In this episode we answer emails from I Have No Name, Deep and Joel. We discuss the extraordinary generosity of our listeners and how it uplifts the workers in the FMC trenches, rebalancing in accumulation, tax considerations for an intermediate term portfolio, saving for college, and what to do with new money just a few years from retirement.
And THEN we our go through our weekly portfolio reviews of the eight sample portfolios you can find at Portfolios | Risk Parity Radio.
To donate to the Top of the T-Shirt campaign and double your fun, please visit the Father McKenna Center donation page and note "Risk Parity Radio Match" when making your contribution.
Additional Links:
Father McKenna Center Donation Page: Donate - Father McKenna Center
FMC Instagram Page: The Father McKenna Center (@thefathermckennacenter) • Instagram photos and videos
FMC Facebook Page: The Father McKenna Center | Washington D.C. DC | Facebook
Breathless Unedited AI-Bot Summary:
Charitable giving and strategic investing merge powerfully in this week's episode as we celebrate remarkable fundraising success and tackle sophisticated portfolio questions. What began as a modest matching campaign for the Father McKenna Center has exploded into something extraordinary—over $22,000 raised in just two weeks, including a single $15,000 anonymous donation that left me nearly speechless. The genuine impact of this community's generosity on homeless and hungry individuals in DC cannot be overstated.
Diving into listener questions, we explore the nuances of portfolio construction across different life stages. For physicians in their accumulation phase, we distinguish between large cap growth and large cap value when paired with small cap value, revealing how Shannon's Demon effect operates during dollar-cost averaging. The discussion expands into tax-efficient risk parity strategies for high-income earners, offering practical guidance on minimizing taxable events while maximizing returns.
Parents of newborns will appreciate our deep dive into college savings strategies, including the optimal 50-50 large cap growth and small cap value approach that investment educator Paul Merriman and I both recommend. I share tactical insights on 529 plans versus brokerage accounts, suggesting that funding 529 plans earlier in a child's life maximizes tax advantages before transitioning to additional savings vehicles.
For those approaching retirement, we address the critical transition from accumulation to decumulation portfolios, emphasizing that your financial independence number—not market predictions—should drive allocation decisions. The episode concludes with our weekly review of eight sample portfolios, highlighting performance across conservative, balanced, and experimental approaches.
Follow the Father McKenna Center on social media to witness the direct impact of your donations, and consider contributing to our ongoing "Top of the T-shirt" campaign through July. Your support transforms lives while you transform your investment approach.
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.
Mostly Queen Mary (00:17):
A different drummer and now, coming to you
from dead center on your dial,welcome to Risk Parity Radio,
where we explore alternativesand asset allocations for the
do-it-yourself investor,Broadcasting 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 Queen 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, episode 430.
Today on Risk, parity Radio.
It's time for the grandunveiling of money which means
we'll be doing our weeklyportfolio reviews of the eight
sample portfolios you can findat wwwriskparityradiocom on the
portfolios page.
Voices (01:57):
Boring.
But before we get to that, hereI go once again with the email.
Mostly Uncle Frank (02:04):
And first off.
First off, we have an emailfrom I have no name.
Voices (02:12):
I have no name.
Mostly Uncle Frank (02:16):
I have no email at thisisnotadomaincom.
Voices (02:21):
Well, that right there may be the reason you've had
difficulty finding gainfulemployment.
Mostly Uncle Frank (02:25):
And I have no name rights.
Mostly Queen Mary (02:28):
Hi, I think they cut a check so it will take
a while, but I submitted a$15,000 donation from my
Vanguard donor advised fund tothe Father McKenna Center.
I hope it helps.
Voices (02:39):
You seek a great fortune .
You three who are now in shame,you will find great fortune.
You three who are now in shame,you will find a fortune, though
it would not be the fortune youseek.
Mostly Uncle Frank (02:52):
Well, when I first received your message, I
thought that perhaps somebody istrying to pull my leg, because
it seemed too good to be true.
Voices (03:00):
You can't handle the truth.
Mostly Uncle Frank (03:03):
But I checked with our crack team at
the Father McKenna Center andfound out it was true.
Voices (03:09):
Surely you can't be serious.
Mostly Uncle Frank (03:10):
I am serious and don't call me Shirley.
$15,000 had come in from ananonymous Vanguard donor-advised
fund and I can't tell you howmuch this means, both to me and
to the people who work at theFather McKenna Center.
Voices (03:28):
The spirits must have done everything in one night.
Of course they can do anything,can't they?
Of course they can.
I don't know what to do.
I'm as light as a feather.
I'm as happy as an angel.
I'm as merry as a feather.
I'm as happy as an angel.
I'm as merry as a schoolboy.
I'm as giddy as a drunken man.
(03:50):
I never did know anything, butnow I know that I don't know
anything.
I didn't know anything.
I never did know anything, butnow I know that I do know All in
the Christmas morning.
I must stand on my head.
I must stand on my head.
Mostly Uncle Frank (04:13):
Just to reorient everyone as to what
we're doing here if you haven'tbeen listening to this podcast
for the past couple of weeks.
As you know, we do not have anysponsors on this podcast.
We do support a charity.
It's called the Father McKennaCenter and it supports hungry
and homeless people inWashington DC.
And full disclosure.
I am on the board of thecharity and am the current
(04:33):
treasurer.
But about a month ago, or maybea little more than a month ago,
one of our listeners ananonymous listener who we've
christened Matthew63, ananonymous listener who we've
christened Matthew 63 said hewould put up $15,000 in a
matching campaign for the FatherMcKenna Center, and so I began
the campaign a couple of weeksago, calling it the top of the
(04:55):
t-shirt campaign, because wewant to get the Risk Parity logo
up to the top of the t-shirtwhen we do our Walk for McKenna,
which is our major fundraiser.
That occurs in September andwhen I started the campaign I
figured it'd probably take acouple of months to raise that
kind of money with a campaignlike this.
Boy, was I wrong?
(05:15):
You listeners out there havedonated over $22,000 in the past
two weeks.
There have donated over $22,000in the past two weeks,
including this $15,000 donationthat we're talking about here,
and so this is already one ofthe most successful fundraising
operations we've had this yearand will have this year, because
(05:38):
that does not include the$15,000 that's coming from
Matthew 63, who is extremelyenthused by this outpouring of
support that he started, and Ishould also tell you how
uplifting this is for the staffwho works at the Father McKenna
Center.
We really only have about sixpeople on the payroll and it's
(06:08):
kind of like a little firestation down there.
Voices (06:11):
It just seems a little pricey for a unique fixer-upper
opportunity that's all, what doyou think, egon?
I think this building should becondemned.
There's serious metal fatiguein all the load-bearing members,
the wiring is substandard, it'scompletely inadequate for our
power needs and the neighborhoodis like a demilitarized zone.
Hey, does this pole still work?
(06:36):
Wow, this place is great.
When can we move in?
You've got to try this pole,I'm gonna get my stuff.
You've got to try this pole,I'm going to get my stuff.
Hey, we should stay heretonight.
Sleep here.
You know to try it out.
Mostly Uncle Frank (06:53):
Everybody has three or four different jobs
and a lot of times it's justkind of all hands on deck when
something needs to get done.
We had had some outside helpwith fundraising in the past,
but we decided to cut that fromthe budget this year to provide
more services and we weren'tsure how the fundraising was
going to go, and so almost allof this has fallen in the lap of
(07:17):
our developmental associate.
His name is Ben.
Oh, I get it, let me try.
He graduated from Gonzaga HighSchool there in 2016 and was
inspired by volunteering thereduring high school to go into
nonprofit work, and when he seesthese donations just appearing
(07:38):
from people all over the country, and even in different
countries, it really does feellike manna from heaven.
Voices (07:53):
Look, daddy.
Teacher says every time a bellrings, an angel gets his wings.
Mostly Uncle Frank (07:59):
That's right .
That's right.
Ben's also responsible for oursocial media operation, if you
could call it that.
But the Father McKenna Centerdoes have an active Instagram
and Facebook pages and if you'relike me, you do some Facebook
stuff.
But Instagram is kind of justsomething you look at.
I have an account, but it'smostly to follow our younger
(08:20):
relatives to see what they'redoing, because that's where they
like to be.
So you can follow the FatherMcKenna Center on Instagram and
if you have an Instagram account, I suggest you do that, because
it's also a way for you toshare with other people.
When they ask you about yourcharitable giving, you can show
them pictures of the FatherMcKenna Center from Instagram
(08:43):
and they're really nice pictures.
They're pictures of a lot ofpeople volunteering, a lot of
people being served, and it's alot more comforting and
inspirational to see that inyour feed than a lot of the
other nonsense that goes throughsocial media these days, and
Ben is the one who's taking thepictures and putting them up on
Instagram.
Voices (09:04):
Good morning, Squidward.
I'd love to stop and chat rightnow, but it's picture day.
Mostly Uncle Frank (09:11):
And so, even if you aren't able to donate, I
do urge you to follow theFather McKenna Center on
Instagram and on Facebook thepictures will go there too and
encourage other people to do so.
So we are going to continue torun our Top of the T-Shirt
campaign.
Give everyone a chance toparticipate, and we'll do that,
I think, through around the endof July Although I'll try to go
(09:34):
easier on your ears as far asthe promotions are concerned and
I'll go ahead and make sure youget another copy of that memo,
okay, I'll go ahead and makesure you get another copy of
that memo, okay.
And then maybe I can record alittle message or messages from
Dennis and Ben down there ingratitude and bring that into
the podcast at some point.
At least, that's my currentidea, and let me just say again
(09:57):
how grateful I am to all of you,because I never expected this
to be so successful Greatsuccess.
But maybe I should have,because we do have the finest
podcast audience available here.
Mostly Queen Mary (10:12):
Top drawer, really top drawer.
Mostly Uncle Frank (10:17):
I'll put that link back in the show notes
for the donations.
But thank you again.
I have no name and thank youfor your email but first.
Voices (10:30):
First, you must travel a long and difficult road, a road
fraught with peril.
You shall see things wonderfulto tell, mm-hmm.
You shall see Thay Wonderful totell.
I cannot tell you how long thisroad shall be, but fear not the
(10:53):
obstacles in your path, forfear has vouchsafed your reward.
Do the road me wise.
Ye.
You harsh road, weary stillshall ye follow the way, even
(11:24):
unto your salvation.
Mostly Uncle Frank (11:29):
Second off, Second off.
We have an email from Deep.
Voices (11:35):
Drums, drums and the Deep.
Mostly Uncle Frank (11:42):
And Deep writes.
Mostly Queen Mary (11:44):
Hello Uncle Frank and Queen Mary.
We are dual physician partnersin our mid-30s, just out of
(12:06):
fellowship and starting ourfirst real jobs.
Over the past six months I'vedone a deep dive into personal
finance, drawing inspirationfrom the Money Guys 25% savings
rate, paul Merriman's small capvalue tilt and ultimately
finding your podcast.
I've listened to nearly allyour episodes during my commutes
and have learned a great deal.
(12:27):
You are talking about thenonsensical ravings of a lunatic
mind.
Thank you for everything I alsodonated to the Father McKenna
Center website for the Matthew6-3 matching gift.
I have a few questions for you.
Apologies if they're a bit allover the place and please feel
free to split them acrossepisodes if needed.
(12:48):
Sorry, mary.
Voices (12:49):
Mary, Mary, why you buggin'?
Mostly Queen Mary (12:54):
1.
Rebalancing during theaccumulation phase.
You've mentioned the benefitsof a 50-50 large cap value small
cap value split for rebalancingin a risk parity portfolio.
Large cap value small cap valuesplit for rebalancing in a risk
parity portfolio.
We're in the accumulation phaseand my portfolio is set up
50-50 LCV, scv across 403B, 457,backdoor Roth and brokerage
(13:21):
accounts using M1 finance forbrokerage.
Since we're still adding newmoney bi-weekly which M1 keeps
at 50-50, do we get the samerebalancing benefit as with
periodic rebalancing?
Does the Shannon's Demon effectstill apply when using new
contributions instead of formalrebalancing?
Also, in the accumulation phase, is there a real benefit to
diversifying into SCV if it onlyserves to rebalance, given that
(13:43):
SCV may not outperform LC overthe long run?
Two tax efficient risk parityin brokerage accounts.
I want to try an intermediateterm risk parity portfolio,
partly as a practice run forretirement and partly to save
for a future car and house.
Since we're in the highest taxbracket, how should I approach
(14:05):
asset selection in a taxablebrokerage account?
For example, does it make senseto use BOXX for short term,
phys for gold, or am I lettingthe tax tail wag the dog?
Am I over-optimizing If youwere in my situation?
Highest tax bracketintermediate term goals.
How would you approach buildingthis portfolio?
(14:26):
One thing my partner and I aregrateful for is graduating
medical school without debt, andwe want to provide the same for
our children.
Voices (14:34):
I don't care about the children, I just care about
their parents' money.
Mostly Queen Mary (14:38):
With a newborn at home.
I'm trying to figure out howmuch and how to save for college
, but the recommended ranges areall over the place.
I'm considering using the same50-50 LCV SCV portfolio for his
college fund.
Or should I be more aggressiveor even use leverage?
Maybe he has a gambling problem, given the long time horizon.
Voices (15:00):
Oh, there it is, Winner, winner chicken dinner.
Mostly Queen Mary (15:06):
I'm also thinking of splitting
contributions 50% to a 529 plan,50% to a brokerage account,
using the 529 first and thebrokerage as backup.
Does this make sense or wouldyou recommend a different
approach?
Thank you again for all you do,deep.
Voices (15:24):
You cannot get out.
The shadow moves in the dark.
We cannot get out.
Mostly Uncle Frank (15:39):
They are coming Well.
Thank you also for being adonor to the Father McKenna
Center.
I forgot to mention it in thelast answer, but that is what
has moved you to the front ofthe line, because you do get to
go to the front of the emailline if you're a donor to the
Father McKenna Center and justplease mention that in your
message or email.
But getting to your questions,your first one, you mentioned a
(16:03):
50-50 large cap value, small capvalue split as an accumulation
portfolio.
That may be a typo on your part, because what I talk about here
is a 50-50 large cap growth andsmall cap value split, and I'm
assuming that's actually whatyou meant.
I would not use an all valueportfolio for accumulation.
(16:24):
And as for rebalancing, no,it's not as important during the
accumulation phase, at leastuntil you've accumulated a lot
of something, because you areconstantly adding money into the
portfolio and so the easiestway to handle it and especially
if you're using a taxableaccount is simply to contribute
to whatever is behind, whateveris lower, and that way you just
(16:45):
have to do less rebalancingoverall.
And yes, the Shannon's Demoneffect still applies, but it is
going to be more muted whenyou're talking about dollar cost
averaging into something, asopposed to holding a static
portfolio and rebalancing that.
Because what you're reallytrying to do here is take
advantage of years like 2022,where you had large cap growth
(17:09):
going down over 30% and smallcap value kind of holding, and
then you would have been puttingmuch more into the large cap
growth when it was down severelyand being able to take
advantage of on the big comeback.
Because that is actually thescenario where dollar cost
averaging ends up beating buyand hold.
When you are talking about adrawdown scenario, where the
(17:32):
asset goes down for some periodof time, you keep buying into it
as it's down and as it comesback up, you will have a
positive yield in your portfolio, even if the overall return is
zero during that period, justbecause you were buying all the
way down and all the way up, allright.
Your next question anintermediate term risk parity
(17:54):
portfolio, and I think we talkedabout this in the last episode
of the one before it with Timmost recently.
So, yes, the most tax efficientway to approach this is also to
not rebalance it but simply buythe things when they're down,
so you reduce the number oftransactions and, in particular,
(18:15):
reduce the number of actualsales to when you were actually
taking money and using it forsomething.
Now, as I also mentioned inthat episode, you probably don't
want or need any cash in thiskind of intermediate term
portfolio, because I'm assumingthat you have some allocation to
cash in some emergency fund orsomething else, and so you don't
(18:36):
need to put more cash into thisintermediate term accumulation
portfolio.
If you did, yes, box B-O-X-Xwould be a good choice.
If you're in the highest taxbrackets, that would be better
than, say, a money market or ashort-term bond fund.
Fis for gold is probably lessimportant.
That's P-H-Y-S, which presentsitself as allowing for capital
(19:02):
gains taxes instead ofcollectibles taxes that are
generally applied to gold funds.
The problem with that fund isit tends to underperform other
gold funds over time, and so youneed to balance that out with
deciding whether it's a betterchoice on the tax side.
The maximum tax you're going tobe paying on a gold fund like
GLDM is going to be 28%, and itwon't be more than that if
(19:24):
you're in the 30.
Paying on a gold fund like GLDMis going to be 28%, and it
won't be more than that ifyou're in the 30, plus percent
marginal tax brackets.
And the other thing is arelative portion of your entire
portfolio.
It's not going to be that much,certainly less than 20% Now I
should have mentioned, but I'mskipping back to the discussion
of the cash again.
You might just take that 6% thatwould have been allocated to
cash and allocated to thediscussion of the cash again.
You might just take that 6%that would have been allocated
(19:44):
to cash and allocated to theother assets.
Or you could add something likepreferred shares which pay
qualified dividends, or youcould just add some more stocks,
or some international stocks orsomething like that.
Or, if you're reallyadventurous, you can hold a
little Bitcoin, because nowthere are ETFs for that too.
(20:04):
In any event, holding this kindof portfolio is going to be much
more tax efficient than, say,holding it in a savings account
or something similar to that,because that would be the worst
taxation situation overall,whereas most of the things in
this portfolio are either notgoing to get taxed or are going
to get taxed at a favorablecapital gains tax rate.
(20:25):
So long as you're not doing awhole lot of transactions in the
account, as I mentioned before,do not rebalance it.
Just add to the things that arelow and use that as the only
form of rebalancing you need todo.
All right, now your thirdquestion saving for college
portfolio construction for anewborn.
Now, it's interesting you hadmentioned Paul Merriman in your
(20:46):
question and he had actuallycalled me about this.
This is back in 2022.
I think I recounted thisconversation in episode 208.
I was just sitting at mykitchen table one day and Paul
Merriman was on the line.
Inconceivable merriman was onthe line inconceivable.
(21:08):
So at the time he was trying todecide what to use for a
portfolio for a new grandchildso kind of in the same situation
that you're thinking about andhe wanted to go with something
simple, a two-fund kind of thing.
So I told him what mypreference would be, to be large
cap growth and small cap value.
What he ended up going with wasS&P 500 and small cap value,
but it's very similar.
I think you just have moregrowth potential with large cap
(21:31):
growth than you do with the S&P500.
And so I would go ahead andjust do that.
If you wanted to add aninternational version of that
since people have been talkingabout that a lot recently
national version of that, Sincepeople have been talking about
that a lot recently, you coulduse the fund IDMO as your large
(21:54):
cap growth thing and the fundAVDV as the small cap value
section of that.
But I don't know if you want toadd that kind of complication
to this.
Now, as for the 529 plans, whenwe were doing this it was before
they had changed the rules, sowe actually only used 529 plans
to get the state tax deductionand then saved elsewhere for
college.
I know, 529s are now moreflexible in that you can take
(22:16):
out up to $35,000 to fund a RothIRA later and if you have
multiple kids, you can switchthe beneficiary from one to
another.
So it may very well beadvantageous to put more money
like that into a 529 plan.
And what you should also bethinking of is if this money is
really to be set aside forcollege.
(22:36):
You actually want to fund the529 plan first, as in first in
life, because it's going to havea longer time to grow and
therefore you are effectivelysaving more on taxes.
So even if you're doing 50% ina 529 and 50% in the brokerage
account, the way to do it wouldbe essentially to put it only
(22:57):
into the 529 for the first nineyears or so of the child's life
and then switch to the brokerageaccount after that, if that
makes sense.
However, you will find that youhave fewer options often in a
529 account and there probablyor may not be a small cap value
option.
Voices (23:14):
I'm telling you, fellas, you're going to want that
cowbell.
Mostly Uncle Frank (23:18):
And that you may want to be putting all of
your large cap growth or S&P 500stuff in there and then, to the
extent you're doing small capvalue or some kind of
international combo of thatstuff, you can put that in the
brokerage account.
The truth is, with all theseaccumulation portfolios there is
no way to know which is goingto be the best combination for
(23:40):
the next decade in advance,because obviously if you say,
look at the last decade, youwould have been better off with
all large cap growth, but thathasn't been true in most decades
.
Voices (23:51):
Like anyone can even know that.
Mostly Uncle Frank (23:54):
So, really, the best advice I can give you
is to pick something reasonable,like you've been talking about
here, and then just stick withit and avoid the temptation of
jumping from one thing toanother, because you never know
when things are going to changeand you don't want to be in a
situation where you areeffectively selling something
low and buying something elsehigh, because that is in fact
(24:15):
how amateur investors typicallyunderperform the markets and
even the funds in their ownportfolio if they're fund
hopping.
As for using leverage, you havea gambling problem.
Yeah, I think you can probablyskip that.
It wouldn't be wrong to do thatwith a little bit of the money,
and I know a lot of people havehad great success with it, at
(24:39):
least in the past 10 or 15 years.
Voices (24:42):
Wow, it's very nice.
Mostly Uncle Frank (24:45):
But you wouldn't want to be putting a
whole lot of money into thisthing and then having a crash
scenario when the child is like10 or 11 and then be wondering
whether you have enough or not.
Voices (24:56):
You need somebody watching your back at all times.
Mostly Uncle Frank (25:00):
So you had a lot of good questions here that
I think a lot of people areinterested in.
Hopefully I answered thempretty well and didn't jump
around too much.
Thank you again for yoursupport of the Father McKenna
Center and thank you for youremail.
Voices (25:13):
Bow to your sensei.
Bow to your sensei, last off.
Mostly Uncle Frank (25:21):
Last off of an email from Joel.
Voices (25:25):
You may be right.
Last off we have an email fromJoel.
Mostly Uncle Frank (25:38):
And Joel writes Hi Frank.
Mostly Queen Mary (25:41):
Long-time listener, first-time
correspondent, I don't think I'myour typical top drawer
audience because I feel like Imight be doing things wrong.
Voices (25:48):
No, more flying solo.
Mostly Queen Mary (25:50):
I've always kept a simple accumulation
portfolio in my Fidelitybrokerage 80% VTI, 20% IEF and
chill.
But after I started listeningto your podcast three to four
years ago, I opened anothertaxable account at Fidelity and
labeled it risk parity investingusing a golden ratio mix with a
small amount to get started.
(26:10):
Now, about five years fromearly retirement, I'm stuck in
an analysis paralysis.
I don't know whether to keepadding to my accumulation
portfolio or my risk parityportfolio, which I see as more
of a decumulation strategy, orboth or neither.
It's gotten to the point whereI just transfer money and it is
sitting there.
That's not an improvement.
(26:32):
I have 25,000 just sitting inSPAXX at Fidelity, unsure of
what to do next.
Would love to hear yourthoughts.
Thanks, joel.
Mostly Uncle Frank (27:01):
All right, joel.
Well, yes, you do need to getthis $25,000 invested.
But the answer to your questiondepends almost entirely on how
far you are away from havingenough money to retire with,
because that's really thedeciding factor.
Because that's really thedeciding factor If you've
already accumulated enough moneyto retire with and are just
kind of waiting until it's timeto pull the plug in five years,
(27:23):
then I would go ahead and putall future contributions into
the retirement portfolio,because you are having to switch
over to that anyway.
If you still wanted or neededto accumulate more, then going
with your 80% VTI, 20% IEF wouldbe the way to go, because that
portfolio has more accumulationpotential.
(27:45):
It just has a lot more crashpotential too, and you don't
want to be crashing less thanfive years before you actually
retire and need the money.
And that does get to anotherpoint or question is do you need
the money?
Voices (28:00):
Show me the money, jerry , you better yell, show me the
money.
Mostly Uncle Frank (28:05):
Because if you have accumulated enough for
your retirement in terms of afinancial independence number
and you've put that money into aretirement portfolio, then you
have an option as to what you dowith any other money above and
beyond that.
And there are kind of twoschools of thought.
One would be well, I'm notreally going to use this and I
(28:26):
don't have a plan for it, andmaybe I want to leave it to
somebody else or only deal withit in 30 years, in which case
you could leave it in anaccumulation-style portfolio for
as long as that was true.
But the other factor is,generally, when people retire,
they would like to have a bigpile of cash to go do some
traveling or buy some fun stuffor do some other things like
(28:47):
that, in which case maybe itdoesn't even go in either the
aggressive accumulationportfolio or in the decumulation
portfolio, but actually isgoing into your cash flower pot
or bucket or pie cake, whateveryou want to call it because you
are planning on pretty muchimmediately turning around and
(29:08):
spending it pretty close toretirement.
So those are the kinds ofthings I'd be thinking about
here what is your ultimatepurpose for these investments
and then allocating them basedon the purpose.
Just make sure you're notallocating based on your
projections as to what you thinkthe market's going to do in the
next five years, because that'sa fool's errand crystal ball
(29:31):
can help you, it can guide youand if you want to listen to a
lot more podcasts about thiskind of an issue.
It's usually labeled transitioneither in the titles to the
podcast or the show notes, andyou can word search the entire
catalog if you go to the rssfeed that is available on the
(29:51):
podcast page and I'll see if Ican link to that in the show
notes.
Just make sure you open it in abrowser, because it's a huge
page with over 400 episodes onit.
Hit Control-F and search toyour heart's content.
Voices (30:04):
Yes.
Mostly Uncle Frank (30:05):
So hopefully that helps and thank you for
your email.
Now we're going to do somethingextremely fun, and the extremely
fun thing we get to do now isour weekly portfolio reviews.
Of the eight sample portfoliosyou can find at
wwwriskparadrivercom on theportfolios page, and just
(30:26):
looking at where the marketsstand this year for our various
asset classes, the S&P 500,represented by the fund of VOO,
is up 2.55% for the year.
The NASDAQ 100, represented byQQQ, is up 3.81% for the year.
Small cap value is still thebig loser this year.
Representative fund VIOV isdown 9.6% for the year and gold
(30:50):
continues to be the big winner.
Voices (30:52):
I love gold.
Mostly Uncle Fra (30:55):
Representative Fund GLDM is up 26.16% for the
year.
Long-term treasuries continueto do nothing.
Representative Fund VGLT isdown 0.02% for the year.
Reits, represented by the FundREET are up 4.8% for the year.
Commodities represented by theFund PDBC are down 0.08% for the
(31:17):
year.
Commodities represented by thefund PDBC are down 0.08% for the
year.
Preferred shares, representedby the fund PFFV are up 0.03%
for the year and managed futuresare still managing to be down
slightly.
Representative fund DBMF isdown 2.37% for the year.
Moving to the sample portfolios,our first one is this reference
portfolio the All Seasons.
(31:38):
That was the first simplifiedrisk parity portfolio but is
really too conservative for mostapplications.
It is 30% in stocks in a totalstock market fund, 55% in
intermediate and long-termtreasury bonds and the remaining
15% in gold and commodities.
It's up 0.49% month-to-date.
It's up 3.28% year-to-date andup 12.12% since inception in
(32:04):
July 2020.
Next one's a golden butterfly.
This one is 40% in stocks and atotal stock market fund and a
small cap value fund, 40% intreasury bonds, divided into
long and short, and 20% in gold.
It's up 0.71% month to date.
It's up 4.35% year to date andup 39.75% since inception in
(32:25):
July 2020.
Next one's the golden ratio.
This one is 42% in stocks,divided into a large cap growth
fund and a small cap value fund,26% in long-term treasury bonds
, 16% in gold, 10% in a managedfutures fund and 6% in cash.
It's up 0.86% month-to-date,it's up 2.97% year-to-date and
(32:46):
up 33.81% since inception inJuly 2020.
Next one's the risk parityultimate.
This is kind of our kitchensink.
I'm not going to go through all14 of these funds.
It is up 0.75% month-to-date,it's up 2.63% year-to-date and
up 22.56% since inception inJuly 2020.
Now moving to theseexperimental portfolios that all
(33:09):
involve leveraged funds.
Voices (33:12):
Look away, I'm hitting you.
Mostly Uncle Frank (33:15):
Do not try this at home.
Voices (33:17):
Well, you have a gambling problem.
Mostly Uncle Frank (33:20):
First one's the Accelerated Permanent
Portfolio.
This one's 27.5% in a leveredbond fund TMF, 25% in a levered
stock fund UPRO, 25% in PFFV, apreferred shares fund, and 22.5%
in gold GLDM.
It's up 0.67% month-to-date.
It's up 2.34% month-to-date.
It's up 2.34% year-to-date andup 3.4% since inception in July
(33:42):
2020.
Next one's the aggressive 50-50, essentially half stocks and
half bonds.
This is the least diversifiedand most levered of these
portfolios and it shows it'sone-third in a levered stock
fund UPRO, one-third in alevered bond fund TMF, and the
remaining third divided intopreferred shares and an
intermediate treasury bond fund.
It's up 0.82% month-to-date.
(34:04):
It's down 4.16% year-to-dateand down 15.59% since inception
in July 2020.
Next one's the levered goldenratio.
This one is 35% in a compositefund called NTSX that's the S&P
500 and treasury bonds leveredup 1.5 to 1.
It's got 20% in gold GLDM.
(34:25):
It's got 15% in aninternational small cap value
fund, avdv, 10% in KMLM, whichis a managed futures fund, 10%
in TMF, a levered bond fund, andthe remaining 10% in two
levered funds, udow and UTSL,which are indexed to the Dow and
(34:46):
a utilities index respectively.
It's up 0.58% month-to-date,leading the pack this year,
though, out of these portfolios.
It's up 5.84% year-to-date andup 1.16% since inception in July
2021.
And the last one is the newestone the Optra portfolio.
One portfolio to rule them all.
Voices (35:07):
Frodo of the nine fingers and the ring of doom.
Why does he have nine fingers?
Where is the Ring of Doom?
Mostly Uncle Frank (35:33):
This is a return-stacked portfolio that we
added last year.
It is 16% in an levered S&P 500fund UPRO, 24% in a worldwide
value fund AVGV, 24% in GOVZ, aUS Treasury Strips fund, and the
remaining 36% divided into goldand managed futures.
(35:54):
Into gold and managed futures.
It's up 1.25% month to date.
It's up 3.82% year to date andup 6.84% since inception in July
2024.
And that concludes ourportfolio reviews for another
week.
And it's gone.
Voices (36:13):
Poof.
Mostly Uncle Frank (36:15):
But now I see our signal is beginning to
fade.
Just one programming note Ithink there will be a podcast in
the middle of this week, butthere will not be one next
weekend.
I will be off to Montana tovisit my 96-year-old father for
Father's Day and hopefully he'llbe up for a drink.
One of our listeners, chuck,may come along with us, as he
(36:37):
also lives nearby Well,la-dee-frickin'-da.
In the meantime, if you havecomments or questions for me,
please send them tofrankatriskparodyradarcom.
That email isfrankatriskparodyradarcom.
Or you can go to the website,wwwriskparodyradarcom.
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
(37:03):
favorite podcast provider andlike subscribe.
Give me some stars, a follow, areview.
That would be great, okay,thank you once again for tuning
in.
This is Frank Vasquez with RiskParity Radio signing off.
Voices (37:24):
I may be crazy, but it just may be a lunatic you're
looking for.
Turn out the lights.
(37:46):
Don't try to save me.
You may be wrong, but all Iknow you may be right.
You may be wrong, but you may beright.
You may be wrong, but you maybe right.
You may be wrong, but you maybe right.
You may be wrong, but you maybe right.
You may be wrong, but you maybe right.
(38:09):
You may be wrong, but you maybe right.
You may be wrong, but you maybe right.
You may be wrong.
Mostly Queen Mary (38:17):
But you may be right.
You may be wrong, but you maybe right.
The Risk Parody Radio Show ishosted 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
(38:38):
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.
Mostly Queen Mary (00:17):
A different drummer and now, coming to you
from dead center on your dial,welcome to Risk Parity Radio,
where we explore alternativesand asset allocations for the
do-it-yourself investor,Broadcasting 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 Queen 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, episode 430.
Today on Risk, parity Radio.
It's time for the grandunveiling of money which means
we'll be doing our weeklyportfolio reviews of the eight
sample portfolios you can findat wwwriskparityradiocom on the
portfolios page.
Voices (01:57):
Boring.
But before we get to that, hereI go once again with the email.
Mostly Uncle Frank (02:04):
And first off.
First off, we have an emailfrom I have no name.
Voices (02:12):
I have no name.
Mostly Uncle Frank (02:16):
I have no email at thisisnotadomaincom.
Voices (02:21):
Well, that right there may be the reason you've had
difficulty finding gainfulemployment.
Mostly Uncle Frank (02:25):
And I have no name rights.
Mostly Queen Mary (02:28):
Hi, I think they cut a check so it will take
a while, but I submitted a$15,000 donation from my
Vanguard donor advised fund tothe Father McKenna Center.
I hope it helps.
Voices (02:39):
You seek a great fortune .
You three who are now in shame,you will find great fortune.
You three who are now in shame,you will find a fortune, though
it would not be the fortune youseek.
Mostly Uncle Frank (02:52):
Well, when I first received your message, I
thought that perhaps somebody istrying to pull my leg, because
it seemed too good to be true.
Voices (03:00):
You can't handle the truth.
Mostly Uncle Frank (03:03):
But I checked with our crack team at
the Father McKenna Center andfound out it was true.
Voices (03:09):
Surely you can't be serious.
Mostly Uncle Frank (03:10):
I am serious and don't call me Shirley.
$15,000 had come in from ananonymous Vanguard donor-advised
fund and I can't tell you howmuch this means, both to me and
to the people who work at theFather McKenna Center.
Voices (03:28):
The spirits must have done everything in one night.
Of course they can do anything,can't they?
Of course they can.
I don't know what to do.
I'm as light as a feather.
I'm as happy as an angel.
I'm as merry as a feather.
I'm as happy as an angel.
I'm as merry as a schoolboy.
I'm as giddy as a drunken man.
(03:50):
I never did know anything, butnow I know that I don't know
anything.
I didn't know anything.
I never did know anything, butnow I know that I do know All in
the Christmas morning.
I must stand on my head.
I must stand on my head.
Mostly Uncle Frank (04:13):
Just to reorient everyone as to what
we're doing here if you haven'tbeen listening to this podcast
for the past couple of weeks.
As you know, we do not have anysponsors on this podcast.
We do support a charity.
It's called the Father McKennaCenter and it supports hungry
and homeless people inWashington DC.
And full disclosure.
I am on the board of thecharity and am the current
(04:33):
treasurer.
But about a month ago, or maybea little more than a month ago,
one of our listeners ananonymous listener who we've
christened Matthew63, ananonymous listener who we've
christened Matthew 63 said hewould put up $15,000 in a
matching campaign for the FatherMcKenna Center, and so I began
the campaign a couple of weeksago, calling it the top of the
(04:55):
t-shirt campaign, because wewant to get the Risk Parity logo
up to the top of the t-shirtwhen we do our Walk for McKenna,
which is our major fundraiser.
That occurs in September andwhen I started the campaign I
figured it'd probably take acouple of months to raise that
kind of money with a campaignlike this.
Boy, was I wrong?
(05:15):
You listeners out there havedonated over $22,000 in the past
two weeks.
There have donated over $22,000in the past two weeks,
including this $15,000 donationthat we're talking about here,
and so this is already one ofthe most successful fundraising
operations we've had this yearand will have this year, because
(05:38):
that does not include the$15,000 that's coming from
Matthew 63, who is extremelyenthused by this outpouring of
support that he started, and Ishould also tell you how
uplifting this is for the staffwho works at the Father McKenna
Center.
We really only have about sixpeople on the payroll and it's
(06:08):
kind of like a little firestation down there.
Voices (06:11):
It just seems a little pricey for a unique fixer-upper
opportunity that's all, what doyou think, egon?
I think this building should becondemned.
There's serious metal fatiguein all the load-bearing members,
the wiring is substandard, it'scompletely inadequate for our
power needs and the neighborhoodis like a demilitarized zone.
Hey, does this pole still work?
(06:36):
Wow, this place is great.
When can we move in?
You've got to try this pole,I'm gonna get my stuff.
You've got to try this pole,I'm going to get my stuff.
Hey, we should stay heretonight.
Sleep here.
You know to try it out.
Mostly Uncle Frank (06:53):
Everybody has three or four different jobs
and a lot of times it's justkind of all hands on deck when
something needs to get done.
We had had some outside helpwith fundraising in the past,
but we decided to cut that fromthe budget this year to provide
more services and we weren'tsure how the fundraising was
going to go, and so almost allof this has fallen in the lap of
(07:17):
our developmental associate.
His name is Ben.
Oh, I get it, let me try.
He graduated from Gonzaga HighSchool there in 2016 and was
inspired by volunteering thereduring high school to go into
nonprofit work, and when he seesthese donations just appearing
(07:38):
from people all over the country, and even in different
countries, it really does feellike manna from heaven.
Voices (07:53):
Look, daddy.
Teacher says every time a bellrings, an angel gets his wings.
Mostly Uncle Frank (07:59):
That's right .
That's right.
Ben's also responsible for oursocial media operation, if you
could call it that.
But the Father McKenna Centerdoes have an active Instagram
and Facebook pages and if you'relike me, you do some Facebook
stuff.
But Instagram is kind of justsomething you look at.
I have an account, but it'smostly to follow our younger
(08:20):
relatives to see what they'redoing, because that's where they
like to be.
So you can follow the FatherMcKenna Center on Instagram and
if you have an Instagram account, I suggest you do that, because
it's also a way for you toshare with other people.
When they ask you about yourcharitable giving, you can show
them pictures of the FatherMcKenna Center from Instagram
(08:43):
and they're really nice pictures.
They're pictures of a lot ofpeople volunteering, a lot of
people being served, and it's alot more comforting and
inspirational to see that inyour feed than a lot of the
other nonsense that goes throughsocial media these days, and
Ben is the one who's taking thepictures and putting them up on
Instagram.
Voices (09:04):
Good morning, Squidward.
I'd love to stop and chat rightnow, but it's picture day.
Mostly Uncle Frank (09:11):
And so, even if you aren't able to donate, I
do urge you to follow theFather McKenna Center on
Instagram and on Facebook thepictures will go there too and
encourage other people to do so.
So we are going to continue torun our Top of the T-Shirt
campaign.
Give everyone a chance toparticipate, and we'll do that,
I think, through around the endof July Although I'll try to go
(09:34):
easier on your ears as far asthe promotions are concerned and
I'll go ahead and make sure youget another copy of that memo,
okay, I'll go ahead and makesure you get another copy of
that memo, okay.
And then maybe I can record alittle message or messages from
Dennis and Ben down there ingratitude and bring that into
the podcast at some point.
At least, that's my currentidea, and let me just say again
(09:57):
how grateful I am to all of you,because I never expected this
to be so successful Greatsuccess.
But maybe I should have,because we do have the finest
podcast audience available here.
Mostly Queen Mary (10:12):
Top drawer, really top drawer.
Mostly Uncle Frank (10:17):
I'll put that link back in the show notes
for the donations.
But thank you again.
I have no name and thank youfor your email but first.
Voices (10:30):
First, you must travel a long and difficult road, a road
fraught with peril.
You shall see things wonderfulto tell, mm-hmm.
You shall see Thay Wonderful totell.
I cannot tell you how long thisroad shall be, but fear not the
(10:53):
obstacles in your path, forfear has vouchsafed your reward.
Do the road me wise.
Ye.
You harsh road, weary stillshall ye follow the way, even
(11:24):
unto your salvation.
Mostly Uncle Frank (11:29):
Second off, Second off.
We have an email from Deep.
Voices (11:35):
Drums, drums and the Deep.
Mostly Uncle Frank (11:42):
And Deep writes.
Mostly Queen Mary (11:44):
Hello Uncle Frank and Queen Mary.
We are dual physician partnersin our mid-30s, just out of
(12:06):
fellowship and starting ourfirst real jobs.
Over the past six months I'vedone a deep dive into personal
finance, drawing inspirationfrom the Money Guys 25% savings
rate, paul Merriman's small capvalue tilt and ultimately
finding your podcast.
I've listened to nearly allyour episodes during my commutes
and have learned a great deal.
(12:27):
You are talking about thenonsensical ravings of a lunatic
mind.
Thank you for everything I alsodonated to the Father McKenna
Center website for the Matthew6-3 matching gift.
I have a few questions for you.
Apologies if they're a bit allover the place and please feel
free to split them acrossepisodes if needed.
(12:48):
Sorry, mary.
Voices (12:49):
Mary, Mary, why you buggin'?
Mostly Queen Mary (12:54):
1.
Rebalancing during theaccumulation phase.
You've mentioned the benefitsof a 50-50 large cap value small
cap value split for rebalancingin a risk parity portfolio.
Large cap value small cap valuesplit for rebalancing in a risk
parity portfolio.
We're in the accumulation phaseand my portfolio is set up
50-50 LCV, scv across 403B, 457,backdoor Roth and brokerage
(13:21):
accounts using M1 finance forbrokerage.
Since we're still adding newmoney bi-weekly which M1 keeps
at 50-50, do we get the samerebalancing benefit as with
periodic rebalancing?
Does the Shannon's Demon effectstill apply when using new
contributions instead of formalrebalancing?
Also, in the accumulation phase, is there a real benefit to
diversifying into SCV if it onlyserves to rebalance, given that
(13:43):
SCV may not outperform LC overthe long run?
Two tax efficient risk parityin brokerage accounts.
I want to try an intermediateterm risk parity portfolio,
partly as a practice run forretirement and partly to save
for a future car and house.
Since we're in the highest taxbracket, how should I approach
(14:05):
asset selection in a taxablebrokerage account?
For example, does it make senseto use BOXX for short term,
phys for gold, or am I lettingthe tax tail wag the dog?
Am I over-optimizing If youwere in my situation?
Highest tax bracketintermediate term goals.
How would you approach buildingthis portfolio?
(14:26):
One thing my partner and I aregrateful for is graduating
medical school without debt, andwe want to provide the same for
our children.
Voices (14:34):
I don't care about the children, I just care about
their parents' money.
Mostly Queen Mary (14:38):
With a newborn at home.
I'm trying to figure out howmuch and how to save for college
, but the recommended ranges areall over the place.
I'm considering using the same50-50 LCV SCV portfolio for his
college fund.
Or should I be more aggressiveor even use leverage?
Maybe he has a gambling problem, given the long time horizon.
Voices (15:00):
Oh, there it is, Winner, winner chicken dinner.
Mostly Queen Mary (15:06):
I'm also thinking of splitting
contributions 50% to a 529 plan,50% to a brokerage account,
using the 529 first and thebrokerage as backup.
Does this make sense or wouldyou recommend a different
approach?
Thank you again for all you do,deep.
Voices (15:24):
You cannot get out.
The shadow moves in the dark.
We cannot get out.
Mostly Uncle Frank (15:39):
They are coming Well.
Thank you also for being adonor to the Father McKenna
Center.
I forgot to mention it in thelast answer, but that is what
has moved you to the front ofthe line, because you do get to
go to the front of the emailline if you're a donor to the
Father McKenna Center and justplease mention that in your
message or email.
But getting to your questions,your first one, you mentioned a
(16:03):
50-50 large cap value, small capvalue split as an accumulation
portfolio.
That may be a typo on your part, because what I talk about here
is a 50-50 large cap growth andsmall cap value split, and I'm
assuming that's actually whatyou meant.
I would not use an all valueportfolio for accumulation.
(16:24):
And as for rebalancing, no,it's not as important during the
accumulation phase, at leastuntil you've accumulated a lot
of something, because you areconstantly adding money into the
portfolio and so the easiestway to handle it and especially
if you're using a taxableaccount is simply to contribute
to whatever is behind, whateveris lower, and that way you just
(16:45):
have to do less rebalancingoverall.
And yes, the Shannon's Demoneffect still applies, but it is
going to be more muted whenyou're talking about dollar cost
averaging into something, asopposed to holding a static
portfolio and rebalancing that.
Because what you're reallytrying to do here is take
advantage of years like 2022,where you had large cap growth
(17:09):
going down over 30% and smallcap value kind of holding, and
then you would have been puttingmuch more into the large cap
growth when it was down severelyand being able to take
advantage of on the big comeback.
Because that is actually thescenario where dollar cost
averaging ends up beating buyand hold.
When you are talking about adrawdown scenario, where the
(17:32):
asset goes down for some periodof time, you keep buying into it
as it's down and as it comesback up, you will have a
positive yield in your portfolio, even if the overall return is
zero during that period, justbecause you were buying all the
way down and all the way up, allright.
Your next question anintermediate term risk parity
(17:54):
portfolio, and I think we talkedabout this in the last episode
of the one before it with Timmost recently.
So, yes, the most tax efficientway to approach this is also to
not rebalance it but simply buythe things when they're down,
so you reduce the number oftransactions and, in particular,
(18:15):
reduce the number of actualsales to when you were actually
taking money and using it forsomething.
Now, as I also mentioned inthat episode, you probably don't
want or need any cash in thiskind of intermediate term
portfolio, because I'm assumingthat you have some allocation to
cash in some emergency fund orsomething else, and so you don't
(18:36):
need to put more cash into thisintermediate term accumulation
portfolio.
If you did, yes, box B-O-X-Xwould be a good choice.
If you're in the highest taxbrackets, that would be better
than, say, a money market or ashort-term bond fund.
Fis for gold is probably lessimportant.
That's P-H-Y-S, which presentsitself as allowing for capital
(19:02):
gains taxes instead ofcollectibles taxes that are
generally applied to gold funds.
The problem with that fund isit tends to underperform other
gold funds over time, and so youneed to balance that out with
deciding whether it's a betterchoice on the tax side.
The maximum tax you're going tobe paying on a gold fund like
GLDM is going to be 28%, and itwon't be more than that if
(19:24):
you're in the 30.
Paying on a gold fund like GLDMis going to be 28%, and it
won't be more than that ifyou're in the 30, plus percent
marginal tax brackets.
And the other thing is arelative portion of your entire
portfolio.
It's not going to be that much,certainly less than 20% Now I
should have mentioned, but I'mskipping back to the discussion
of the cash again.
You might just take that 6% thatwould have been allocated to
cash and allocated to thediscussion of the cash again.
You might just take that 6%that would have been allocated
(19:44):
to cash and allocated to theother assets.
Or you could add something likepreferred shares which pay
qualified dividends, or youcould just add some more stocks,
or some international stocks orsomething like that.
Or, if you're reallyadventurous, you can hold a
little Bitcoin, because nowthere are ETFs for that too.
(20:04):
In any event, holding this kindof portfolio is going to be much
more tax efficient than, say,holding it in a savings account
or something similar to that,because that would be the worst
taxation situation overall,whereas most of the things in
this portfolio are either notgoing to get taxed or are going
to get taxed at a favorablecapital gains tax rate.
(20:25):
So long as you're not doing awhole lot of transactions in the
account, as I mentioned before,do not rebalance it.
Just add to the things that arelow and use that as the only
form of rebalancing you need todo.
All right, now your thirdquestion saving for college
portfolio construction for anewborn.
Now, it's interesting you hadmentioned Paul Merriman in your
(20:46):
question and he had actuallycalled me about this.
This is back in 2022.
I think I recounted thisconversation in episode 208.
I was just sitting at mykitchen table one day and Paul
Merriman was on the line.
Inconceivable merriman was onthe line inconceivable.
(21:08):
So at the time he was trying todecide what to use for a
portfolio for a new grandchildso kind of in the same situation
that you're thinking about andhe wanted to go with something
simple, a two-fund kind of thing.
So I told him what mypreference would be, to be large
cap growth and small cap value.
What he ended up going with wasS&P 500 and small cap value,
but it's very similar.
I think you just have moregrowth potential with large cap
(21:31):
growth than you do with the S&P500.
And so I would go ahead andjust do that.
If you wanted to add aninternational version of that
since people have been talkingabout that a lot recently
national version of that, Sincepeople have been talking about
that a lot recently, you coulduse the fund IDMO as your large
(21:54):
cap growth thing and the fundAVDV as the small cap value
section of that.
But I don't know if you want toadd that kind of complication
to this.
Now, as for the 529 plans, whenwe were doing this it was before
they had changed the rules, sowe actually only used 529 plans
to get the state tax deductionand then saved elsewhere for
college.
I know, 529s are now moreflexible in that you can take
(22:16):
out up to $35,000 to fund a RothIRA later and if you have
multiple kids, you can switchthe beneficiary from one to
another.
So it may very well beadvantageous to put more money
like that into a 529 plan.
And what you should also bethinking of is if this money is
really to be set aside forcollege.
(22:36):
You actually want to fund the529 plan first, as in first in
life, because it's going to havea longer time to grow and
therefore you are effectivelysaving more on taxes.
So even if you're doing 50% ina 529 and 50% in the brokerage
account, the way to do it wouldbe essentially to put it only
(22:57):
into the 529 for the first nineyears or so of the child's life
and then switch to the brokerageaccount after that, if that
makes sense.
However, you will find that youhave fewer options often in a
529 account and there probablyor may not be a small cap value
option.
Voices (23:14):
I'm telling you, fellas, you're going to want that
cowbell.
Mostly Uncle Frank (23:18):
And that you may want to be putting all of
your large cap growth or S&P 500stuff in there and then, to the
extent you're doing small capvalue or some kind of
international combo of thatstuff, you can put that in the
brokerage account.
The truth is, with all theseaccumulation portfolios there is
no way to know which is goingto be the best combination for
(23:40):
the next decade in advance,because obviously if you say,
look at the last decade, youwould have been better off with
all large cap growth, but thathasn't been true in most decades
.
Voices (23:51):
Like anyone can even know that.
Mostly Uncle Frank (23:54):
So, really, the best advice I can give you
is to pick something reasonable,like you've been talking about
here, and then just stick withit and avoid the temptation of
jumping from one thing toanother, because you never know
when things are going to changeand you don't want to be in a
situation where you areeffectively selling something
low and buying something elsehigh, because that is in fact
(24:15):
how amateur investors typicallyunderperform the markets and
even the funds in their ownportfolio if they're fund
hopping.
As for using leverage, you havea gambling problem.
Yeah, I think you can probablyskip that.
It wouldn't be wrong to do thatwith a little bit of the money,
and I know a lot of people havehad great success with it, at
(24:39):
least in the past 10 or 15 years.
Voices (24:42):
Wow, it's very nice.
Mostly Uncle Frank (24:45):
But you wouldn't want to be putting a
whole lot of money into thisthing and then having a crash
scenario when the child is like10 or 11 and then be wondering
whether you have enough or not.
Voices (24:56):
You need somebody watching your back at all times.
Mostly Uncle Frank (25:00):
So you had a lot of good questions here that
I think a lot of people areinterested in.
Hopefully I answered thempretty well and didn't jump
around too much.
Thank you again for yoursupport of the Father McKenna
Center and thank you for youremail.
Voices (25:13):
Bow to your sensei.
Bow to your sensei, last off.
Mostly Uncle Frank (25:21):
Last off of an email from Joel.
Voices (25:25):
You may be right.
Last off we have an email fromJoel.
Mostly Uncle Frank (25:38):
And Joel writes Hi Frank.
Mostly Queen Mary (25:41):
Long-time listener, first-time
correspondent, I don't think I'myour typical top drawer
audience because I feel like Imight be doing things wrong.
Voices (25:48):
No, more flying solo.
Mostly Queen Mary (25:50):
I've always kept a simple accumulation
portfolio in my Fidelitybrokerage 80% VTI, 20% IEF and
chill.
But after I started listeningto your podcast three to four
years ago, I opened anothertaxable account at Fidelity and
labeled it risk parity investingusing a golden ratio mix with a
small amount to get started.
(26:10):
Now, about five years fromearly retirement, I'm stuck in
an analysis paralysis.
I don't know whether to keepadding to my accumulation
portfolio or my risk parityportfolio, which I see as more
of a decumulation strategy, orboth or neither.
It's gotten to the point whereI just transfer money and it is
sitting there.
That's not an improvement.
(26:32):
I have 25,000 just sitting inSPAXX at Fidelity, unsure of
what to do next.
Would love to hear yourthoughts.
Thanks, joel.
Mostly Uncle Frank (27:01):
All right, joel.
Well, yes, you do need to getthis $25,000 invested.
But the answer to your questiondepends almost entirely on how
far you are away from havingenough money to retire with,
because that's really thedeciding factor.
Because that's really thedeciding factor If you've
already accumulated enough moneyto retire with and are just
kind of waiting until it's timeto pull the plug in five years,
(27:23):
then I would go ahead and putall future contributions into
the retirement portfolio,because you are having to switch
over to that anyway.
If you still wanted or neededto accumulate more, then going
with your 80% VTI, 20% IEF wouldbe the way to go, because that
portfolio has more accumulationpotential.
(27:45):
It just has a lot more crashpotential too, and you don't
want to be crashing less thanfive years before you actually
retire and need the money.
And that does get to anotherpoint or question is do you need
the money?
Voices (28:00):
Show me the money, jerry , you better yell, show me the
money.
Mostly Uncle Frank (28:05):
Because if you have accumulated enough for
your retirement in terms of afinancial independence number
and you've put that money into aretirement portfolio, then you
have an option as to what you dowith any other money above and
beyond that.
And there are kind of twoschools of thought.
One would be well, I'm notreally going to use this and I
(28:26):
don't have a plan for it, andmaybe I want to leave it to
somebody else or only deal withit in 30 years, in which case
you could leave it in anaccumulation-style portfolio for
as long as that was true.
But the other factor is,generally, when people retire,
they would like to have a bigpile of cash to go do some
traveling or buy some fun stuffor do some other things like
(28:47):
that, in which case maybe itdoesn't even go in either the
aggressive accumulationportfolio or in the decumulation
portfolio, but actually isgoing into your cash flower pot
or bucket or pie cake, whateveryou want to call it because you
are planning on pretty muchimmediately turning around and
(29:08):
spending it pretty close toretirement.
So those are the kinds ofthings I'd be thinking about
here what is your ultimatepurpose for these investments
and then allocating them basedon the purpose.
Just make sure you're notallocating based on your
projections as to what you thinkthe market's going to do in the
next five years, because that'sa fool's errand crystal ball
(29:31):
can help you, it can guide youand if you want to listen to a
lot more podcasts about thiskind of an issue.
It's usually labeled transitioneither in the titles to the
podcast or the show notes, andyou can word search the entire
catalog if you go to the rssfeed that is available on the
(29:51):
podcast page and I'll see if Ican link to that in the show
notes.
Just make sure you open it in abrowser, because it's a huge
page with over 400 episodes onit.
Hit Control-F and search toyour heart's content.
Voices (30:04):
Yes.
Mostly Uncle Frank (30:05):
So hopefully that helps and thank you for
your email.
Now we're going to do somethingextremely fun, and the extremely
fun thing we get to do now isour weekly portfolio reviews.
Of the eight sample portfoliosyou can find at
wwwriskparadrivercom on theportfolios page, and just
(30:26):
looking at where the marketsstand this year for our various
asset classes, the S&P 500,represented by the fund of VOO,
is up 2.55% for the year.
The NASDAQ 100, represented byQQQ, is up 3.81% for the year.
Small cap value is still thebig loser this year.
Representative fund VIOV isdown 9.6% for the year and gold
(30:50):
continues to be the big winner.
Voices (30:52):
I love gold.
Mostly Uncle Fra (30:55):
Representative Fund GLDM is up 26.16% for the
year.
Long-term treasuries continueto do nothing.
Representative Fund VGLT isdown 0.02% for the year.
Reits, represented by the FundREET are up 4.8% for the year.
Commodities represented by theFund PDBC are down 0.08% for the
(31:17):
year.
Commodities represented by thefund PDBC are down 0.08% for the
year.
Preferred shares, representedby the fund PFFV are up 0.03%
for the year and managed futuresare still managing to be down
slightly.
Representative fund DBMF isdown 2.37% for the year.
Moving to the sample portfolios,our first one is this reference
portfolio the All Seasons.
(31:38):
That was the first simplifiedrisk parity portfolio but is
really too conservative for mostapplications.
It is 30% in stocks in a totalstock market fund, 55% in
intermediate and long-termtreasury bonds and the remaining
15% in gold and commodities.
It's up 0.49% month-to-date.
It's up 3.28% year-to-date andup 12.12% since inception in
(32:04):
July 2020.
Next one's a golden butterfly.
This one is 40% in stocks and atotal stock market fund and a
small cap value fund, 40% intreasury bonds, divided into
long and short, and 20% in gold.
It's up 0.71% month to date.
It's up 4.35% year to date andup 39.75% since inception in
(32:25):
July 2020.
Next one's the golden ratio.
This one is 42% in stocks,divided into a large cap growth
fund and a small cap value fund,26% in long-term treasury bonds
, 16% in gold, 10% in a managedfutures fund and 6% in cash.
It's up 0.86% month-to-date,it's up 2.97% year-to-date and
(32:46):
up 33.81% since inception inJuly 2020.
Next one's the risk parityultimate.
This is kind of our kitchensink.
I'm not going to go through all14 of these funds.
It is up 0.75% month-to-date,it's up 2.63% year-to-date and
up 22.56% since inception inJuly 2020.
Now moving to theseexperimental portfolios that all
(33:09):
involve leveraged funds.
Voices (33:12):
Look away, I'm hitting you.
Mostly Uncle Frank (33:15):
Do not try this at home.
Voices (33:17):
Well, you have a gambling problem.
Mostly Uncle Frank (33:20):
First one's the Accelerated Permanent
Portfolio.
This one's 27.5% in a leveredbond fund TMF, 25% in a levered
stock fund UPRO, 25% in PFFV, apreferred shares fund, and 22.5%
in gold GLDM.
It's up 0.67% month-to-date.
It's up 2.34% month-to-date.
It's up 2.34% year-to-date andup 3.4% since inception in July
(33:42):
2020.
Next one's the aggressive 50-50, essentially half stocks and
half bonds.
This is the least diversifiedand most levered of these
portfolios and it shows it'sone-third in a levered stock
fund UPRO, one-third in alevered bond fund TMF, and the
remaining third divided intopreferred shares and an
intermediate treasury bond fund.
It's up 0.82% month-to-date.
(34:04):
It's down 4.16% year-to-dateand down 15.59% since inception
in July 2020.
Next one's the levered goldenratio.
This one is 35% in a compositefund called NTSX that's the S&P
500 and treasury bonds leveredup 1.5 to 1.
It's got 20% in gold GLDM.
(34:25):
It's got 15% in aninternational small cap value
fund, avdv, 10% in KMLM, whichis a managed futures fund, 10%
in TMF, a levered bond fund, andthe remaining 10% in two
levered funds, udow and UTSL,which are indexed to the Dow and
(34:46):
a utilities index respectively.
It's up 0.58% month-to-date,leading the pack this year,
though, out of these portfolios.
It's up 5.84% year-to-date andup 1.16% since inception in July
2021.
And the last one is the newestone the Optra portfolio.
One portfolio to rule them all.
Voices (35:07):
Frodo of the nine fingers and the ring of doom.
Why does he have nine fingers?
Where is the Ring of Doom?
Mostly Uncle Frank (35:33):
This is a return-stacked portfolio that we
added last year.
It is 16% in an levered S&P 500fund UPRO, 24% in a worldwide
value fund AVGV, 24% in GOVZ, aUS Treasury Strips fund, and the
remaining 36% divided into goldand managed futures.
(35:54):
Into gold and managed futures.
It's up 1.25% month to date.
It's up 3.82% year to date andup 6.84% since inception in July
2024.
And that concludes ourportfolio reviews for another
week.
And it's gone.
Voices (36:13):
Poof.
Mostly Uncle Frank (36:15):
But now I see our signal is beginning to
fade.
Just one programming note Ithink there will be a podcast in
the middle of this week, butthere will not be one next
weekend.
I will be off to Montana tovisit my 96-year-old father for
Father's Day and hopefully he'llbe up for a drink.
One of our listeners, chuck,may come along with us, as he
(36:37):
also lives nearby Well,la-dee-frickin'-da.
In the meantime, if you havecomments or questions for me,
please send them tofrankatriskparodyradarcom.
That email isfrankatriskparodyradarcom.
Or you can go to the website,wwwriskparodyradarcom.
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
(37:03):
favorite podcast provider andlike subscribe.
Give me some stars, a follow, areview.
That would be great, okay,thank you once again for tuning
in.
This is Frank Vasquez with RiskParity Radio signing off.
Voices (37:24):
I may be crazy, but it just may be a lunatic you're
looking for.
Turn out the lights.
(37:46):
Don't try to save me.
You may be wrong, but all Iknow you may be right.
You may be wrong, but you may beright.
You may be wrong, but you maybe right.
You may be wrong, but you maybe right.
You may be wrong, but you maybe right.
You may be wrong, but you maybe right.
(38:09):
You may be wrong, but you maybe right.
You may be wrong, but you maybe right.
You may be wrong.
Mostly Queen Mary (38:17):
But you may be right.
You may be wrong, but you maybe right.
The Risk Parody Radio Show ishosted 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
(38:38):
sure to take into account yourown personal circumstances.
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