In this episode we answer emails from Adam, Cha Cha, and TJ. We discuss how cash and short-term bonds affect safe withdrawal rates, why the Golden Butterfly’s allocation is a preference not a rule, and how to build a growth-first plan when you’re starting late. And we wish Happy Birthday to Mick the Mugga Mugga.
And THEN we our go through our weekly portfolio reviews of the eight sample portfolios you can find at Portfolios | Risk Parity Radio.
Additional Links:
Father McKenna Center Donation Page: Donate - Father McKenna Center
Many Happy Returns Podcast Featuring Tyler: How to Pick Your Perfect Portfolio, with Tyler from Portfolio Charts
Video Summary of Recent Bronnie Ware Interview: https://drive.google.com/file/d/1XO1H7719LTel-WrwUABpMaAzdFk6-juv/view?usp=sharing
Catching Up To FI Podcast: Financial Independence - Catching up to FI
Excess Returns Podcast: Excess Returns Podcast | Excess Returns Podcasts - Helping Make You a Better Investor
Swedroe Factor Investing Book: Book Review: Your Complete Guide to Factor-Based Investing | CFA Institute Enterprising Investor
Breathless AI-Bot Summary:
Worried your portfolio is heavy on cash but light on purpose? We unpack the real trade-offs behind short-term bonds, money markets, and the Golden Butterfly’s famous “comfort cushion,” then show how a few precise tweaks can lift safe withdrawal rates without blowing up your sleep. Listener questions drive the heart of the episode: how much cash is too much, whether VTIP truly hedges better than VGSH, and why cash management rarely changes outcomes even though it feels reassuring.
From there we shift to a late-starter’s dilemma: chasing 8–10% average returns over a decade without gambling. We get practical about the only two ways to beat the market, why stock-picking “wins” often just mirror factor exposure, and how to use a simple, research-backed pairing—large-cap growth with small-cap value—to seek higher expected returns. We also cover when international tilts help, how currency drives comparisons more than people think, and where bonds, gold, and REITs fit as you move closer to financial independence.
Our take is direct and usable: minimize inert cash, diversify for shallower drawdowns, and reserve complexity for places that pay. Build growth while the gap to FI is wide, then add ballast on purpose as you near the goal. If you want a sturdier plan and a quieter mind, this conversation clears the noise and spotlights the levers that matter.
Enjoy the show? Follow, rate, and share it with a friend. Send your questions to Frank at RiskParityRadio.com, and if it helped, leave a quick review so more DIY investors can find it.
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Voices (00:00):
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 Queen Mary (00:18):
And now, coming to you from Dead Center
on your dial, welcome to RiskParity Radio, where we explore
alternatives and assetallocations for the
do-it-yourself investor.
Broadcasting to you now fromthe comfort of his easy chair,
here is your host, FrankVasquez.
Mostly Uncle Frank (00:37):
Thank you, Mary, and welcome to Risk Parity
Radio.
If you have just stumbled inhere, you will find that this
podcast is kind of like a divebar of personal finance and
do-it-yourself investing.
Voices (00:52):
Expect the unexpected.
Mostly Uncle Frank (01:00):
And we only have a few mismatched bar stools
and some easy chairs.
We have no sponsors, we have noguests, and we have no
expansion plans.
Along with what our little freelibrary has to offer.
(01:41):
Today on Risk Party Radio, it'stime for our weekly portfolio
reviews of the eight sampleportfolios you can find at
www.riskperdiRadio.com on theportfolios page.
(02:05):
Yeah, not much happened.
It's probably a good thing.
Voices (02:12):
I'm putting you to sleep.
Mostly Uncle Frank (02:13):
But before I put you to sleep with that I'm
intrigued, my dear.
And first off.
First off, I have an email fromAdam.
Voices (02:27):
One Adam, twelve.
One Adam 12.
Possible.
Four, five, nine suspects,there now.
Mostly Uncle Frank (02:32):
And Adam Wright.
Mostly Queen Mary (02:34):
Hi, Frank.
I hope you had a wonderfulThanksgiving.
Thanks again for yourretirement hobby and the
wonderful financial educationthat you have provided to me and
so many others who havediscovered Risk Parity Radio.
I discovered your podcast thisspring just as my portfolio
neared a level that wouldprovide me with financial
(02:55):
independence.
I enjoy meaningful work, and atage 50, I plan to continue for
at least four more years, but Ialso sleep comfortably at night
after transitioning to a riskparity style modified golden
butterfly portfolio, knowingthat a big drawdown is much less
likely to prevent me fromhaving job optionality going
forward.
Now you can also use the ballto connect to the spirit world.
(03:23):
But prior to discovering riskparity principles, I feared that
the incredible stock marketrun-up over the last several
years would reverse itself justin time for me to exit the
workforce.
I'm not a gambler by nature,and your podcast has helped me
convert to a portfolio thatmakes tremendous sense to my
(03:44):
rational brain.
Voices (03:46):
Yes!
Mostly Queen Mary (03:47):
I have two fairly quick questions about
short-term bonds that I'd loveto get your input on as I think
about minor tweaks to myportfolio, which is currently
20% VTI, 10% AVDV, 10% DFSV, 5%VNQI, 15% GLDM, 5% DBMF, 20%
(04:09):
TLT, 10% VGSH, and 5% VTIP.
First, I've heard you say onmany podcasts that the optimal
amount of cash in a risk partystyle portfolio is less than
10%.
But yet the Golden Butterflyportfolio contains 20% in
short-term bonds.
As best I can tell, short-termbonds on average essentially
(04:32):
return about what money marketfunds return over long time
periods.
I'm assuming you aren'treferring to cash in a checking
account when you say less than10% cash, so I'm wondering if
you can clarify the tensionbetween that recommendation and
golden butterfly allocations.
Yes, we can! Secondly, I knowyou don't feel there's a place
(04:52):
for VTIP in a risk parity-styleportfolio, and this is a
holdover from a portfolio Idesigned about six years ago
before learning about riskparity investing.
However, I've also heard youmention at least once that VTIP
can have benefits overtraditional bonds if inflation
is higher than expected.
As I consider whether or not totransition out of this
(05:14):
position, I'm wondering if youfeel that there's any potential
benefit to hedging theshort-term bond portion of the
portfolio by allocating aportion to VTIP and VGSH instead
of just having all of theallocation in the VGSH bucket.
Thanks again for all you do,and just because you asked for
the reminder, I did set up anannual contribution to the
(05:34):
Father McKenna Center a coupleof months ago through my DAF.
Best to you, Adam fromColorado.
Voices (05:41):
There's money over there, but not for long.
In my worry.
Mostly Uncle Frank (06:10):
If you give to the charity, you get to go to
the front of the email line, asAdam has done here.
And three of our emailers havedone today.
I'm not sure they'll be thefourth, we'll see.
There are two ways to do that.
First, you can go to the FatherMcKenna website to the donation
page and donate directly there.
Or you can go to the supportpage at www.riskprediorio.com
(06:33):
and become one of our patrons onPatreon.
Either way, you get to go tothe front of the email line.
Voices (06:39):
You're in the wrong shape, buddy.
Come on.
Oh, I must be in the front.
Mostly Uncle Frank (06:43):
Make sure you mention that in your email
so I can duly move you to thefront of the line.
Now getting to your questions,first about the golden
butterfly.
Voices (06:52):
That's gold, Jerry, gold.
Mostly Uncle Frank (06:54):
Well, as you ought to know, the golden
butterfly is not something thatI invented.
It was invented by Tyler atPortfolio Charts.
And he did not invent itspecifically as a drawdown
portfolio, even though ithappens to work very well for
that purpose.
He wanted something that waslike the original permanent
(07:15):
portfolio from Harry Brown, butthat was a little more
aggressive.
And so he essentially changedthe allocations there from one
quarter in stocks to about 40%in stocks and made some other
adjustments to the other assetclasses in there.
So he was not specificallythinking about high safe
withdrawal rates when hedesigned that portfolio.
(07:37):
Where the 10% limitation oncash comes from in this context
is comes from Bill Bangin'swork.
And Bill Bang's work, both theoriginal work and his most
recent work, show that if youhave more than about 10% in cash
or cash equivalents in adrawdown portfolio, it will tend
(07:58):
to reduce the safe withdrawalrate.
And this is an example wherewe're applying Bruce Lee's
principles of take what isuseful, discard what is useless,
and add something uniquely yourown.
So, yes, you're going to getslightly higher safe withdrawal
rates if you take that goldenbutterfly portfolio and reduce
(08:22):
the short-term bond allocationto something less than 20%.
10% would be a good number.
But it's still going to be afine drawdown portfolio as is,
if you prefer the moreconservative approach, because
the advantage that it has isjust shallower drawdowns and
shorter drawdowns, or mostlyshallower drawdowns, than say
(08:43):
something like a golden ratioportfolio or a weird portfolio,
if you want to look atportfolios for comparison on
portfolio charts.
There is actually aninteresting discussion of the
golden butterfly portfolio inthe most recent interview of
Tyler on the Many Happy Returnspodcast, which is from a couple
of financial advisors in theUnited Kingdom.
(09:05):
I will link to the show notes.
It is really worth listening tobecause when they're asking him
about the golden butterflyportfolio, the one thing he says
is that, yeah, if I was goingto make one modification to it,
it would probably be to reducethe cash in some circumstances
and allocate that to somethingelse.
Now, cash in its purest form isactually things of one year or
(09:26):
less in duration, is how youwould typically define that.
And so that three-year aspectof the short-term bond fund is
more like an intermediate termbond fund than a short-term bond
fund, but I'm kind of splittinghairs there.
In the end, I think this ismore of a how well do you want
to sleep at night kind ofpreference.
And also how much do you wantto have potentially left over at
(09:46):
the end, because the morestocks you put in a portfolio,
the more likely it is to growover long periods of time.
But it is going to detract fromthe safe withdrawal rate once
that gets over 70 or 75%.
In the end, I think what youneed to keep in mind is that
what we're trying to do here isapply principles, and in
particular that holy grailprinciple about diversification,
(10:09):
and not so much formulas.
Voices (10:12):
Go and tell your master that we have been charged by God
with a sacred quest.
Mostly Uncle Frank (10:18):
So it does not really matter the specific
percentages in the goldenbutterfly or the golden ratio or
some other portfolio you mightfind on portfolio charts.
The point of this is all ofthose kinds of portfolios are
adhering to this holy grailprinciple and so are more likely
to yield you high safewithdrawal rates, as opposed to
(10:39):
something that's just not aswell diversified.
And where you ultimately end upon the specifics has more to do
with personal preferences inthe end.
You would say that the goldenbutterfly is on the most
conservative end of portfoliosthat tend to have the highest
safe withdrawal rates.
Whereas something like theweird portfolio at portfolio
charts is on the other end ofthat.
(11:00):
And something structured likethe golden ratio is somewhere in
the middle.
Voices (11:04):
A number so perfect.
Mostly Uncle Frank (11:06):
Perfect.
Alright, moving to your secondquestion about VTIP.
That's a short-term TIPS fund.
And honestly, with respect toshort-term bond funds, it
doesn't really matter that muchwhether it's TIPS or Treasuries
or even corporates, because it'sthe duration of those things
(11:29):
that matters the most becausethey roll over so often.
And because they are close tocash anyway, they just don't
have much volatility.
They also don't have muchpotential.
And which one you usespecifically is unlikely to have
much of any difference on youroverall results as far as the
portfolio is concerned.
(11:50):
Simply because they'rerelatively inert when you
compare them with the otherassets.
So if it's convenient to holdon to that for tax purposes or
just because you like it and youdon't mind having another fun
to fiddle around with, that'sjust fine.
It's not gonna matter.
But on the other hand, thisreally isn't much of a hedge.
If you're thinking that it's ahedge, forget about it.
(12:12):
It really isn't doing a wholelot there.
Simply because these thingsroll over so quickly that even
in inflationary environmentswith rising interest rates,
they're going to pick up thatnew higher interest rate pretty
quickly.
And it's really not going tomatter that much in the end that
one of them has the inflationcomponent and the other one
doesn't.
Because we're still talkingabout minuscule returns and
(12:34):
minuscule volatility either way.
VTIP may have a longer durationthan VGSH.
I haven't checked it recently,but that would be the only
significant difference there.
But just some closing thoughtson your email.
I think often in personalfinance and what I see a lot of
advisors doing and peopletalking about is too much about
(12:57):
the management of cash.
That the management of cashdoes not matter that much.
Whether you're using ashort-term tips fund or a
short-term bond fund or a moneymarket fund or corporate bonds
for that, whether you'rearranging it in buckets or
ladders or flower pots orwhatever you put it in, it just
doesn't matter.
Voices (13:17):
Forget about it.
Mostly Uncle Frank (13:19):
And a lot of effort and time is wasted on
fooling around with that stuff.
When the reality of it is ifyou have too much of it, it is
going to reduce your overallsafe withdrawal rate, even
though it may make you feelbetter.
So whenever you are listeningto somebody and they're talking
about all of this cashmanagement on the front of a
(13:39):
portfolio, whether it's in a piecake or something else like
that, that might be goodpsychology for a lot of people
just to see all the things linedup in their buckets or flower
pots or whatever.
But that is not really movingthe needle in terms of real
portfolio management, realefforts that are going to
increase your safe withdrawalrate.
(14:00):
And it may becounterproductive.
It may be good marketing, itmay be good psychology, it may
make you feel good, but it isnot good financial planning to
be hoarding lots of cash andrearranging it in various ways
or using a bunch of differentfunds to manage cash with.
Voices (14:19):
That's not how it works.
That's not how any of thisworks.
Mostly Uncle Frank (14:23):
That is really a waste of your time from
a financial point of view.
Voices (14:27):
Am I right or am I right or am I right?
Right, right, right.
Mostly Uncle Frank (14:31):
So that's all to say.
You are fine with what you'vegot right now, and you shouldn't
sweat the details, especiallyon the cash allocations to this.
And so thank you for being adonor to the Father McKenna
Center, and thank you for youremail.
Second off, we have an emailfrom Cha Cha.
Voices (15:04):
I want you to be Chacha Dingo Goryo.
Mostly Queen Mary (15:07):
How you doing, Zuko Baby?
Mostly Uncle Frank (15:09):
And Cha Cha writes.
Mostly Queen Mary (15:11):
Hi Frank, my big brother Mick the Mugga Mugga
is a regular listener of yourpodcast and has made me a fan as
well.
He has spent many an hourhelping me with my own financial
plans thanks to all he learnedfrom Risk Parity Radio.
Yeah, baby, yeah! I'd like tomake a contribution to your
Patreon in honor of Mugga, whocelebrates his birthday on
(15:31):
December 7th.
Any chance he could get asurprise shout-out on the pod?
Thanks and happy holidays.
Your friend Cha Cha.
Voices (15:41):
They call me Cha Cha, because I'm the best dancer at
Safe Bernadette with the worstreputation.
Mostly Uncle Frank (15:48):
Well, Chacha, your wishes are command.
At least if you're a donor tothe Father McKenna Center.
It's from a relatively recentmovie, and I think most of you
(16:17):
will be able to guess where itcomes from.
Voices (16:22):
That looks like a gun.
It's my birthday!
Mostly Uncle Frank (16:47):
We were at.
Which is very pleasant tolisten to.
I'll put it at the end of thisemail in the break before the
next one.
But I'm glad you're getting alot out of the podcast, and it's
nice to hear that people suchas your brother are using the
information they find here tohelp their family and friends
with their own financial plans.
And I'm also very amused by it.
(17:08):
Which is actually quiteimportant, as I've learned
recently.
I was listening to an interviewof Bronny Ware about the five
regrets of the dying.
And at the end of theinterview, they were talking
about, well, how do you reversethat?
What are the things you shouldwork on positively?
And she said the people thatseem to do the best at the end
of life have worked on threethings.
(17:29):
The first one is relationships.
The third one is some kind ofspirituality or religious
beliefs, interpreted broadly.
But the second is actuallyhumor.
And I'm doubling down on that,baby.
Voices (17:58):
I just got back from Venice and boy, my mommy, my
mom's tired.
Very wonderful city.
You're gonna learn a lot ofVenice.
You wanna learn how to make aVenice blind?
They are a left riot.
(18:24):
First of all, they are so poor.
That they have only one gun.
Mostly Uncle Frank (18:40):
So it's nice to know that my fixation with
humor is also good for mywell-being.
Voices (18:47):
This is pretty much the worst video ever made.
Mostly Uncle Frank (18:50):
So I hope your brother Mick the Moogamga,
or is it Mick the Mugga Mugga,enjoys his birthday.
Thank you for being a donor tothe Father McKinnon Center, and
thank you for your email.
And I think we've got time forone more email since this is a
(20:11):
long one, which leads us to lastof last enough.
We have an email from TJ.
Voices (20:20):
TJ, what happened?
What are you?
Were you able to jump on thehuman?
Wait a minute, wait a minute.
(20:49):
It's a big minute coming in themoment's gonna TJ Wrights.
Mostly Queen Mary (20:55):
Hi, Frank and Mary.
Due to the early in life badluck of getting connected with a
broker whose self-servingadvice lost most of my savings,
being turned off to investingafter that, working to try and
make the world a better placefor minimal financial
compensation during my primeearning years, and a significant
medical event a few years agothat cost me a lot of missed
(21:17):
work and some hefty medicalbills, I am getting a far too
late start on my retirementsavings.
My current work and savinghabits are helping me to catch
up, but I need some solid growthon my savings to make up for
all the lost time.
Given current socioeconomicconditions with very high market
valuations, AI jobdisplacements, a divided
(21:37):
dysfunctional government, and anation weighed down by massive
and rapidly growing debt, itseems to me the risk from
investing will be significantlyelevated over the 10-year
timeline that I have left tosave for my hoped retirement age
of 67.
This conundrum is whatattracted me to your Risk Parity
Radio podcast.
While being out of the marketthe last several decades has
(21:58):
cost me a fortune, going all innear the top of the market could
put me down for the count overthe next several decades.
My primary question is, how canI best protect myself from the
potential risks while ideallygenerating 8-10% average annual
returns over the next 10 years?
Is there a portfolio mix thatcan maximize growth and still
provide meaningful protectionfrom downturns?
(22:20):
I began investing again on myown this time back in late May.
I have been beating the SP 500by a fairly healthy margin,
picking up individual growthstocks on the dips, along with
putting about 10% of my fundsinto a gold ETF.
But my recent forays over thepast month trying to diversify
and add more safety have hadmore mixed results.
(22:40):
These include dividendaristocrat stocks, MLPs, ETFs,
mostly AVUS, AVUV, FENI, andAVDV, about 10% in bond funds,
mostly VGLT and TAGG, and asmaller amount in REITs, mostly
O.
My investments are splitbetween a Roth IRA,
(23:01):
self-employed 401k, and anindividual taxable account.
I suspect that my beginner'sluck with growth stock picking
will not continue indefinitely,especially in less bullish
markets like the one we may beturning towards now.
So I would appreciate anythoughts and suggestions you
might have on building adiversified and resilient
growth-focused portfolio that Ican later transition into a safe
(23:23):
and sustainable drawdownportfolio.
Thank you for the valuableinformation you are sharing
through your podcast, TJ.
P.S.
I contributed the little Icould spare to the Father
McKenna Center both in hopes ofbumping my question up the list
and because I know there aremany in far more precarious
situations than the one I and myfamily are currently in.
Sounds like you and the centerare working hard to help some of
(23:45):
these people, and I wish youthe best of luck with those
efforts.
Voices (24:19):
If you want to keep this whole belly alone in business,
you better have a family, realquick.
Mostly Uncle Frank (24:23):
Well, first off, thank you also for being a
donor to the Father McKennaCenter.
And rest assured, it does notmatter if you cannot give a
whole lot of money.
Different people have differentabilities to give, depending on
their situation.
And we are taught to appreciatethe small gifts from those who
do not have as much to give.
Because they may be a largerpercentage of their overall
(24:45):
wealth.
But yes, the people we assistat the Father McKenna Center are
in much more precariouspositions than any of us are,
although some of our listenerswere in those positions at some
point in their life.
So the people we help are notas different from us as you
might think.
Or some people might think.
Okay, let's get to your email.
(25:06):
So you're in catch-up mode, anda lot of people are in catch up
mode.
It's good that you're making aneffort to do that whenever
you're making the effort.
Voices (25:14):
All we know is some get the spark and say, I'm going to
change my life.
Whatever it starts with.
I'm a candidate.
I'm ready to go and change mylife.
I invite you on that journey.
Once you look back on it, youwill never turn back.
You'll never go back to the oldways and the old neglect.
Never.
Mostly Uncle Frank (25:32):
If you don't already, I would invite you to
listen to the Catching Up to Fipodcast.
Also with my friend Bill.
Voices (25:40):
Oh hey everybody, it's me, Mr.
Bill, and I'm on the way to thestudio to take my new show,
Fungo, Mr.
Bill Presente.
Mostly Uncle Frank (25:50):
And my friend Jackie.
Jackie Brown, set nosubstitutes.
Voices (25:57):
Woo!
Mostly Uncle Frank (25:58):
Who address these very situations of people
that are only getting started intheir 40s or 50s on saving
enough for retirement.
And there are lots of them.
There are probably more peoplelike that in the United States
than people that have beendiligent savers all their life.
So they have a nice podcast anda nice Facebook page that I
would encourage you to partakeof because you will find a lot
(26:22):
of other people in similarcircumstances to your own.
But your overall question iswhether there is a way to
generate high returns withouttaking more risk.
And the answer to that isreally no, there isn't.
If you want higher returns, youdo have to take more risk.
But there are some things youcan do.
First, you you should recognizethat there are only two ways
(26:45):
that you can actually beat themarket, and they're not
diversification.
One is take a concentration inthings you think are going to do
well, and maybe you'll getlucky and maybe you won't with
those.
And the second is to takeleverage, which is essentially
borrowing more money to invest,which I wouldn't recommend in
your circumstances.
Voices (27:05):
You need somebody watching your back at all times.
Mostly Uncle Frank (27:09):
But those are really the only two ways of
beating the market overall, anddiversifying into other assets
like gold, even though it'sperformed very well, or bonds or
REITs or other things likethat, are actually not likely to
increase your returns.
They will decrease yourdrawdowns.
That's what diversification isbest for.
(27:32):
But let's talk about yourrecent experience.
You say you've been beating themarket, the S P 500, by picking
individual growth stocks.
And the reason that is workingis not because you have good
stock picking ability.
The reason that is workingright now is because growth
stocks, particularly large capgrowth stocks, are a favored
asset class.
And over long periods of time,you will find that different
(27:56):
asset classes go in and out offavor.
The way assets are generallyclassified is by their factors.
So people say large cap growth,small cap value.
That is a size factor, largeversus small.
You also have mid.
And then there is a factor ofvalue versus growth.
(28:17):
So when the stock market isperforming well, usually the
growth stocks are outperformingthe value stocks.
And when the stock market isperforming poorly, usually the
value stocks are outperformingthe growth stocks.
But which ones are going to dowell in the next period of time
is largely a guessing game.
Now, if you wanted to focus onlarge cap growth stocks, you
(28:41):
would be better off just buyinga fund that primarily invests in
those.
And that would be a fund likeVanguard's VUG, that's a large
cap growth fund that holds allthese things that you're
probably investing in anyway,the Nvidia's of the world.
And there are other ones.
IWY is another large cap growthfund.
If you wanted to invest intech, there are things like VGT.
(29:05):
These are all essentially largecap growth funds.
And so the reason you'reoutperforming right now is
because large cap growth isfavored and it doesn't really
have much to do with yourability to pick individual
stocks, although it seems likeit does.
I just stare at my desk, but itlooks like I'm working.
This is also why services likethe Motley Fool in particular
(29:29):
really aren't offering a wholelot in terms of stock picking.
Because if you look at what themakeup of the stocks they're
picking, it's a lot of growthstocks and a lot of large cap
growth stocks.
And if you picked a large capgrowth fund, you would see
similar performance to aportfolio constructed of Motley
Fool recommendations.
So whenever you are looking atsomebody's stock picks, what you
(29:52):
should really be looking at iswhat kinds of stocks are these
and how to compare to a fund ofsimilar kinds of stocks.
Because you do not want to becomparing large cap growth
stocks in particular to just thegeneric SP 500.
Large cap growth stocks, youare taking more risk to get that
reward.
(30:12):
It's not apples to applescomparing those two things.
All right, let's talk aboutsome of these other things
you're investing in.
So dividend aristocrat stocks,that is not going to help you.
Those are essentially large capvalue stocks for the most part.
Those are something that youmight want to hold when you are
retired and are trying to reducethe volatility of your
(30:33):
portfolio.
But typically they underperformthe market overall or just meet
the market.
Their advantage is lowervolatility.
If you are trying to grow yourassets, they are not helpful.
MLPs are a mixed bag becausethey are very heavily
sector-oriented towards oilservices, particularly pipelines
(30:54):
and things like that.
The main problem with those isthat they generate a lot of
taxable income and they maythrow off K1s, which are awful
things to have to deal with onyour tax forms.
They're partnership returnsthat you get that you then have
to fill out additional tax formsto deal with that income.
So for most people, and in yourcircumstance in particular, I
(31:16):
can't see that those have anyreally role in your portfolio,
either in increasing returns orreducing volatility.
The ETFs you mention all tendto represent different parts of
the market.
The one AVUS, that is Avantis'sbasic large cap blend fund,
similar to the S P 500.
(31:38):
It also has a quality filter ontop of it and is a little bit
more value-tilted, but Iwouldn't expect it to perform
much different than the S P 500.
AVUV is a small cap value fund.
Small cap value is out of favorright now.
And we don't know when it'sgoing to get come back into
favor, but it does make anexcellent diversifier over long
(31:59):
periods of time.
Something like F-E-N-I, that isFidelity's international fund.
It's similar to a total marketinternational fund, like VXUS,
but I think it's a little bitbetter than VXUS.
If you really wanted to getsomething that is more growth y,
I would pick something likeIDMO, which is going to
(32:21):
outperform when large cap growthis doing better
internationally.
And AVDV is an internationalsmall cap value fund.
Now, what you should know aboutinternational funds is that
their relative performance to USfunds or US stocks is largely
determined by whether the valueof the US dollar is going up or
(32:44):
going down in a given year,which is largely unpredictable.
Now, for most of the pastdecade, 15 years, the US dollar
has been going up in valueversus foreign currencies.
And so US stocks haveoutperformed international
stocks on a relative basis.
This past year has been theopposite of that.
And since the US dollar hasbeen declining in value versus
(33:05):
foreign currencies,international stocks have
greatly outperformed U.S.
stocks in that time period.
I'm talking about internationalstocks of the similar kind.
So international large capgrowth has outperformed U.S.
large cap growth.
International small cap valuehas outperformed US small cap
value.
But most of that is related tothe declining value of the US
(33:26):
dollar in relation to foreigncurrencies and not due to any
special attributes of thoseparticular funds.
And recall, those funds aregroups of stocks.
That's all an ETF is.
It's just a bunch of stocks ina grouping that generally have
similar attributes.
So next looking at bonds andREITs, those probably are not
(33:49):
going to help you grow yourportfolio.
They are used as diversifiersmostly.
REITs typically perform justabout the same as the SP 500
over time.
Bonds typically underperformstocks over time, but are good
when they are recessions.
That's what they're reallythere for.
To provide insurance or acushion when there's a recession
and stocks are actuallydropping because of that.
(34:11):
So overall, I think you cansimplify what you're doing here,
but it does depend on where youare in the accumulation game,
if you will.
If you are just getting startedor don't have very much in
accumulation already, you needto focus on investing
essentially in 100% stocksbecause you need the growth out
(34:31):
of it.
And adding extraneous thingslike MLPs or REITs or bonds, or
even gold are not likely to helpyou, although gold has been an
exception recently.
So if you wanted to simplifythis to something that has
historically outperformed, saythe SP 500, a good pairing is
large cap growth and small capvalue.
(34:53):
And so funds that wouldrepresent that on the US side
would be VUG or IWY as large capgrowth and AVUV as small cap
value.
On the international side,something like IDMO would
represent large cap growth.
It's termed a momentum fund,but it's large cap growth is
where it sits.
(35:13):
And something like AVDV wouldbe the international small cap
value that could go with that.
So what typically outperformsthe S P 500 over time is
something that is half large capgrowth and half small cap
value.
If that was just US, it wouldbe V U G and A V U V.
If you wanted to add aninternational component to that,
(35:34):
you would add IDMO and AVDV,which you probably wouldn't put
more than a third of your assetsinto those, meaning those two
together.
Now, will those outperform theS P 500 in the next 10 years?
Voices (35:47):
The crystal ball can help you.
Mostly Uncle Frank (36:06):
So you can take that for what it's worth,
but it's probably worthsomething.
Voices (36:14):
So you can make me more money.
Mostly Uncle Frank (36:16):
Now, if you are getting closer to
retirement, however, if you'vegot half of the money you need
to reach your FI number, thenyou do need to start reducing
the risk of your portfolio bybuying other kinds of assets,
which would include gold andbonds and things like that.
But that's not a growthstrategy.
That is a strategy for reducingyour overall volatility because
(36:40):
you're close to winning thegame.
So those are my suggestions.
I'd also suggest a book for youto read.
It's a little advanced, but Ithink it's important for you to
understand this.
It's called The Complete Guideto Factor Investing.
It's by Larry Swedro.
(37:01):
It's published in 2017 or 2018.
That basically gives you kindof guide to best practices by
what professionals do, and it isnot what amateurs typically do,
but it is reflected on therecommendations or ideas that I
just gave you.
But that will give you a littlebit more about the why.
In the meantime, I would stayaway from trying to pick stocks.
(37:24):
You might get lucky, but youreally are playing the lottery
when you're doing that,particularly in your
circumstance.
You'd be much better off usingfunds because they hold a whole
bunch of stocks with the samekinds of characteristics.
And so you're not riskinglosing a whole lot of money in
something, which can happenwhenever you're investing in
individual companies.
(37:45):
And in order to invest inindividual companies the right
way, you really need to bestudying their financials, their
SEC filings and things likethat.
And if you're not willing totake the time to do that, and it
does take a lot of time to doit properly, you shouldn't be
doing it at all because it's toorisky.
Voices (38:03):
No more flying solo.
Mostly Uncle Frank (38:05):
The other thing I would recommend you do
is not watch any financial TV.
Do not watch any of it or reada lot of the headlines because
that kind of content encouragespeople to make bad decisions by
jumping on the latest, greatestthing.
Voices (38:22):
You know, whenever I see an opportunity now, I charge it
like a bull.
Ned the bull, that's me now.
Mostly Uncle Frank (38:27):
Those headlines and that content is
designed to attract youreyeballs with exciting things
like Jim Kramer's pics becausethey want you to watch the ads
and things.
It is not good for your overallfinancial health and will not
help you reach your goals.
Voices (38:45):
I'm gonna end up eating a steady diet of government
cheese and living in a van downby the river.
Mostly Uncle Frank (38:54):
You're much better off reading books and
listening to podcasts,particularly podcasts of people
who are professionals.
If you want to hear a podcastlike that, listen to something
called excess returns.
You probably won't understandwhat they're talking about, but
that is the level at which youneed to be thinking about if you
(39:16):
want to be making moves, if youwill.
And if you don't understandwhat those people are talking
about and I guess that theybring on, then you shouldn't be
trying to make moves.
So I'm hoping that helps.
I think if you are diligentabout saving and investing, you
are staying the course and notjumping in and out of things and
(39:36):
are consistent about it, andpick up the other
recommendations from catching upto fi, I think you will get
there in a ten year time frame.
At least that is what thecatching up to fi crowd is all
about.
So please do check that out.
Hopefully that helps.
Thank you for being a donor tothe Father McKenna Center, and
thank you for your email.
Voices (39:58):
And now for something completely different.
Mostly Uncle Frank (40:01):
And something completely different
is our weekly portfolio reviewsof the eight sample portfolios
you can find atwww.riskpartyware.com on the
portfolios page.
Just looking at where themarkets are year to date,
starting with VOO, the SP 500,that's up 18.12% year to date.
The Nasdaq 100, represented byQQQ, is up 22.8%.
(40:25):
Small cap value, represented bythe fund VIOV, is up 6.81% for
the year.
Gold continues to bloweverything else out of the
water.
Voices (40:36):
I love gold.
Mostly Uncle Fra (40:39):
Representative fund Jill DM is up 60.01% for
the year so far.
Voices (40:45):
You're insane, gold member! And that's the way
uh-huh uh-huh.
I like it.
Casey on the shunshine band.
Mostly Uncle Frank (40:54):
Long-term treasuries represented by the
fund VGLT are up 5.73%.
REITs represented by the fundREET are up 7.67%.
Commodities represented by thefund PDBC are up 6.83%.
Preferred shares represented byPFFV are up 2.02%.
And managed futures aremanaging to do pretty well.
(41:17):
Representative fund DBMF is up11.72% for the year so far.
Moving to these portfolios.
We did do distributions lastweek, and that's covered on the
website, so I'm not going to gothrough that.
We'll just talk about where weare this week.
First one's the all seasons.
It is down 0.57% for the monthof December, the week of
(41:50):
December.
It's up 13.64% year to date,and up 23.37% since inception in
July 2020.
We need these kind of bread andbutter portfolios.
First one's golden butterfly.
This one's 40% in stocksdivided into a total stock
market fund and a small capvalue fund.
40% in treasury bonds dividedin long and short, and 20% in
(42:12):
gold, GLDM.
It's down 0.11% for the monthof December.
It's up 18.58% year to date andup 58.8% since inception in
July 2020.
Next one's Golden Ratio.
The Golden Ratio seek.
Next one's the Risk ParityUltimate.
(42:59):
It's kind of our kitchen sinkhere.
I'm not going to go through all12 of these funds.
It is down 0.55% for the monthof December.
It's up 16.87% year to date andup 39.48% since inception in
July 2020.
Now moving to theseexperimental portfolios.
Voices (43:18):
Pony Stark was able to build this in a cave with a
bunch of scraps.
Mostly Uncle Frank (43:25):
Don't try this at home, even though I know
some of you do.
These all involve leveragedfunds that are much more
volatile than the regularportfolios.
Voices (43:35):
You have a gambling problem.
Mostly Uncle Frank (43:37):
First one's the accelerated permanent
portfolio.
This one's 27.5% in a leveredbond fund TMF, 25% in UPRO, a
leverage stock fund, 22.5% ingold, and 25% in preferred
shares fund PFFV.
It's down 1.21% for the monthof December.
It's up 22.67% year to date andup 23.93% since inception in
(44:01):
July 2020.
Next one's the Aggressive 5050.
This is the most levered andleast diversified of these
portfolios.
It's one-third in a leveredbond fund, TMF, one-third in a
levered stock fund, UPRO and theremaining third in ballast in a
preferred shares fund and anintermediate treasury bond fund.
It's down 1.4% for the month ofDecember so far.
(44:22):
It's up 13.44% year to date anddown 0.09% since inception in
July 2020.
Next one's a levered goldenratio.
This one is 35% in a compositefund called NTSX, which is the S
P 500 and Treasury bondslevered up 1.5 to 1%.
It's got 15% in AVDV, which isan international small cap value
(44:46):
fund, 20% in gold in GLDM, 10%in a managed futures fund, KMLM,
10% in TMF, a levered bondfund, and the remaining 10%
divided into UDAO and UTSL,which are levered funds that
follow the Dow and a UtilitiesIndex.
It's down 1.19% for the monthof December so far.
(45:07):
It's up 24.62% year to date andup 19.11% since inception in
July 2021.
Year younger than the firstsix.
And finally, the OPTRAportfolio is the last one.
One portfolio to rule them all.
Voices (45:24):
One ring to rule them all.
One ring to find them.
One ring to bring them all.
And in the darkness, I'm themin the land of all where the
shadows lie.
Mostly Uncle Frank (45:45):
This is a return stacked kind of
portfolio.
It's 16% in UPRO, a leveragestock fund, 24% in AVGV, which
is a worldwide value-tiltedfund, 24% in GOVZ, a Treasury
Strips From the remaining 36%divided into gold and a managed
futures fund.
It is down 0.29% for the monthof December so far.
(46:08):
It's up 24.69% year to date,and up 28.33% since inception in
July 2024.
It's only about 18 months old.
Voices (46:18):
He kinda looks like a baby.
Come here, I'm gonna eat you!Get in my belly!
Mostly Uncle Frank (46:27):
And that concludes our weekly portfolio
reviews.
So you can wake up now.
Voices (46:33):
Well, listen up, Sunny Jim! I it's a baby! Oh hi! Baby!
The other other wait me! Baby!It's what's for dinner!
Mostly Uncle Frank (46:46):
But now I see our signal is beginning to
fade.
Happy birthday once again toour listener Mick.
Voices (46:53):
It's my birthday.
Mostly Uncle Frank (46:59):
As sponsored by his sister Cha Cha.
And in the meantime, if youhave comments or questions for
me, please send them to Frank atRiskPartyRadio.com.
That email is Frank atRiskPartyRadio.com.
Or you can go to the websitewww.riskparty radio.com.
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
(47:21):
favorite podcast provider andlike, subscribe, and give some
stars, a follow, a review.
That would be great.
Okay.
Thank you once again for tuningin.
This is Frank Vasquez with RiskParty Radio.
Signing off.
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 Queen Mary (00:18):
And now, coming to you from Dead Center
on your dial, welcome to RiskParity Radio, where we explore
alternatives and assetallocations for the
do-it-yourself investor.
Broadcasting to you now fromthe comfort of his easy chair,
here is your host, FrankVasquez.
Mostly Uncle Frank (00:37):
Thank you, Mary, and welcome to Risk Parity
Radio.
If you have just stumbled inhere, you will find that this
podcast is kind of like a divebar of personal finance and
do-it-yourself investing.
Voices (00:52):
Expect the unexpected.
Mostly Uncle Frank (01:00):
And we only have a few mismatched bar stools
and some easy chairs.
We have no sponsors, we have noguests, and we have no
expansion plans.
Along with what our little freelibrary has to offer.
(01:41):
Today on Risk Party Radio, it'stime for our weekly portfolio
reviews of the eight sampleportfolios you can find at
www.riskperdiRadio.com on theportfolios page.
(02:05):
Yeah, not much happened.
It's probably a good thing.
Voices (02:12):
I'm putting you to sleep.
Mostly Uncle Frank (02:13):
But before I put you to sleep with that I'm
intrigued, my dear.
And first off.
First off, I have an email fromAdam.
Voices (02:27):
One Adam, twelve.
One Adam 12.
Possible.
Four, five, nine suspects,there now.
Mostly Uncle Frank (02:32):
And Adam Wright.
Mostly Queen Mary (02:34):
Hi, Frank.
I hope you had a wonderfulThanksgiving.
Thanks again for yourretirement hobby and the
wonderful financial educationthat you have provided to me and
so many others who havediscovered Risk Parity Radio.
I discovered your podcast thisspring just as my portfolio
neared a level that wouldprovide me with financial
(02:55):
independence.
I enjoy meaningful work, and atage 50, I plan to continue for
at least four more years, but Ialso sleep comfortably at night
after transitioning to a riskparity style modified golden
butterfly portfolio, knowingthat a big drawdown is much less
likely to prevent me fromhaving job optionality going
forward.
Now you can also use the ballto connect to the spirit world.
(03:23):
But prior to discovering riskparity principles, I feared that
the incredible stock marketrun-up over the last several
years would reverse itself justin time for me to exit the
workforce.
I'm not a gambler by nature,and your podcast has helped me
convert to a portfolio thatmakes tremendous sense to my
(03:44):
rational brain.
Voices (03:46):
Yes!
Mostly Queen Mary (03:47):
I have two fairly quick questions about
short-term bonds that I'd loveto get your input on as I think
about minor tweaks to myportfolio, which is currently
20% VTI, 10% AVDV, 10% DFSV, 5%VNQI, 15% GLDM, 5% DBMF, 20%
(04:09):
TLT, 10% VGSH, and 5% VTIP.
First, I've heard you say onmany podcasts that the optimal
amount of cash in a risk partystyle portfolio is less than
10%.
But yet the Golden Butterflyportfolio contains 20% in
short-term bonds.
As best I can tell, short-termbonds on average essentially
(04:32):
return about what money marketfunds return over long time
periods.
I'm assuming you aren'treferring to cash in a checking
account when you say less than10% cash, so I'm wondering if
you can clarify the tensionbetween that recommendation and
golden butterfly allocations.
Yes, we can! Secondly, I knowyou don't feel there's a place
(04:52):
for VTIP in a risk parity-styleportfolio, and this is a
holdover from a portfolio Idesigned about six years ago
before learning about riskparity investing.
However, I've also heard youmention at least once that VTIP
can have benefits overtraditional bonds if inflation
is higher than expected.
As I consider whether or not totransition out of this
(05:14):
position, I'm wondering if youfeel that there's any potential
benefit to hedging theshort-term bond portion of the
portfolio by allocating aportion to VTIP and VGSH instead
of just having all of theallocation in the VGSH bucket.
Thanks again for all you do,and just because you asked for
the reminder, I did set up anannual contribution to the
(05:34):
Father McKenna Center a coupleof months ago through my DAF.
Best to you, Adam fromColorado.
Voices (05:41):
There's money over there, but not for long.
In my worry.
Mostly Uncle Frank (06:10):
If you give to the charity, you get to go to
the front of the email line, asAdam has done here.
And three of our emailers havedone today.
I'm not sure they'll be thefourth, we'll see.
There are two ways to do that.
First, you can go to the FatherMcKenna website to the donation
page and donate directly there.
Or you can go to the supportpage at www.riskprediorio.com
(06:33):
and become one of our patrons onPatreon.
Either way, you get to go tothe front of the email line.
Voices (06:39):
You're in the wrong shape, buddy.
Come on.
Oh, I must be in the front.
Mostly Uncle Frank (06:43):
Make sure you mention that in your email
so I can duly move you to thefront of the line.
Now getting to your questions,first about the golden
butterfly.
Voices (06:52):
That's gold, Jerry, gold.
Mostly Uncle Frank (06:54):
Well, as you ought to know, the golden
butterfly is not something thatI invented.
It was invented by Tyler atPortfolio Charts.
And he did not invent itspecifically as a drawdown
portfolio, even though ithappens to work very well for
that purpose.
He wanted something that waslike the original permanent
(07:15):
portfolio from Harry Brown, butthat was a little more
aggressive.
And so he essentially changedthe allocations there from one
quarter in stocks to about 40%in stocks and made some other
adjustments to the other assetclasses in there.
So he was not specificallythinking about high safe
withdrawal rates when hedesigned that portfolio.
(07:37):
Where the 10% limitation oncash comes from in this context
is comes from Bill Bangin'swork.
And Bill Bang's work, both theoriginal work and his most
recent work, show that if youhave more than about 10% in cash
or cash equivalents in adrawdown portfolio, it will tend
(07:58):
to reduce the safe withdrawalrate.
And this is an example wherewe're applying Bruce Lee's
principles of take what isuseful, discard what is useless,
and add something uniquely yourown.
So, yes, you're going to getslightly higher safe withdrawal
rates if you take that goldenbutterfly portfolio and reduce
(08:22):
the short-term bond allocationto something less than 20%.
10% would be a good number.
But it's still going to be afine drawdown portfolio as is,
if you prefer the moreconservative approach, because
the advantage that it has isjust shallower drawdowns and
shorter drawdowns, or mostlyshallower drawdowns, than say
(08:43):
something like a golden ratioportfolio or a weird portfolio,
if you want to look atportfolios for comparison on
portfolio charts.
There is actually aninteresting discussion of the
golden butterfly portfolio inthe most recent interview of
Tyler on the Many Happy Returnspodcast, which is from a couple
of financial advisors in theUnited Kingdom.
(09:05):
I will link to the show notes.
It is really worth listening tobecause when they're asking him
about the golden butterflyportfolio, the one thing he says
is that, yeah, if I was goingto make one modification to it,
it would probably be to reducethe cash in some circumstances
and allocate that to somethingelse.
Now, cash in its purest form isactually things of one year or
(09:26):
less in duration, is how youwould typically define that.
And so that three-year aspectof the short-term bond fund is
more like an intermediate termbond fund than a short-term bond
fund, but I'm kind of splittinghairs there.
In the end, I think this ismore of a how well do you want
to sleep at night kind ofpreference.
And also how much do you wantto have potentially left over at
(09:46):
the end, because the morestocks you put in a portfolio,
the more likely it is to growover long periods of time.
But it is going to detract fromthe safe withdrawal rate once
that gets over 70 or 75%.
In the end, I think what youneed to keep in mind is that
what we're trying to do here isapply principles, and in
particular that holy grailprinciple about diversification,
(10:09):
and not so much formulas.
Voices (10:12):
Go and tell your master that we have been charged by God
with a sacred quest.
Mostly Uncle Frank (10:18):
So it does not really matter the specific
percentages in the goldenbutterfly or the golden ratio or
some other portfolio you mightfind on portfolio charts.
The point of this is all ofthose kinds of portfolios are
adhering to this holy grailprinciple and so are more likely
to yield you high safewithdrawal rates, as opposed to
(10:39):
something that's just not aswell diversified.
And where you ultimately end upon the specifics has more to do
with personal preferences inthe end.
You would say that the goldenbutterfly is on the most
conservative end of portfoliosthat tend to have the highest
safe withdrawal rates.
Whereas something like theweird portfolio at portfolio
charts is on the other end ofthat.
(11:00):
And something structured likethe golden ratio is somewhere in
the middle.
Voices (11:04):
A number so perfect.
Mostly Uncle Frank (11:06):
Perfect.
Alright, moving to your secondquestion about VTIP.
That's a short-term TIPS fund.
And honestly, with respect toshort-term bond funds, it
doesn't really matter that muchwhether it's TIPS or Treasuries
or even corporates, because it'sthe duration of those things
(11:29):
that matters the most becausethey roll over so often.
And because they are close tocash anyway, they just don't
have much volatility.
They also don't have muchpotential.
And which one you usespecifically is unlikely to have
much of any difference on youroverall results as far as the
portfolio is concerned.
(11:50):
Simply because they'rerelatively inert when you
compare them with the otherassets.
So if it's convenient to holdon to that for tax purposes or
just because you like it and youdon't mind having another fun
to fiddle around with, that'sjust fine.
It's not gonna matter.
But on the other hand, thisreally isn't much of a hedge.
If you're thinking that it's ahedge, forget about it.
(12:12):
It really isn't doing a wholelot there.
Simply because these thingsroll over so quickly that even
in inflationary environmentswith rising interest rates,
they're going to pick up thatnew higher interest rate pretty
quickly.
And it's really not going tomatter that much in the end that
one of them has the inflationcomponent and the other one
doesn't.
Because we're still talkingabout minuscule returns and
(12:34):
minuscule volatility either way.
VTIP may have a longer durationthan VGSH.
I haven't checked it recently,but that would be the only
significant difference there.
But just some closing thoughtson your email.
I think often in personalfinance and what I see a lot of
advisors doing and peopletalking about is too much about
(12:57):
the management of cash.
That the management of cashdoes not matter that much.
Whether you're using ashort-term tips fund or a
short-term bond fund or a moneymarket fund or corporate bonds
for that, whether you'rearranging it in buckets or
ladders or flower pots orwhatever you put it in, it just
doesn't matter.
Voices (13:17):
Forget about it.
Mostly Uncle Frank (13:19):
And a lot of effort and time is wasted on
fooling around with that stuff.
When the reality of it is ifyou have too much of it, it is
going to reduce your overallsafe withdrawal rate, even
though it may make you feelbetter.
So whenever you are listeningto somebody and they're talking
about all of this cashmanagement on the front of a
(13:39):
portfolio, whether it's in a piecake or something else like
that, that might be goodpsychology for a lot of people
just to see all the things linedup in their buckets or flower
pots or whatever.
But that is not really movingthe needle in terms of real
portfolio management, realefforts that are going to
increase your safe withdrawalrate.
(14:00):
And it may becounterproductive.
It may be good marketing, itmay be good psychology, it may
make you feel good, but it isnot good financial planning to
be hoarding lots of cash andrearranging it in various ways
or using a bunch of differentfunds to manage cash with.
Voices (14:19):
That's not how it works.
That's not how any of thisworks.
Mostly Uncle Frank (14:23):
That is really a waste of your time from
a financial point of view.
Voices (14:27):
Am I right or am I right or am I right?
Right, right, right.
Mostly Uncle Frank (14:31):
So that's all to say.
You are fine with what you'vegot right now, and you shouldn't
sweat the details, especiallyon the cash allocations to this.
And so thank you for being adonor to the Father McKenna
Center, and thank you for youremail.
Second off, we have an emailfrom Cha Cha.
Voices (15:04):
I want you to be Chacha Dingo Goryo.
Mostly Queen Mary (15:07):
How you doing, Zuko Baby?
Mostly Uncle Frank (15:09):
And Cha Cha writes.
Mostly Queen Mary (15:11):
Hi Frank, my big brother Mick the Mugga Mugga
is a regular listener of yourpodcast and has made me a fan as
well.
He has spent many an hourhelping me with my own financial
plans thanks to all he learnedfrom Risk Parity Radio.
Yeah, baby, yeah! I'd like tomake a contribution to your
Patreon in honor of Mugga, whocelebrates his birthday on
(15:31):
December 7th.
Any chance he could get asurprise shout-out on the pod?
Thanks and happy holidays.
Your friend Cha Cha.
Voices (15:41):
They call me Cha Cha, because I'm the best dancer at
Safe Bernadette with the worstreputation.
Mostly Uncle Frank (15:48):
Well, Chacha, your wishes are command.
At least if you're a donor tothe Father McKenna Center.
It's from a relatively recentmovie, and I think most of you
(16:17):
will be able to guess where itcomes from.
Voices (16:22):
That looks like a gun.
It's my birthday!
Mostly Uncle Frank (16:47):
We were at.
Which is very pleasant tolisten to.
I'll put it at the end of thisemail in the break before the
next one.
But I'm glad you're getting alot out of the podcast, and it's
nice to hear that people suchas your brother are using the
information they find here tohelp their family and friends
with their own financial plans.
And I'm also very amused by it.
(17:08):
Which is actually quiteimportant, as I've learned
recently.
I was listening to an interviewof Bronny Ware about the five
regrets of the dying.
And at the end of theinterview, they were talking
about, well, how do you reversethat?
What are the things you shouldwork on positively?
And she said the people thatseem to do the best at the end
of life have worked on threethings.
(17:29):
The first one is relationships.
The third one is some kind ofspirituality or religious
beliefs, interpreted broadly.
But the second is actuallyhumor.
And I'm doubling down on that,baby.
Voices (17:58):
I just got back from Venice and boy, my mommy, my
mom's tired.
Very wonderful city.
You're gonna learn a lot ofVenice.
You wanna learn how to make aVenice blind?
They are a left riot.
(18:24):
First of all, they are so poor.
That they have only one gun.
Mostly Uncle Frank (18:40):
So it's nice to know that my fixation with
humor is also good for mywell-being.
Voices (18:47):
This is pretty much the worst video ever made.
Mostly Uncle Frank (18:50):
So I hope your brother Mick the Moogamga,
or is it Mick the Mugga Mugga,enjoys his birthday.
Thank you for being a donor tothe Father McKinnon Center, and
thank you for your email.
And I think we've got time forone more email since this is a
(20:11):
long one, which leads us to lastof last enough.
We have an email from TJ.
Voices (20:20):
TJ, what happened?
What are you?
Were you able to jump on thehuman?
Wait a minute, wait a minute.
(20:49):
It's a big minute coming in themoment's gonna TJ Wrights.
Mostly Queen Mary (20:55):
Hi, Frank and Mary.
Due to the early in life badluck of getting connected with a
broker whose self-servingadvice lost most of my savings,
being turned off to investingafter that, working to try and
make the world a better placefor minimal financial
compensation during my primeearning years, and a significant
medical event a few years agothat cost me a lot of missed
(21:17):
work and some hefty medicalbills, I am getting a far too
late start on my retirementsavings.
My current work and savinghabits are helping me to catch
up, but I need some solid growthon my savings to make up for
all the lost time.
Given current socioeconomicconditions with very high market
valuations, AI jobdisplacements, a divided
(21:37):
dysfunctional government, and anation weighed down by massive
and rapidly growing debt, itseems to me the risk from
investing will be significantlyelevated over the 10-year
timeline that I have left tosave for my hoped retirement age
of 67.
This conundrum is whatattracted me to your Risk Parity
Radio podcast.
While being out of the marketthe last several decades has
(21:58):
cost me a fortune, going all innear the top of the market could
put me down for the count overthe next several decades.
My primary question is, how canI best protect myself from the
potential risks while ideallygenerating 8-10% average annual
returns over the next 10 years?
Is there a portfolio mix thatcan maximize growth and still
provide meaningful protectionfrom downturns?
(22:20):
I began investing again on myown this time back in late May.
I have been beating the SP 500by a fairly healthy margin,
picking up individual growthstocks on the dips, along with
putting about 10% of my fundsinto a gold ETF.
But my recent forays over thepast month trying to diversify
and add more safety have hadmore mixed results.
(22:40):
These include dividendaristocrat stocks, MLPs, ETFs,
mostly AVUS, AVUV, FENI, andAVDV, about 10% in bond funds,
mostly VGLT and TAGG, and asmaller amount in REITs, mostly
O.
My investments are splitbetween a Roth IRA,
(23:01):
self-employed 401k, and anindividual taxable account.
I suspect that my beginner'sluck with growth stock picking
will not continue indefinitely,especially in less bullish
markets like the one we may beturning towards now.
So I would appreciate anythoughts and suggestions you
might have on building adiversified and resilient
growth-focused portfolio that Ican later transition into a safe
(23:23):
and sustainable drawdownportfolio.
Thank you for the valuableinformation you are sharing
through your podcast, TJ.
P.S.
I contributed the little Icould spare to the Father
McKenna Center both in hopes ofbumping my question up the list
and because I know there aremany in far more precarious
situations than the one I and myfamily are currently in.
Sounds like you and the centerare working hard to help some of
(23:45):
these people, and I wish youthe best of luck with those
efforts.
Voices (24:19):
If you want to keep this whole belly alone in business,
you better have a family, realquick.
Mostly Uncle Frank (24:23):
Well, first off, thank you also for being a
donor to the Father McKennaCenter.
And rest assured, it does notmatter if you cannot give a
whole lot of money.
Different people have differentabilities to give, depending on
their situation.
And we are taught to appreciatethe small gifts from those who
do not have as much to give.
Because they may be a largerpercentage of their overall
(24:45):
wealth.
But yes, the people we assistat the Father McKenna Center are
in much more precariouspositions than any of us are,
although some of our listenerswere in those positions at some
point in their life.
So the people we help are notas different from us as you
might think.
Or some people might think.
Okay, let's get to your email.
(25:06):
So you're in catch-up mode, anda lot of people are in catch up
mode.
It's good that you're making aneffort to do that whenever
you're making the effort.
Voices (25:14):
All we know is some get the spark and say, I'm going to
change my life.
Whatever it starts with.
I'm a candidate.
I'm ready to go and change mylife.
I invite you on that journey.
Once you look back on it, youwill never turn back.
You'll never go back to the oldways and the old neglect.
Never.
Mostly Uncle Frank (25:32):
If you don't already, I would invite you to
listen to the Catching Up to Fipodcast.
Also with my friend Bill.
Voices (25:40):
Oh hey everybody, it's me, Mr.
Bill, and I'm on the way to thestudio to take my new show,
Fungo, Mr.
Bill Presente.
Mostly Uncle Frank (25:50):
And my friend Jackie.
Jackie Brown, set nosubstitutes.
Voices (25:57):
Woo!
Mostly Uncle Frank (25:58):
Who address these very situations of people
that are only getting started intheir 40s or 50s on saving
enough for retirement.
And there are lots of them.
There are probably more peoplelike that in the United States
than people that have beendiligent savers all their life.
So they have a nice podcast anda nice Facebook page that I
would encourage you to partakeof because you will find a lot
(26:22):
of other people in similarcircumstances to your own.
But your overall question iswhether there is a way to
generate high returns withouttaking more risk.
And the answer to that isreally no, there isn't.
If you want higher returns, youdo have to take more risk.
But there are some things youcan do.
First, you you should recognizethat there are only two ways
(26:45):
that you can actually beat themarket, and they're not
diversification.
One is take a concentration inthings you think are going to do
well, and maybe you'll getlucky and maybe you won't with
those.
And the second is to takeleverage, which is essentially
borrowing more money to invest,which I wouldn't recommend in
your circumstances.
Voices (27:05):
You need somebody watching your back at all times.
Mostly Uncle Frank (27:09):
But those are really the only two ways of
beating the market overall, anddiversifying into other assets
like gold, even though it'sperformed very well, or bonds or
REITs or other things likethat, are actually not likely to
increase your returns.
They will decrease yourdrawdowns.
That's what diversification isbest for.
(27:32):
But let's talk about yourrecent experience.
You say you've been beating themarket, the S P 500, by picking
individual growth stocks.
And the reason that is workingis not because you have good
stock picking ability.
The reason that is workingright now is because growth
stocks, particularly large capgrowth stocks, are a favored
asset class.
And over long periods of time,you will find that different
(27:56):
asset classes go in and out offavor.
The way assets are generallyclassified is by their factors.
So people say large cap growth,small cap value.
That is a size factor, largeversus small.
You also have mid.
And then there is a factor ofvalue versus growth.
(28:17):
So when the stock market isperforming well, usually the
growth stocks are outperformingthe value stocks.
And when the stock market isperforming poorly, usually the
value stocks are outperformingthe growth stocks.
But which ones are going to dowell in the next period of time
is largely a guessing game.
Now, if you wanted to focus onlarge cap growth stocks, you
(28:41):
would be better off just buyinga fund that primarily invests in
those.
And that would be a fund likeVanguard's VUG, that's a large
cap growth fund that holds allthese things that you're
probably investing in anyway,the Nvidia's of the world.
And there are other ones.
IWY is another large cap growthfund.
If you wanted to invest intech, there are things like VGT.
(29:05):
These are all essentially largecap growth funds.
And so the reason you'reoutperforming right now is
because large cap growth isfavored and it doesn't really
have much to do with yourability to pick individual
stocks, although it seems likeit does.
I just stare at my desk, but itlooks like I'm working.
This is also why services likethe Motley Fool in particular
(29:29):
really aren't offering a wholelot in terms of stock picking.
Because if you look at what themakeup of the stocks they're
picking, it's a lot of growthstocks and a lot of large cap
growth stocks.
And if you picked a large capgrowth fund, you would see
similar performance to aportfolio constructed of Motley
Fool recommendations.
So whenever you are looking atsomebody's stock picks, what you
(29:52):
should really be looking at iswhat kinds of stocks are these
and how to compare to a fund ofsimilar kinds of stocks.
Because you do not want to becomparing large cap growth
stocks in particular to just thegeneric SP 500.
Large cap growth stocks, youare taking more risk to get that
reward.
(30:12):
It's not apples to applescomparing those two things.
All right, let's talk aboutsome of these other things
you're investing in.
So dividend aristocrat stocks,that is not going to help you.
Those are essentially large capvalue stocks for the most part.
Those are something that youmight want to hold when you are
retired and are trying to reducethe volatility of your
(30:33):
portfolio.
But typically they underperformthe market overall or just meet
the market.
Their advantage is lowervolatility.
If you are trying to grow yourassets, they are not helpful.
MLPs are a mixed bag becausethey are very heavily
sector-oriented towards oilservices, particularly pipelines
(30:54):
and things like that.
The main problem with those isthat they generate a lot of
taxable income and they maythrow off K1s, which are awful
things to have to deal with onyour tax forms.
They're partnership returnsthat you get that you then have
to fill out additional tax formsto deal with that income.
So for most people, and in yourcircumstance in particular, I
(31:16):
can't see that those have anyreally role in your portfolio,
either in increasing returns orreducing volatility.
The ETFs you mention all tendto represent different parts of
the market.
The one AVUS, that is Avantis'sbasic large cap blend fund,
similar to the S P 500.
(31:38):
It also has a quality filter ontop of it and is a little bit
more value-tilted, but Iwouldn't expect it to perform
much different than the S P 500.
AVUV is a small cap value fund.
Small cap value is out of favorright now.
And we don't know when it'sgoing to get come back into
favor, but it does make anexcellent diversifier over long
(31:59):
periods of time.
Something like F-E-N-I, that isFidelity's international fund.
It's similar to a total marketinternational fund, like VXUS,
but I think it's a little bitbetter than VXUS.
If you really wanted to getsomething that is more growth y,
I would pick something likeIDMO, which is going to
(32:21):
outperform when large cap growthis doing better
internationally.
And AVDV is an internationalsmall cap value fund.
Now, what you should know aboutinternational funds is that
their relative performance to USfunds or US stocks is largely
determined by whether the valueof the US dollar is going up or
(32:44):
going down in a given year,which is largely unpredictable.
Now, for most of the pastdecade, 15 years, the US dollar
has been going up in valueversus foreign currencies.
And so US stocks haveoutperformed international
stocks on a relative basis.
This past year has been theopposite of that.
And since the US dollar hasbeen declining in value versus
(33:05):
foreign currencies,international stocks have
greatly outperformed U.S.
stocks in that time period.
I'm talking about internationalstocks of the similar kind.
So international large capgrowth has outperformed U.S.
large cap growth.
International small cap valuehas outperformed US small cap
value.
But most of that is related tothe declining value of the US
(33:26):
dollar in relation to foreigncurrencies and not due to any
special attributes of thoseparticular funds.
And recall, those funds aregroups of stocks.
That's all an ETF is.
It's just a bunch of stocks ina grouping that generally have
similar attributes.
So next looking at bonds andREITs, those probably are not
(33:49):
going to help you grow yourportfolio.
They are used as diversifiersmostly.
REITs typically perform justabout the same as the SP 500
over time.
Bonds typically underperformstocks over time, but are good
when they are recessions.
That's what they're reallythere for.
To provide insurance or acushion when there's a recession
and stocks are actuallydropping because of that.
(34:11):
So overall, I think you cansimplify what you're doing here,
but it does depend on where youare in the accumulation game,
if you will.
If you are just getting startedor don't have very much in
accumulation already, you needto focus on investing
essentially in 100% stocksbecause you need the growth out
(34:31):
of it.
And adding extraneous thingslike MLPs or REITs or bonds, or
even gold are not likely to helpyou, although gold has been an
exception recently.
So if you wanted to simplifythis to something that has
historically outperformed, saythe SP 500, a good pairing is
large cap growth and small capvalue.
(34:53):
And so funds that wouldrepresent that on the US side
would be VUG or IWY as large capgrowth and AVUV as small cap
value.
On the international side,something like IDMO would
represent large cap growth.
It's termed a momentum fund,but it's large cap growth is
where it sits.
(35:13):
And something like AVDV wouldbe the international small cap
value that could go with that.
So what typically outperformsthe S P 500 over time is
something that is half large capgrowth and half small cap
value.
If that was just US, it wouldbe V U G and A V U V.
If you wanted to add aninternational component to that,
(35:34):
you would add IDMO and AVDV,which you probably wouldn't put
more than a third of your assetsinto those, meaning those two
together.
Now, will those outperform theS P 500 in the next 10 years?
Voices (35:47):
The crystal ball can help you.
Mostly Uncle Frank (36:06):
So you can take that for what it's worth,
but it's probably worthsomething.
Voices (36:14):
So you can make me more money.
Mostly Uncle Frank (36:16):
Now, if you are getting closer to
retirement, however, if you'vegot half of the money you need
to reach your FI number, thenyou do need to start reducing
the risk of your portfolio bybuying other kinds of assets,
which would include gold andbonds and things like that.
But that's not a growthstrategy.
That is a strategy for reducingyour overall volatility because
(36:40):
you're close to winning thegame.
So those are my suggestions.
I'd also suggest a book for youto read.
It's a little advanced, but Ithink it's important for you to
understand this.
It's called The Complete Guideto Factor Investing.
It's by Larry Swedro.
(37:01):
It's published in 2017 or 2018.
That basically gives you kindof guide to best practices by
what professionals do, and it isnot what amateurs typically do,
but it is reflected on therecommendations or ideas that I
just gave you.
But that will give you a littlebit more about the why.
In the meantime, I would stayaway from trying to pick stocks.
(37:24):
You might get lucky, but youreally are playing the lottery
when you're doing that,particularly in your
circumstance.
You'd be much better off usingfunds because they hold a whole
bunch of stocks with the samekinds of characteristics.
And so you're not riskinglosing a whole lot of money in
something, which can happenwhenever you're investing in
individual companies.
(37:45):
And in order to invest inindividual companies the right
way, you really need to bestudying their financials, their
SEC filings and things likethat.
And if you're not willing totake the time to do that, and it
does take a lot of time to doit properly, you shouldn't be
doing it at all because it's toorisky.
Voices (38:03):
No more flying solo.
Mostly Uncle Frank (38:05):
The other thing I would recommend you do
is not watch any financial TV.
Do not watch any of it or reada lot of the headlines because
that kind of content encouragespeople to make bad decisions by
jumping on the latest, greatestthing.
Voices (38:22):
You know, whenever I see an opportunity now, I charge it
like a bull.
Ned the bull, that's me now.
Mostly Uncle Frank (38:27):
Those headlines and that content is
designed to attract youreyeballs with exciting things
like Jim Kramer's pics becausethey want you to watch the ads
and things.
It is not good for your overallfinancial health and will not
help you reach your goals.
Voices (38:45):
I'm gonna end up eating a steady diet of government
cheese and living in a van downby the river.
Mostly Uncle Frank (38:54):
You're much better off reading books and
listening to podcasts,particularly podcasts of people
who are professionals.
If you want to hear a podcastlike that, listen to something
called excess returns.
You probably won't understandwhat they're talking about, but
that is the level at which youneed to be thinking about if you
(39:16):
want to be making moves, if youwill.
And if you don't understandwhat those people are talking
about and I guess that theybring on, then you shouldn't be
trying to make moves.
So I'm hoping that helps.
I think if you are diligentabout saving and investing, you
are staying the course and notjumping in and out of things and
(39:36):
are consistent about it, andpick up the other
recommendations from catching upto fi, I think you will get
there in a ten year time frame.
At least that is what thecatching up to fi crowd is all
about.
So please do check that out.
Hopefully that helps.
Thank you for being a donor tothe Father McKenna Center, and
thank you for your email.
Voices (39:58):
And now for something completely different.
Mostly Uncle Frank (40:01):
And something completely different
is our weekly portfolio reviewsof the eight sample portfolios
you can find atwww.riskpartyware.com on the
portfolios page.
Just looking at where themarkets are year to date,
starting with VOO, the SP 500,that's up 18.12% year to date.
The Nasdaq 100, represented byQQQ, is up 22.8%.
(40:25):
Small cap value, represented bythe fund VIOV, is up 6.81% for
the year.
Gold continues to bloweverything else out of the
water.
Voices (40:36):
I love gold.
Mostly Uncle Fra (40:39):
Representative fund Jill DM is up 60.01% for
the year so far.
Voices (40:45):
You're insane, gold member! And that's the way
uh-huh uh-huh.
I like it.
Casey on the shunshine band.
Mostly Uncle Frank (40:54):
Long-term treasuries represented by the
fund VGLT are up 5.73%.
REITs represented by the fundREET are up 7.67%.
Commodities represented by thefund PDBC are up 6.83%.
Preferred shares represented byPFFV are up 2.02%.
And managed futures aremanaging to do pretty well.
(41:17):
Representative fund DBMF is up11.72% for the year so far.
Moving to these portfolios.
We did do distributions lastweek, and that's covered on the
website, so I'm not going to gothrough that.
We'll just talk about where weare this week.
First one's the all seasons.
It is down 0.57% for the monthof December, the week of
(41:50):
December.
It's up 13.64% year to date,and up 23.37% since inception in
July 2020.
We need these kind of bread andbutter portfolios.
First one's golden butterfly.
This one's 40% in stocksdivided into a total stock
market fund and a small capvalue fund.
40% in treasury bonds dividedin long and short, and 20% in
(42:12):
gold, GLDM.
It's down 0.11% for the monthof December.
It's up 18.58% year to date andup 58.8% since inception in
July 2020.
Next one's Golden Ratio.
The Golden Ratio seek.
Next one's the Risk ParityUltimate.
(42:59):
It's kind of our kitchen sinkhere.
I'm not going to go through all12 of these funds.
It is down 0.55% for the monthof December.
It's up 16.87% year to date andup 39.48% since inception in
July 2020.
Now moving to theseexperimental portfolios.
Voices (43:18):
Pony Stark was able to build this in a cave with a
bunch of scraps.
Mostly Uncle Frank (43:25):
Don't try this at home, even though I know
some of you do.
These all involve leveragedfunds that are much more
volatile than the regularportfolios.
Voices (43:35):
You have a gambling problem.
Mostly Uncle Frank (43:37):
First one's the accelerated permanent
portfolio.
This one's 27.5% in a leveredbond fund TMF, 25% in UPRO, a
leverage stock fund, 22.5% ingold, and 25% in preferred
shares fund PFFV.
It's down 1.21% for the monthof December.
It's up 22.67% year to date andup 23.93% since inception in
(44:01):
July 2020.
Next one's the Aggressive 5050.
This is the most levered andleast diversified of these
portfolios.
It's one-third in a leveredbond fund, TMF, one-third in a
levered stock fund, UPRO and theremaining third in ballast in a
preferred shares fund and anintermediate treasury bond fund.
It's down 1.4% for the month ofDecember so far.
(44:22):
It's up 13.44% year to date anddown 0.09% since inception in
July 2020.
Next one's a levered goldenratio.
This one is 35% in a compositefund called NTSX, which is the S
P 500 and Treasury bondslevered up 1.5 to 1%.
It's got 15% in AVDV, which isan international small cap value
(44:46):
fund, 20% in gold in GLDM, 10%in a managed futures fund, KMLM,
10% in TMF, a levered bondfund, and the remaining 10%
divided into UDAO and UTSL,which are levered funds that
follow the Dow and a UtilitiesIndex.
It's down 1.19% for the monthof December so far.
(45:07):
It's up 24.62% year to date andup 19.11% since inception in
July 2021.
Year younger than the firstsix.
And finally, the OPTRAportfolio is the last one.
One portfolio to rule them all.
Voices (45:24):
One ring to rule them all.
One ring to find them.
One ring to bring them all.
And in the darkness, I'm themin the land of all where the
shadows lie.
Mostly Uncle Frank (45:45):
This is a return stacked kind of
portfolio.
It's 16% in UPRO, a leveragestock fund, 24% in AVGV, which
is a worldwide value-tiltedfund, 24% in GOVZ, a Treasury
Strips From the remaining 36%divided into gold and a managed
futures fund.
It is down 0.29% for the monthof December so far.
(46:08):
It's up 24.69% year to date,and up 28.33% since inception in
July 2024.
It's only about 18 months old.
Voices (46:18):
He kinda looks like a baby.
Come here, I'm gonna eat you!Get in my belly!
Mostly Uncle Frank (46:27):
And that concludes our weekly portfolio
reviews.
So you can wake up now.
Voices (46:33):
Well, listen up, Sunny Jim! I it's a baby! Oh hi! Baby!
The other other wait me! Baby!It's what's for dinner!
Mostly Uncle Frank (46:46):
But now I see our signal is beginning to
fade.
Happy birthday once again toour listener Mick.
Voices (46:53):
It's my birthday.
Mostly Uncle Frank (46:59):
As sponsored by his sister Cha Cha.
And in the meantime, if youhave comments or questions for
me, please send them to Frank atRiskPartyRadio.com.
That email is Frank atRiskPartyRadio.com.
Or you can go to the websitewww.riskparty radio.com.
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
(47:21):
favorite podcast provider andlike, subscribe, and give some
stars, a follow, a review.
That would be great.
Okay.
Thank you once again for tuningin.
This is Frank Vasquez with RiskParty Radio.
Signing off.
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