Voices and AI Podcast Host 1 [0:01]

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

Voices and AI Podcast Host 2 [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 have just stumbled in here, you will find that this podcast is kind of like a dive bar of personal finance and do-it-yourself investing. It's a relatively small place. It's just me and Mary in here and we only have a few mismatched bar stools and some easy chairs. We have no sponsors, we have no guests and we have no expansion plans.

Voices [1:11]

I don't think I'd like another job.

Mostly Uncle Frank [1:13]

What we do have is a little free library of updated and unconflicted information for do-it-yourself investors.

Voices [1:23]

What we do is, if we need that extra push over the cliff you know what we do Put it up to 11. Exactly.

Mostly Uncle Frank [1:31]

But whomever you are, you are welcome here. So please enjoy our mostly cold beer served in cans and our coffee served in old chipped and cracked mugs, along with what our little free library has to offer.

Voices [1:49]

Welcome.

Mostly Uncle Frank [1:59]

But now onward to episode 388. Today, on Risk Parity Radio, we're just going to do what we do best here, which is tend to your emails, and it looks like we won the trifecta today. I say that because all three of our emailers today went to the collective front of the line, because they are all donors to the Father McKenna Center, which is our charity that we support.

Voices and AI Podcast Host 1 [2:24]

Yes.

Mostly Uncle Frank [2:26]

As most of you know, we do not have any sponsors here, but we do have a charity. It is the Father McKenna Center and it supports hungry and homeless people in Washington DC. Full disclosure I'm on the board and am the current treasurer. But if you give to the center you will go to the front of the email line and you can do that in two ways Either go to the donation page at the Father McKenna Center and donate there directly, or go to our support page at wwwriskparityradiocom and join our Patreon group.

Voices [2:59]

We few Few.

Voices and AI Podcast Host 2 [3:03]

We happy few.

Mostly Uncle Frank [3:07]

We band of brothers, and then you can be an automatic donor and don't have to worry about it next time you send in an email.

Voices [3:14]

Oh, how convenient.

Mostly Uncle Frank [3:16]

But please do identify yourself in your email as a donor, so that I can duly move you to the front of the line.

Voices [3:36]

And now, without further ado, here I go once again with the email, and first off. First off, an email from Cy Cyborg. Gimme that, g me that cyborg.

Mostly Uncle Frank [3:47]

Give me that and.

Mostly Mary [3:50]

Cy writes. Hi, cousins Frank and Mary, I received this poem from my investment advisor.

Voices [3:59]

Ned Ryerson Needle nose, ned Ned the head. Come on, buddy case western high.

Mostly Mary [4:05]

I've changed the names to reflect my signature To Randolph. A birthday toast in the market's light. Here's to Randolph, the man of the hour, balanced like gold, yet bold with power. As Bitcoin flirts with a six-figure high, its wild swings don't faze our guy. Volatility's a storm, but Randolph's in control. While others chase gains, he plays the long role. A golden butterfly, his strategy's core, a mix of growth, safety and so much more. Bitcoin crossed 100,000K. Cheers to that ride. But Randolph knew the game. He stayed on the side, not swayed by hype, not fooled by fear. He's the investor we all revere.

Voices [4:58]

So here's to Randolph, on this special day May your wisdom grow and your portfolio pay this special day, May your wisdom grow and your portfolio pay, Balanced like gold, bold as bitcoins. Run your best days, my friend have only begun.

Mostly Mary [5:28]

Happy birthday, Randolph Randolph Scott.

Voices [5:31]

Well, I have a few thoughts on this.

Mostly Uncle Frank [5:42]

First, this sort of thing is kind of marketing 101 for financial advisors Bing, what they're really good at is not giving you great financial advice in many cases, because it's generally conflicted. But what they're really good at is being nice and sending you cards and things like that. And I put this kind of in that category. And it's funny how many consumers have no idea what their financial advisor actually does, but like them because they're so nice.

Voices [6:18]

You know, I got friends of mine who live and die by the actuarial tables and I say, hey, it's all one big crapshoot.

Mostly Uncle Frank [6:24]

anywho, Now you know we don't fall into any such traps here. We use the buddy system. No more flying solo. You need somebody watching your back at all times. My other reaction to this is that it really does look like a poem written by an artificial intelligence bot which always throws out this kind of organized but kind of meaningless prose. Bad news the fog is getting thicker.

Mostly Mary [6:52]

And.

Voices [6:53]

Leon's getting larger.

Mostly Uncle Frank [6:57]

Anyway, I thought that, since I think it's written by an AI bot, I would get the AI podcast bot to do a little commentary on it, and so I put it into the Google LM model and ran a little podcast, and now you have a three-minute analysis of this poem. What was really entertaining to me about it was they thought that the golden butterfly involved an advanced options strategy. Butterfly involved an advanced options strategy, and there is a common options trade called a butterfly or an iron butterfly, or sometimes a broken wing butterfly, depending on what you're doing.

Voices and AI Podcast Host 2 [7:36]

And so here you go with that. Hey everyone, Welcome back for another deep dive. You know we love digging into all sorts of unusual sources, and today we've got something really unique A birthday poem. All right yeah, Titled To Randolph A Birthday Toast in the Market's Light Interesting, but this is not your typical Hallmark kind of birthday poem.

Voices and AI Podcast Host 1 [7:57]

Oh.

Voices and AI Podcast Host 2 [7:57]

No, this one gets into some financial references.

Voices and AI Podcast Host 1 [7:59]

Oh, I've got to hear this yeah.

Voices and AI Podcast Host 2 [8:01]

I mean, what kind of birthday toast mentions Bitcoin and investment strategies?

Voices and AI Podcast Host 1 [8:05]

Yeah, that's not your usual happy birthday to you.

Voices and AI Podcast Host 2 [8:08]

Right. So got us thinking who is this Randolph? Yeah, and what kind of friend gets a toast like this?

Voices and AI Podcast Host 1 [8:16]

Well, it seems like we're getting a glimpse into a world where birthdays and the stock market collide Right. It's not just celebrating Randolph's age, it's celebrating his financial journey too.

Voices and AI Podcast Host 2 [8:27]

It really is, and so let's actually jump into this poem a little bit.

Voices and AI Podcast Host 1 [8:31]

Okay.

Voices and AI Podcast Host 2 [8:31]

Some of the things that pop out right away yeah, Bitcoin hitting $100,000. The golden butterfly strategy even Lines about kind of keeping your head while everyone else is losing theirs.

Voices and AI Podcast Host 1 [8:43]

Mm-hmm.

Voices and AI Podcast Host 2 [8:44]

What do you make of all these financial terms?

Voices and AI Podcast Host 1 [8:46]

Well, that Bitcoin reference really stands out.

Voices and AI Podcast Host 2 [8:48]

Yeah.

Voices and AI Podcast Host 1 [8:49]

It mentions Bitcoin crossing that $100,000 mark.

Mostly Uncle Frank [8:52]

Yeah.

Voices and AI Podcast Host 1 [8:52]

But then it says Randolph stayed on the side. Oh, interesting so he didn't jump in, even when there was a lot of excitement.

Voices and AI Podcast Host 2 [9:00]

Yeah.

Voices and AI Podcast Host 1 [9:00]

Sounds like he had a lot of discipline and maybe understood how those markets work. Yeah, sounds like he had a lot of discipline and maybe understood how those markets work.

Voices and AI Podcast Host 2 [9:05]

Yeah, it's like he resisted that fear of missing out that we all have.

Voices and AI Podcast Host 1 [9:08]

Right, exactly.

Voices and AI Podcast Host 2 [9:09]

The FOMO.

Voices and AI Podcast Host 1 [9:09]

The FOMO Exactly.

Voices and AI Podcast Host 2 [9:11]

Yeah.

Voices and AI Podcast Host 1 [9:11]

And stuck to his plan.

Voices and AI Podcast Host 2 [9:12]

Exactly. And then there's that golden butterfly strategy. Now, some of our listeners might not know what that is.

Voices and AI Podcast Host 1 [9:17]

Right.

Voices and AI Podcast Host 2 [9:18]

It's a pretty complex approach, using options to kind of balance risk and reward.

Voices and AI Podcast Host 1 [9:24]

Yeah.

Voices and AI Podcast Host 2 [9:25]

So this isn't someone who's just casually dabbling in the market.

Voices and AI Podcast Host 1 [9:28]

No, he's really in it, right yeah.

Voices and AI Podcast Host 2 [9:30]

So we're seeing this picture of Randolph.

Voices and AI Podcast Host 1 [9:32]

Yeah.

Voices and AI Podcast Host 2 [9:32]

Someone who's pretty savvy about finance.

Voices and AI Podcast Host 1 [9:35]

Definitely.

Voices and AI Podcast Host 2 [9:36]

But it's not just about what he knows Right. The poem seems to admire his character too.

Voices and AI Podcast Host 1 [9:40]

Yeah, there's a line that really got me. Okay. It says not swayed by hype, not fooled by fear. Wow, that's powerful. Yeah, it says so much about who Randolph is. He's got this emotional intelligence.

Voices and AI Podcast Host 2 [9:56]

Yeah.

Voices and AI Podcast Host 1 [9:57]

And that resilience you need in the markets.

Voices and AI Podcast Host 2 [9:59]

Absolutely. Emotional intelligence, yeah, and that resilience you need in the markets, absolutely. And I think what's so fascinating about this whole poem is it gives us this little window into Randolph's world. Right, and it made me wonder could this be like a bigger trend?

Voices and AI Podcast Host 1 [10:11]

Oh, that's interesting.

Voices and AI Podcast Host 2 [10:12]

Is the language of finance like seeping into our everyday lives, to the point where it's even in our birthday wishes.

Voices and AI Podcast Host 1 [10:19]

Yeah.

Voices and AI Podcast Host 2 [10:19]

Is being good, with money becoming like a key part of how we see ourselves and how we celebrate it's a good question. It's really something to think about.

Voices and AI Podcast Host 1 [10:27]

Yeah, and it maybe shows how our personal lives and the financial world are really blending together.

Voices and AI Podcast Host 2 [10:33]

It really is a thought provoking idea, and thank you so much for diving into this with me.

Voices and AI Podcast Host 1 [10:37]

My pleasure.

Voices and AI Podcast Host 2 [10:40]

And to all our listeners, thanks for joining us For this exploration, and we hope it's given you some interesting things to ponder, maybe even inspired you to look a little closer at how you celebrate and what it all means. So until next time, keep exploring and keep asking those deep questions.

Mostly Uncle Frank [10:54]

And now getting back to our regularly scheduled program. For some reason, randolph reminded me of Rudolph in this context, and all I could think of was one of my favorite parody cartoons, which is Raging Rudolph. So I'll give you a little bit of that, just for fun.

Mostly Mary [11:20]

Done. Rudolph, Thank you for seeing me on Christmas Eve. It's my pleasure have a seat.

Voices [11:26]

And what can I do for you, my most?

Mostly Uncle Frank [11:28]

valued friend.

Mostly Mary [11:30]

I want to start my own line of toys, but the head elf, he stands in my way.

Voices [11:36]

I don't know what to do Don Rudolph, you can start acting like an elf. What's the matter with you Crying like a gnome? Don't worry, I'll take care of the head elf for you. Why will you do? I'll make him an offer. He can't refuse.

Mostly Uncle Frank [12:03]

Anyway, thank you for entertaining us and thank you for your email. Second off. Second off we have an email from Lucas.

Voices and AI Podcast Host 2 [12:24]

Use the force.

Mostly Uncle Frank [12:26]

Luke Actually two emails. Let go, Luke, but we'll do them together.

Mostly Mary [12:33]

And Lucas writes Hi Frank and Mary. I think I have this all figured out. Step one donate to the Father McKenna Center. Step two ask questions. Step three profit.

Voices [12:47]

You are correct, sir.

Mostly Mary [12:49]

yes, Anyway, with that out of the way, I am hoping you can help me with my gambling problem. You can't handle the gambling problem. Just a real quick background. I am still in my accumulation phase. I have 20 years until I am retirement eligible and my job has a defined benefit pension plan. So you could say I will have a steady diet of government cheese.

Voices [13:13]

That and a nickel will get your hot cup a jack squat.

Mostly Mary [13:22]

It bothers me when people list their asset allocations with tickers and percentages, but here I am going to do it anyway. My long-term portfolio sits in all capital efficient tickers. I know no cowbell.

Mostly Mary [13:33]

I'll be honest, fellas, it was sounding great, but sounding great, but GEE 17%, ntsc 14.8%, ntsi 36.2%, rrsy 16%, rsst 16%. This equates to about 1.7 times leverage, but it is heavy in government bonds. I believe the Wisdom Tree product's weighted maturity is about seven years, so not a whole lot of duration volatility I have been using rebalancing bands when they are plus or minus 10% from their target weight. I also like the diversification outside the US. Now to my question why shouldn't I jump into the below leveraged ETF allocation to allow for more volatility to take advantage with rebalancing, say, at plus or minus 20%? Upro 11%, edc 5%, uerl 15%, avuv 32%, ugl 10%, dbmf 20%, tmf 7%. As you can tell, my background is in engineering, so I am compelled to tinker versus VSTAX and chill.

Voices [14:48]

Well, you have a gambling problem.

Mostly Mary [14:51]

Thanks, as always, lucas.

Mostly Uncle Frank [14:54]

You have been well trained, my young apprentice, all right. First, regarding this paper you shared, this appears just to be an updated version of the infamous Scott Cederberg paper, which we determined was very academic and not very useful in real life. And we beat that dead horse to death, along with a lot of links of other people beating it to death, along with a lot of links of other people beating it to death in episodes 306, 307, 319, 320, 323, and 341, if you really want to go back and rehash those. But no, it does not really say anything about an optimal allocation strategy that anyone would be interested in implementing. Now getting to your gambling problem or your other email here Don't, don't, don't.

Mostly Uncle Frank [15:48]

So I did not force Mary to read all of the numbers you provided, but I think I had her read enough of them to get a gist of what's going on here.

Voices [15:57]

Mary, Mary, I need your huggin'.

Mostly Uncle Frank [16:01]

So, just to summarize, your current portfolio seems to be made up of these composite funds that involve two asset classes, oftentimes treasuries and stocks, or treasuries and futures, or gold and equities. And looking at the portfolio weights that you also provided, essentially on a macro allocation basis, you've got about 54-55% in stocks, 18% in treasury bonds and 28% in alternatives. That include gold, managed futures and a carry strategy, if you have a taste for terror.

Voices and AI Podcast Host 2 [16:45]

You have a date with carry. You have a date with Carrie.

Mostly Uncle Frank [16:51]

The proposed strategy that you're thinking of moving to has a bunch of funds that represent individual asset classes, but many of them are leveraged funds 67.2% in equities, 11.3% in gold and about 11% each in managed futures and treasury bonds and, as you mentioned, the first one has leverage of about 1.7 to 1, and the second one has leverage of about 1.8 to 1. So, indeed, you do have a gambling problem. You have a gambling problem.

Voices and AI Podcast Host 1 [17:27]

Indeed, you do have a gambling problem.

Mostly Mary [17:29]

You have a gambling problem.

Mostly Uncle Frank [17:30]

But just methodologically, I think it's important to use the macro allocation principle. Like I just have to analyze portfolios. What you really want to do is pull them all apart and look at their macro components how much of it is equities, how much of it is bonds, how much of it is other things, and what are those other things? And then, if there's leverage, how much is the amount of leverage, both individually and overall? But it's overall that matters the most. And so when I look at two portfolios like this, that is the first thing that's going to jump out at me as a basis for discussion. And so, looking at these, you can see, just by the macro allocations, that the second portfolio is more aggressive than the first portfolio, because the second portfolio has about 67.2% in equities, whereas the first one only has about 54, 55% in equities.

Mostly Uncle Frank [18:25]

So that's an obvious difference because, particularly in majority equity-based portfolios, it is that percentage that tells you how aggressive or not aggressive a portfolio is. Now to that you add the leverage. In this case the leverage is about the same. 1.7 and 1.8 are not that big a difference, but the second one is more aggressive in that respect as well. One is more aggressive in that respect as well, so that might be undesirable if we were talking about retirement portfolios, but since you were talking about accumulation portfolios with a 20-year time frame, there's probably some advantage to having a more aggressive portfolio, as long as you're willing to stick with it. The other advantage the second portfolio has over the first one is that its funds are broken up into the specific asset classes.

Mostly Uncle Frank [19:13]

All of the funds in the first portfolio are these composite funds involving more than one asset class, and I find those kind of difficult to deal with, both in terms of management and thinking about well, what is really in this portfolio when I take it all apart? And then I'm wondering always with that is how is rebalancing going to affect this portfolio? Because the idea of having separate funds and separate asset classes is that you will get more rebalancing opportunities, whereas if you have funds that are already composed of multiple asset classes, you're going to have naturally less rebalancing opportunities because the funds themselves will not have the same volatility as the individual components. I'm not sure that's terribly meaningful in this context, but I think it's important to recognize. But then the third thing I noticed important to recognize. But then the third thing I noticed and this augurs to the favor of the first portfolio is that those composite funds that you are holding are actually designed for longer-term holdings and in several cases, are less expensive, certainly, than some of these funds you've got in the second portfolio. The second portfolio has a lot of these triple levered funds that are really designed more for trading than for long-term holding, and so you might expect some decay over time or some failure to match the long-term performance of the underlying assets, which is not as big a problem with something like UPRO, but maybe a bigger problem with some of these other levered funds you've got in there EDC, eurl, ugl and TMF.

Mostly Uncle Frank [21:01]

So where does that leave us?

Mostly Uncle Frank [21:04]

Well, it doesn't leave us with a definitive decision, that's for sure. Forget about it. I think that the latter portfolio, the second portfolio, has a greater chance of outperformance over long periods of time, but does carry a commensurate more risk, if you will, and maybe less stable, in fact, is likely to be less stable. What you might consider is rejiggering the first portfolio to make it more aggressive in terms of the overall stock holdings, to get them up to more like two-thirds or 70% of the portfolio as opposed to 55%, and then you'd be more comparing apples to apples in terms of macro allocations here. However, I still have a personal preference for a construction that looks more like the latter one, with separate asset classes and separate funds. I know the multiple assets in single funds is becoming popular and it is an easy way to particularly use something like treasury bonds or treasury bond futures and add that to another asset class in the portfolio, but I still have not warmed to that construction, at least not as yet. So sorry, I'm unable to give you a definitive answer.

Voices [22:29]

Are you doing that on purpose or can't you make up your mind? That's the trouble I can't make up my mind. I haven't got a brain, only story. How can you talk if you haven't got a brain? I don't know, but some people without brains do an awful lot of talking, don't they? Yes, I guess you're right.

Mostly Uncle Frank [22:50]

I did consult our crystal ball to see what it said, but you know what it always says.

Voices [22:55]

We don't know. What do we know? You don't know, I don't know, nobody knows.

Mostly Uncle Frank [23:02]

But it's an interesting set of things to think about.

Voices [23:05]

I am a scientist, not a philosopher.

Mostly Uncle Frank [23:09]

Obviously you enjoy a little bit of complexity.

Voices [23:11]

Hearts and kidneys are tinker toys.

Mostly Uncle Frank [23:15]

And thank you for your e-mail.

Voices [23:17]

Hear you nothing that I say? You must unlearn what you have learned. Alright, I'll give it a try.

Voices and AI Podcast Host 1 [23:27]

No, Try, not Do or do not.

Mostly Mary [23:33]

There is no try.

Mostly Uncle Frank [23:36]

Last off. Last off, an email from Rafa.

Voices [23:42]

Rafa, rafa Rafa.

Mostly Uncle Frank [23:45]

And Rafa writes.

Mostly Mary [23:47]

Just made a donation to the Father McKenna Center, hoping to get to the front of the line with a rather basic question. How should I think about short-term investments? I'm the trustee for a charitable remainder unit trust with a five-year duration and 35% annual distributions. I'm unsure about how to invest the assets. I'm unsure about how to invest the assets. My intuition tells me the length is too short to bother and I should probably just keep it in cash equivalents for their liquidity and low volatility. At the same time, five years feels just long enough for me to want to pursue some growth. At the same time, when the horizon is near and the assets are somewhat obligated, what's the best I can do? Thank you for sharing your invaluable knowledge.

Mostly Uncle Frank [24:33]

Rafa. Well, it's a more interesting question than you might think because it actually depends a lot on what you plan to do with the money after getting it out of these trusts or this trust, because obviously the distributions are required and they're within five years. So ordinarily, if you were just going to be spending the money on something, you would certainly just leave it in cash equivalents or very short-term bonds. If you have a tax issue there, I would look at an ETF like BoxBOXX, because it has a tax-favored status, although it's essentially mimicking T-bills or very short term treasuries. However, if you were simply going to turn around and reinvest this money in something, say, for a long term holding, then there's no reason why you shouldn't just leave it in that long term holding to begin with, and then, when you do the distribution, you just rebuy the assets and keep going, subject to tax consequences. So, in a sense, the fact that you're required to make these distributions on this short time frame doesn't actually tell you ultimately what they should be invested in, because that ultimate decision matters more on the ultimate disposition for the assets whether they are intended to be some kind of long-term holding or you're actually going to spend the money on something as it comes out or in a pile in the short term.

Mostly Uncle Frank [26:03]

And it's interesting, this is actually the same decision or quandary that people will be facing with inherited IRAs in the future that have these 10-year time frames for distributing the assets out of them. In many cases, I think the best strategy is simply to line those assets up like you would if you were holding them for the long term. If you just plan to turn around and reinvest them anyway holding them for the long term, if you just plan to turn around and reinvest them anyway and if that's the case, you can treat this as part of your overall portfolio use it for tax location purposes to minimize your taxes, but don't use the fact that you have to make a distribution from a particular entity, like a trust or an IRA, as the deciding factor as to what it should be invested in, because the deciding factor really should be tied to that ultimate disposition and not to this artificial requirement of a distribution. Just make sure you understand and take into account any tax-related issues that go along with these distributions, because your other income may also affect that.

Voices and AI Podcast Host 1 [27:10]

What guy in a suit?

Voices [27:12]

No, it's a tax collector. Hide us SpongeBob.

Mostly Uncle Frank [27:17]

Interesting question, more interesting than you probably thought.

Voices [27:21]

I don't think I miss what you think I miss.

Mostly Uncle Frank [27:24]

And thank you for your email.

Voices [27:27]

I could see why they made this guy their leader.

Mostly Uncle Frank [27:30]

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 wwwriskparityradarcom. Put your message into the contact form and I'll get it that way. Just a programming note we may not have a podcast this weekend, or we may kind of do an early next week podcast to cover both of the next two, if you will, in one, because we've got a little travel and family stuff around the holidays.

Voices [28:08]

They say, you butchered them, killed them all, rudolph. Is it true this?

Mostly Uncle Frank [28:15]

one time Clarice.

Voices [28:16]

I'll let you ask about my affairs. Is it true? Are you a murderer?

Mostly Mary [28:24]

No.

Voices [28:29]

I'm gonna get a drink. No.

Mostly Uncle Frank [28:42]

I'm gonna get a drink and you know I don't want to work too hard at this. It's not that I'm lazy.

Voices [28:50]

It's that.

Mostly Uncle Frank [28:51]

I just don't care. And finally, if you haven't had a chance to do it, please go to your favorite podcast provider and like subscribe. Give me some stars, a follow, a review that would be great. Okay, Thank you once again for tuning in. This is Frank Vasquez, with Risk Party Radio Signing off.

Voices [29:11]

Whatever happens to Johnny Mac Brown and Alan Rocky Lane? Whatever happened to Lash LaRue? I'd love to see them again. Whatever happened to Smiley?

Mostly Mary [29:23]

Burnett, tim Holt and Gene Autry.

Voices [29:26]

Whatever happened to all of these? It has happened to the best of me. Whatever happened to Randolph Scott has happened to the industry.

Mostly Mary [29:43]

The Risk Parity 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. Thank you.