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.

Voices [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 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.

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.

Voices [1:26]

Top drawer, really top drawer.

Mostly Uncle Frank [1:31]

Along with a host named after a hot dog.

Voices [1:34]

Lighten up Francis.

Mostly Uncle Frank [1:37]

But now onward, episode 391. Today on Risk Parity Radio.

Voices [1:44]

Merry New Year.

Mostly Uncle Frank [1:45]

Yes, merry New Year to all you people out there. Ha, ha, ha, ha, ha ha, and I hope you've had some good holidays.

Voices [1:55]

It was a dream, I dreamt the whole thing. It was just a bad dream. Good morning, sir. Merry Christmas Coleman.

Voices [2:07]

I've had the most absurd nightmare. I was poor and no one liked me. I lost my job, I lost my house, penelope hated me, and it was all because of this terrible, awful negro.

Voices [2:22]

Oh dear, it was the Dukes. It was the Dukes. You're a dead man, Valentine. It wasn't an experiment.

Voices [2:33]

They used us as guinea pigs man.

Voices [2:38]

Dukes used us as guinea pigs. See how our lives would turn out. They made a bet.

Voices [2:43]

Afraid. It's true, sir. I believe in Louis.

Voices [2:47]

The Dukes ruined my life over a bet For how much A dollar? One dollar?

Mostly Uncle Frank [3:02]

Today it is time for our annual reviews of the eight sample portfolios you can find at wwwriskparityradarcom on the portfolios page, as well as some general commentary.

Voices [3:16]

You are talking about the nonsensical ravings of a lunatic mind.

Mostly Uncle Frank [3:21]

So if you're looking for answers to emails, you will not get them today, just lots and lots of numbers.

Voices [3:28]

I'm thinking about buying this book on counting Three, four. What's going to happen next? Five, holy, super happy fun time. This book's good, I'll take it.

Mostly Uncle Frank [3:42]

But before we get to those, let me just give you a few musings about crystal balls and other things.

Voices [3:49]

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

Mostly Uncle Frank [3:54]

One thing you see from financial media and newsletter writers and all those sorts of people this time of year is some kind of pronouncement based on the year that had just gone by.

Voices [4:06]

You can actually feel the energy from your ball by just putting your hands in and out.

Mostly Uncle Frank [4:12]

And how that indicates we're in some kind of new paradigm that is going to be exactly the same as some historical paradigm or outcomes.

Voices [4:22]

It's kind of looking at the aura around the ball. See the movement of energy around the outside of the ball. See the movement of energy around the outside of the ball.

Mostly Uncle Frank [4:28]

And of course, these pronouncements are almost always wrong, Wrong. But you can bet whenever somebody guesses right on something, they're going to crow about it probably for the next two decades or more.

Voices [4:40]

You're that smart. Let me put it this way have you ever heard of Plato, Aristotle, Socrates?

Mostly Uncle Frank [4:46]

Anyway. So two years ago, at the end of 2022, the popular new paradigm narrative was that we're going back to the 1970s. See, we had high inflation and we're going to have high inflation for the next eight years at least, and interest rates will be 8% by 2023 or 2024. And, of course, that has not worked out that way Wrong. This year's most popular new paradigm story seems to be this is just like the end of the 1990s. The AI revolution is just like the dot-com bubble and, see, this is just like, say, 1997 and 1998. So we're going to have a dot-com bubble or AI bubble crash any time soon here. Of course, even in that era, the party went on for another couple of years, so that probably is not a good basis for predicting anything either.

Voices [5:40]

Right Wrong.

Mostly Uncle Frank [5:42]

The most recent one I heard, though, though, was this is just like 1952, because the last time we had such a bad december and no santa claus rally, it was 1952, and I'm sure there'll be somebody out there who's drumming up some story about how this is parallel to the 1950s oh boy is this great but looking back at the past year, you could see how a lot of popular predictions in crystal balls are just wrong, all the time Wrong.

Mostly Uncle Frank [6:14]

For instance, we had very high CAPE ratios at the end of 2023. So where was the crash in 2024? It wasn't there. It doesn't work that way. That's not a good predicting device.

Voices [6:25]

Forget about it.

Mostly Uncle Frank [6:28]

These are supposed to be bad years for something like gold, because real interest rates are positive, so gold was supposed to go down or be mediocre last year. In fact, it was one of the best performing assets last year. So what does that tell you about that crystal ball? So what does that tell you about that crystal ball? I had an email in my inbox recently. That was obviously a promotion that was supposed to be sent out, or was sent out six or eight months ago. It said something to the effect of in August there's going to be this meeting of the BRICS countries and they're going to form this new currency and the dollar is going to be kaput Starting in August. August 7th, I think, was the date they gave, and of course, that didn't happen either.

Mostly Uncle Frank [7:12]

Wrong Wrong, in fact. I know of almost nobody that predicted 2024 would work out the way it actually did, but I'm sure there's somebody out there that's been wrong for a decade that got 2024 right and is now saying look, predicted it, I just had to wait 10 years. What you really should take away from recent history is not that it is predicting or foretelling some kind of a predictable future, but that history does not repeat, but it does rhyme. So it is almost always possible to look at a past year in markets and find a similar year in some historical record. And what is that telling you? That tells you that actually the historical data is pretty good at giving you the range of likely outcomes for any given future year, because whatever you're getting has happened before. Life was like a box of chocolates. But it's also telling you that those years or possibilities are not going to come in the same order, so there's no point in really trying to guess which one comes next.

Mostly Uncle Frank [8:23]

You never know what you're going to get. There was an interview of Morgan Housel recently. He's written the Psychology of Money and another recent book called Same as Ever, which is kind of about this topic. But basically he was musing that the best prediction that you can make about the future is to simply use the base rates from the past Not that you think they're going to be right. Use the base rates from the past Not that you think they're going to be right, but they'll be less wrong than other predictions.

Voices [8:49]

Surely you can't be serious.

Mostly Uncle Frank [8:51]

I am serious and don't call me Shirley and this is also a factor of just good decision making in general. You should always start with base rates. When you are trying to predict the success or failure of something, whether it's the stock market or opening a restaurant or getting involved in an MLM operation, there are base rates for all of these things, and your outcome is likely to be similar to that base rate, or at least you should start with that. If you're trying to predict what the likely outcome of anything is going to be and so he observed that if you're trying to predict what the likely outcome of anything is going to be, and so he observed that, if you're trying to predict whether the stock market goes up or not next year, there's about a 70% chance that it'll go up next year, and just saying that will get you less wrong than almost all other predictors, because that is in fact the historical record. It goes up about 70% of the time.

Voices [9:41]

I did not know that. I did not know that percent of the time.

Mostly Uncle Frank [9:47]

I did not know that. I did not know that. So that led me to thinking about a 100% stock market portfolio or a stock market and cash portfolio or a 60-40 kind of portfolio. What are the odds of that kind of portfolio going up or down? And comparing that to a risk parity style portfolio like the golden butterfly or golden ratio we talk about around here, and there are actually some nice little histograms over at portfolio charts that lay out this data at least since 1970, that's interesting to look at and gives you that exact figure. But I also like to translate that into the base probabilities of rolling a roll on two dice, because I think that's more familiar to most people who've played games where you roll two dice Craps.

Voices [10:31]

Shake them up, shake them up, shake them up, shake them.

Mostly Uncle Frank [10:35]

So if we think about the base rate probabilities in those terms, a 100% stock portfolio or something that stocks in cash or 60-40 or 70-30 or something like that, does tend to have that 70% probability of success which, converted into dice rolls, means that if you roll a 6 or higher, that is a successful year and if you roll a 5, that's probably just a mediocre year. If you roll a 3 or a four, that is like having a recession. Morgan House will observe that you get recessions once or twice a decade and that's like rolling a three or a four on a set of two dice and that's actually not the least probable event, the least probable events of, say, rolling snake eyes.

Voices [11:21]

Ah, 88 teeth Hammerhead, oh no, pussycat, pussycat, puss. Batman, doubleheader, pickle puss, pumpkin head, neon noodle, jokebox, jaw Wolfman, ruff, ruff, ruff, ruff.

Mostly Uncle Frank [11:44]

That is like 2022. You only see years like that about once every 40 years because they require a peculiar set of circumstances and action by a central bank. So how does that compare with something like a golden butterfly or golden ratio portfolio? In terms of the odds, well, those kind of portfolios tend to only have down years about. In terms of the odds, well, those kind of portfolios tend to only have down years about 20% of the time. So they're 80% positive, which means, instead of getting a negative return when you roll a five, you get a positive return or something close to zero, and you're only really getting negative returns on twos, threes and fours. Now it's also true that the variance is just much lower overall, so that out of that 80% success, less than 10% of the time you would see greater than a 20% return, and so 70% of the time, you see something between 0 and 20, which around 10 is the most common outcome in any given year. And so when we get to the portfolios, you'll see that we had very average years or slightly above average years for most of these portfolios, at least the ones we care about.

Mostly Uncle Frank [12:55]

The experimental ones were all over the place, so in a sense, it was like rolling an eight or a nine this year, if you want to put it in terms of rolling those two dice. It was on its way to being an exceptional year until December, and December was actually one of the two worst months of the year for just about everybody's portfolio. I think the other one was April, and so it tended to put a damper on things Bring out your dead. Bring out your dead out today. So now let's turn to these numbers and talk about kind of which things perform the best and which things perform the worst. Of the things we typically use in some of these portfolios, the best performer last year was indeed large cap growth stocks, so anything that had exposure to the MAG-7 did better than something that didn't. It was really that simple for the most part, and our representative fund, vug, was up 32.69% for the year.

Mostly Uncle Frank [14:02]

Now it's interesting if you do look at the sector makeup of things. If you went to the sector funds or subsectors, there were a lot of things that were kind of all over the map last year. So technology did really well, but something like health care did really terrible. Utilities did well, reits were terrible, so it wasn't necessarily all the growth things that did the best last year. As some of you and I talk from time to time that as part of our value allocation, we invest in insurance companies property and casualty insurance companies. That's what I really learned from Warren Buffett, and those had a banner year last year. A representative fund, kbwp, was up 30.46%, and those are value stocks. So, though I would say that it looks pretty clear on the surface that large cap growth was the place to be last year, when you go underneath the surface there were different pockets of different things going on and a lot of performances that were a little bit difficult to explain. The next best performer last year was gold.

Voices [15:05]

I love gold.

Mostly Uncle Frank [15:08]

Our representative fund at GLDM was up 27.08%. Now, as I mentioned before, most people who tried to predict the price of gold thought it would not do well, and I think I read somewhere that this is like the first year that both the S&P 500 and gold were up over 20% at the same time. Well, that can happen when you have uncorrelated assets, because you can get any combination from both bad to both good to completely different.

Voices [15:37]

You never know what you're going to get.

Mostly Uncle Frank [15:40]

But it was a good thing to own last year. Just don't think that it's going to have a year like that every year now. There's no new golden paradigm out there either.

Voices [15:49]

Forget about it.

Mostly Uncle Frank [15:51]

Next, looking at the NASDAQ and S&P 500. Representative funding to QQQ is up 25.58% for the year and representative fund VOO is up 24.98% for the year, and those had a lot of overlap with large-cap growth and so that's why they did particularly well Moving down this list. The next one I have that we use in some of these funds is the fund USMV, which is basically a low volatility fund. It's a large cap blend that leans towards value mostly, and it was up 15.75% for the year. Next best on this list was KBA, which is something we only hold in the risk parity ultimate portfolio as an example of a very diversified foreign holding that invests in domestic Chinese stocks. It was up 15.69% for the year, which is actually much more than typical international stocks, but it's much more diversified from the US than a typical large-cap international fund.

Mostly Uncle Frank [16:57]

Moving down this list, the next one we have for performance purposes was PFFV, which is the preferred shares fund that we use. It was up 9.45% for the year and over 7% of that was actually paid in qualified dividends. So if, for some reason, you were looking for income and you're in a high tax bracket, that would be something that would be something you'd want to think about. The next best performer on this list was small cap value fund, viov, which was up 7.44% for the year. It was up a lot more until December the year. It was up a lot more until December. The Avantis Fund, avuv, which is small cap value with a profitability filter over it, actually did a little better and was up 9.28% for the year.

Mostly Uncle Frank [17:45]

Moving down the list again, the next one on our list was DBMF, the Managed Futures Fund. That one was up 7.25% for the year, which is a very average performance for a fund like that. Then below that we have another reference fund, vxus, which is the Vanguard Total International Fund. That one was up 5.08% for the year and although this is only one year, I think this kind of illustrates why that probably is not an optimal holding.

Mostly Uncle Frank [18:16]

That if you want something international, you probably want something that is more diversified than large multinational companies that dominate both the total US and total international indexes. And to the extent you wanted a value tilt, which is what a total international stock market fund is offering you, you'd probably be better off just using value tilted funds, whether they are domestic or international. So to the extent you have something like that in your portfolio, there is probably something else out there that would be a better candidate to occupy that space, and you have a lot more choices today than you did 15 years ago, when that recommendation became popular. And now, getting down to the dregs the commodities fund PDBC was up 2.08% for the year. That also corresponds to falling energy prices generally. The energy sector in the stock market did not have a good year either, and then the worst performer was long-term treasury bonds. Representative fund VGLT was down 6.29% for the year, and if you had other bonds, they were probably down 0 to 5% or maybe up a 1%. Now that sounds terrible, doesn't it?

Voices [19:38]

Like a garbage truck dropped off the Empire State Building.

Mostly Uncle Frank [19:45]

But I also want you to think about something that means they had a negative correlation to stocks last year, which I have to laugh about, because I still hear people saying well, you know, treasury bonds are positively correlated with stocks. Now they were in 2022, and that means there's a new paradigm and this is going to be the way it is, at least for the rest of the decade, just like the 1970s.

Voices [20:09]

Now the crystal ball has been used since ancient times. It's used for scrying, healing and meditation.

Mostly Uncle Frank [20:19]

Well, it hasn't played out that way either.

Voices [20:22]

Now you can also use the ball to connect to the spirit world.

Mostly Uncle Frank [20:27]

What all of this does show is that there is indeed a high level of diversification going on across all of these asset classes, which is why we are holding a broad mix of them.

Voices [20:39]

A really big one here, which is huge.

Mostly Uncle Frank [20:45]

All right, now let's take a look at some of these portfolios. First one is our reference portfolio, the all seasons. This is a what you would call a traditional risk parity portfolio, which is heavy in bonds and so it's only 30% in stocks and we use total stock market fund VTI for that. It's got 55% in intermediate and long-term treasuries, which is 40% VGLT, the long-term fund, and 15% VGIT, which is intermediate treasury bonds, and the remaining 15% of this was split between gold and commodities, so 7.5% each in GDLM and PDBC. So it was up 7.11% for 2024, which included losing 3.11% in December, and it's up 8.74% since inception. In terms of distributions, we'll be taking $31 from cash for January and it will have taken $1,721 out of it since inception in July 2020, and a total of $367 out of it in 2024. So I thought it'd be interesting to compare this with commercial risk parity funds because in theory, they have the same kinds of makeups, except this one's just a whole lot simpler than commercial preparations, and this one actually did better than most other commercial preparations. There is one at Fidelity now called FAPSX, which is their risk parity mutual fund. They started a year and a half ago. I think that one was up 6.87% for the year, so it was less than this all seasons portfolio, probably because of the fees in it.

Mostly Uncle Frank [22:32]

Now there are a couple other ETFs that we've talked about from time to time, called RPAR and UPAR, which we first began talking about in episode 31. And those did not have a good year. Last year. Rpar was up 0.07% for the year and UPAR was down 2.24% for the year, and, as we've talked about before going all the way back to episode 31, I just think those constructions are trying to be too clever by half. They're trying to use natural resource-based stocks, like oil companies, as a substitute for commodities or managed futures. That hasn't worked out very well. They've got allocations to tips. That haven't helped them. That hasn't worked out very well, and so it's interesting that this extremely simplistic all seasons portfolio has actually outperformed all three of these commercial preparations of risk parity portfolio funds. So score one for DIY investing and keeping your fees low.

Voices [23:33]

Yes.

Mostly Uncle Frank [23:34]

But now let's move on to what we call our bread and butter portfolios, things that we would actually use in a retirement scenario, as they have higher safe withdrawal rates than something like a traditional or academic risk parity portfolio like the ones we've been talking about. So the first one here is the golden butterfly about. So the first one here is the golden butterfly. This one is 40% in stocks in a total stock market fund VTI, and a small cap value fund, viov. It has 40% in treasury bonds, divided into VGLT, which is long duration treasury bonds, and SHY, which is short, and then 20% in gold in fund GLDM. It was up 11.01% for the year, including dropping 3.44% in December, and is up 33.79% since inception in July 2020. It will be taking $45 from cash accumulated for the January distribution. That'll be $2,346 since inception July 2020 and $523 for 2024. So this one's only 40% in stocks. So there are a few things we can compare it to. One is the fund AQRIX, which is a multi-strategy fund from AQR and Cliff Asness. That was up 10.92% for the year and is way more complicated, but has a similar risk profile overall to this and it's interesting to see they were about the same. Of course, aqrix has a much higher fee attached to it, which again is why you want to DIY these things now that we can DIY them with inexpensive ETFs. Now we can also compare this with the Vanguard Wellesley Fund and the Vanguard Wellington Fund, because it's kind of in between, although it's closer to the Wellesley Fund in terms of the percentage of stocks in it and the Vanguard Wellesley Fund, vwiax was up 5.97% for the year and that only has about 35% in stocks in it. And the Vanguard Wellington Fund, which is VWENX, was up 14.86% for the year and that is 65% in stocks and is also very similar to a 60-40 portfolio. A representative fund of VBIAX was up 14.59% for the year. Now, in terms of risk profile, the golden butterfly is more like the Wellesley fund than the other two, because 40% in stocks is closer to 35 than it is to 60 or 65. And you can see it greatly outperformed the Wellesley fund by about 5%. It underperformed the 60-40 or the Wellington, but it took a lot less risk in doing so and that's the trade-off you have, in particular this fund, since it has 20% in short-term treasury bonds, that is essentially a risk-free asset for all intents and purposes. So you're really only taking risk with 80% of this portfolio. So we can say, overall it does what it's supposed to do and we have actually been withdrawing at it at a 5.2% rate if you take all the distributions over time, and so that's pretty good for something that's only 40% in stocks.

Mostly Uncle Frank [27:03]

Moving to the next one, the golden ratio, as I mentioned in the past episode and a month ago and a couple years ago, we did slightly change the makeup of this portfolio on December 31st of this year, and the changes were to take out the REIT fund that had been 10% of the portfolio and insert a managed futures fund, dbmf, for REET. And then the other thing we did simultaneously was sell the low volatility fund, that USMV fund, and put all of that money into the two other stock funds that are in there, which are a large cap growth and a small cap value fund. And this is mostly because I wanted it to look more like what we actually hold in our personal portfolio. And the old sample version wasn't quite the same thing, although it was close. And the old sample version wasn't quite the same thing, although it was close. So this portfolio is currently comprised of two stock funds 21% in VUG, the large cap growth fund, and 21% in VIOV, the small cap value fund. So it still has 42% in stocks.

Mostly Uncle Frank [28:10]

It just doesn't have anything in USMV anymore. It has 26% in VGLT, which is a long-term treasury bond fund. That has not changed. 16% in gold GLDM that has not changed. And then we've substituted DBMF, the managed futures fund, in for the 10% that used to be in the REIT fund R-E-E-T. And then we still have 6% in a money market fund in cash, where we take all the distributions in this version of this portfolio, and so it was up 11.06% for 2024, almost the same performance as the golden butterfly, and that includes being down 4.15% in December. So it would have been up 15%. Tough luck in December. It's up 29.99% since inception in July 2020. We'll be distributing $43 out of cash for January 2025. That'll be $2,304 since inception. I should say that all of these started with $10,000 when we started or almost all of them. I know this one did, and that'll be $509 distributed for 2024.

Mostly Uncle Frank [29:25]

This one has a slightly higher risk profile than the golden butterfly, mostly because of that 20% in short-term treasuries in the golden butterfly, which is similar to the 6% in cash in this portfolio. So you would say this one has a greater exposure to risk assets and did not perform as well on a risk-adjusted basis. That is primarily due to the fact that it had a lower exposure to large cap growth than the golden butterfly did last year and a lower exposure to gold than the golden butterfly did last year. But it was ahead of the other one for most of the year, until December. But both of those are kind of in the sweet spot of a simple portfolio that you could use to generate a higher safe withdrawal rate in retirement when you're decumulating from a portfolio.

Mostly Uncle Frank [30:15]

And now moving to our next one, the risk parity ultimate. This is kind of our kitchen sink portfolio that we put in more things than it really needs, just to have examples of things that people might use in these kind of portfolios, even though I would doubt anybody would need to have all of these things in their portfolio. This was actually the best performer of these portfolios for 2024. It's up 13.18%, but let's go through what it actually holds, since we don't do this that often.

Mostly Uncle Frank [30:48]

As far as stocks are concerned, this starts with 10% in the large cap value fund, vug, and also 5% in UPRO, which is the levered S&P 500 fund, so that acts more like 15% in a portfolio and basically gives you an exposure of about 25% to growth-tilted large-cap stocks. Now, on the value side of things, we have a 15% exposure to the small-cap value fund, viov. We also have a 5% exposure to USMV, that low-volatility fund we talked about, and we have a 5% exposure to REITs in the form of REET, and so that value exposure kind of balances out. And we have a 5% exposure to REITs in the form of R-E-E-T and so that value exposure kind of balances out the growth exposure we have. There are also a couple other funds in here. One is KBA, which gives an exposure to Chinese A shares or domestic Chinese shares. So it's extremely diversified from the US assets and has been a pretty bad performer over the past few years, although it was fine last year it was up over 15% for the year. And we also have an exposure to PFFV, which is the Preferred Shares Fund. So that's technically stocks but it behaves like bonds much of the time.

Mostly Uncle Frank [32:14]

Now, moving to bonds, we have two exposures. One is VGLT, the long-term treasury bond fund. There's a 15% exposure to that and then 5% in TMF, the levered long-term treasury bond, which gives an effective exposure to long-term treasuries of about 30%. You can see there's a little bit of leverage in this portfolio.

Mostly Uncle Frank [32:39]

But now let's move to the alternatives, where we have five things going on in here. One is a 15% exposure to GLDM that's gold. One is a 10% exposure to DBMF, the Managed Futures Fund. We also have a 3% exposure to BTAL, which is a long short fund that goes long value stocks and short growth stocks, and then two exposures to cryptocurrencies a 1% allocation to Bitcoin and a 1% allocation to Ether. Those are currently in a separate Fidelity crypto account, but I think when we rebalance this in July, we will get rid of those and put in ETFs so we can put this all in one place again and then we won't have to be monkeying with multiple accounts for that.

Mostly Uncle Frank [33:29]

So, as I mentioned, this one was up in total 13.18% for 2024, and that includes being down 4.16% in December.

Mostly Uncle Frank [33:40]

So it was up over 17% before that and it's up 20.73% since inception in July 2020, although we have changed the composition slightly over time, since we use this as a something-of-every everything kind of portfolio, it did benefit substantially from those crypto holdings, which are up over 100% each, and we took some nice distributions from them over time, maybe taking some in the future, but for now there's enough cash built up that we're taking 39% from cash for January of 2025.

Mostly Uncle Frank [34:14]

It'll be $2,489 total and $463 for 2024. I think what's most interesting about this portfolio is its high tracking error to any other comparison portfolio, since it has so many differences in it. So I do expect it'll do just as well or better than the golden ratio or golden butterfly portfolios over time. But it's not going to exhibit that behavior in any predictable manner, and that's because the number of its components are highly volatile, including those 5% allocations to the levered funds, the allocation to the Chinese shares and the allocation to the cryptocurrencies. It is kind of funny, now that BlackRock has cryptocurrency funds that it's been touting, it is now recommending people hold one or two percent in cryptocurrencies in their base portfolios. But the times they are a-changing.

Voices [35:09]

And don't criticize what you can't understand.

Mostly Uncle Frank [35:14]

Now moving to these experimental portfolios, the ones you're not supposed to try at home, but I know some of you do.

Voices [35:21]

You have a gambling problem.

Mostly Uncle Frank [35:24]

These were on their way to a very banner year until December, and they lost in most cases a third or a half of their value just in that month. These all involve leveraged funds in various combinations and duly illustrate why you probably do not want them in your retirement portfolio, although I know some of you have been very successful in accumulating with them.

Voices [35:47]

Well, you have a gambling problem.

Mostly Uncle Frank [35:51]

So going to the first one, the accelerated permanent portfolio. This one is 27.5% in a levered bond fund, tmf. 25% in a levered S&P 500 fund, upro. 25% in PFF, a preferred shares fund. We have not flipped that to PFFV yet and will not do that until it rebalances. And the remaining 22.5% in gold, that's in GLDM. It was up 10.79% for 2024, but that also includes being down 7.49% in December, which was a really bad month for this portfolio. Overall, it's up 1.53% since inception in July 2020. We'll be taking $37 out of it from cash for January and that'll be $2,668 since inception in July 2020, and $451 for 2024. We're currently withdrawing from it at a 6% annualized rate. We had started at 8% but have dropped that to 6% until it fully recovers, if it ever does. Moving to the next one, this is our aggressive 50-50. This is the least diversified and most levered of these portfolios. It is designed to be similar to Hedge Fundy's Excellent Adventure, which I know is a popular experimental portfolio out there on the interwebs.

Voices [37:17]

And it's gone. Uh, what it's gone, it's all gone.

Mostly Uncle Frank [37:23]

And it similarly has struggled mightily in the past couple of years. Here it is one-third in a levered stock fund Upro. It's a levered S&P 500 fund, one-third in the levered stock fund Upro. It's a levered S&P 500 fund, one-third in the levered bond fund, tmf, and the remaining third divided into PFF, vea Preferred Shares Fund and VGIT, an intermediate treasury bond fund, and those kind of just act as ballast for the two levered funds. It was up 8.46% for 2024, losing almost half its gains in September. It was down 7.95% in December and it's down 11.05% since inception in July 2020. We'll be taking $33 from it from cash for January. That'll be $2,702 total since inception in July 2020, and that should be $2,702 total. There's never too much to say about this other than you know it's got too much leverage and not enough diversification. At one point it was the best performer of all these portfolios, but it's been the worst one for quite some time now. I will be curious to see if it ever recovers its glory, but it may be some years. We are withdrawing from it at a 6% analyzed rate though, so that may have something to do with it, and it started at 8% when it was doing well, but it's not anymore. Now, moving to our next one, our next experimental one the levered golden ratio. This one's a year younger than the other ones that started in July of 2021. So that was actually one of the kind of worst start dates. You could have the latter half of 2021 for a retirement portfolio in this decade, given what happened in 2022.

Mostly Uncle Frank [39:05]

But this one is 35% in NTSX, which is a composite levered fund composed of the S&P 500 and treasury bonds of multiple durations, and it's levered up 1.5 to 1. The purpose of this portfolio was to try and construct something around that particular fund, so I don't really have any of those mixed asset funds in any of these other portfolios, but we should have one. It's also got 25% in gold GLDM, which helped it a lot last year. 15% in a REIT called O, which hurt it a lot last year. I think Realty Income Corp was actually down last year. That is a REIT that is pretty bond-like and it was down 2.11% last year. It does pay a dividend every month, so it's very reliable but not very exciting.

Mostly Uncle Frank [39:57]

This portfolio also has a levered small cap fund called TNA small cap blend fund, and then a levered bond fund, tmf, and the remaining 5% is in KMLM, which is a managed futures fund. It was up 10.79% for 2024. That includes dropping 7.09% in December alone and it is down 4.38% since inception in July 2021. And that is largely due to the small cap fund, tna, which, unlike UPRO, has not turned out to be a very good choice for levered funds, and I think part of the reason for that is based on the Russell indexes as opposed to an S&P 600 index or a different index. But we'll be taking $33 out of it as a distribution for January from accumulated cash. It's at a 5% annualized rate right now. That'll be $1,589 since inception, including $389 in 2024. So it's definitely been an underperforming collection of funds. But I think that part of it is also due to tracking error. But it's also why I kind of dislike trying to build things around these composite multi-asset funds like NTSX. I just think it's a more difficult job.

Voices [41:15]

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

Mostly Uncle Frank [41:17]

And the rebalancing becomes less effective with multiple assets contained in one fund that you can't rebalance itself. But now let's move to our last one, this newest one. We just started in 2024, the Optra portfolio One portfolio to rule them all.

Voices [41:35]

Frodo of the nine fingers and the ring of doom.

Mostly Uncle Frank [41:44]

This is designed to be a return-stacked portfolio if you're familiar with that term from Corey Hofstein and Resolve Asset Management. So we're taking a little bit of leverage in the stocks and bonds and then using that to support an addition of alternative investments in goal and managed futures. So overall it has an effective leverage of about 1.44 to 1. In terms of composition, it has 16% in the levered stock fund, upro it's a three times leverage S&P 500. 24% in a composite value tilted fund, avgv, which is worldwide and has both domestic and international value stocks of all sizes, from small to large, although it is more large tilted than small. Overall We've got 24% in GOVZ, which is a strips fund of US treasury bonds. So that has an effective volatility of about 1.5 to 1 if you were to compare it to a long-term treasury bond like VGLT or TLT.

Mostly Uncle Frank [42:55]

And the remaining 36% is divided into 18% in gold, gldm, and 18% in the Managed Futures Fund, dbmf. So this was only running for the last half of this year since July 2024. It was up 3.08% for 2024, but that includes dropping 5.29% in December. So it lost more than half its gains for the month. And there was no Santa Claus.

Voices [43:22]

No.

Mostly Uncle Frank [43:22]

Santa Claus.

Voices [43:24]

Did you ever hear of that terrible year way back before you were born? Terrible year way back before you were born, when santa claus took a holiday on the night before christmas.

Voices [43:42]

More it was a year without a santa claus, a a Christmas. He so sad.

Mostly Uncle Frank [43:54]

We will be distributing $50 out of it from cash for January. That's at a 6% annualized rate, and we will have distributed $310 from it since inception, including $260 for 2024. And that concludes our annual reviews. Sorry for so many numbers, but we do have to do this occasionally. This is pretty much the worst video ever made.

Voices [44:19]

Napoleon, like anyone can even know that.

Mostly Uncle Frank [44:24]

And we will get back to the emails in the next podcast. If you want to check all this stuff out, it's all going to be up on the website by the time this podcast goes out and so you can check out the details there. But if you just want to run these kinds of portfolios, I think the easiest way to backtest them is actually to go to Portfolio Visualizer or the new Testfolio site and you can plop them in there with whatever start dates you want and see how they run, at least as far back as the funds exist. I know Portfolio Visualizer now has a 10-year limit of data on specific tickers, at least in the free version, but Testfolio does not have that limitation and I suggest you check that out. But now I see our signal is beginning to fade.

Mostly Uncle Frank [45:13]

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 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, a follow, a review. That would be great, Okay, Thank you once again for tuning in. This is Frank Vasquez with Risk Parity Radio signing off.

Voices [45:50]

And he slept through the day as the hours ticked away and the time was growing near and the children, they cried. They thought Santa had died. Every eye shed a blue Christmas tear.

Voices [46:07]

It was a year without a Santa Claus a Christmas he so sad. It was a year without a Santa Claus, the worst we've ever had.

Voices [46:27]

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.