Mostly Voices [0:01]

A foolish consistency, is the hobgoblin of little minds, adored by little statesmen and philosophers and divines.

Mostly Uncle Frank [0:10]

If a man does not keep pace with his companions, perhaps it is because he hears a different drummer, a different drummer.

Mostly Mary [0:19]

And now, coming to you from dead center on your dial, welcome to Risk Parity Radio, where we explore alternatives and asset allocations for the do-it-yourself investor, Broadcasting to you now from the comfort of his easy chair. Here is your host, Frank Vasquez.

Mostly Uncle Frank [0:37]

Thank you, Mary, and welcome to Risk Parity Radio. If you are new here and wonder what we are talking about, you may wish to go back and listen to some of the foundational episodes for this program.

Mostly Voices [0:50]

Yeah, baby, yeah.

Mostly Uncle Frank [0:52]

And the basic foundational episodes are episodes 1, 3, 5, 7, and 9. Some of our listeners, including Karen and Chris, have identified additional episodes that you may consider foundational, and those are episodes 12, 14, 16, 19, 21, 56, 82, and 184. Whoa, and you probably should check those out too, because we have the finest podcast audience available.

Mostly Voices [1:26]

Top drawer, really top drawer.

Mostly Uncle Frank [1:31]

Along with a host named after a hot dog.

Mostly Voices [1:34]

Lighten up Francis.

Mostly Uncle Frank [1:38]

But now onward to episode 387. Today on Risk Parity Radio, it's time for our weekly portfolio reviews. Of the eight sample portfolios you can find at wwwriskparityradiocom on the portfolios page.

Mostly Voices [1:53]

There was this sound like a garbage truck dropped off the Empire State Building. And yeah it was a lousy week Empire.

Mostly Uncle Frank [2:02]

State Building and yeah, it was a lousy week. And when they finally pulled the driver's body from the twisted burning wreck, it looked like this but you often see that kind of week in mid-December in many years, followed by a rally into the end of the year. We'll see if that comes true or not, though.

Mostly Voices [2:33]

Be sure and tell them Large Marge sent ya. But before we get to that, I'm intrigued by this how you say emails.

Mostly Uncle Frank [2:45]

And First off. First off, we have an email from Ed.

Mostly Voices [2:53]

Hello, I'm Mr.

Mostly Uncle Frank [2:55]

Ed and Ed writes.

Mostly Mary [2:58]

Hello, I made a donation to the Father McKenna Center. Happy Holidays to the Father McKenna Center. Happy holidays, hello, frank and Mary. I'm struggling with the momentum factor concept and how I might incorporate it into my risk parity portfolio, which includes large cap growth, small cap value, long-term government bonds, gold and four rental properties. I'm pretty sure I have the beta size, value and term factors covered. It provides a safe withdrawal rate of 8% based on data back to January 1978 in Portfolio Visualizer. I realize it's not necessary to include momentum, but would like to understand whether having it would increase return and reduce volatility the way the other factors have done. I listened to episodes 218, 232, 234, 287, and 363 and heard your and Alexi's comments regarding QMOM and MTUM. It's just not clear if the juice is worth the squeeze. By the way, it looks like you two had a top shelf time together on December 6th.

Mostly Voices [4:07]

Top drawer, really top drawer.

Mostly Mary [4:10]

When does Mary get a day off to party? Thank you both for all you do, Ed.

Mostly Uncle Frank [4:16]

Mary, mary, why you bugging? Well, first off, thank you for your donation to the Father McKenna Center. Yes, as most of you know, we do not have any sponsors on this program. We do have a charity we support. It's called the Father McKenna Center and it serves hungry and homeless people in Washington DC, and if you donate to the charity, you get to go to the front of the email line.

Mostly Voices [4:46]

I'll just get psyched.

Mostly Uncle Frank [4:48]

As Ed has done here.

Mostly Voices [4:50]

Bing again.

Mostly Uncle Frank [4:52]

And yes, cy, I got your email yesterday but it was too late for this episode, so we'll tend to you next episode. There are two ways to donate to the Father McKenna Center. You can either go to the donation page directly at their website, which I will put in the show notes, or you can go to the support page at wwwriskprioritycom and join our patrons on Patreon who donate monthly to such cause. We few, we happy few, we happy few, we band of brothers. Either way, you get to go to the front of the line, just make sure you flag your email when you send it in. Now, getting to that email.

Mostly Uncle Frank [5:44]

Honestly, I've never been quite sure exactly what to do with the momentum factor. I think it has several problems in that, while I know it's useful in some circumstances, I don't know what those circumstances are in terms of momentum being a good performer in various economic environments. So I know that in bad economic environments for stocks like the inflation of the 1970s or the deflation of the early 2000s, that value tends to outperform growth. I can't tell you when momentum tends to outperform non-momentum.

Mostly Mary [6:16]

A crystal ball can help you, it can guide you.

Mostly Uncle Frank [6:20]

And so to me it's kind of an add-on factor. After you are looking at things like value versus growth and size, it's interesting that all cap-weighted funds, like your total stock market fund or your S&P 500 fund, actually do have a built-in slow momentum idea to them, in that over time they accumulate more of the stocks that are doing the best, and so there is a smidge of momentum built into those already, and I kind of wonder if that's just more than enough. On the large cap side of things and the large cap growth side of things, if you looked at these two funds that you talked about MTUM or QMOM, which are designed to feature momentum, mtum is actually a large cap blend fund, whereas QMOM is a mid cap growth fund. That is where they fall on those style box factors. If you take a look at Morningstar anywhere they feature those. So in my mind, you would be using them to essentially displace or replace something like a large cap growth fund, and so I'm not seeing the bang for your buck in using something like that. It's not really getting you a whole lot of diversification from one of those things and it tends to underperform those kind of things.

Mostly Uncle Frank [7:39]

I ran a comparison of those funds with some large cap growth funds and S&P 500 funds. I used VOO for the S&P 500. And then for the large cap growth I used VUG and IWY, which are basic large cap index funds, and I did it on Testfolio and put the link in the show notes. It only goes back to 2016. But you can see from that that both of these momentum-focused funds greatly underperform the large-cap value funds and even the S&P 500 fund. But they're in kind of the same categories, if you will. So I agree with you there that the juice is not worth the squeeze, at least for those kinds of momentum focused funds.

Mostly Voices [8:26]

The way you squeeze my lemon off, I'm gonna fall right out of bed. Bed, bed, bed.

Mostly Uncle Frank [8:56]

Where you see more value to Momentum is where it's added to something like a small cap value fund. And I did another little run of comparisons of funds using IWN, the Russell small cap value. Ijs, which is the same thing as VIOV it's the S&P 600 small cap value and then DFSVX, which is small cap value with profitability added to it. That's the DFA fund. It's very similar to AVUV now as the ETF. And then I also added XSVM, which is a small cap value fund with momentum added to it. Now, if you compare those, you do see that the small cap value with momentum added to it does outperform the other ones, since 2005 at least. If you change the dates, though, if you make them more modern, if you put in that AVUV instead of the mutual fund version of that, you will see that, at least in recent times, small cap value with profitability outperforms small cap value with momentum. What does that all mean?

Mostly Voices [10:04]

profitability, outperform small cap value with momentum. What does that all mean? We don't know. What do we know? You don't know, I don't know, nobody knows.

Mostly Uncle Frank [10:18]

Yeah, I don't think these are very definitive. If you will, All this is really telling me is that if you're going to use momentum, it's probably something you want to overlay on something that is clearly away from momentum. So, not to a large cap fund, not to a growth fund, but to something more like a small cap value fund or some other kind of value fund. I'm not sure that gets us anywhere in the end. However, After all these machinations, I still come back and scratching my head is like is this worth it or not? Hey.

Mostly Voices [11:17]

Hey, hey, hey, hey, hey hey.

Mostly Uncle Frank [11:25]

Hey, hey, hey. I suppose if you wanted to hold small cap value with bonus factors added to it, you could hold AVUV and XSVM. They both have a little higher expense ratios, more in the 0.2 or 0.25 range, than a standard small cap value index fund like VIOV or IJS, but they certainly would be a vast improvement over something like IWN, which also has a similar expense ratio to the AVUV and XSVM. Anyway, all of that may be more complications than it's worth and I'm not sure you'd see any real difference unless you were to project out over the course of several decades. I certainly don't see any reason to be using things like MTUM or QMOM, given other things that are available, like MTUM or QMOM, given other things that are available. No-transcript.

Mostly Voices [12:34]

Today, we have four appetizers, excuse me Moule marinier, pâté de foie gras, balougue, caviar, eggs. Benedictine, tarte de poireau, that's licorice tart, frog's legs, amandine or oeuf de caille. Richard Shepard, it's little quail's eggs on a bed of pureed mushroom. It's very delicate, very subtle. I have the lot.

Mostly Uncle Frank [12:59]

And she was the one who actually took the picture of the two of us that I posted on the Facebook page for Risk Parity Radio. I think she wanted some plausible deniability for the whole event.

Mostly Voices [13:12]

A wise choice, monsieur. And now, how would you like it served? All mixed up together in a bucket, yeah, with eggs on top, but of course avec des oeufs frites. Don't skip on the patty. Oh, monsieur, I assure you, just because it is mixed up with all the other things, we would not dream of giving you less than the full amount. In fact, I will personally make sure you have a double helping.

Mostly Uncle Frank [13:35]

And I also took her away to a little bed and breakfast near us for her birthday last week. So she is not being neglected, mary. Mary, I need your huggin' but thank you for your concerns and thank you for your email. Second off, second off. We have an email from wes. Nothing gave buttercup as much pleasure as ordering wesley around farm boy polish my horse's saddle.

Mostly Voices [14:18]

I want to see my face shining in it by morning.

Mostly Uncle Frank [14:20]

As you wish, and Wes writes.

Mostly Mary [14:24]

Frank, you've repeatedly said useful diversification comes from holding things that are actually different, like USLCG and international SCV. But I gotta know what about Mel's unloved mid-caps? I'm kind of constrained by employer plans at this point. No good SCV, only the Russell 2000 for smalls. But one has an S&P 400 fund. Spicy takes only.

Mostly Voices [14:53]

I promise I will not kill you until you reach the top. That's very comforting, but I'm afraid you'll just have to wait. I hate waiting. I could give you my word as a Spaniard. No God, I've known too many Spaniards. Is there any way you'll trust me? Nothing comes to mind. I swear on the soul of my father, domingo Montoya. You will reach the top alive. Throw me the robe.

Mostly Uncle Frank [15:23]

Well, wes, I have to disappoint you that there's really nothing very spicy about mid-caps, at least if you're talking like mid-cap blends.

Mostly Voices [15:34]

You can't handle the truth.

Mostly Uncle Frank [15:37]

There's nothing wrong with them and I would expect they would perform similarly to the rest of the general market most of the time or over long periods of time, although there's going to be variations in any given decade. But this kind of goes back to those style boxes I was talking about. If you look at this kind kind of grid which you see at Morningstar, fidelity or many other places, the grid is divided up into small to large on one axis and value to growth on the other axis. So you end up with kind of nine tic-tac-toe boxes that represent small, medium and large and then value blend and growth. Roughly With your mid-caps you can see that you're kind of in the middle and if you're in the middle you're probably going to be less diversified on those factors than other things that you might pick within that grid structure. So it's not really doing much for you in terms of diversification. It is doing something for you in terms of general exposure to the stock market, simply because it's just less differentiated overall than some other things you could hold.

Mostly Uncle Frank [16:39]

And there is nothing intrinsically special about mid-caps that would make them perform specifically differently from large caps or small caps in any given kind of market. So what I would probably do in your circumstance is just do the large cap growth and international small cap value value if that's what you have in your 401k and then put other things in a IRA or in a regular brokerage account, because you should be treating all of your assets together as one big portfolio anyway, and that's usually the best solution is take what's available in your employer plan in terms of funds and exposures and then supplement that outside of the employer plan with other things that you want to hold and then at some point when you stop working there, you can roll the thing to an IRA or maybe a different employer with better options and then be able to make other adjustments as you go. It's always easy to do in retirement accounts because there are no tax consequences to buying something and selling something else. So hopefully that helps and thank you for your email.

Mostly Voices [17:45]

You ready then? Whether I am or not, you've been more than fine. You seem a decent fellow. I hate to kill you. You seem a decent fellow, I hate to die. Thank you.

Mostly Uncle Frank [17:59]

Last off. Last off, we have an email from Mary Ann.

Mostly Voices [18:10]

The Professor and Mary Ann here on Gilligan's Eye.

Mostly Uncle Frank [18:13]

And Mary Ann writes.

Mostly Mary [18:14]

Hi, first, thank you so much. This is an amazing resource. Thank you, thank you, thank you. I may be misunderstanding the charts. Are the rates listed the monthly withdrawal rates or the monthly returns? If it is withdrawal, are you leaving the entire principle intact and just withdrawing the profits over the initial investment?

Mostly Uncle Frank [18:35]

All right, just to orient everyone, what Marianne is referring to is on the portfolios page at the website wwwriskpriorityradarcom, and there are some tables there that are presented which list all of the sample portfolios and then three other mutual funds to compare them with, basically VTSAX and then the Vanguard, wellington and Wellesley funds, and then just taking the monthly performance statistics which I get from Fidelity for the sample portfolios and I get from Vanguard for the Vanguard funds, and so I thought that would be an interesting thing to post when I started this podcast. But as it turns out, it's probably not as interesting as I thought originally, even though it's still there and I do try to update it every month or two. The reason it's not all that useful, I don't think, is because, as you have observed, we are taking money out of the sample portfolios and so that is going to skew the results over time as compared to the Vanguard funds that are listed, because those are not accounting for any distributions. So while it might be interesting to look at to compare sort of same month performances in various economic environments, I don't think you can conclude much out of it in terms of a long-term analysis. If you wanted to do a better long-term analysis. What I would do is probably put these things in the new Testfolio calculator or at Portfolio Visualizer and simply do comparisons of these portfolios versus those funds, while subtracting money at the same rate from both of them, because, obviously, if you're taking or adding money to one portfolio and you are not doing that with another portfolio, you really can't do an apples to apples comparison. You have to be comparing, taking money out at the same rate or putting money in at the same rate. We're not doing anything with money in terms of inflow or outflow. So I don't think you're missing much looking at those particular tables, and I probably would not include them if I were to do this again, but would include something that looked more like a comparison chart over time.

Mostly Uncle Frank [20:48]

I have to tell you I only created the website as an afterthought to creating the podcast, because once I started creating a podcast, I realized I had to put it somewhere. It was like all right, well, I need to put it on a website. What else do I need to put on this website? To at least have some explanatory material? And so you see the results of that in all of its glaring deficiencies. I am fortunate, though, that I have a listener named William who has offered to take a look at this and perhaps help me reform it. It's crap On a volunteer basis and I'll be talking to him next week to see whether there's anything that can be done about it. I want to keep it simple.

Mostly Voices [21:31]

Quite tasty.

Mostly Uncle Frank [21:33]

And something that I can easily update. I'm not a smart man Because while I enjoy making the podcast, I actually do not enjoy fiddling around with the website. I don't think I'd like another job. Anyway, hopefully that helps as an explanation. I would not read too much into those charts or tables there. It's crap. The more useful material is actually in the descriptions below for each of the portfolios. But you had also asked about the distributions. The distributions are done on a total return basis and so there's no effort to only take from income. If that was your question, I realize that idea is still popular, but it's really a 20th century notion and if you do that you're really going to underspend your portfolio greatly. So you would not want to adopt that kind of strategy unless your goal really was to accumulate as much as possible at death.

Mostly Voices [22:33]

Death stalks you at every turn.

Mostly Uncle Frank [22:36]

So we are taking 5% and 6% annualized out of most of these portfolios because the idea here is to construct portfolios that have higher safe withdrawal rates and therefore we want to subject them to high safe withdrawal rates because, honestly, there's really no challenge in having portfolios and taking less than 4% out of them.

Mostly Uncle Frank [22:58]

That is just a not spend money kind of plan, and virtually any reasonable portfolio can work with a not spend money plan. If you want to hear about how we actually manage this in our personal lives, we use what I call a 3-1-1 plan, and we talked about that in detail in episode 338, among others. But I would go back and have a listen to that, because one of the limitations of the kind of exercise we're doing here is we don't have any expenses to match these distributions to, and in real life that is what you are actually doing, and so you want to divide those expenses up into mandatory or what I call keep the lights on, as opposed to comfort kind of expenses or extravagance kind of expenses, which you're going to have a lot more flexibility with. But that is all explained in detail in episode 338. And so take a listen to that. Hopefully that helps. And thank you for your email. Hopefully that helps and thank you for your email.

Mostly Voices [24:09]

And now for something completely different.

Mostly Uncle Frank [24:12]

And the something completely different we get to look at now are our weekly reviews of the eight sample portfolios you can find at wwwriskpartyreviewcom on the portfolios page. As I mentioned at the beginning of the program, it was a bad week but is kind of a typical week actually for mid-December. So I think what happens is everybody who's going to make a move and sell something tends to do it by mid-December. So I think what happens is everybody who's going to make a move and sell something tends to do it by mid-December and then they rebuy whatever they were going to substitute for it in the last couple of weeks of December, which oftentimes kind of explains this Santa Claus rally as basically just a partial readjustment, because I don't think overall, december ends up being a much better performance month than any other month typically. So just looking at these markets, last week the S&P 500 was down 0.64%. I think it was down just about every day. Last week the NASDAQ was up. Last week it was up 0.34% for the week. Small cap value, represented by the fund VIOV was down 0.83% for the week. Gold was a winner. Last week Gold was up 0.47% for the week, although it was up a lot more in the middle of the week and fell precipitously on Friday. Long-term treasury bonds, represented by the fund VGLT, were the big loser last week. They were down 3.9% for the week. Reits were also down. Representative fund REET was down 2.03% for the week. Commodities represented by the fund PDBC were up 1.96% for the week. They were the big winner actually. Preferred shares, represented by the fund PFFV, were down 0.89% for the week and Managed Futures managed to be down. Representative Fund DBMF was down 0.73% for the week.

Mostly Uncle Frank [25:58]

Moving to these sample portfolios, first one's this reference portfolio. It's called the All Seasons. It is 30% in a total stock market fund, vti, 55% in intermediate and long-term treasury bonds and the remaining 15% in gold and commodities. It was down 1.74% for the week. It's up 9.1% year-to-date and up 10.76% since inception in July 2020.

Mostly Uncle Frank [26:23]

Now, moving to these more bread-and-butter kind of portfolios. First one's gold and butterfly. This one is 40% in stocks, divided into a total stock market fund and a small cap value fund, 40% in bonds treasury bonds divided into long and short, and 20% in gold GLDM. It was down 0.99% for the week. It's up 16.14% year to date and up 37.04% since inception in July 2020. Next one's the golden ratio. This one is 42% in stock index funds, 26% in a long-term treasury bond fund, 16% in gold and 10% in a REIT fund and 6% in cash. It was down 1.47% for the week. It's up 16.33% year-to-date and up 33.53% since inception in July 2020. Next one's the risk parity ultimate. I'm not going to go through all 15 of these funds, but it was down 1.63% for the week. It's up 16.73% year-to-date and up 24.58% since inception in July 2020. Now moving to our experimental portfolios that involve levered funds. Don't try this at home.

Mostly Voices [27:36]

You have a gambling problem.

Mostly Uncle Frank [27:39]

First one's the accelerated permanent portfolio.

Mostly Uncle Frank [27:42]

This one is 27.5% in a levered bond fund TMF, 25% in a levered stock fund UPRO, 25% in PFF, a preferred shares fund, and 22.5% in gold GLDM.

Mostly Uncle Frank [27:55]

It was down 3.79% for the week. It's up 16.24% year-to-date and up 6.53% since inception in July 2020. Next one's the aggressive 50-50. This is the most levered and least diversified of these portfolios, which is one of its reasons for its underperformance over time. It's one-third in a levered and least diversified of these portfolios, which is one of its reasons for its underperformance over time. It's one-third in a levered stock fund at UPRO, one-third in a levered bond fund TMF, and the remaining third in preferred shares and intermediate treasury bond funds. It was down 5.25% for the week, so it's the big loser. It's up 14.45% year-to-date and down 6.14% since inception in July 2020.

Mostly Uncle Frank [28:36]

Next one's the levered golden ratio. This one is 35% in a composite levered fund called NTSX, that's the S&P 500 and treasury bonds. It's got 25% in gold, 15% in a REIT O, 10% each in a levered bond fund TMF, and a levered small cap fund, tna, and the remaining five percent in KMLM, a managed futures fund. It was down 2.43 percent for the week. It's up 15.48 percent year-to-date and down 0.07 percent since inception in July 2021. It is a year younger than the other ones and started at a very inauspicious time, right before the crash of 2022.

Mostly Uncle Frank [29:17]

And moving to our last one, our new entry, the Optra portfolio. One portfolio to rule them all. Yes, that's a joke. One ring to rule them all. It's got 16% in a levered stock fund, upro, 24% in a composite worldwide value fund called AVGV, 24% in GOVZ, which is a strips treasury bond fund, and the remaining 36% divided into gold and managed futures. It's down 1.45% for the week. It's up 7.75% year-to-date and since inception, since, it's only been around since July 2024. And that concludes these portfolio reviews for the week sniffing glue.

Mostly Voices [30:07]

All right, you're going to listen to me. Remember you break some switches. Get ready to fire it out. Coming in too fast, Watch your speed. He's coming right at us.

Mostly Uncle Frank [30:35]

Just two more weeks to finish out the year, but now I see our signal is beginning to fade. If you have comments or questions for me, please send them to frank at riskparityradarcom. That email is frank at riskparityradarcom. Or you can go to the website wwwriskparityradiocom. Or you can go to the website wwwriskparityradiocom. Put your message into the contact form and I'll get it all that way. If you haven't had a chance to do it, please go to your favorite podcast provider and like, subscribe, give me some stars or follow a review.

Mostly Voices [31:06]

That would be great.

Mostly Uncle Frank [31:08]

Okay. Thank you once again for tuning in. This is Frank Vasquez, with Risk Party Radio signing off.

Mostly Mary [31:20]

I'm gonna leave my children down on their skin and floor. The Risk Parody Radio Show is hosted by Frank Vasquez. The content provided is for entertainment and informational purposes only and does not constitute financial, investment, tax or legal advice. Please consult with your own advisors before taking any actions based on any information you have heard here, making sure to take into account your own personal circumstances.