Voices [0:01]

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

Voices [0:10]

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

Mostly Mary [0:17]

A different drummer 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.

Voices [0:53]

Expect the unexpected.

Mostly Uncle Frank [0:55]

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. There are basically two kinds of people that like to hang out in this little dive bar. You see, in this world there's two kinds of people my friend, the smaller group are those who actually think the host is funny, regardless of the content of the podcast.

Voices [1:27]

Funny how?

Mostly Uncle Frank [1:28]

How am I funny? These include friends and family and a number of people named Abby.

Voices [1:38]

Abby, someone Abby who.

Voices [1:41]

Abby normal.

Mostly Uncle Frank [1:43]

Abby normal Abbe Normal. The larger group includes a number of highly successful do-it-yourself investors, many of whom have accumulated multi-million dollar portfolios over a period of years.

Voices [1:58]

The best, Jerry the best.

Mostly Uncle Frank [2:01]

And they are here to share information and to gather information to help them continue managing their portfolios as they go forward, particularly as they get to their distribution or decumulation phases of their financial life.

Voices [2:19]

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

Mostly Uncle Frank [2:27]

But whomever you are, you are welcome here.

Voices [2:31]

I have a feeling we're not in Kansas anymore.

Mostly Uncle Frank [2:35]

But now onward to episode 390.

Voices [2:38]

Merry New Year.

Mostly Uncle Frank [2:43]

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.

Voices [2:54]

Boring.

Mostly Uncle Frank [2:56]

Yeah, not much happened last week.

Voices [2:58]

Looks like I picked the wrong week To quit amphetamines.

Mostly Uncle Frank [3:01]

If Santa Claus came? He barely showed himself.

Voices [3:06]

Ho ho ho, Donner and Blitzen just hijacked. If Santa Claus came, he barely showed himself. Ho ho ho, Donner and Blitzen just hijacked a shipment of pure snow. We'll make two million easy.

Voices [3:13]

But before we get to that, I'm intrigued by this, how you say.

Mostly Uncle Frank [3:19]

E-mails and First off. First off, we have an email from Kyle. Kyle and Kyle writes.

Mostly Mary [3:33]

Dear Frank and Mary, please discuss equal weight versus cap weighted index ETFs as it pertains to our goals here at Risk Parity Radio. You are loved and happy holidays, kyle.

Voices [3:45]

Sometimes love is hard, but you can't just run away from it. When you start to have something special, you have to work at it. Even though it might seem like the world is against you, you still have to hold on with both hands.

Mostly Uncle Frank [4:00]

Well, first off, Kyle has managed to move himself to the front of the email line.

Voices [4:04]

Well, first off, kyle has managed to move himself to the front of the email line.

Mostly Uncle Frank [4:07]

Yeah, baby yeah, and how has Kyle done that? Pray tell. Well, kyle is one of our patrons on Patreon, which you can join through the support page, and we do not use that money for the show. We use that money for supporting a charity we support. In this show we do not have any sponsors, but we do have a charity we support. It is called the Father McKenna Center and it serves hungry and homeless people in Washington DC.

Mostly Uncle Frank [4:33]

Full disclosure I am on the board of the charity and am the current treasurer. But if you give to the charity, you get to go to the front of the email line, and there's a couple ways to do that. You can give directly on the donation page at the Father McKenna Center website, which I'll link to again in the show notes. Or you can go to our support page at wwwriskparadisecom, become one of our patrons on Patreon and donate your money that way, which I collect periodically and send to the Father McKenna Center. And if you do either of those things and mention it in your email in the subject line or otherwise, as Kyle has done here, I will duly move you to the front of the email line.

Voices [5:12]

Yes.

Mostly Uncle Frank [5:14]

Now getting to your question. What I find most interesting about this question is not the question itself, but the kind of mindset it reveals about the person asking this question. The person asking this question has a mindset or a belief that it is the best strategy to cover the entire stock market with only one fund. They've been praying to some simplicity, god, or something that says one fund is always better than more than one fund.

Voices [5:46]

Real wrath of god type stuff.

Mostly Uncle Frank [5:49]

And while that is a popular notion, it is most certainly wrong.

Voices [5:53]

Wrong.

Mostly Uncle Frank [5:55]

And the reason we know it's wrong is due to modern portfolio theory and something called Shannon's Demon, which illustrates the mathematics behind modern portfolio theory, and what that says is if you have two or more assets that perform similarly but perform differently at different times, so that you can rebalance them, you will get a better performance out of the two of them together than you will out of either one alone, of the two of them together than you will out of either one alone. And modern portfolio theory says that, in theory, what you should be doing is taking all of the assets and allocating to them in such a way as to maximize that function. Now that is where it gets too complicated and nobody can really do that, taking all thousands of stocks in the stock market. But those are not your two choices. Use all the stocks in the stock market or only one fund. In fact, this is possible to do and relatively easy to do with a small number of funds as small as two, but it could be four, it could be eight, it could be some manageable number that you can use, and if you do that, you're going to get a better performance than you will out of one fund if you can find two different allocations that perform differently enough at different times but both overall have similar risk-reward characteristics to the overall market.

Mostly Uncle Frank [7:23]

And the easiest way to do that is to have a growth-based fund and a value-based fund and combine them and you can add other factors to that so you can have a large-cap growth fund and a small-cap value fund, and that makes a good combination that tends to outperform these single-fund solutions. And one of the books you want to read about that is your complete guide to factor investing by Larry Suedro, which lays all this out in exquisite detail with all the references to the papers where people have talked about this for the last 30 years. I'll give you a book review in the show notes which summarizes it, and it's interesting. This question also presents what Danny Kahneman called a WIZIATI problem. W Wiziati is an acronym. It stands for what, you see, is all there is, and as human beings we tend to look at a set of choices and restrict in our mind to the idea that only the choices that are on the menu presented are available, which is not true actually.

Mostly Mary [8:23]

That's not how it works. That's not how any of this works.

Mostly Uncle Frank [8:28]

Just because there is a list of something on a menu doesn't mean you can't go off the menu and order something else. But this is a very common cognitive failure that people engage in, and here it is manifested in this. Okay, we are just going to put on a short menu, two funds that cover the whole market and pretend that that is the entire menu out there, and these are the only two things we have to pick from. Wrong, wrong.

Voices [8:57]

Right Wrong.

Mostly Uncle Frank [8:58]

You see why this question is kind of irrelevant, because you could pick from any number of other things that are not on this menu, but the reason that somebody might have this menu in their mind is because they are fixated on this false idea that having one fund is intrinsically superior to having multiple funds in a portfolio that cover the same general asset class, which is just a false assumption.

Voices [9:23]

Forget about it.

Mostly Uncle Frank [9:26]

I would say the only advantage to having one fund is for somebody who just doesn't know what they're doing. They're just starting out, they're just learning. They need to put their money somewhere to watch it grow. For that kind of person, just starting with one fund is a great idea because it reduces the cognitive load of having to think about more than one fund. But for anybody who's seriously planning on managing their own portfolio or investments, they need to get beyond that, because that is effectively like only learning how to cook one thing and then cooking that for every meal. Yes, you can do that, but it's not really desirable. And it is not too hard to learn how to cook something else. It just isn't. Bow to your sensei.

Voices [10:11]

Bow to your sensei.

Mostly Uncle Frank [10:14]

All right, let's go to the question itself and pretend that the menu of choices is actually limited to these two things. Limited to these two things? The short answer is I think the cap-weighted index ETF is probably better for most purposes than the equal-weight index ETF, and there are a couple of reasons why that's true. The most important one is probably the one you haven't thought of, and that is if you look at the nine style boxes that combine size and value versus growth in terms of factors, we know from history that that small cap growth box is the worst one to be in. It has too much risk for the reward it's likely to grant. So one simple way of approaching a market is to try to exclude small cap growth from your mix of stocks. Just doing that will improve your performance.

Voices [11:07]

You need somebody watching your back at all times.

Mostly Uncle Frank [11:11]

And so, since the equal weight is going to have more small cap growth in it than the cap weighted ETF, it's probably going to be worse over time in terms of risk reward.

Mostly Uncle Frank [11:23]

The second strike the equal weight has against it is that it's going to cost more to manage. Just as a practical matter, because you are trying to equal weight thousands of equities, you have to make more transactions to make that happen than if you are just cap weighting, something where you are really focused on adjustments in the largest stocks in the index, because monkeying around with the small ones, with tiny allocations anyway, isn't going to matter a whole lot. And so, in practice, that is why equal weight funds tend to be more expensive than cap-weighted funds, even though they are holding the same things just in different proportions. And then, finally, the cap-weighted fund is more likely to conform with the actual overall economy, because obviously the largest actors in the economy are going to have the largest cap weights most of the time and therefore are going to be the most reflective of what is going on in the overall economy.

Voices [12:20]

We have become lovers of pleasure rather than lovers of the economy. There are those who will say that the economy has forsaken us. Nay, you have forsaken the economy, and now you know the economy's wrath.

Mostly Uncle Frank [12:34]

I don't consider that to be a must-have, must-do or anything like that, but it is nice to know that if the general economy improves or grows over time, you are going to capture that best with a cap-weighted fund, Simply because it's always going to be picking up more of the things that are growing in the economy.

Voices [12:55]

We must let the economy know that we are capable of respecting it. No more needless spending. The economy is our shepherd. We shall not want.

Mostly Uncle Frank [13:14]

So if you only have those two things on the menu, you'd probably go with the cap-weighted index fund, but since you don't, it's kind of an academic question.

Mostly Uncle Frank [13:23]

Another way to slice up the market which is actually more appealing if you're trying to match the overall economy would be to slice it up by sectors, and you can have 10 or 11 sector funds, like the spider sector funds, which divide up the stock market by the types of companies.

Mostly Uncle Frank [13:40]

And in many ways that's actually more appealing because in an ideal world where you were a super forecaster, you could actually sit down and say, oh, in the next five years, I think energy is going to be the best performer, or real estate, or utilities, or tech or whatever you thought it was. And if you could do that, then dividing it by sector and weighting it appropriately based on your forecast would be certainly the way to go. The problem is, nobody can actually do that. So, as it turns out, slicing the market up into sectors is interesting but actually more cumbersome and more difficult to use than other methods, and the best method we've discovered so far is to slice it up by factors. And the best method we've discovered so far is to slice it up by factors and that's really not because different factor-weighted funds are intrinsically better than other factors, although sometimes people think that that is the argument that is being made, that the reason we want small-cap value is we think it's intrinsically better or will be better than the rest of the market.

Voices [14:43]

Some people think that better or will be better than the rest of the market. Some people think that.

Mostly Uncle Frank [14:54]

There are some who call me Tim, but you don't need to think that for this to be a useful exercise simply because of Shannon's Demon. All you really need to know, or what you're really trying to do, is just slice up the market in a way where different parts or different funds you are using are performing differently at different times, and so the most dramatic example of that recently was in 2022, where you had growth stocks down 30% or more, most of them whereas value stocks were anywhere from minus 10 to plus 10, depending on what you were holding from minus 10 to plus 10, depending on what you were holding and so if you just split your assets by those two factors, you get a serious rebalancing bonus by selling the better performer, the value stocks, buying more of the growth stocks, and then watching what happened in 2023 and 2024, when the growth stocks were back off to the races Wow, wow, wow. That's very nice. You can't do that if you only have one fund, and that's generally true whether you're using this as the basis for an accumulation portfolio or it's the entire portfolio it's all stocks or you're using it as the stock portion of a drawdown portfolio. It's probably more important in the drawdown portfolio.

Mostly Uncle Frank [16:05]

It's probably more important in the drawdown portfolio because that's where diversification matters the most, but it works better in either scenario than just holding the one fund, at least over long periods of time, because over short periods of time, of course, one fund will outperform all the other funds. You just probably won't be able to predict which one it is and when that's going to change. Anyway, that was a very interesting question. Like a lot of these kinds of questions, it's more interesting due to the assumptions behind the question than the question itself is interesting, and I think that's true of a lot of amateur investing. People are often operating under assumptions that just aren't true or not true all the time, and just holding one fund has to be better than holding multiple funds is one of those kind of assumptions.

Voices [16:52]

That's the fact, Jack. That's the fact, Jack.

Mostly Uncle Frank [16:57]

And so hopefully that helps. We love you too, kyle, and thank you for your email.

Voices [17:03]

I want to hold you every morning and love you every night. Cal, I promise you nothing but love and happiness. I swear by the moon and the stars and the sky. I'll be there, Cal. I swear like the shadow that's by your side.

Mostly Uncle Frank [17:30]

Cal, I swear to I'll be there. Second off. Second off. We have an email from Adam.

Mostly Mary [17:35]

Put on your yarmulke. Here comes Hanukkah. So much fun-a-ka To celebrate Hanukkah. And Adam writes my retirement portfolio. Should I fall below 18, I will withdraw a percentage of my portfolio along an increasing linear range from 0% to 5.5555%, corresponding to 0 to 18 times my annual expenses invested. This would help to preserve my portfolio by decreasing my withdrawal percentage during a bad sequence of return. If, instead, my portfolio grew to over 30 times my targeted annual expenses, I would permanently increase my targeted annual expenses to be 1 30th of my investment portfolio to give myself a real raise. Each subsequent year. Then I would repeat this process. My targeted annual expenses would be adjusted annually for inflation prior to determining how much I withdraw. Based on these rules, I've included a good share of discretionary spending in my initial budget to make it easier to reduce my withdrawals should it be necessary. Currently, I have about 16.5 times my targeted expenses invested and I'm still working accumulating. If it's helpful, here's my current investment portfolio asset allocation that I plan to continue holding in retirement. And yes, I can't get enough cowbell.

Voices [19:12]

I gotta have more cowbell.

Mostly Mary [19:26]

I gotta have more cowbell Stocks 50% divided into 40% AVUAV, 5% AVDV and 5% VUG.

Mostly Uncle Frank [19:37]

Well, you certainly can't get enough cowbell, can you?

Voices [19:41]

Guess what I got a fever.

Voices [19:45]

And the only prescription is more cowbell.

Mostly Uncle Frank [19:48]

Just in case the listeners didn't appreciate this of the stock portion of Adam's portfolio, he is proposing to have 45% in small cap value and only 5% in large cap growth. I probably would add some more large cap growth or something else to that mix for diversification purposes, but I have to tell you you are in good company that people like Larry Suedro have portfolios that are similar to this, at least on the stock side, in their personal accounts. So doing something like that is not unheard of. You may find that it performs much differently than the overall market at different times, that it performs much differently than the overall market at different times, and that could be unnerving. But there's nothing intrinsically wrong with it as long as you're planning on sticking with it through thick and thin, because a portfolio like that could easily underperform or outperform the rest of the market. I'm talking about the stock side of it for a decade or more and therefore really is a multi-decade commitment. The rest of it looks like it's, in kind of the sweet spot of the kinds of portfolios that have had high safe withdrawal rates over the past 100 years or so. I'm talking 5% plus. All right, let's talk about your variable withdrawal strategy. I have not tried to model this specific strategy out, but it is generally true that strategies like this tend to increase the safe withdrawal rates of just about any portfolio by being flexible, and tend to offer up to a 1% improvement, if you will, which can be thought of as a buffer in bad times. I don't know if you've tried to use it, but there is a retirement spending calculator at Portfolio Charts which allows you to make allowances for these kind of withdrawal plans, where you set floors and ceilings and adjust the portfolio then based on that or adjust the spending based on that, and it shows you a few common ones, like the Guyton-Klinger plan and others like the Guyton-Klinger plan and others.

Mostly Uncle Frank [21:49]

Another good thing to read about this is the last couple Morningstar reports about the state of retirement and safe withdrawal rates, and the best part of those reports is a discussion of how various variable withdrawal strategies tend to affect a sample portfolio that they're using, and it really does give you a feel for what these kind of strategies do and this is a Geithenklinger-like strategy that you're employing here and the advantage of those is they tend to have the greatest effect on improving a safe withdrawal rate. Their main drawback is they have the highest variance in terms of what you get to take out of the portfolio. So just be aware of that that holding something like this could in fact, cause you to have to make lifestyle changes at some point during retirement, depending on how your spending is allocated and how much of it is mandatory and how much is discretionary. The bad part of those Morningstar reports is the actual model they use, which seems to change a whole lot every year and throw out very strange conclusions. They also do not seem to try to optimize their portfolio based on the assumptions they're making. It is an assumptions-based model, which is why it's problematic and it's all over the place from year to year. So I would ignore that part of it but focus on their analysis using these variable withdrawal strategies, because that general principle as to how they affect their model portfolio is going to apply to just about any other kind of retirement portfolio, that's, primarily stocks and bonds.

Mostly Uncle Frank [23:25]

The truth is that if you run this most of the time, you will never fall below 18 times with this kind of portfolio.

Mostly Uncle Frank [23:33]

It's just not going to be that volatile and you probably won't get over 30 times until many years into it. So most of the time, your guardrails are just not going to be triggered at all. The other thing you've got there you mentioned you're going to adjust annually for inflation. Make sure you're adjusting for your personal inflation and not some CPI number you pull out of the air, because personal inflation really is personal and most retirees do not inflate their lifestyle in fact at the rate of CPI, but it tends to be 1% to 2% less than CPI over time, and we know that from David Blanchett's work over the past decade and also from recent reports from the RAND Corporation who have studied this. Go back and listen to episode 336 if you want to have more discussion on that and see those links. But overall I think your plan is well thought out, so long as you are not taking ridiculously large withdrawals, and I'm sure you're not. Do the chickens have large talons? Do they have what Large talons? And hopefully these answers help and thank you for your email.

Mostly Mary [24:45]

Tell your friend Veronica it's time to celebrate Hanukkah. I hope I get a harmonica on this lovely, lovely Hanukkah. So drink your gin and tonic.

Voices [24:56]

But don't smoke marijuana. If you really, really want to go, have a happy, happy, happy, happy Hanukkah, happy Hanukkah everybody, thank you Thank you everybody Last off.

Mostly Uncle Frank [25:16]

Last off, we have an email from Steve.

Voices [25:20]

Hey Steve.

Mostly Mary [25:22]

And Steve writes Hi, how do I select which portfolio would be good for me?

Mostly Uncle Frank [25:28]

Thanks, Well, isn't that the $64,000 question?

Voices [25:33]

A question. Since before your son burned hot in space and before your race was born, I have awaited a question your race was born.

Mostly Uncle Frank [25:52]

I have awaited a question. The overarching answer is that it depends on your purposes and goals for your money. But let's think of a couple of different kind of sample individuals. Suppose you have a younger person who is far away from becoming financially independent and they are just trying to grow their assets and so they are adding money steadily over time to this portfolio from their employment or other income and just trying to build it. Somebody like that is going to be best off with 100% in equities stock index funds, hopefully relatively cheap ones.

Mostly Uncle Frank [26:22]

And there are many, many ways to construct portfolios of 100% stock index funds from one fund to actually buying all the stocks themselves or lots of stocks themselves. So you can make it as simple or as complicated as you want. But if you want a simple portfolio that tends to outperform a total stock market fund or a plain old S&P 500 fund or some Boglehead thing, I suggest you do half large cap growth or if you already have the S&P 500 or a total market fund, that can be that half it's large cap and it's growthy, at least in part, and then pair that with a small cap value fund. And if you want something more complicated than that. You might try out one of these Paul Merriman for-fund portfolios. I will link to his fund recommendations in the show notes and you can check those out because it also gives you specific funds if you're looking for specific funds to buy. But any of those kind of things are going to be appropriate for accumulation and will certainly be better off than any kind of target date fund or a robo thingy or some expensive thing involving high expense fees or a highly paid advisor or anything of those, because that drag on expenses is the worst thing for you when you are accumulating. And if you haven't read Common Sense Investing by Jack Bogle, that is a classic and I would go and read that so you can really understand how much a high priced fund or an advisor is actually costing you, particularly in the accumulation phase when there's really no planning to be done other than keep accumulating All right.

Mostly Uncle Frank [28:04]

Now let's talk about a sample person on the other end of the spectrum who is not contributing to their portfolio anymore and they have decided that the purpose of their portfolio is to take out as much money as possible over time without running out, and for simplicity's sake we will assume that they are never going to work again and they don't have any other sources of income. They don't have any social security, anything like that. Remember, this is just a sample. Person with one purpose or idea do those portfolios look like? Well, we talked about that actually in the last episode, but I will repeat it in short form. And what those portfolios look like are between 40 and 70% in stock funds, hopefully lower cost index funds. They should be divided into value and growth, so at least two funds.

Mostly Uncle Frank [29:02]

You could use that simple two-fund idea that I just gave you for accumulation as the stock portion of this portfolio if you want to do that, or one of the Merriman ideas. It will have somewhere between 10 and 30 percent in bonds treasury bonds of intermediate and longer duration. They are there essentially as recession insurance, so you shouldn't be worried about what yields they are and whether they go up and down. In the short term. You should have less than 10% in cash or cash equivalents. I'm talking about things like savings accounts and T-bills and very short-term bond funds. If you have more than 10%, it tends to drag in a portfolio and it doesn't matter whether you pretend they're in separate buckets or doing other things. You should just look at the assets as the assets and not put labels on them and pretend they do different things. If you put different labels on them, investing doesn't work that way.

Mostly Mary [29:57]

That's not how it works. That's not how any of this works.

Mostly Uncle Frank [30:02]

So put away your buckets, ladders and flowerpots.

Voices [30:05]

And you won't be angry. I will not be angry, so put away your buckets, ladders and flowerpots.

Mostly Uncle Frank [30:17]

And then finally, between 10 and 25% in alternative assets that are not stocks or bonds and that have historically had a zero correlation to stocks or bonds, and the two best candidates for that are gold and managed futures, but those aren't the only candidates. And if you do that, you will have a portfolio that has a projected safe withdrawal rate probably of around 6%. You can back it off to 5% just to be conservative about it, and then add some of those variable withdrawal strategies we talked about in the last question and you'll do even better. So that is a second purpose and a second sample person. So, if you're looking at the sample portfolios, the two portfolios that most resemble what I've just been talking about are the golden butterfly and golden ratio portfolios and, as I've been talking about for the past couple of years now, I am planning on slightly revising the golden ratio portfolio, the sample one, to more match what we actually hold, and we'll be doing that on December 31st for convenience, as I mentioned about a month ago, and just so you know what those other portfolios are doing there as sample portfolios.

Mostly Uncle Frank [31:27]

The first one, that all seasons is actually just a reference portfolio. That is the sort of classic or academic structured risk parity style portfolio and when some people hear risk parity they are thinking immediately of a portfolio that looks like that. But that is actually just a starting point for portfolio construction and it is not optimized for either accumulation or withdrawal rates, which is why we only keep it there as a reference to compare with the other portfolios that we would want to use, to compare with the other portfolios that we would want to use. The fourth portfolio, which is called the Risk Parity Ultimate, is actually just a kitchen sink portfolio that has something of just about anything you might want to put in one of these kind of portfolios, but it's doubtful that that particular mix makes sense or that anyone really needs to have all of those things in a portfolio. What's interesting about that portfolio to me is that it has the most variance, or what you call tracking error, from overall markets or traditional retirement portfolios. So it's more likely to perform differently from, say, traditional 60-40 portfolio or 50-50 portfolio than either the golden butterfly or golden ratio examples.

Mostly Uncle Frank [32:48]

Now, the rest of those portfolios there the final four are actually experimental portfolios and they are largely experiments with leverage, because this is kind of the hot new thing this decade, if you will. There are many people out there trying to devise or develop strategies for small investors that do involve leverage. That might have typically been run by hedge funds in the past. So those are mostly. Don't try this at home, but it's interesting to see what happens when we do this and it does give you an inkling or feel as to why you probably don't want to have leverage, particularly in a drawdown portfolio, just because the variance is too high. So the purpose of those is not to give examples of what I think people should be doing, because I'm not doing that, but it's more a matter of curiosity.

Voices [33:41]

You're insane Goldmember. You're insane gold member.

Mostly Uncle Frank [33:45]

Because these certainly do resemble what other people have suggested on various fora and in various other contexts. Now you'll also note that I do not have any portfolios that are devoted to accumulation, because that's never really been the purpose or focus of this podcast. I'm retired and so I'm more interested in living off a portfolio, not accumulating, and others have covered that ground extensively, so I don't feel a need to beat that dead horse. Hello, I think Paul Merriman's suggestions are largely very good and I do note that his simplest portfolio that he would recommend for long-term accumulation is half S&P 500, something like VOO and half small cap value. He would recommend AVUV for that and that would be a fine accumulation portfolio. I think you should go with large cap growth in the large cap slot, but I don't think that that is a critical decision. Now, the truth is, almost nobody falls into exactly the first category of sample people or the second category of sample people, because life is more complicated than that and your projected expenses over time tend to vary, particularly if there are children or families involved.

Voices [35:07]

Hurry and shave.

Voices [35:08]

The families will be here soon. Family, I don't want the families over here.

Mostly Uncle Frank [35:14]

If your housing situation changes.

Voices [35:18]

Of course it's this old house. I don't know why we don't all have pneumonia.

Voices [35:21]

Drafty old barn up in place Might well be living in a refrigerator. Why do we have to live here in the first place and stay around this measly, crummy old town While you call this a happy family? Why do we have to have all these kids?

Mostly Uncle Frank [35:35]

When you're getting social security or when you're getting a pension or other side income will affect this, and so you want to modify your portfolio based on your own personal circumstances. If you are that younger person and you're trying to accumulate but you also want to buy a house in the near term, obviously you're not going to put all of your money into long-term retirement assets if you're going to be spending it in the short term or putting a down payment down. On the other side of the coin, you might be somebody like John who we talked about in the, who had a portfolio but also had income coming online within the next 10 years, in which case it probably made the most sense for him to segregate out a piece of his portfolio for kind of the long-term retirement portfolio, but then actually spend a whole lot more money in the near term with the excess, both because he's getting older and he can't do as many things in the long-term future as he can in his near-term future. He and his wife were 55 and 65 and wanted to travel, but they also knew they would have substantial income coming to them in the next 10 years, so there was no reason to hold on to excess funds when those could be used for lifestyle improvements.

Mostly Uncle Frank [36:57]

Now let's think of another common example of a person I see out there in the real world, and it is somebody who has over-saved. They have accumulated more than they need for retirement purposes and they really don't want to spend it. They want to leave it to other people, but they don't want to give it to them right away. Is that a sensible approach to retirement? I don't think so, but it is a common approach to retirement.

Mostly Uncle Frank [37:21]

Now, that kind of person can stay highly allocated to stocks. In fact, the kind of 90-10 S&P 500 T-bills portfolio that Warren Buffett recommends, or would put his heirs into, works fine for a person like that, because the truth is, if your spending is less than 3% of your portfolio, you don't really have a portfolio construction issue. You can hold just about anything you want. And then the only question is well, what are your other goals? Because they aren't spending related. You're going to end up with just more and more money, and so if your ultimate goal is to have the most money at death for your golden mausoleum, your golden coffin and your golden jubilee celebration of death, dead is dead then leaving it mostly in stocks makes a whole lot of sense.

Mostly Uncle Frank [38:14]

What does not make sense but is very common that I see people in that circumstance doing is holding gigantic piles of cash just because they can, because that is not maximizing your spending and it's not maximizing your accumulation. So what is it maximizing? The only thing it's really doing is minimizing fear. That's what it's doing. That's why people do that, or it's just a product of neglect. Some people just don't spend a lot of money, continue to accumulate it and they'll keep track of it and just shove it into various savings accounts or other things and completely neglect it because they don't want to think about it for various and sundry reasons.

Mostly Uncle Frank [38:56]

I think if you're really taking a rational approach to this that is not based in fear or neglect or other emotions, you really do need to think about well, what is the ultimate purpose for the money you have?

Mostly Uncle Frank [39:09]

When do you plan on spending it and then allocate it appropriately to various investments, and always remember that money is a tool, it's not a goal, even though it is often treated as a goal, and so I think what you really want to focus on is what are my non-monetary goals in life, and then figure out how to use the money to suit or fulfill those goals, the non-monetary goals, as opposed to elevating money as the goal over non-monetary goals, if that makes sense and there are many books written about that, some of which I mentioned in the last episode I want to check out the Psychology of Money by Morgan Housel.

Mostly Uncle Frank [39:50]

Here's another one I think is called Same as Ever, which is pretty good, and that new one by Daniel Crosby called the Soul of Money it's floating around out there and the other new one, the Purpose Code, by Jordan Grumet. You might want to check that out too. And then, given the season, I would go watch the Christmas Carol again. I suggest the one with Alistair Sim, made in 1951. Because that really is all about putting money in its proper place in your life.

Voices [40:18]

Well, we won't beat about the bush, my friend, I'm not going to stand this sort of thing any longer, which leaves me no alternative but to raise your salary. Ha ha, ha, ha, ha, ha, ha, ha, ha, ha, ha, ha, ha, ha, ha, ha, ha ha. I haven't taken leave of my senses, bob. I've come to them. From now on, I want to try to help you to raise that family of yours, if you'll let me. To try to help you to raise that family of yours, if you'll let me. Well, we'll talk it over later, bob, over a bowl of hot punch. Meanwhile, you just go and put some more coal in that fire. You go straight out and buy a new coal, scuttle, isn't you do that before you dot another. I, bob Cratchit, I don't deserve to be so happy. I can't help it. I just can't help it.

Mostly Uncle Frank [41:37]

I just can't help it, lest you are sentenced to walk around in chains for all eternity.

Voices [41:48]

That's not an improvement. I wear the chain I forged in life. I made it link by link and yard by yard. I girded it on of my own free will and of my own free will.

Voices [42:01]

I wore it.

Voices [42:03]

You have my sympathy. Ah, you do not know the weight and length of strong chain you bear yourself. It was full, as him, and as long as this, seven Christmas eves ago, and you have labored on it since then, Hopefully all that helps.

Voices [42:33]

And thank you for your email.

Voices [42:37]

And now for something completely different.

Mostly Uncle Frank [42:40]

And the something completely different is our weekly portfolio reviews. Of the eight sample portfolios you can find at wwwriskparryradarcom on the portfolios page. We won't be spending much time on this today because we'll be doing annual reviews, probably in the next episode after the new year. But just looking at what happened last week, it wasn't much. The S&P 500 was up 0.67% for the week. The Nasdaq was up 0.76% for the week. Small cap value, represented by the fund VIOV, was down 0.29% for the week. Gold was one of the big winners last week 0.29% for the week. Gold was one of the big winners last week. I love gold. Gold is up 1.27% for the week.

Mostly Uncle Frank [43:25]

Long-term treasury bonds, represented by the fund VGLT, were down 1.55% for the week. Reits, represented by the fund REET, were up 0.46% for the week. Commodities looked like they went down last week. On a price basis, they were down 3.47% for the week, but they also issued a dividend of 4.29% for the week. So we're actually up fractionally. Preferred shares, represented by the fund PFFV, were down 0.46% for the week, and managed futures were also in that situation where, on a price basis, they were down 2.87% for the week but issued a dividend of 3.12% last week for the year end, and so we're marginally up. Now, moving to these sample portfolios. December is really turning out to be a bummer of a month, you know that, and Santa Claus has not come.

Voices [44:18]

I'm Yukon Cornelio, the greatest hitman of all, and I've got a special present for you. Compliments of one disgruntled elf and red-nosed reindeer. Were you talking to me? You talking to me?

Mostly Uncle Frank [44:29]

The first one is the all seasons. This one's 30% in a total stock market fund, 55% in intermediate and long-term treasury bonds and the remaining 15% divided into golden commodities. It was down 0.27% for the week, it's up 7.05% year-to-date and up 8.68% since inception in July 2020. Next one's golden butterfly this one's 40% stocks divided into a total stock market fund and a small cap value fund, 40% in bonds, long and short-term treasuries and the remaining 20% in gold. It was down 0.04% for the week, so it didn't really move. It's up 11.32% year-to-date and up 34.17% since inception in July 2020. Next one's golden ratio this one's 42% in stocks and three funds, 26% in long-term treasury bonds, 16% in gold, 10% in a REIT fund and 6% in a money market fund. In cash, it was down 0.15% of the week, it's up 11.46% year-to-date and up 30.46% since inception in July 2020.

Mostly Uncle Frank [45:37]

Next one's risk parity ultimate I'm not going to go through all these funds. It's kind of the kitchen sink of these portfolios. It was down 0.73% for the week, it's up 12.4% year-to-date and up 19.98% since inception in July 2020. I should note that all of these portfolios, these numbers are not exact, because there are dividends that have been declared and have not been paid and will be paid in the next few days before the end of the year. So we'll let these numbers sort out as they will over the next few days. Now moving to these experimental portfolios we run hideous experiments here, so you don't have to.

Voices [46:15]

Look away, I'm hideous.

Mostly Uncle Frank [46:18]

These all involve leveraged funds. First one's the accelerated permanent portfolio. 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. It's down 1% for the week. It's up 11.31% Year-to-date. It's up 2.01% since inception in July 2020. Next one's the aggressive 50-50. This is the least diversified and most levered of these portfolios. It's one-third in a levered stock fund, upro, one-third in a levered bond fund, tmf, and the remaining third divided into a preferred shares fund, pffv and an intermediate treasury bond fund, vgit. It's down 1.3% for the week. It's up 6.65% year-to-date and down 10.74% since inception in July 2020. It's really at a rough December. I think it's down 8% in December.

Mostly Uncle Frank [47:18]

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, 25% in gold, 15% in the REIT O, 10% each in TMF, a levered bond fund, and TNA, a levered small cap fund, and the remaining 5% in a managed futures fund, kmlm. It was down 0.62% for the week. It's up 10.91% year to date and down 4.02% since inception in July 2021. It had a very inauspicious start date. And the last one is the Optra portfolio One portfolio to rule them all. This one's very new. It's only been around since July. It's 16% in a levered stock fund, upro. 24% in a composite worldwide value-tilted fund called AVGV, 24% in a Strips treasury bond fund, govz. The remaining 36% divided into gold and a managed futures fund. It was down 0.24% for the week. It's up 3.74% year-to-date and since inception in July 2024. It's only six months old, and that concludes our portfolio reviews for the week. We will be having a year-end summary, as we've had in past years, after the new year, probably the next episode, and that will involve lots and lots of numbers and comparisons Billion, trillion, million, billion, trillions of orbiting snowballs. But now I see our signal is beginning to fade.

Mostly Uncle Frank [48:58]

If you have comments or questions for me, please send them to frankatriskparityradiocom. That email is frankatriskparityradiocom. Or you can go to the website, wwwriskparityradiocom. Put your message into the contact form and I'll get it. That way, the email is better, though. And I'll get it that way. The email is better, though. 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 follower review, that would be great.

Mostly Mary [49:24]

Okay.

Mostly Uncle Frank [49:27]

Thank you once again for tuning in. This is Frank Vasquez with Riskoperity Radio Signing off.

Voices [49:45]

Scrooge was better than his word. He became as good a friend as good a master signing off. He became a second father.

Voices [49:52]

Uncle Snooze.

Voices [49:56]

And it was always said that he knew how to keep Christmas. Well, if any man alive possessed the knowledge, may that be truly said of us and all of us. And so, as Tiny Tim observed, God bless us everyone.

Mostly Mary [50:28]

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.