In this episode we answer emails from Yangon, The Value Stock Geek, and Graham. We discuss the ins and outs of margin accounts at Interactive Brokers, some annoyances with gold ETFs and 1099s, and BTAL vs. treasury bonds.
And THEN we our go through our weekly and monthly portfolio reviews of the eight sample portfolios you can find at Portfolios | Risk Parity Radio.
Additional Links:
Father McKenna Center Donation Page: Donate - Father McKenna Center
Tyler On The Security Analysis Podcast: Tyler (@PortfolioCharts): The Amazing Power of Uncorrelated Assets
Analysis Of BTAL vs. SPY vs. TLT With Correlations: testfol.io/analysis?s=jAQO2TjzA
Paper Re Stock Market Volatility And Treasury Bonds (C. Moise): Flights to Safety, Volatility Risk, and Monetary Policy by Claudia E. Moise :: SSRN
Breathless Unedited AI-Bot Summary:
Diving deep into the financial weeds, Frank tackles several practical questions that impact do-it-yourself investors managing their own portfolios. What begins as a detailed exploration of Interactive Brokers' margin loan program reveals valuable insights about using portfolio assets as collateral, the tax deductibility of margin interest, and how to monitor your account to avoid margin calls.
The conversation shifts to an unexpected tax headache many gold ETF investors face: those annoying tiny distributions that clutter 1099 forms while providing minimal value. Frank compares how different brokerages handle these transactions, offering practical advice for simplifying your tax reporting experience. For those weary of manually entering dozens of nickel-and-dime transactions each tax season, this segment provides welcome relief.
Perhaps most valuable is Frank's thoughtful analysis of asset correlations and why treasury bonds remain irreplaceable in risk parity portfolios despite recent correlation changes. "Correlations are not magical and they're not random," Frank explains, dismissing the notion that we've entered a "new paradigm" where traditional diversification no longer works. He articulates why correlation changes are tied to macroeconomic conditions and why treasury bonds still serve as essential recession insurance that alternatives like BTAL cannot replace.
The weekly portfolio review brings welcome news as most sample portfolios show positive performance, with gold continuing its strong 2024 despite recent pullbacks. Small cap value remains the year's underperformer, while the diverse range of portfolio strategies demonstrates how risk parity principles can adapt to different investor needs.
Whether you're considering margin loans, puzzling over gold ETF tax statements, or questioning the role of treasury bonds in today's market environment, this episode delivers practical wisdom for navigating these complex investment waters. Frank's straightforward approach strips away the mystique surrounding these topics, empowering listeners to make more informed decisions with their portfolios.
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.
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 investor,Broadcasting to you now from the
comfort of his easy chair.
Here is your host, FrankVasquez.
Most 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.
Most 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 (01:11):
I don't think I'd like another job.
Most 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?
Most Uncle Frank (01:26):
tomorrow.
So please enjoy our mostly coldbeer served in cans and our
coffee served in old, chippedand cracked mugs, along with
what our little free library hasto offer.
Voices (01:59):
Welcome.
Most Uncle Frank (02:01):
Which means it's time for our weekly
portfolio reviews of the eightsample portfolios you can find
at wwwriskprioritycom on theportfolios page.
Voices (02:12):
Looks like I picked the wrong week to quit amphetamines.
Well, before we get to that, I'mintrigued by this how you say
emails.
Most Uncle Frank (02:23):
And First off say emails, and first off, first
off, we have an email fromYangon and it's got poof and
Yangon writes Hi Uncle Frank andAunt Mary.
Mostly Mary (02:38):
Thank you for continuing to share your
knowledge and wisdom.
I was wondering if you couldgive a lecture on your favorite
brokerage Interactive Brokersand its margin loan program to
me and fellow listeners, becauseI might have a gambling problem
.
Voices (02:52):
Unlike any schooling you've ever been through before.
At times, you may feel that youhave found the correct answer.
I assure you that this is atotal delusion on your part.
Well, you have a gamblingproblem.
Mostly Mary (03:10):
A little backstory.
I had about $200,000 in IBKRPro account, which comprises
mostly VTI and some smallindividual stocks, in the
beginning of the year, whichgave me an access to $100,000 in
margin loan without selling anystocks.
Most Uncle Frank (03:27):
Ah the sweet smell of an all-day sucker.
Mostly Mary (03:33):
In February, a real estate purchase opportunity
popped up in my local town andon February 26, I took out about
$90,000 in margin loan to makea cash offer, thinking that a
10% cushion would be enough toavoid margin calls.
Voices (03:47):
One minute you're up half a million in soybeans and
the next boom.
Your kids don't go to collegeand they've repossessed your
Bentley.
Are you with me?
Mostly Mary (03:53):
VTI was trading at $290 a share that day.
Well, a lot has happened in theUS market in the following two
months, with VTI bottomed out at$244 a share on April 8th so
far in 2025.
In those two months my marginloan to value ratio went from 40
plus percent of the portfoliovalue to 60 plus percent loan to
(04:16):
value of the portfolio.
I thought the margin call wascoming when I saw 0.00 in cash
available for withdrawal,assuming margin loan in my
withdrawal screen.
Luckily, looking at theyear-to-date statement, there is
no realized gain or losses, somy understanding is that no
margin calls happen in April.
Honestly, it's a bit of a luckymystery to me.
(04:37):
With that, here are myquestions.
1.
My understanding is thatInteractive Brokers uses my
stock portfolio as thecollateral for taking out money
with margin, just like a houseis collateral for a mortgage.
Is my understanding correct?
2.
When do Interactive Brokersstart selling my stocks?
Did they have a specifiedpercentage for margin loan to
(04:59):
value that they start sellingoff my investment portfolio?
How come I did not get themargin call on that day?
Does that have anything to dowith stocks having a huge
comeback on April 9th?
Three in the monthly statement Isee an accrued interest, but I
have not made any deposit yet.
Is there a monthly minimumpayment amount, like credit card
bills or monthly mortgage, ordo they accrue until I pay it
(05:21):
back or margin calls occur?
Four do dividends and sales ofstocks automatically go to pay
off the balance or does it getreinvested if you're setting to
set to reinvest?
Five I moved my assets fromanother brokerage to IBKR within
the last year and I know I havenot explored all the features
yet.
Besides the margin, loan ratesand its presence in foreign
(05:43):
countries, are there any otherbenefits for DIY risk parity
style investors to hold longterm assets and interactive
brokers?
I have no interest in tradingoptions or Forex.
I know I asked a lot ofquestions.
I just don't want to fly soloand need someone watching my
back at all times.
Thank you and have a great day.
Yangon.
Most Uncle Frank (06:05):
No more flying solo.
Voices (06:07):
You need somebody watching your back at all times.
Most Uncle Frank (06:11):
Well, before we get to your questions, I
wanted to thank you for being adonor to the Father McKenna
Center.
As most of you know, we do nothave any sponsors on this
podcast, but we do have acharity we support.
It's called the Father McKennaCenter and it supports hungry
and homeless people inWashington DC.
Full disclosure I'm on theboard of the charity and am the
current treasurer, but if yougive to the charity, you get to
(06:35):
go to the front of the emailline, which is a couple months
long now.
So it may be worth it to youand I'll go ahead and make sure
you get another copy of thatmemo.
Okay, and there are a coupleways to do that.
First, you can go to the FatherMcKenna website itself on the
donation page, which I'll linkto in the show notes.
Or you can go to the supportpage at wwwriskparryradarcom and
(07:00):
sign up for Patreon and givethat way.
Either way, you'll get to go tothe front of the email line.
Voices (07:06):
That is the straight stuff.
Oh funk master.
Most Uncle Frank (07:10):
Just make sure you let me know in your email
that you have given to thecharity and either way you'll
get to go to the front of theemail line as soon as my crack
team finds your email.
Voices (07:22):
We have top men working on it right now.
Who Top?
Most Uncle Frank (07:31):
men.
Well, this is a very goodseries of questions about margin
accounts and margin accounts atinteractive brokers in
particular, because this can bea very useful tool for a lot of
people in their retirementscenarios, particularly if they
have a large taxable account.
So, addressing your questionsin order, the first one is
(07:55):
whether the stock portfolio youhave acts like collateral for a
mortgage for the margin account,and the answer is yes.
Voices (08:04):
Yes.
Most Uncle Frank (08:05):
And it includes whatever else you have
in your account there.
So it includes the bonds andall other assets that you might
have there.
And this is actually a reasonyou might not mind having some
bonds or something thatgenerates ordinary income in a
taxable account, because if youare paying margin interest, that
interest is tax deductible oroffset against the ordinary
(08:31):
income generated by the accountand you use IRS Form 4952 to
report that and take advantageof that.
So any margin interest you paycan be tax deductible if you
structure things in the rightway.
Voices (08:47):
That's the fact, Jack.
That's the fact, Jack.
Most Uncle Frank (08:51):
But yes, whatever is in that portfolio,
in that account, is collateralfor the margin loan.
Your second question is whenwould interactive brokers start
selling your stocks?
When would interactive brokersstart selling your stocks?
Well, the way a margin callworks is if you exceed, or I
(09:12):
should say if you have notenough money in there to support
the margin in the account, thenyou will get what is called a
margin call and interactivebrokers will send you a message
and it will say you have amargin call and you need to
either put some more money intothis account to satisfy that or
we're going to sell some of yourassets and usually that occurs
(09:34):
within a day or two's time.
It's usually about a day.
Do you think anybody wants aroundhouse kick to the face
while I'm wearing these bad boys?
Voices (09:43):
Forget about it.
Most Uncle Frank (09:51):
But you have to be taking some serious margin
at interactive brokers totrigger a margin call, because
they do give you a very expandedmargin level, which is usually
several times the nominalaccount size.
So the reason you did not get amargin call on April 9th is
that you are not actually takingthat much margin, given their
limits there, and they do havesome of the largest limits in
(10:12):
the industry.
Oh, mr Marsh, don't worry, wecan just transfer money from
your account into a portfoliowith your son and it's gone.
Your third question is whetherthere is a monthly minimum
payment on the accrued interestin the margin account, and the
answer is no.
That's not the way this works.
Mostly Mary (10:33):
That's not how any of this works.
Most Uncle Frank (10:35):
It's simply if you do not maintain enough
collateral in the account tosupport what is being borrowed,
you'll get a margin call andthey just keep adding the margin
interest to that over time.
Voices (10:48):
It's like you're unraveling a big cable knit
sweater that someone keepsknitting, knitting, knitting,
knitting, knitting, knitting,knitting, knitting, knitting,
knitting, knitting, knitting.
Most Uncle Frank (11:02):
So there are no minimum payments.
Your fourth question waswhether the dividends and sales
of stocks automatically go offto pay off that balance, and the
answer to that is yes as apractical matter.
Now, if you didn't have amargin account and you weren't
taking any margin, that moneywould go into a settlement
account and it would just sitthere and earn some interest.
(11:22):
But if you are taking margin,that money is going to be first
credited against the margin thatyou're taking, the loan that
you're taking, before it wouldgo into a settlement account.
Now, whether it would getreinvested if you had set it to
reinvest, I'm not sure.
I think it still would.
Basically, it would getreinvested if you set it to
reinvest.
I'm not sure.
I think it still would.
Basically, it would go into themargin account briefly and then
(11:44):
get reinvested according toyour instruction, and so you'd
be taking the same amount ofmargin.
But I've turned off allreinvestments for our accounts
in retirement because it'sinconvenient.
It creates a number of othertransactions.
Because it's inconvenient, itcreates a number of other
transactions.
I'm probably going to bespending some of the money
anyway and then we can just useit to rebalance.
(12:04):
So it's actually a biginconvenience to be having
things reinvested in retirementif you're managing the account
anyway and taking drawdowns.
And your final question waswhether there are any ancillary
benefits to this, because youhaven't explored all the
features yet.
And yes, there probably are,although I don't sit around
(12:27):
comparing where you were beforeto where you are now.
But Interactive Brokers isdesigned to be the lowest cost
and most efficient brokerage fortraders and people who run
family offices, people whomanage a lot of money.
So basically, almost whateveris legal to be done in a
(12:48):
brokerage account, you can do itat Interactive Brokers and
probably more efficiently thanyou can do it somewhere else.
I know they do have tradingplatforms if you're interested
in that, but a lot of thefeatures of it are not that
useful for somebody who's justmanaging a simple account and
not trying to have a whole lotof transactions.
(13:10):
Just a couple more comments onthe margin accounts themselves.
You can see what those are andwhat's going on in there.
You shouldn't be waiting foryour monthly statements.
If you have questions aboutthis, you should just go log
into your account or downloadtheir app and use that and look
at your balances and you can seethere how much is in margin,
(13:31):
how much you have available inmargin before you would get a
margin call and all of that kindof data so that you can manage
your account properly.
So do not be waiting formonthly statements from there.
Go and log in there and seewhat's there.
I do find that the taxstatements and other reports you
can generate out of interactivebrokers tend to be a whole lot
(13:54):
more useful than something youmight be able to get at, say,
like Fidelity or something likethat.
Their 1099s are betterstructured.
They give you 8849s HopefullyI'm getting that number right
for other transactions in there.
They're good about telling youwhat qualifies for Section 1256
treatment as far as your taxesare concerned, and you can also
(14:17):
generate a report that shows youwhen short-term gains are going
to become long-term gains, andyou can do that from the report
section at the website.
We've been using that as ourprimary taxable account since
about 2013, I think, and they'vebeen very helpful and have a
(14:37):
lot of features that we, frankly, do not have any use for, since
we are not day traders orsomething like that.
I will tell you one annoyancethat I've had with them is that
to donate shares out of myaccount there, I need to fill
out a form for each one of thosethings and upload it, which
seems kind of primitive in theera of the 2020s, although I
(14:59):
know they just want to becareful to make sure that they
aren't sending their clientsshares off to some scam artist.
Voices (15:06):
Am I right or am I right , or am I right, right, right,
right.
Most Uncle Frank (15:10):
But, as you can imagine, since we've held
gold ETFs there for over adecade and we like to do some
charitable transactions, it ismost convenient these days for
us to donate shares in gold etfsthan anything else I love gold
and take full credit for thededuction and avoid all the
(15:31):
taxes and that's the way, uh-huh, I like it and just one other
note or observation, that it isactually very difficult to
calculate what exactly themargin is going to be on a
particular portfolio because itvaries asset to asset depending
on what kind of asset it is andits volatility.
(15:53):
But that information is alwaysreported and you can find quite
easily in the balances sectionof the reports if you go to the
interactive brokers website oruse the app.
But those are very goodquestions and thank you for
asking them because I thinkothers who listen to this
podcast probably have similarquestions or wonderings you are
(16:16):
talking about the nonsensicalravings of a lunatic mind.
So thank you for the support ofthe Bother McKenna Center and
thank you for your email.
Bow to your sensei.
Bow to your sensei.
Second off, Second off.
We have an email from the ValueStock Geek.
Voices (16:40):
Surely you can't be serious.
I am serious, and don't call meShirley.
Most Uncle Frank (16:44):
And the Value Stock Geek writes.
Mostly Mary (16:47):
Hey, frank, hope you're doing great.
Quick one for you that might beuseful for the audience.
I hold gold ETFs in my taxableaccounts and Schwab is my broker
.
This year my 1099 was litteredwith a bunch of tiny
distributions, nickel and dimestuff.
These aren't even cashdistributions.
I think it's an odd way toaccount for expense ratios when
(17:08):
the funds sell gold, which isapparently a monthly event.
Now I've held gold ETFs foryears and never saw these
charges on SGOL until this year.
And never saw these charges onSGOL until this year and with
GLDM I only got hit once before.
To keep it simple, I justrecorded them all as gains with
a cost basis of zero.
My annoyance with this is notabout the money, as it's a very
(17:29):
small amount.
It's the hassle of manuallyentering a dozen tiny
transactions on my tax returnfor each ETF in each taxable
account.
What guy in a suit?
Voices (17:40):
No, it's a tax collector .
Hide us SpongeBob.
Mostly Mary (17:45):
So here's what I'm wondering Are these annoying
little distributions a Schwabthing, or am I getting hit with
them no matter where I go?
Is there another broker I coulduse that wouldn't list all of
these transactions on my 1099?
Would love your take.
Voices (18:01):
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.
Most Uncle Frank (18:16):
Well, before we get started on your question
here, and just in case listenersdon't know, the Value Stock
Geek has a nice blog and he hasa podcast called the Security
Analysis Podcast that I haveappeared on.
But, more importantly, Tylerfrom Portfolio Charts has
appeared on and I will see if Ican link to that in the show
(18:37):
notes and he is the author, orfounder, if you will, of the
Weird Portfolio which is alsofeatured at Portfolio Charts, if
you want to check that out.
Voices (18:49):
You're insane, Goldmember.
Most Uncle Frank (18:53):
But he has been paying attention to us for
a good number of years here andwe greatly appreciate his
presence us for a good number ofyears here and we greatly
appreciate his presence.
Voices (19:06):
We few, we happy few, we band of brothers.
Most Uncle Frank (19:11):
So, yeah, I'm also dumbfounded by some of
these things that appear on1099s, and I do have the same
issue with Fidelity's 1099s,where there's a series of de
minimis transactions reportedwhich I can tell you, my
accountant effectively ignoresand does this summary thing when
(19:32):
he does the Schedule D andsupplemental form reporting.
But yeah, I think this isbrokerage to brokerage, because
I don't get these sort of thingson my 1099 from interactive
brokers, for example.
So I'm not sure what the deminimis level is and whether
it's just a computer generatingthings out of these things.
(19:55):
But yeah, I mean, these arelike penny transactions that are
reported on a monthly basis andthey make no sense to me at all
.
Voices (20:03):
I don't understand.
I made a reservation.
Do you have my reservation?
Yes, we do.
Unfortunately, we ran out ofcars but the reservation keeps
the car here.
That's why you have thereservations I know why we have
reservations I don't think youdo, but yeah if you do.
Most Uncle Frank (20:20):
But yeah, if you do want to avoid them, I
would move to InteractiveBrokers.
That's all I can tell youBecause I've never had them
report these kinds oftransactions in my 1099s from
Interactive Brokers.
Not going to do it Wouldn't beprudent at this juncture.
Hopefully that helps and thankyou for your email.
Voices (20:41):
Would you feel better if you knew one of my secrets?
Don't gross me out.
No, we're not talking grosshere.
No, it's just.
It's just embarrassing.
This information cannot leavethis room, okay.
It would devastate myreputation as a dude.
(21:02):
No problem, I've never bagged ababe, I'm not a stud.
I got the rep in sixth gradeand it, like I don't know it,
(21:24):
stuck with me.
I'm still on hold.
Look, I appreciate you notlaughing at me, okay, I'm sorry,
that's not what I meant.
Last off.
Most Uncle Frank (21:43):
Last off of an email from Graham.
Mostly Mary (22:07):
And Graham writes any risk parity style portfolio,
but nowadays the correlationbetween them is higher than
before positive, not negative.
You've talked about BTAL beforeand I was looking at that.
It looks to be the new negativecorrelation champ.
I know it's relatively new andtweaked in 2022, but do you
think we should consider it acore instead of treasuries?
(22:29):
How's your experience beenholding it in the risk parity
ultimate portfolio?
Here is a link to a recentcorrelation test comparing it
with treasuries and the S&PGraham.
Most Uncle Frank (22:41):
Well, the short answer to your question is
no.
You should not consider BTAL asa substitute for treasury bonds
.
There are a couple reasons forthat.
We did analyze BTAL in detailback in episode 114.
And just to remind people whatit is, since we haven't talked
about it in a while, BTAL is along short fund and so it goes
(23:06):
long value stocks and shortgrowth stocks, stocks and short
growth stocks, which tends toactually give it about a zero
return over time.
So you are really using it as ahedge, if anything at all.
I'll link to the test folioanalysis since it came into
(23:27):
being in about 2013,.
But the returns are essentiallyzero.
Of course, during that time wehad growth stocks greatly
outperform value stocks and I'msure it would look a whole lot
different if you looked at itfrom the period of the year 2000
to the year 2010, and you'dthink it was the greatest thing
since sliced bread.
But it is really a hedgingstrategy, whereas bonds you
(23:49):
expect to have a positive returnover time.
Now, as to its negativecorrelation recently, yeah, it
generally is negativelycorrelated with the stock market
, whereas bonds are positivelycorrelated sometimes and
negatively correlated at othertimes.
But I think it is folly and aform of market timing to be
(24:10):
chasing changes in correlations,because correlations do change
all the time, but they areprimarily based on macroeconomic
factors.
Namely, is growth in theeconomy declining or is it
increasing?
And is inflation in the economyincreasing or declining?
In the economy increasing ordeclining?
(24:31):
Because what treasury bondsreally represent in a portfolio
is recession insurance.
Voices (24:39):
You know, I got friends of mine who live and die by the
actuarial tables and I say, hey,it's all one big crapshoot.
Most Uncle Frank (24:45):
anywho, For those times when inflation is
going down and growth is goingdown.
So that's a 2008 scenario.
The last time we saw that wasearly 2020.
But you usually see it a coupletimes a decade.
We have not really seen itsince 2020, which leads people
(25:05):
to believe that this time isdifferent.
Voices (25:08):
What he means is Old Testament, mr Mayor, real wrath
of God type stuff Exactly.
Most Uncle Frank (25:13):
But I assure you, the next time there's a
recession, you will see negativecorrelation between treasury
bonds and stocks spring backinto form.
And there is a nice paper thatI've cited to several times.
It's a very technical paperabout stock market volatility
and treasury bonds, but there isa nice figure in the appendices
(25:36):
of it which shows the historyof correlations between treasury
bonds and the stock market,going back to the 1950s.
And what it shows you isbasically, every time there's a
recession, the negativecorrelation springs back to life
.
Recession, the negativecorrelation springs back to life
, and then in positiveinflationary environments, you
(25:57):
see more positive correlationsbetween stocks and bonds.
Correlations are not magicaland they're not random and they
don't just show up and say, oh,this time it's different and
we're in a new paradigm and nowthe correlations are going to be
like this for so many years.
That's not the way it works.
Mostly Mary (26:15):
That's not how it works.
That's not how any of thisworks.
Most Uncle Frank (26:19):
The way it works is the assets are
responding to the overallmacroeconomic conditions in a
probabilistic way.
So it's not a certainty, it's aprobability.
So do not think for one minutethat the correlations over the
(26:41):
past one year, three years, fiveyears or even ten years are
necessarily going to tell youwhat the correlations between
two assets are going to be inthe future.
The only really goodinformation we have about that
is knowing which of these assetsperform well or poorly in these
economic environments asdescribed by growth and
inflation.
So no, I don't think BTAL isgoing to be a substitute for
(27:04):
treasury bonds, because it doesnot appear to have a positive
return over time which treasurybonds do, and it is not clear or
certain that it will have theinsurance quality that treasury
bonds do in a recessionary ordepressionary environment, which
is ultimately why you wereholding them in the first place.
(27:34):
And as to your final subquestions, how was our
experience in holding in therisk period ultimate portfolio?
It's really kind of meh.
I would say it's meh.
It doesn't add a whole lot, itdoesn't take away a whole lot.
It looks good.
At some points in time,particularly when you saw the
stock market declining this year, we used to hold some of in our
(27:54):
personal portfolio, but we gotrid of it because it just didn't
seem to be worth the space thatit was taking up.
So I don't think it's a badidea, but I'm not sure it's a
good enough idea for you toinclude it, and I would not
consider it to be a substitutefor treasury bonds in a
portfolio.
Voices (28:12):
That and a nickel.
Get your hot cup a jack squat.
Most Uncle Frank (28:19):
Hopefully that helps and thank you for your
email.
Voices (28:24):
Now we're going to do something extremely fun.
Most Uncle Frank (28:33):
And the extremely fun thing we get to do
now is our weekly portfolioreviews.
Of the eight sample portfoliosyou can find at
wwwriskprioritycom on theportfolios page, and it was a
fun week for most of the assets.
Voices (28:45):
It's the happy, happy, joy, joy song Happy happy, joy,
joy.
Happy happy joy joy.
Happy happy joy joy.
Happy happy joy joy.
Happy happy joy joy.
Happy happy joy joy.
Happy happy joy joy.
Happy happy joy joy.
Happy happy joy joy joy.
Most Uncle Frank (29:05):
Looking at the markets, s&p 500, represented
by VOO, is up 1.74% for the year.
I haven't seen that since aboutFebruary.
The NASDAQ 100, represented byQQQ, is up 2.16% for the year.
Small cap value, represented bythe fund VIOV, is still the
worst performer this year.
(29:26):
It's down 8.49% for the year.
Followed by gold, which isstill the best performer for the
year, even though I think ithad the worst week in about six
months or so.
Representative fund GLDM is up21.64% for the year.
Long-term treasury bonds,represented by the fund VGLT,
continue to make us snooze.
(29:46):
They are up 0.6% for the year.
Reits, represented by the fundREET, are up 3.83% for the year.
Reits represented by the fundREET are up 3.83% for the year.
Commodities, represented by thefund PDBC, are down 1.92% for
the year.
Preferred shares, representedby the fund PFFV, are up 0.32%
for the year and managed futuresare still managing to lag.
(30:07):
Representative fund DBMF isdown 3.03% for the year.
Moving to these portfolios,these sample portfolios, first
one's a reference portfoliocalled the All Seasons.
It's only 30% in stocks.
It's got 55% in intermediateand long-term treasury bonds and
the remaining 15% in gold andcommodities.
(30:29):
It's up 0.6% month to date.
It's up 2.32% year to date andup 11.51% since inception in
July 2020.
Moving to the bread and butterportfolios, first one's golden
butterfly.
This one's 40% in stocks,divided into a total stock
market fund and a small capvalue fund, 40% in treasury
(30:51):
bonds divided into long andshort, and the remaining 20% in
gold.
It's up 1.23% for the month ofMay, it's up 3.55% year-to-date
and up 38.68% since inception inJuly 2020.
Next one's a golden ratio.
This one is 42% in stocks and alarge cap growth fund and a
(31:13):
small cap value fund, 26% inlong-term treasury bonds, 16% in
gold, 10% in managed futuresand 6% in cash in a money market
.
It's up 2.02% month to date,it's up 2.14% year to date and
up 32.74 percent since inceptionin July 2020.
Moving to this kitchen sinkportfolio, the risk parity
(31:36):
ultimate, this one has some BTALin it.
Voices (31:40):
Uh what.
Most Uncle Frank (31:41):
But I'm not going to go through all 14 of
these funds.
It is up 1.81 percent for themonth of May.
It's up 2.14 percent year todate and up 22.07% since
inception in July 2020.
Now moving to theseexperimental portfolios, which
all involve levered funds.
Don't try this at home.
Voices (32:06):
You have a gambling problem.
Most Uncle Frank (32:08):
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.
It's up 0.3% for the month ofMay.
It's up 1.93% year-to-date andup 2.98% since inception in July
(32:32):
2020.
I thought we were going to havea rebalancing here, but since
the stock market recovered, weare out of rebalancing territory
.
We do look at these on the 15thof each month to determine
whether they should berebalanced or not, at least
these experimental ones.
Next one's the aggressive 50-50.
This is the least diversifiedand most levered of these
(32:54):
portfolios and the worstperformer by far.
It is essentially one halfstocks and one half bonds, but
it's got 33 percent in a leveredstock fund at upro, 33 percent
in a levered bond fund tmf, andthe remaining third divided into
a preferred shares fund and anintermediate treasury bond fund.
It is up 2.4% for the month ofMay.
(33:15):
It's down 3.65% year-to-date todown 15.14% since inception in
July 2020.
Moving to the levered goldenratio, this one's a year younger
than the other ones.
It has 35% in a compositelevered fund called NTSX that's
the S&P 500 and Treasury bondslevered up 1.5 to 1.
(33:37):
20% in gold GLDM, 15% in ainternational small cap value
fund, avdv, 10% in KMLM, whichis a managed futures fund, 10%
in a levered bond fund, tmf, andthe remaining 10% in two
levered funds UTSL, whichfollows utilities, and UDOW,
(33:59):
which follows the Dow.
It's up 1.88% month-to-date.
It's up 4.39% year-to-date, butdown 0.22% since inception in
July 2021.
And the last one is our newestone, the Optra portfolio, a
return-stacked portfolio, oneportfolio to rule them all.
It has 16% in a levered stockfund, upro, 24% in a worldwide
(34:25):
value fund called AVGV, 24% inGOVZ, which is a treasury strips
fund, and the remaining 36%divided into gold and managed
futures.
It's up 2.84% month-to-date.
It's up 2.63% year-to-date andup 5.62% since inception in July
(34:45):
2024.
Still not a year old yet, andthat concludes our weekly
portfolio reviews, boring A muchpleasanter week than many this
year so far.
Voices (34:59):
Oh, how convenient.
Most Uncle Frank (35:02):
And what will next week hold?
Well, we can ask our crystalball.
Mostly Mary (35:07):
My name's Sonia.
I'm going to be showing you thecrystal ball and how to use it,
or how I use it.
Most Uncle Frank (35:14):
What does our crystal ball always tell us
about what's going to happen inthe future?
Voices (35:18):
We don't know.
What do we know?
You don't know, I don't know,nobody knows.
Most Uncle Frank (35:25):
And so once again, we have the same reading.
Mostly Mary (35:28):
That's not an improvement.
Most Uncle Frank (35:30):
But now I see our signal is beginning to fade.
If you have comments orquestions for me, please send
them to frank atriskparityradarcom.
That email is frank atriskparityradarcom.
Or you can go to the websitewwwriskparityradarcom.
Put your message into thecontact form and I'll get it all
that way.
If you haven't had a chance todo it, please go to your
(35:51):
favorite podcast provider andlike subscribe.
Give me some stars, a follow, areview, that would be great
Okay.
Thank you once again for tuningin.
This is Frank Vasquez with RiskParty Radio.
Voices (36:09):
Signing off the little critters of nature.
They don't know that they'reugly.
That's very funny, a flymarrying a bumblebee.
I told you I'd shoot, but youdidn't believe me.
Why didn't you believe me?
Happy, happy, joy, joy.
Happy, happy joy, joy.
(36:29):
Happy, happy joy, joy.
Happy, happy joy, joy.
Happy, happy joy, joy.
Happy, happy joy, joy.
Happy, happy tax or legaladvice.
Mostly Mary (36:59):
Please consult with your own advisors before taking
any actions based on anyinformation you have heard here,
making sure to take intoaccount your own 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 investor,Broadcasting to you now from the
comfort of his easy chair.
Here is your host, FrankVasquez.
Most 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.
Most 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 (01:11):
I don't think I'd like another job.
Most 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?
Most Uncle Frank (01:26):
tomorrow.
So please enjoy our mostly coldbeer served in cans and our
coffee served in old, chippedand cracked mugs, along with
what our little free library hasto offer.
Voices (01:59):
Welcome.
Most Uncle Frank (02:01):
Which means it's time for our weekly
portfolio reviews of the eightsample portfolios you can find
at wwwriskprioritycom on theportfolios page.
Voices (02:12):
Looks like I picked the wrong week to quit amphetamines.
Well, before we get to that, I'mintrigued by this how you say
emails.
Most Uncle Frank (02:23):
And First off say emails, and first off, first
off, we have an email fromYangon and it's got poof and
Yangon writes Hi Uncle Frank andAunt Mary.
Mostly Mary (02:38):
Thank you for continuing to share your
knowledge and wisdom.
I was wondering if you couldgive a lecture on your favorite
brokerage Interactive Brokersand its margin loan program to
me and fellow listeners, becauseI might have a gambling problem
.
Voices (02:52):
Unlike any schooling you've ever been through before.
At times, you may feel that youhave found the correct answer.
I assure you that this is atotal delusion on your part.
Well, you have a gamblingproblem.
Mostly Mary (03:10):
A little backstory.
I had about $200,000 in IBKRPro account, which comprises
mostly VTI and some smallindividual stocks, in the
beginning of the year, whichgave me an access to $100,000 in
margin loan without selling anystocks.
Most Uncle Frank (03:27):
Ah the sweet smell of an all-day sucker.
Mostly Mary (03:33):
In February, a real estate purchase opportunity
popped up in my local town andon February 26, I took out about
$90,000 in margin loan to makea cash offer, thinking that a
10% cushion would be enough toavoid margin calls.
Voices (03:47):
One minute you're up half a million in soybeans and
the next boom.
Your kids don't go to collegeand they've repossessed your
Bentley.
Are you with me?
Mostly Mary (03:53):
VTI was trading at $290 a share that day.
Well, a lot has happened in theUS market in the following two
months, with VTI bottomed out at$244 a share on April 8th so
far in 2025.
In those two months my marginloan to value ratio went from 40
plus percent of the portfoliovalue to 60 plus percent loan to
(04:16):
value of the portfolio.
I thought the margin call wascoming when I saw 0.00 in cash
available for withdrawal,assuming margin loan in my
withdrawal screen.
Luckily, looking at theyear-to-date statement, there is
no realized gain or losses, somy understanding is that no
margin calls happen in April.
Honestly, it's a bit of a luckymystery to me.
(04:37):
With that, here are myquestions.
1.
My understanding is thatInteractive Brokers uses my
stock portfolio as thecollateral for taking out money
with margin, just like a houseis collateral for a mortgage.
Is my understanding correct?
2.
When do Interactive Brokersstart selling my stocks?
Did they have a specifiedpercentage for margin loan to
(04:59):
value that they start sellingoff my investment portfolio?
How come I did not get themargin call on that day?
Does that have anything to dowith stocks having a huge
comeback on April 9th?
Three in the monthly statement Isee an accrued interest, but I
have not made any deposit yet.
Is there a monthly minimumpayment amount, like credit card
bills or monthly mortgage, ordo they accrue until I pay it
(05:21):
back or margin calls occur?
Four do dividends and sales ofstocks automatically go to pay
off the balance or does it getreinvested if you're setting to
set to reinvest?
Five I moved my assets fromanother brokerage to IBKR within
the last year and I know I havenot explored all the features
yet.
Besides the margin, loan ratesand its presence in foreign
(05:43):
countries, are there any otherbenefits for DIY risk parity
style investors to hold longterm assets and interactive
brokers?
I have no interest in tradingoptions or Forex.
I know I asked a lot ofquestions.
I just don't want to fly soloand need someone watching my
back at all times.
Thank you and have a great day.
Yangon.
Most Uncle Frank (06:05):
No more flying solo.
Voices (06:07):
You need somebody watching your back at all times.
Most Uncle Frank (06:11):
Well, before we get to your questions, I
wanted to thank you for being adonor to the Father McKenna
Center.
As most of you know, we do nothave any sponsors on this
podcast, but we do have acharity we support.
It's called the Father McKennaCenter and it supports hungry
and homeless people inWashington DC.
Full disclosure I'm on theboard of the charity and am the
current treasurer, but if yougive to the charity, you get to
(06:35):
go to the front of the emailline, which is a couple months
long now.
So it may be worth it to youand I'll go ahead and make sure
you get another copy of thatmemo.
Okay, and there are a coupleways to do that.
First, you can go to the FatherMcKenna website itself on the
donation page, which I'll linkto in the show notes.
Or you can go to the supportpage at wwwriskparryradarcom and
(07:00):
sign up for Patreon and givethat way.
Either way, you'll get to go tothe front of the email line.
Voices (07:06):
That is the straight stuff.
Oh funk master.
Most Uncle Frank (07:10):
Just make sure you let me know in your email
that you have given to thecharity and either way you'll
get to go to the front of theemail line as soon as my crack
team finds your email.
Voices (07:22):
We have top men working on it right now.
Who Top?
Most Uncle Frank (07:31):
men.
Well, this is a very goodseries of questions about margin
accounts and margin accounts atinteractive brokers in
particular, because this can bea very useful tool for a lot of
people in their retirementscenarios, particularly if they
have a large taxable account.
So, addressing your questionsin order, the first one is
(07:55):
whether the stock portfolio youhave acts like collateral for a
mortgage for the margin account,and the answer is yes.
Voices (08:04):
Yes.
Most Uncle Frank (08:05):
And it includes whatever else you have
in your account there.
So it includes the bonds andall other assets that you might
have there.
And this is actually a reasonyou might not mind having some
bonds or something thatgenerates ordinary income in a
taxable account, because if youare paying margin interest, that
interest is tax deductible oroffset against the ordinary
(08:31):
income generated by the accountand you use IRS Form 4952 to
report that and take advantageof that.
So any margin interest you paycan be tax deductible if you
structure things in the rightway.
Voices (08:47):
That's the fact, Jack.
That's the fact, Jack.
Most Uncle Frank (08:51):
But yes, whatever is in that portfolio,
in that account, is collateralfor the margin loan.
Your second question is whenwould interactive brokers start
selling your stocks?
When would interactive brokersstart selling your stocks?
Well, the way a margin callworks is if you exceed, or I
(09:12):
should say if you have notenough money in there to support
the margin in the account, thenyou will get what is called a
margin call and interactivebrokers will send you a message
and it will say you have amargin call and you need to
either put some more money intothis account to satisfy that or
we're going to sell some of yourassets and usually that occurs
(09:34):
within a day or two's time.
It's usually about a day.
Do you think anybody wants aroundhouse kick to the face
while I'm wearing these bad boys?
Voices (09:43):
Forget about it.
Most Uncle Frank (09:51):
But you have to be taking some serious margin
at interactive brokers totrigger a margin call, because
they do give you a very expandedmargin level, which is usually
several times the nominalaccount size.
So the reason you did not get amargin call on April 9th is
that you are not actually takingthat much margin, given their
limits there, and they do havesome of the largest limits in
(10:12):
the industry.
Oh, mr Marsh, don't worry, wecan just transfer money from
your account into a portfoliowith your son and it's gone.
Your third question is whetherthere is a monthly minimum
payment on the accrued interestin the margin account, and the
answer is no.
That's not the way this works.
Mostly Mary (10:33):
That's not how any of this works.
Most Uncle Frank (10:35):
It's simply if you do not maintain enough
collateral in the account tosupport what is being borrowed,
you'll get a margin call andthey just keep adding the margin
interest to that over time.
Voices (10:48):
It's like you're unraveling a big cable knit
sweater that someone keepsknitting, knitting, knitting,
knitting, knitting, knitting,knitting, knitting, knitting,
knitting, knitting, knitting.
Most Uncle Frank (11:02):
So there are no minimum payments.
Your fourth question waswhether the dividends and sales
of stocks automatically go offto pay off that balance, and the
answer to that is yes as apractical matter.
Now, if you didn't have amargin account and you weren't
taking any margin, that moneywould go into a settlement
account and it would just sitthere and earn some interest.
(11:22):
But if you are taking margin,that money is going to be first
credited against the margin thatyou're taking, the loan that
you're taking, before it wouldgo into a settlement account.
Now, whether it would getreinvested if you had set it to
reinvest, I'm not sure.
I think it still would.
Basically, it would getreinvested if you set it to
reinvest.
I'm not sure.
I think it still would.
Basically, it would go into themargin account briefly and then
(11:44):
get reinvested according toyour instruction, and so you'd
be taking the same amount ofmargin.
But I've turned off allreinvestments for our accounts
in retirement because it'sinconvenient.
It creates a number of othertransactions.
Because it's inconvenient, itcreates a number of other
transactions.
I'm probably going to bespending some of the money
anyway and then we can just useit to rebalance.
(12:04):
So it's actually a biginconvenience to be having
things reinvested in retirementif you're managing the account
anyway and taking drawdowns.
And your final question waswhether there are any ancillary
benefits to this, because youhaven't explored all the
features yet.
And yes, there probably are,although I don't sit around
(12:27):
comparing where you were beforeto where you are now.
But Interactive Brokers isdesigned to be the lowest cost
and most efficient brokerage fortraders and people who run
family offices, people whomanage a lot of money.
So basically, almost whateveris legal to be done in a
(12:48):
brokerage account, you can do itat Interactive Brokers and
probably more efficiently thanyou can do it somewhere else.
I know they do have tradingplatforms if you're interested
in that, but a lot of thefeatures of it are not that
useful for somebody who's justmanaging a simple account and
not trying to have a whole lotof transactions.
(13:10):
Just a couple more comments onthe margin accounts themselves.
You can see what those are andwhat's going on in there.
You shouldn't be waiting foryour monthly statements.
If you have questions aboutthis, you should just go log
into your account or downloadtheir app and use that and look
at your balances and you can seethere how much is in margin,
(13:31):
how much you have available inmargin before you would get a
margin call and all of that kindof data so that you can manage
your account properly.
So do not be waiting formonthly statements from there.
Go and log in there and seewhat's there.
I do find that the taxstatements and other reports you
can generate out of interactivebrokers tend to be a whole lot
(13:54):
more useful than something youmight be able to get at, say,
like Fidelity or something likethat.
Their 1099s are betterstructured.
They give you 8849s HopefullyI'm getting that number right
for other transactions in there.
They're good about telling youwhat qualifies for Section 1256
treatment as far as your taxesare concerned, and you can also
(14:17):
generate a report that shows youwhen short-term gains are going
to become long-term gains, andyou can do that from the report
section at the website.
We've been using that as ourprimary taxable account since
about 2013, I think, and they'vebeen very helpful and have a
(14:37):
lot of features that we, frankly, do not have any use for, since
we are not day traders orsomething like that.
I will tell you one annoyancethat I've had with them is that
to donate shares out of myaccount there, I need to fill
out a form for each one of thosethings and upload it, which
seems kind of primitive in theera of the 2020s, although I
(14:59):
know they just want to becareful to make sure that they
aren't sending their clientsshares off to some scam artist.
Voices (15:06):
Am I right or am I right , or am I right, right, right,
right.
Most Uncle Frank (15:10):
But, as you can imagine, since we've held
gold ETFs there for over adecade and we like to do some
charitable transactions, it ismost convenient these days for
us to donate shares in gold etfsthan anything else I love gold
and take full credit for thededuction and avoid all the
(15:31):
taxes and that's the way, uh-huh, I like it and just one other
note or observation, that it isactually very difficult to
calculate what exactly themargin is going to be on a
particular portfolio because itvaries asset to asset depending
on what kind of asset it is andits volatility.
(15:53):
But that information is alwaysreported and you can find quite
easily in the balances sectionof the reports if you go to the
interactive brokers website oruse the app.
But those are very goodquestions and thank you for
asking them because I thinkothers who listen to this
podcast probably have similarquestions or wonderings you are
(16:16):
talking about the nonsensicalravings of a lunatic mind.
So thank you for the support ofthe Bother McKenna Center and
thank you for your email.
Bow to your sensei.
Bow to your sensei.
Second off, Second off.
We have an email from the ValueStock Geek.
Voices (16:40):
Surely you can't be serious.
I am serious, and don't call meShirley.
Most Uncle Frank (16:44):
And the Value Stock Geek writes.
Mostly Mary (16:47):
Hey, frank, hope you're doing great.
Quick one for you that might beuseful for the audience.
I hold gold ETFs in my taxableaccounts and Schwab is my broker
.
This year my 1099 was litteredwith a bunch of tiny
distributions, nickel and dimestuff.
These aren't even cashdistributions.
I think it's an odd way toaccount for expense ratios when
(17:08):
the funds sell gold, which isapparently a monthly event.
Now I've held gold ETFs foryears and never saw these
charges on SGOL until this year.
And never saw these charges onSGOL until this year and with
GLDM I only got hit once before.
To keep it simple, I justrecorded them all as gains with
a cost basis of zero.
My annoyance with this is notabout the money, as it's a very
(17:29):
small amount.
It's the hassle of manuallyentering a dozen tiny
transactions on my tax returnfor each ETF in each taxable
account.
What guy in a suit?
Voices (17:40):
No, it's a tax collector .
Hide us SpongeBob.
Mostly Mary (17:45):
So here's what I'm wondering Are these annoying
little distributions a Schwabthing, or am I getting hit with
them no matter where I go?
Is there another broker I coulduse that wouldn't list all of
these transactions on my 1099?
Would love your take.
Voices (18:01):
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.
Most Uncle Frank (18:16):
Well, before we get started on your question
here, and just in case listenersdon't know, the Value Stock
Geek has a nice blog and he hasa podcast called the Security
Analysis Podcast that I haveappeared on.
But, more importantly, Tylerfrom Portfolio Charts has
appeared on and I will see if Ican link to that in the show
(18:37):
notes and he is the author, orfounder, if you will, of the
Weird Portfolio which is alsofeatured at Portfolio Charts, if
you want to check that out.
Voices (18:49):
You're insane, Goldmember.
Most Uncle Frank (18:53):
But he has been paying attention to us for
a good number of years here andwe greatly appreciate his
presence us for a good number ofyears here and we greatly
appreciate his presence.
Voices (19:06):
We few, we happy few, we band of brothers.
Most Uncle Frank (19:11):
So, yeah, I'm also dumbfounded by some of
these things that appear on1099s, and I do have the same
issue with Fidelity's 1099s,where there's a series of de
minimis transactions reportedwhich I can tell you, my
accountant effectively ignoresand does this summary thing when
(19:32):
he does the Schedule D andsupplemental form reporting.
But yeah, I think this isbrokerage to brokerage, because
I don't get these sort of thingson my 1099 from interactive
brokers, for example.
So I'm not sure what the deminimis level is and whether
it's just a computer generatingthings out of these things.
(19:55):
But yeah, I mean, these arelike penny transactions that are
reported on a monthly basis andthey make no sense to me at all
.
Voices (20:03):
I don't understand.
I made a reservation.
Do you have my reservation?
Yes, we do.
Unfortunately, we ran out ofcars but the reservation keeps
the car here.
That's why you have thereservations I know why we have
reservations I don't think youdo, but yeah if you do.
Most Uncle Frank (20:20):
But yeah, if you do want to avoid them, I
would move to InteractiveBrokers.
That's all I can tell youBecause I've never had them
report these kinds oftransactions in my 1099s from
Interactive Brokers.
Not going to do it Wouldn't beprudent at this juncture.
Hopefully that helps and thankyou for your email.
Voices (20:41):
Would you feel better if you knew one of my secrets?
Don't gross me out.
No, we're not talking grosshere.
No, it's just.
It's just embarrassing.
This information cannot leavethis room, okay.
It would devastate myreputation as a dude.
(21:02):
No problem, I've never bagged ababe, I'm not a stud.
I got the rep in sixth gradeand it, like I don't know it,
(21:24):
stuck with me.
I'm still on hold.
Look, I appreciate you notlaughing at me, okay, I'm sorry,
that's not what I meant.
Last off.
Most Uncle Frank (21:43):
Last off of an email from Graham.
Mostly Mary (22:07):
And Graham writes any risk parity style portfolio,
but nowadays the correlationbetween them is higher than
before positive, not negative.
You've talked about BTAL beforeand I was looking at that.
It looks to be the new negativecorrelation champ.
I know it's relatively new andtweaked in 2022, but do you
think we should consider it acore instead of treasuries?
(22:29):
How's your experience beenholding it in the risk parity
ultimate portfolio?
Here is a link to a recentcorrelation test comparing it
with treasuries and the S&PGraham.
Most Uncle Frank (22:41):
Well, the short answer to your question is
no.
You should not consider BTAL asa substitute for treasury bonds
.
There are a couple reasons forthat.
We did analyze BTAL in detailback in episode 114.
And just to remind people whatit is, since we haven't talked
about it in a while, BTAL is along short fund and so it goes
(23:06):
long value stocks and shortgrowth stocks, stocks and short
growth stocks, which tends toactually give it about a zero
return over time.
So you are really using it as ahedge, if anything at all.
I'll link to the test folioanalysis since it came into
(23:27):
being in about 2013,.
But the returns are essentiallyzero.
Of course, during that time wehad growth stocks greatly
outperform value stocks and I'msure it would look a whole lot
different if you looked at itfrom the period of the year 2000
to the year 2010, and you'dthink it was the greatest thing
since sliced bread.
But it is really a hedgingstrategy, whereas bonds you
(23:49):
expect to have a positive returnover time.
Now, as to its negativecorrelation recently, yeah, it
generally is negativelycorrelated with the stock market
, whereas bonds are positivelycorrelated sometimes and
negatively correlated at othertimes.
But I think it is folly and aform of market timing to be
(24:10):
chasing changes in correlations,because correlations do change
all the time, but they areprimarily based on macroeconomic
factors.
Namely, is growth in theeconomy declining or is it
increasing?
And is inflation in the economyincreasing or declining?
In the economy increasing ordeclining?
(24:31):
Because what treasury bondsreally represent in a portfolio
is recession insurance.
Voices (24:39):
You know, I got friends of mine who live and die by the
actuarial tables and I say, hey,it's all one big crapshoot.
Most Uncle Frank (24:45):
anywho, For those times when inflation is
going down and growth is goingdown.
So that's a 2008 scenario.
The last time we saw that wasearly 2020.
But you usually see it a coupletimes a decade.
We have not really seen itsince 2020, which leads people
(25:05):
to believe that this time isdifferent.
Voices (25:08):
What he means is Old Testament, mr Mayor, real wrath
of God type stuff Exactly.
Most Uncle Frank (25:13):
But I assure you, the next time there's a
recession, you will see negativecorrelation between treasury
bonds and stocks spring backinto form.
And there is a nice paper thatI've cited to several times.
It's a very technical paperabout stock market volatility
and treasury bonds, but there isa nice figure in the appendices
(25:36):
of it which shows the historyof correlations between treasury
bonds and the stock market,going back to the 1950s.
And what it shows you isbasically, every time there's a
recession, the negativecorrelation springs back to life
.
Recession, the negativecorrelation springs back to life
, and then in positiveinflationary environments, you
(25:57):
see more positive correlationsbetween stocks and bonds.
Correlations are not magicaland they're not random and they
don't just show up and say, oh,this time it's different and
we're in a new paradigm and nowthe correlations are going to be
like this for so many years.
That's not the way it works.
Mostly Mary (26:15):
That's not how it works.
That's not how any of thisworks.
Most Uncle Frank (26:19):
The way it works is the assets are
responding to the overallmacroeconomic conditions in a
probabilistic way.
So it's not a certainty, it's aprobability.
So do not think for one minutethat the correlations over the
(26:41):
past one year, three years, fiveyears or even ten years are
necessarily going to tell youwhat the correlations between
two assets are going to be inthe future.
The only really goodinformation we have about that
is knowing which of these assetsperform well or poorly in these
economic environments asdescribed by growth and
inflation.
So no, I don't think BTAL isgoing to be a substitute for
(27:04):
treasury bonds, because it doesnot appear to have a positive
return over time which treasurybonds do, and it is not clear or
certain that it will have theinsurance quality that treasury
bonds do in a recessionary ordepressionary environment, which
is ultimately why you wereholding them in the first place.
(27:34):
And as to your final subquestions, how was our
experience in holding in therisk period ultimate portfolio?
It's really kind of meh.
I would say it's meh.
It doesn't add a whole lot, itdoesn't take away a whole lot.
It looks good.
At some points in time,particularly when you saw the
stock market declining this year, we used to hold some of in our
(27:54):
personal portfolio, but we gotrid of it because it just didn't
seem to be worth the space thatit was taking up.
So I don't think it's a badidea, but I'm not sure it's a
good enough idea for you toinclude it, and I would not
consider it to be a substitutefor treasury bonds in a
portfolio.
Voices (28:12):
That and a nickel.
Get your hot cup a jack squat.
Most Uncle Frank (28:19):
Hopefully that helps and thank you for your
email.
Voices (28:24):
Now we're going to do something extremely fun.
Most Uncle Frank (28:33):
And the extremely fun thing we get to do
now is our weekly portfolioreviews.
Of the eight sample portfoliosyou can find at
wwwriskprioritycom on theportfolios page, and it was a
fun week for most of the assets.
Voices (28:45):
It's the happy, happy, joy, joy song Happy happy, joy,
joy.
Happy happy joy joy.
Happy happy joy joy.
Happy happy joy joy.
Happy happy joy joy.
Happy happy joy joy.
Happy happy joy joy.
Happy happy joy joy.
Happy happy joy joy joy.
Most Uncle Frank (29:05):
Looking at the markets, s&p 500, represented
by VOO, is up 1.74% for the year.
I haven't seen that since aboutFebruary.
The NASDAQ 100, represented byQQQ, is up 2.16% for the year.
Small cap value, represented bythe fund VIOV, is still the
worst performer this year.
(29:26):
It's down 8.49% for the year.
Followed by gold, which isstill the best performer for the
year, even though I think ithad the worst week in about six
months or so.
Representative fund GLDM is up21.64% for the year.
Long-term treasury bonds,represented by the fund VGLT,
continue to make us snooze.
(29:46):
They are up 0.6% for the year.
Reits, represented by the fundREET, are up 3.83% for the year.
Reits represented by the fundREET are up 3.83% for the year.
Commodities, represented by thefund PDBC, are down 1.92% for
the year.
Preferred shares, representedby the fund PFFV, are up 0.32%
for the year and managed futuresare still managing to lag.
(30:07):
Representative fund DBMF isdown 3.03% for the year.
Moving to these portfolios,these sample portfolios, first
one's a reference portfoliocalled the All Seasons.
It's only 30% in stocks.
It's got 55% in intermediateand long-term treasury bonds and
the remaining 15% in gold andcommodities.
(30:29):
It's up 0.6% month to date.
It's up 2.32% year to date andup 11.51% since inception in
July 2020.
Moving to the bread and butterportfolios, first one's golden
butterfly.
This one's 40% in stocks,divided into a total stock
market fund and a small capvalue fund, 40% in treasury
(30:51):
bonds divided into long andshort, and the remaining 20% in
gold.
It's up 1.23% for the month ofMay, it's up 3.55% year-to-date
and up 38.68% since inception inJuly 2020.
Next one's a golden ratio.
This one is 42% in stocks and alarge cap growth fund and a
(31:13):
small cap value fund, 26% inlong-term treasury bonds, 16% in
gold, 10% in managed futuresand 6% in cash in a money market
.
It's up 2.02% month to date,it's up 2.14% year to date and
up 32.74 percent since inceptionin July 2020.
Moving to this kitchen sinkportfolio, the risk parity
(31:36):
ultimate, this one has some BTALin it.
Voices (31:40):
Uh what.
Most Uncle Frank (31:41):
But I'm not going to go through all 14 of
these funds.
It is up 1.81 percent for themonth of May.
It's up 2.14 percent year todate and up 22.07% since
inception in July 2020.
Now moving to theseexperimental portfolios, which
all involve levered funds.
Don't try this at home.
Voices (32:06):
You have a gambling problem.
Most Uncle Frank (32:08):
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.
It's up 0.3% for the month ofMay.
It's up 1.93% year-to-date andup 2.98% since inception in July
(32:32):
2020.
I thought we were going to havea rebalancing here, but since
the stock market recovered, weare out of rebalancing territory
.
We do look at these on the 15thof each month to determine
whether they should berebalanced or not, at least
these experimental ones.
Next one's the aggressive 50-50.
This is the least diversifiedand most levered of these
(32:54):
portfolios and the worstperformer by far.
It is essentially one halfstocks and one half bonds, but
it's got 33 percent in a leveredstock fund at upro, 33 percent
in a levered bond fund tmf, andthe remaining third divided into
a preferred shares fund and anintermediate treasury bond fund.
It is up 2.4% for the month ofMay.
(33:15):
It's down 3.65% year-to-date todown 15.14% since inception in
July 2020.
Moving to the levered goldenratio, this one's a year younger
than the other ones.
It has 35% in a compositelevered fund called NTSX that's
the S&P 500 and Treasury bondslevered up 1.5 to 1.
(33:37):
20% in gold GLDM, 15% in ainternational small cap value
fund, avdv, 10% in KMLM, whichis a managed futures fund, 10%
in a levered bond fund, tmf, andthe remaining 10% in two
levered funds UTSL, whichfollows utilities, and UDOW,
(33:59):
which follows the Dow.
It's up 1.88% month-to-date.
It's up 4.39% year-to-date, butdown 0.22% since inception in
July 2021.
And the last one is our newestone, the Optra portfolio, a
return-stacked portfolio, oneportfolio to rule them all.
It has 16% in a levered stockfund, upro, 24% in a worldwide
(34:25):
value fund called AVGV, 24% inGOVZ, which is a treasury strips
fund, and the remaining 36%divided into gold and managed
futures.
It's up 2.84% month-to-date.
It's up 2.63% year-to-date andup 5.62% since inception in July
(34:45):
2024.
Still not a year old yet, andthat concludes our weekly
portfolio reviews, boring A muchpleasanter week than many this
year so far.
Voices (34:59):
Oh, how convenient.
Most Uncle Frank (35:02):
And what will next week hold?
Well, we can ask our crystalball.
Mostly Mary (35:07):
My name's Sonia.
I'm going to be showing you thecrystal ball and how to use it,
or how I use it.
Most Uncle Frank (35:14):
What does our crystal ball always tell us
about what's going to happen inthe future?
Voices (35:18):
We don't know.
What do we know?
You don't know, I don't know,nobody knows.
Most Uncle Frank (35:25):
And so once again, we have the same reading.
Mostly Mary (35:28):
That's not an improvement.
Most Uncle Frank (35:30):
But now I see our signal is beginning to fade.
If you have comments orquestions for me, please send
them to frank atriskparityradarcom.
That email is frank atriskparityradarcom.
Or you can go to the websitewwwriskparityradarcom.
Put your message into thecontact form and I'll get it all
that way.
If you haven't had a chance todo it, please go to your
(35:51):
favorite podcast provider andlike subscribe.
Give me some stars, a follow, areview, that would be great
Okay.
Thank you once again for tuningin.
This is Frank Vasquez with RiskParty Radio.
Voices (36:09):
Signing off the little critters of nature.
They don't know that they'reugly.
That's very funny, a flymarrying a bumblebee.
I told you I'd shoot, but youdidn't believe me.
Why didn't you believe me?
Happy, happy, joy, joy.
Happy, happy joy, joy.
(36:29):
Happy, happy joy, joy.
Happy, happy joy, joy.
Happy, happy joy, joy.
Happy, happy joy, joy.
Happy, happy tax or legaladvice.
Mostly Mary (36:59):
Please consult with your own advisors before taking
any actions based on anyinformation you have heard here,
making sure to take intoaccount your own personal
circumstances.
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