'.
Mostly Mary (04:37):
Here come my questions.
1.
Any thoughts or generalcomments on my target portfolio?
Any thoughts or generalcomments on my target portfolio?
Do you think it would be moreprudent to drop the leverage and
go with 25% VUG, slash, 12%AVUV, slash 12.5% AVDV for my
stock allocation and spread theremaining 50% evenly across
(05:00):
other asset classes?
Two as I've learned newinformation from your podcast
and other sources, my targetportfolio has evolved.
I also noticed that you'vegradually incorporated new ideas
into your model portfolios.
For example, if I recallcorrectly, you didn't use
managed futures when you startedyour podcast.
However, you now recommend themand have incorporated them in
(05:24):
your model portfolios.
How do you decide if a new assetor a previously overlooked
asset is worth adding to theportfolio?
How often would you recommendincorporating new ideas in a
portfolio?
Three in a recent episode yousaid you have an allocation to
IDMO.
I don't remember you sharingthat before.
It reminded me that you'vementioned the importance of
(05:46):
looking at a financial expert'sactual portfolio when
considering their advice.
Over the years, you'veperiodically talked about some
of your holdings, but I don'tremember you giving a more
complete picture of the assetsyou hold and in what proportion
percentages.
Would you be open to share moredetails in your portfolio.
We can then all apply the BruceLee principle on what you share
(06:08):
.
I hope your podcast continuesfor a very long time.
Mostly Uncle Frank (06:14):
Since before your son burned hot in space
and before your race was born, Ihave awaited a question.
Mostly Mary (06:23):
I'm looking forward to at least 400 more episodes
of Risk Parody Radio.
Thanks in advance and all thebest, luke.
Mostly Uncle Frank (06:31):
I guess it's time we all learned how French
is spoken in Canada, given thetrade wars and everything else
going on.
Voices (06:39):
Number three, the famous religious swears, Les sacs.
You see, historically Quebechas had a deep love for religion
.
That's embedded in its societyand culture.
No, it's more of a history ofconflict with the church that
has turned some religious wordsinto profanity, swears, insults,
For example, Chris Christ, ortabarnak tabernacle, carlis, the
(07:02):
chalice and esti.
In fact, you can use them asverbs and nouns.
That's how complex it is.
Esti de carlis de tabarnak,Ferme ta yeule.
Esti, Je m'en crisse, je m'encarlisse Crisse, moins patience.
Esti Crisse-les dans lespoubelles.
Esti, and you can even roll theR to make it that much richer.
Crisse de.
Mostly Uncle Frank (07:23):
And now that we're done with that little
frolic and detour.
First off, I'd like to thankyou for being one of our donors
to the Father McKenna Center.
As most of you know, we do nothave any sponsors on this
podcast.
We do have a charity we support.
It's called the Father McKennaCenter and it supports hungry
and homeless people inWashington DC.
(07:43):
Full disclosure I am on theboard and I'm the current
treasurer, but if you give tothe charity, you get to go to
the front of the email line, asLuke has done here.
Oh, no, and there are a coupleof ways to do that.
You can go to the FatherMcKenna donation page itself,
which I will link to in the shownotes.
Or you can go to the supportpage at wwwriskparadiocom and
(08:07):
join our patrons on Patreon whoare regular donors.
Either way, you can go to thefront of the line that way.
Just make sure to mention it inyour email when you send it to
me so I can duly move you to thefront of the line, or have my
crack team work on that.
Voices (08:26):
We have top men working on it right now.
Who?
Top men.
Mostly Uncle Frank (08:37):
All right, you're in an interesting spot
here with some interestingquestions and first, to clarify
for everyone, the spot you're inis that you seem to have
accumulated a significant amountof money so that you are close
to being financially independent, in which case it's appropriate
to shift to a retirement-styleportfolio, at least with the
(08:58):
money you intend to live off ofwhich you have done, of which
you have done.
It is also true that somepeople choose to accumulate in
these kinds of portfoliosbecause they are less volatile
and less unpleasant to watch goup and down, even though it's
going to take a little longer toget where you need to go if
you're trying to accumulate in arisk parity style portfolio.
(09:19):
Getting to your specificquestions on your target
portfolio yes, it all lookspretty good, although your
question about the leverage is agood one, because I'm not that
comfortable using leveragedfunds for any meaningful amount
in a portfolio, even though Iknow some people do and have
done it successfully.
Voices (09:40):
You have a gambling problem.
Mostly Uncle Frank (09:43):
And we do have experimental portfolios,
some of which are moresuccessful than others.
Voices (09:48):
Well, you have a gambling problem.
Mostly Uncle Frank (09:52):
I would have to say that our portfolio does
look more like 50% in stocks andthen 50% in bonds and
alternatives, as you haveproposed here basically.
As you have proposed here,basically, you might consider
doing a little bit of both here,and what I mean by that is
reducing your exposure to theleverage fund by half, so it
would be only a 5% exposure, andthen making adjustments in the
(10:15):
rest of the portfolio to matchthat.
And if you have a little bit ofUPRO and then some large cap
growth, that kind of go together, it will actually give you more
rebalancing options when youget to those sorts of things
which may be of some use to you.
But either way, it looks likeyou are certainly on the right
track here.
Voices (10:36):
You are correct, sir.
Yes.
Mostly Uncle Frank (10:39):
Your second question is very interesting,
which is how do I decide if anew asset or previously
overlooked asset is worth addingto a portfolio?
And you mentioned managedfutures.
If you look back, the historyof the discussion of managed
futures on this podcast goesback to early January of 2021,
when the podcast was only a fewmonths old.
(11:00):
When the podcast was only a fewmonths old and we discussed
what was relatively new at thetime DBMF, a managed futures
fund, based on an interview byBarry Ritholtz of Andrew Beer,
who is the person who foundedthat fund, and it was
interesting.
The interview was not all aboutDBMF at the time, it was just
(11:20):
kind of an extra thing theytalked about.
But the question is, why did Ipick up on that and not on
something else?
And a lot of it has to do withthe history of the asset class
itself, because some assetclasses have a good long history
of either being able to perform, being uncorrelated with other
assets or some combination ofthose sorts of things.
(11:42):
Managed futures is one of thosethings that has been around and
been successfully used by a lotof traders and a lot of hedge
fund operators for a very longtime, and Cliff Asness and AQR
have a lot of articles andthings about that.
If you really want to know allabout that, I suggest you start
listening to a podcast calledTop Traders, unplugged.
(12:04):
Now we can compare that, whichhas a good long history of being
a viable strategy, to somethingwith a long history of not
(12:25):
being a very good strategy atall.
An example of that would bethese covered call funds which
have been around in variousguises since the 1980s and
really have not added much to aportfolio other than being
expensive and eventuallydecaying.
So when people have mentionedthose, my reaction has been the
opposite, because I know thosedo not have a good long history
(12:47):
of good and useful performance.
And so that's the questionFirst, does this particular
strategy have some kind ofhistory to it, and what is that
history?
So that's the first question.
The next question is hassomething occurred that makes
this strategy more viable thanit used to be and with managed
(13:09):
futures?
The main problem with it priorto recent years and these new
ETFs is that you either had todo it yourself, which is
complicated and takes a lot oftime, and I actually did do some
of this back in the 1990s, so Iknow what it's about, even
though we were working on phonesthen and not on computers.
(13:31):
But the other problem with itin the past few decades has been
, if you wanted to have somebodyelse do it, it was very
expensive.
(13:51):
The funds were very expensive.
A lot of them were inaccessiblebecause they were offered as
partnerships or something likethat, and the mutual funds that
were available usually had feesthat were in excess of 2% and
sometimes in excess of 3% and itreally was not that useful a
strategy if the fees are thathigh because the returns are
(14:13):
somewhere between stocks andbonds on the long-term time
frame.
So what DBMF and some of thesenewer funds have offered is a
much less expensive way to getinto these sorts of things.
It's still an expensive fund.
It's about 0.8 or 0.85, I think, is the expense ratio which is
kind of typical on these thingsright now.
(14:33):
But compared to 2% or 3%, it'svery much a lowered fee, which
is also ameliorated by the factthat you're not going to hold
this as a huge part of yourportfolio it's not going to be
half your portfolio or something.
So the fee in terms of theoverall portfolio is not going
to be that high.
And then it does have a highenough return to support that,
(14:54):
given its very favorablecorrelation coefficients with
both stocks and bonds, which areessentially zero, and plus the
fact it tends to perform best ineither severely deflationary
environments or severelyinflationary environments.
So all of those characteristicsmade it more viable.
(15:15):
And then there's kind of a thirdquestion that I always have in
my mind Is this something thatprofessionals are actually using
respected people and they'renot fly-by-night operators
trying to sell you something,and in this case we're talking
about somebody who has been inthe investment business for, I
think, now three decades, whoappeared on the Barry Ritholtz
(15:37):
podcast, which is called Mastersin Business, where everybody
from Warren Buffett and CharlieMunger to Jack Bogle and anybody
you've ever heard of hasappeared on that podcast.
So if you want to hear frompeople who are working at the
highest levels of the investmentprofession, that is a good
source for listening or learningabout these sorts of things.
(15:59):
If I had only heard about it onsome personal finance podcast
or from some people who are notprofessionals, then I would
certainly discount it severely,because the goal here has always
been to take the best ideasfrom the real professionals who
manage billions of dollars.
Voices (16:18):
The best, Jerry the best .
Mostly Uncle Frank (16:20):
Simplify those down I'm not a smart man.
Simplify those down I'm not asmart man and put them in such a
way that they are useful to ado-it-yourself investor,
particularly in a retirementcontext.
But you really have to startwith people who know what they
are talking about and have beenin this as a paid profession for
a good long period of time.
Now, your next question, orsub-question, was how often
(16:43):
would you recommendincorporating new ideas in a
portfolio?
The answer to that is not veryoften like on the order of once
a decade, or once every fiveyears, at least in any kind of
substantial amount, because thetruth is a lot of otherwise
viable or interesting strategiesactually just don't fit into
what we're trying to do here.
(17:05):
Forget about it, because theywould take up space in a
portfolio for something that isalready doing something we want,
and not give us the same bangfor your buck.
So, for instance, that's one ofthe reasons that I don't think
TIPS funds are very useful inthese kind of portfolios and
I've discussed that before butbasically they do not shield a
(17:25):
portfolio from inflation in anymeaningful manner.
They only shield themselvesfrom inflation when you're
comparing them to nominal bondsor cash.
But they are bonds, but they'rejust not very good bonds.
So it's one of those thingsthat, yeah, in theory you might
be able to use it for something,but when you try to use it in
practice, it doesn't do any jobwell.
Voices (17:46):
You had only one job.
Mostly Uncle Frank (17:49):
Whereas something like managed futures
does several jobs well that arenot done by the other assets in
the portfolio, and so that's why, in years like 2022, when most
traditional assets were down orflat something like managed
futures did quite well.
Voices (18:06):
That's the fact, Jack.
That's the fact, Jack.
Mostly Uncle Frank (18:10):
And you'll find that's true of most kind of
crisis periods where there'seither a lot of inflation or a
lot of deflation going on.
Contrast that with somethinglike tips in 2022, which were
awful the money in your account.
It didn't do too well, it'sgone.
They did not shield anybody'sportfolio from inflation and, in
(18:31):
fact, detracted or madepeople's portfolios worse.
Mostly Mary (18:35):
That's not an improvement.
Mostly Uncle Frank (18:37):
So that is also a very important question
ultimately is does this reallyhave a place in a portfolio?
When we're trying to constructa retirement portfolio to have a
high safe withdrawal rate, whatwould you say you do here?
And in many cases, a lot ofthese assets just don't do
anything well enough that youwould make space in the
(18:59):
portfolio just to have something.
Now I will add one caveat here.
I was really talking aboutmaking a major allocation to an
asset class.
I'm a very curious person, so Idon't mind holding little bits
and pieces of all kinds ofthings, and that is basically
what I use that 6% in the goldenratio portfolio for, Instead of
(19:24):
it holding it in cash like inthe sample portfolio.
That's where we put all of ourodds and ends, if you will, and
before I would want to add asignificant allocation in a
portfolio to anything, I wouldwant to hold it in a very small
quantity for some period of time, at least a year or two, just
to get an idea of what it's like.
So I've done that over theyears with various volatility
(19:47):
funds and funds that invest inthe strength of the US dollar,
some crypto-type related stuffand other experimental things.
Mostly Mary (19:58):
Are you saying that I put an abnormal brain?
Voices (20:04):
into a seven and a half foot long 54-inch wide gorilla.
Is that what you're telling me?
Mostly Uncle Frank (20:19):
And most of these things I just ditch after
a while because they don't seemto be doing anything useful in
particular.
But that's more of the hobbycomponent to investing that I
engage in, which is why I alsowant to limit that to a very
small part of our portfolio, soit's really not affecting the
overall performance of anything.
You need somebody watching yourback at all times.
(20:42):
I wouldn't think that's of verymuch interest to most people,
unless you're just reallycurious about this stuff.
But if you're really curiousabout this stuff, like I am,
just remember that curiositykilled the cat At my age the
mind starts playing tricks.
Voices (20:59):
So, ah, death, that's only the cat, oh.
Mostly Uncle Frank (21:04):
And you don't have nine lives.
So you want to make yourcuriosity only a small part of
what you're doing, so that itdoesn't come up to bite you.
All right, your last questionwith your reference to the
allocation to IDMO I-D-M-O,which is actually a
(21:28):
international momentum fundlarge cap momentum but it
behaves like a niceinternational large cap growth
fund, and the reason that cameup is because some of our
listeners were asking about suchthings, and so that is one of
the options.
That is actually something thatI do hold in part.
Of that 6% that I've beentalking about, a lot of that 6%
(21:50):
is actually in our portfoliodevoted to these international
funds, either internationalvalue funds or international
growth funds, and althoughAvantis has some very nice
international value funds, likeAV DV, the international growth
side is much more spotty.
So you have things that arelabeled international growth
(22:11):
funds, like EFG, then you havethings that are international
growth funds in practice, likeIDMO, and then you have other
things that are designed to belike international tech funds,
like EMQQ, which is a emergingmarkets tech fund, along with
some of these Chinese sharesfunds that we've talked about in
the past.
So I find all of these thingsinteresting and hold small
(22:34):
allocations to them, but they donot form a large part of our
portfolio in a significant way.
Now some of our listeners dowant to have more international
exposures, in which case I stillrecommend that your stock
(22:55):
exposure be divided essentiallyinto the growth side and the
value side and then, in thegrowth side, figure out well how
much of that is US and how muchof that is international or
other country, and then, on thevalue side, do the same exercise
, and it looks like that'ssomething you've done and will
probably work out just fine.
Size, and it looks like that'ssomething you've done and will
probably work out just fine.
(23:17):
So, getting to what our currentportfolio looks like, well, it
is based on the golden ratioportfolio, largely so.
The base part of it is that 42%in stocks, which is divided
into growth and value.
On the growth side, it's a lotof VUG, a little bit of IWY and
a tiny bit of UPRO, which Iwould include in that category,
(23:37):
as well as really from the 6%allocation.
We have some of these fundslike IDMO that add to this
allocation.
Now, the value side of thingsin our portfolio is more
diversified than just holding asmall cap value fund, as I
mentioned before, in addition toholding a substantial
(23:58):
allocation to small cap value,we also hold a substantial
allocation to property andcasualty insurance companies
which fit into the world asmid-cap value.
And the reason I've been holdingthese has a lot to do with
Warren Buffett, because thelesson that I learned from
Warren Buffett that most peoplehave not learned is that having
(24:20):
insurance companies as a largepart of a portfolio tends to
bring a lot of balance and goodperformance because, in addition
to being stable and profitable,they also tend to be less
correlated to the rest of themarket than a lot of other
things.
So the way we've approachedthat is.
There is a fund called KBWPwhich invests in property and
(24:42):
casualty insurance companies.
These are things like Allstateand Chubb and Progressive, with
a name like Smucker's, it has tobe good aggressive With a name
like Smucker's, it has to begood.
So I don't hold that funddirectly because it's expensive.
I think it's cheaper than itused to be, but it's still like
0.35.
We actually hold thosecompanies individually.
So it's a basket of theseproperty and casualty insurance
(25:07):
companies and if you want thelist of them, just go look at
the first 10 holdings in KBWPand that's pretty much what
we've got.
This is one of my minorexperiments in what it's called
direct indexing, where you holdthe individual companies in a
allocation as opposed to simplya fund, and it can be helpful
for tax loss harvesting andtaxable accounts, but I can tell
(25:29):
you it does make our situationmore complicated Inconceivable.
That was also one of theallocations, though that was up
in 2022.
It was up about 10%, so itreally does have some
interesting diversificationproperties.
I had also looked at lifeinsurance companies as part of
that allocation, but decided notto go with those Because I
(25:53):
think there's actually moremoney or profitability to be
made on the property andcasualty insurance side of
things, for an interestingreason that life insurance is
actually very predictable.
Using something called theGompertz mortality curve, it's
relatively easy to know whenpopulations are going to die and
since everybody can know it,it's easy to price.
Life insurance, property andcasualty insurance is much more
(26:15):
difficult to price, and so thecompanies that can do it well,
like Progressive, are veryprofitable companies, and I
think that's only going toimprove with the use of
artificial intelligence.
Now, the other allocation thatwe hold on the value side, on
the stock value side, is alsokind of an experiment in direct
(26:36):
indexing, and it's large capvalue companies.
So what I did there is alsolook and find a large cap value
fund that has had a very goodtrack record of picking these
sorts of things.
But instead of buying the fundand the fund is called PARWX
used to be the ParnassusEndeavor Fund, now it's called
(26:57):
the Parnassus Large Cap ValueFund and I basically looked
inside of that and took the top25 holdings and there are things
like Oracle and S&P Global andJohn Deere and stuff like that
and S&P Global and John Deereand stuff like that, and so
those also make up an allocationin our taxable account as part
of our large-cap value holdings,and that also does help with
(27:19):
tax-loss harvesting having thoseindividual companies to be able
to buy and sell.
So you can see, on the stockside of things, I've added some
unnecessary complexity to ourportfolio.
Mostly Mary (27:33):
I think I've improved on your methods a bit
too.
I employed some Chiara Scuroshading.
Mostly Uncle Frank (27:38):
But I've tried to do it in such a way
that it will have mostlypositive effects and not very
much tinkering effects.
And no, I don't think anybodyreally needs to do that.
But I know that a lot of peopledo like to tinker with their
portfolios, in which case it isgood to set up some guardrails
around what you're doing, so youknow it's within a framework
(28:01):
and isn't going to mess thingsup.
Voices (28:04):
So that means that every single day that you see me.
That's on the worst day of mylife.
What about today?
Is today the worst day of yourlife?
Mostly Uncle Frank (28:15):
Yeah, Wow that's messed up.
Okay, in addition to the stockallocation, which is the 42%,
and the golden ratio, to whichwe've added the 6%, because a
lot of the things I've hold inthere are international stock
funds like AVDV, we also havethe 26% in long-term treasury
(28:39):
bonds, essentially, and that's amixture of things like VGLT and
then also things like ZROZ,which allows us to actually hold
a little bit less in there than26% nominal.
And then we hold 16% in gold,which is mostly in GLDM, 10% in
managed futures, which is mostlyin DBMF, but also some KMLM,
(28:59):
and that's about it.
I think I've also mentionedthat we do have a couple of
smaller Roth accounts that I usefor experimental portfolios
because we don't intend to usethem for anything in particular,
and hopefully they will grow tobe something very large and be
like the last things we would betouching, and that's really the
place we're fiddling aroundwith things like you, pro.
(29:21):
So hopefully that gives you anoverview.
I'm sure I've missed somethingand you should apply bruce lee
principles to that.
Those principles are take whatis useful, discard what is
useless and add somethinguniquely your own.
And what you should definitelydiscard is most of the
(29:47):
complexities I've added to thesesorts of things because they're
completely unnecessary for whatwe are actually needing or
trying to do, although I'vetried to make sure that they do
not interfere with our ultimategoals and are organized in the
(30:10):
overall allocations that we want.
In terms of macro allocations,I think you're going to be just
fine if you stick to muchsimpler formulations that are
(30:32):
similar to things like thegolden butterfly and golden
ratio sample portfolios.
And, as to your final comment,I hope your podcast continues
for a very long time.
I'm looking forward to at least400 more episodes of Risk
Parity Radio and, yeah, I'mhoping it does too.
I really set out to make thisabout a 10-year project, and
(30:52):
we're only in year five rightnow.
Voices (30:55):
It does sound like fun.
I can't wait to start pawingthrough my garbage like some
starving raccoon.
Mostly Uncle Frank (31:02):
One of the reasons I'm able to keep it up
is that it's a very minimalistoperation.
It's not that I'm lazy.
Voices (31:10):
It's that, I just don't care.
Mostly Uncle Frank (31:13):
It usually takes less than 10 hours a week,
even doing two podcasts, butthat's one of the reasons we
have no sponsors, we have noguests and we have no expansion
plans.
Voices (31:24):
So are you gonna get another job?
I don't think I'd like anotherjob.
Mostly Uncle Frank (31:29):
Because I do want this to be sustainable and
fun as a retirement hobby andnot turn into another job.
Voices (31:36):
Looks like you've been missing a lot of work lately.
I wouldn't say I've beenmissing it, Bob.
Good one.
Mostly Uncle Frank (31:44):
We have seen slow growth over the years, but
it's been nice growth becauseI'm really appreciative of the
kinds of podcast listeners thatwe've attracted.
It seems like there are about2,000 regular listeners now,
somewhere between 1,500 and2,000.
We are up to 900 and somethousand downloads and should
(32:04):
hit a million downloads sometimelater this year, which I always
have to laugh, because in orderfor a podcast to be
commercially viable, it needs tobe having more like hundreds of
thousands of downloads a monthor millions of downloads a month
.
But even having only a mere 20to 30 000 downloads a month puts
me in the top one percent ofall podcasts, which just tells
(32:28):
you that there are a whole lotof podcasts out there that
nobody's listening to forgetabout it but thank you for your
support, luke, and thank you foryour email and as I had already
lived a little bit in france, Iwanted to discover something
else.
Voices (32:45):
so for a year, I decided to improve my French in Quebec.
Yeah, but no one had warned me,in fact, that this is not where
you need to improve your French.
And I realized very quicklythat going to Quebec to improve
your French is a bit like goingto England to improve your
cuisine we have the sameingredients, but we do anything
(33:08):
with them.
Mostly Uncle Frank (33:11):
Well, that was a long one.
I think we do have time for acouple of short ones here.
So getting to the next one,second off, second off.
Mostly Mary (33:22):
We have an email from Ellen, and Ellen writes how
do I get to a specific podcast,for example, how do I get to
podcast number 40?
To be clear, the search bardoes not seem to be working.
Okay, turn it on.
Voices (33:42):
Kill, kill, turn it off, turn it off.
It's a piece of crap.
It doesn't work.
I could have told you that.
Mostly Uncle Frank (33:59):
Well, there are several ways of accessing
the podcast.
It looks like you're strugglingwith the main podcast page.
I'm sorry about that.
I don't have any explanationfor it.
I'll put my crack team on itthough.
Voices (34:12):
We have top men working on it right now.
Mostly Uncle Frank (34:20):
Top men, if you're having trouble there.
It is also distributed fairlywidely to Apple Podcasts, to
Spotify and to YouTube and itmay be easiest for most people
just to go to YouTube.
And there is a Risk ParityRadio channel and all the
podcasts are there.
Oh, skitsign it.
(34:40):
You can search the number andprobably find it pretty quickly.
The other place you can findall of the podcasts on one web
page is the RSS feed page, whichis also accessible from the
podcast page atwwwriskprioritycom.
Just follow that link whichappears in the text near the top
, and that will take you to avery long web page with all 421
(35:06):
podcasts on it and all of theshow notes.
So don't try to open it on yourphone, open it on a browser.
But you can find everythingthere in one place and you can
even search it for particulartopics with that control F
function.
Voices (35:21):
Yes.
Mostly Uncle Frank (35:23):
So hopefully that helps you find things and
thank you for your email, gosh,last off.
Last off, an email from Andy,and Andy writes Hi, frank.
Mostly Mary (35:48):
I've been following your work for about a year now
and I'm a very loyal listener,top drawer, really top drawer.
Using what we have learned fromthe podcast, my wife and I have
recently converted to a riskparity style portfolio.
I have one question, though howoften should we rebalance the
portfolio, assuming that we'reabout five years from taking
(36:10):
distributions out of it?
Thanks for all that you do,andy from Minnesota.
Voices (36:16):
Well, hey there, I didn't see you.
My name is Pat and, if it's allright, I'd like to take a
moment to introduce you to a fewwords you might hear in
Minnesota.
Number one hot dish.
In Minnesota, hot dish is whatyou might call a casserole, but
it can also be any dish withmeat, canned green beans, canned
corn, canned cream of mushroomsoup and, of course, tater tots,
(36:39):
corn canned cream of mushroomsoup and, of course, tater tots.
Number two that's different InMinnesota.
Saying that's different is ourway of saying.
Mostly Uncle Frank (36:47):
I don't like it in a polite way, for example
, you might try your neighbor'shot dish and say that's
different.
Well, andy, these are not thatmuch different from most other
(37:14):
kinds of portfolios.
So once a year is a goodguideline for rebalancing and
you could do it.
More says is that once a yearseems to work pretty well and if
you do it more often than that,it probably doesn't make much
of a difference, although itwon't hurt you If you are still
adding to the portfolio.
You can simply just add towhatever allocation is low and
that will essentially do yourrebalancing along the way.
(37:37):
And that would probably beuseful if you're talking about a
taxable account, because youwant to reduce the number of
transactions in your taxableaccounts to avoid unnecessary
taxes.
The other way people haveapproached rebalancing is with
what are called rebalancing bans, and that is also described in
the Michael Kitsis article thatI'm going to link to.
(37:57):
But essentially that is whereyou actually look at the
percentages to see how far outof line your current percentages
are versus your targetallocations.
So, for example, since gold hasperformed so well in the recent
past, if you look at somethinglike the current sample
portfolio of the goldenbutterfly or the golden ratio,
(38:21):
current sample portfolio of thegolden butterfly or the golden
ratio, you'll see that thepercentage of gold overall in
the portfolio is more than 20%of its target allocation.
If you were on a rebalancingband plan, that would probably
be enough to trigger arebalancing the whole portfolio,
and so that's the other way ofdoing things.
We do manage some of theexperimental portfolios using
(38:42):
that kind of rebalancing bandmanagement, so if you want to
take a look at those, you'll getan idea for how it works.
I don't really think it'snecessary in your case.
It is more something for peoplethat just like to be more
hands-on with their portfolios.
As long as you are rebalancingit once a year or thereabouts,
(39:04):
things should work out just fine.
Hopefully that helps, and thankyou for your email.
Voices (39:11):
Number four oh for cute.
Oh for cute basicallytranslates to how wonderful Sure
.
You can say it about a dog or ababy, but you can also say it
about an antique shop or a quiltor a grey duck.
Number five you betcha.
This last one is reallyimportant because you betcha is
how Minnesotans say you'rewelcome.
(39:32):
For instance, you might say,hey, pat, thanks for taking so
much time out of your day tomake this video, and I might
respond you betcha.
Mostly Uncle Frank (39:45):
But now I see our signal is beginning to
fade.
If you have comments orquestions for me, please send
them to frank atriskparryradarcom.
That email is frank atriskparryradarcom.
Or you can go to the website,wwwriskparryradarcom.
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
(40:06):
favorite podcast provider andlike, subscribe and make some
stars a follower of you.
That would be great.
Okay, thank you once again fortuning in.
This is Frank Vasquez with RiskParty Radio signing off Round
and round.
Voices (40:25):
We'll love a fun way.
Just give it time.
Round and round.
What comes around goes around.
I'll tell you why.
Round and round Will love orfire away.
(40:48):
Just give it time, time, time,time.
What comes around goes around.
I'll tell you why, why, why,why Round and round.
Mostly Mary (41:18):
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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