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.

Mary and 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.

Mary and 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 393. 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 Boring, yeah. Not much has happened really since the beginning of the year, At least not with respect to these portfolios.

Voices [2:01]

Looks like I picked the wrong week to quit amphetamines. But before we get to that, I'm intrigued by this how you say Emails.

Mostly Uncle Frank [2:12]

And First off. First off, we have an email from Anonymous European.

Voices [2:19]

I have no name.

Mary and Voices [2:22]

Well, that right there may be the reason you've had difficulty finding gainful employment.

Mostly Uncle Frank [2:27]

And Anonymous writes.

Mary and Voices [2:29]

Hi, I hold GOVZ in my Optra portfolio, but should I diversify the bonds to some European long-term bonds like MTH, since I am from Europe? Rather uncorrelated assets, although I don't know why. Also, you often make the point there is little use in large cap growth world versus S&P 500. Yet I never hear anyone suggesting to take large cap growth non-USA only Feels like the performance chasing argument is a little in there. You mentioned USA outperformance is a currency thing. Can you share some specific graphs? Okay, team, let's get to work. Can we fix it? Yes, we can.

Mostly Uncle Frank [3:11]

Well, some very interesting questions here, some of which I have good answers for and some of which I'm still wondering myself In. The still wondering myself is the question of whether a non-US person is better off using US treasury bonds in their portfolio as essentially their recession insurance, or long bonds denominated in either their currency or another currency, in this case the euro. Just for reference, the fund MTH is the Amundi Euro Government Bond Fund, which is 25-year plus duration bonds denominated in euro, and I know we've talked about this question before and I was kind of wondering in that other circumstance that had to do with bonds denominated in British pounds. But since then a couple of things have leaned me towards just using the US Treasury bonds for this purpose in these kind of portfolios, and the main one was a recent study done by Tyler at Portfolio Charts, which I will link to in the show notes, but it's also described nicely in an interview of him on the Happy Returns podcast, which is a podcast done by a couple of financial advisors in the United Kingdom and is Europe-focused, and a lot of that was about the use of gold in these kind of portfolios. But another thing that has emerged from that is that the bond market is kind of global now and really what happens during recessionary times is people run to US dollars and to US bonds. It's kind of the cleanest dirty shirt, at least to the extent they're not running to gold or something like that, and that seems to be true in just about any country you may be in. So I think, although I'm certainly not sure, that using US denominated debt in these kind of portfolios, where the purpose of the bonds is essentially recession insurance, makes sense and is likely to be better or get a better outcome than using bonds denominated in other currencies Although I'd have to say that the euro is probably a close second, since it's the next most popular currency in the world. But I would also go ahead and check the correlations, as it looks like you may have, between whatever fund you're thinking of using and the other assets in the portfolio, because that's really the mechanical or numerical test that you could run. So that's my thought on that.

Mostly Uncle Frank [5:50]

Now you also mentioned whether there should be an allocation in large-cap, non-us growth. Well, the problem with that is, these days there's so little of that out there when you think about it. It's just a couple of companies like Taiwan Semiconductor and ASML. But large cap growth these days is really centered in the United States with these Magnificent Seven and all these other related kinds of companies. But what I really think the process should be is getting away from worrying about where these large-cap growth companies are headquartered. But because they are worldwide-serving companies, their headquarters location matters a whole lot less than it would if it were some smaller company doing business in one country or one area of the world.

Mostly Uncle Frank [6:40]

And the problem is, when you look at a purely international large-cap growth fund like DILRX from Dimensional, you really see something that looks just like a total international large-cap tilted fund. So it's not really adding much there. And I'm not aware of any particular worldwide large-cap growth fund, although I'm sure there's something like that out there, at least in a managed form. I just haven't done the research on that Because in the end I think you can cover that essentially with a US large cap growth fund or even the S&P 500. As what the Motorin has gone on the record in the past year, saying that if you're in the S&P 500 today, that is essentially a worldwide fund due to the makeup of the largest companies in it and their worldwide businesses. And those are all of your big techers. Meta, meta, meta, meta, meta. We're going to talk about the metaverse, meta, meta, meta, meta.

Voices [7:42]

I thought I was supposed to be the robot.

Mostly Uncle Frank [7:45]

But if you want to check out DILRX, you can check it out. I'll do the link to Morningstar. It doesn't look like any great shakes, unfortunately. So there really isn't performance chasing in here per se. The question is exposure. I mean, what are you really getting exposure to in any particular fund? And if you're not capturing the worldwide large cap growth funds because you're excluding the United States from your fund, you're kind of doing it wrong, I mean you're taking a is possible.

Voices [8:23]

This is not the way that we are meant to use technology.

Mostly Uncle Frank [8:30]

That's a glimpse of the kinds of experiences that you might have in the metaverse. So at bottom, I haven't seen any good reason for picking up an international large cap growth fund to cover this relatively minuscule exposure relative to the US. Okay, moving to your last question. You mentioned USA outperformance is a currency thing. Can you share some specific graphs?

Voices [8:55]

Yes.

Mostly Uncle Frank [8:56]

Well, yes, I can. These are not hard to come by if you do a search of international versus US stocks and put currency in the search. You do a search of international versus US stocks and put currency in the search. But I found a really good one from Brandis, who puts out some funds and I will link to this in the show notes.

Mostly Uncle Frank [9:14]

It's got a nice graph going back to 1971, examining this phenomenon of the relative strength of the US dollar versus the relevant performance of the MSCI USA versus the MSCI EAFE, and so what you see on this graph is from 1971 to 1978, the dollar was falling in value versus foreign currencies, and so the international stocks outperformed the US stocks by 114.3%.

Mostly Uncle Frank [9:43]

From October 1978 to March 1985, the dollar was strengthening and the international stocks underperformed the US stocks by 61.8%. From 1985 to 1992, the dollar was weakening again, and so we saw the international stocks outperform the US by 71% in that time period. In most of the decade of the 90s August 92 to February 2002, that was an era of strengthening US dollars, and so the international stocks underperformed the US stocks by 150.2%. And then in that early decade of this century, from essentially 2002 to 2011, international stocks outperformed US stocks by 60.2%, and that was a falling dollar regime. And then, in the regime we're in now, which began in 2011, and this graph goes to 2022, we see that international stocks have underperformed US stocks by 205.7% on a strengthening US dollar over that time. So this phenomenon is clear, obvious, dramatic and persistent.

Voices [11:01]

That's the fact, jack. That's the fact, jack. And persistent. That's the fact, yeah, that's the fact, yeah.

Mostly Uncle Frank [11:05]

And if you are not aware of this and you are just holding US and international stocks, thinking there's a lot of magic diversification in there, you're probably doing it wrong, right Wrong, Because all of your diversification, or a great proportion of it, is simply coming from currency differentials. It amounts to a currency speculation.

Voices [11:29]

Ha ha, you fool. You fell victim to one of the classic blunders.

Mostly Uncle Frank [11:33]

Which is a form of diversification, but it's really not diversifying on the basis of the companies themselves, the kind of businesses they do and how they would perform in various environments. It's an artificial distinction and really pales between something like growth versus value, which is getting at fundamental characteristics of what kinds of industries these companies are actually in. What's funny to me about this is that people that ascribe to these simple three fund portfolios for the past 15 or 20 years either don't seem to be aware of this or they just find reasons to avoid learning the truth. You can't handle the truth. It's like they're sticking their fingers in their ears and yelling blah, blah, blah. I can't hear you about currencies, therefore, it doesn't exist.

Voices [12:26]

Mama said come here, blah blah, I can't hear.

Mostly Uncle Frank [12:29]

It does exist. That's why this works the way it does, and if you didn't know that before, now, you know it and you should use that information to adjust your portfolios accordingly.

Voices [12:42]

Blah blah, blah, blah, blah, blah blah. I hear a word. You say Blah, blah, blah, blah blah.

Mostly Uncle Frank [12:48]

Anyway, check out the link in the show notes. It's very instructive and very dramatic and thank you for your email.

Voices [12:56]

Blah, blah, blah, blah, blah, Blah, blah, blah, blah, blah, blah, Blah, blah, blah, blah, blah, blah, blah, blah, blah, blah, blah, blah, blah, blah, blah, blah blah. No, blah blah blah. Second off.

Mostly Uncle Frank [13:10]

No, blah, blah blah, Second off, Second off. We are going to move off of the continent and to the friendly shores of the British Isles.

Voices [13:18]

This was the charter, the charter of the land and God. The angels sang this name.

Mary and Voices [13:29]

We have an email from Paul, and Paul writes Hi Frank, I recently listened to episode 377 and wanted to ask for your thoughts on a couple of points, particularly from the perspective of a non-US investor. I completely agree with your response to the listener about the oversimplification of investing, especially when it disregards other principles. However, would your opinion be the same if the investor were based in the UK? As a UK investor, in the accumulation phase I've mainly invested in developed world indices. What if I were to follow your advice and Paul Merriman and add small cap value exposure?

Mary and Voices [14:07]

The challenge is that there aren't many small cap value funds or ETFs available to European investors, and the situation is even more restrictive in tax-advantaged accounts like SIPPs and ISAs the UK equivalents of 401ks and IRAs, where the options are even more limited. Access to small cap funds in SIPPs and ISAs, but none are value tilted and while there are value factor ETFs, none focus on small cap stocks. Given this, I'd appreciate your advice on the following. Back to the first question Should I focus on US or all world funds? As a UK investor when small cap funds aren't available, how would you suggest balancing small cap and value exposure? Final note I could invest in US-based ETFs, eg via interactive brokers, but that introduces tax complications and I couldn't hold them in UK tax-advantaged accounts, so I'm focusing on the scenario where small cap value funds aren't readily available. Thanks for your insights. Best regards, paul aren't readily available.

Mostly Uncle Frank [15:12]

Thanks for your insights. Best regards, paul. Well, it's a difficult question for me, since I'm certainly not up on what is available in terms of investments in various other countries. One place to look for this is actually on portfolio charts, because if you open a portfolio like the Golden Butterfly, change the country to Great Britain or some other country and then you can toggle the asset allocations that will give you sample funds that you might use in the portfolio. In this case, the recommended fund is one called ZPRX, which I think is denominated in euros. It's headquartered in Ireland At least that's the location of the fund and I'm wondering if you have access to that.

Mostly Uncle Frank [15:55]

If you do have access to US funds through interactive brokers or otherwise, I would go look at those Avantis funds. I think those are very good. I'm talking about funds like V E S for exposure to non-US small cap value and emerging market value. What I am going to punt a little bit here. I suggest you ask this question to the two gentlemen that run that Happy Returns podcast. They are financial advisors in the United Kingdom.

Mostly Uncle Frank [16:27]

If anybody knows the answer to this question in better detail and I certainly do I think it would be them. There is a link in the show notes from the last question as to their podcast, and you might just listen to that podcast where they're talking about Tyler's research in international space in terms of portfolio construction and safe withdrawal rates, and simply ask them how would I build one of these portfolios that he's talking about? And I'm sure they would be able to answer that and they'd probably be happy to answer that. But I'm sorry I can't give you much more than that suggestion and the ZPRX iShares fund, which I'll link to in the show notes. But that's all I got for you, at least right now, and thank you for your email.

Voices [17:32]

Last off.

Mostly Uncle Frank [17:35]

Last off an email from Ralph Class. In what year was 1 plus 1? The answer is the Amazing Ralph. And Ralph writes.

Mary and Voices [17:51]

Hello Frank, first-time listener, love the podcast and learning tons. My question is about 401A plan picking a portfolio. It appears everyone gets pushed into target funds and tickers we have to choose from are WWTAAX, rgvgx, rwmgx, picyx, vinix. I am 59 and a half years old. I have three pensions to fund retirement and this 401A with $275,000. Is it wise to roll over to an IRA or keep it? I'm going to retire at 62, work part-time and keep funding the 401A until 65. I hope to use it for inflation and a cost of living adjustment. Thanks in advance. This kid's finally paying off. All right, ralphie, let's see what you can do with 100.

Voices [19:01]

Come on, ralphie, big money Big money.

Mostly Uncle Frank [19:03]

Ralphie, well, this is interesting. You have a 401A plan. I assume that's not a typo. There is a 401A plan. I don't know very many people that have one. My eldest son actually has one and it's generally kind of this bonus retirement account that only the employer can put money into. Other than that, it kind of works like a 401K or a 403B. But I'm also wondering whether you are confusing 401A and 401K here, because you are talking about continuing to fund it and I'm not sure that you can fund a 401A directly. Maybe you can. I don't know all the rules for them. They're rare animals Unicorns, unicorns, unicorns yeah, I love you. Unicorns, unicorns, unicorns yeah, and all the things you do.

Mostly Uncle Frank [19:54]

Now getting more to your situation, I'm not sure I understand your situation well enough to say very much about it, and this is the reason you say you have three pensions to fund retirement in addition to this money. But what's not clear to me is whether those pensions in fact are going to cover all of your expenses. I expect that they will, or they need to, simply because an account with $275,000 in it is really not enough to fund much of a retirement by itself. But you also say that you plan to use it for inflation and COLA, which seems to me to indicate that you in fact don't need this money for your regular living expenses, but just want to have it there as an extra or backup fund. And the reason this is important is because you want to choose a portfolio that matches the purpose of the fund. So if you were never going to spend this money, that would imply one kind of portfolio. If you were going to spend it, say, all, in the first 10 years of retirement, that would imply a different kind of portfolio, and I'm not sure exactly what you're trying to do with this, which makes it difficult for anyone to say well, you should do this, that or the other. We can make an assumption that you kind of just want the money to last, want some growth in it, but don't want a whole lot of volatility in it, in which case you do end up with like a standard kind of retirement portfolio or risk parity style portfolio. If you were going to spend it in the near term, it would be mostly cash and short-term bonds. If you were never going to spend it, it would be 100% stocks. So you can see why that matters.

Mostly Uncle Frank [21:37]

Now I did not look at all of these funds because, frankly, most of them are kind of expensive. You've only got a couple that are really cheap Vanguard funds. Vinix is the S&P 500. Vscix is a Vanguard small cap fund, small cap blend, and then there's VBTLX, which is a bond blend. Now if you wanted to try and maximize your returns, being willing to take a risk that you could have a market crash, you would put all the money in VINIX and or VSCIX, although I wouldn't put too much in there because it includes small cap growth in the small cap blend. So I'd make it mostly VINIX, kind of ignore these other funds because they just looked too expensive to me. Well, I didn't spend a whole lot of time with them.

Mostly Uncle Frank [22:27]

If you wanted to have something that looked more like kind of a standard retirement portfolio in a basic sense, you would do 60% in VINIX or some smaller portion of that, and then fill up the rest of the 60 with the VSCIX. Again, I probably wouldn't use more than 10 or 20% of that, and then the 40% would be the VBTLX, which is a total bond fund, which is not bad, but it's not ideal either. It's the best you could do 15 or 20 years ago. I would definitely roll this to an IRA when you have the opportunity. I doubt you will have that opportunity until you actually leave employment there, but maybe you do. You need to talk to your retirement plan administrator about what the options are there, because, yes, this is not a very good selection of funds to choose from, and it's going to be easier and better if you roll the whole thing to an IRA, like at Fidelity, and then just pick the ETFs you want. You can pick anything you want, and then you won't have to be fiddling around with these funds, which aren't that great anyway. So that would be.

Mostly Uncle Frank [23:36]

My preference is, yes, to roll this over to an IRA and then pick the kind of funds you want, based on what the ultimate purpose is for this money. Now, if you really wanted a, set it and forget it I don't even want to think about this at all then I would roll the whole thing to Vanguard and put it in the Vanguard Wellington Fund, and that is a 65-35 stock and bond fund that is tilted towards large cap value. It's been around for 90 years or so and that will continue to grow and won't be too volatile. It'll be just as good or better than most portfolios constructed by most financial advisors and that may be appropriate in your case, since this amount you're talking about now is not a really large amount, because right now you could only withdraw about $15,000 a year out of it safely. So those are my suggestions or musings as it safely. So those are my suggestions or musings as it stands. Hopefully that helps and thank you for your email.

Voices [24:38]

Compassionate, tough, curious these are all words Ralph Wiggum doesn't know. But he doesn't need to know them he lives them every day. And now for something completely different.

Mostly Uncle Frank [24:58]

And the something completely different is our weekly portfolio reviews. And the something completely different is our weekly portfolio reviews Of the eight sample portfolios you can find at wwwriskpartyradarcom on the portfolios page. Cutting up my sleeve, presto, I'm going to modify the data provided slightly this year on this. Instead of trying to do these weekly performances, I am simply going to give you a monthly performance and a year-to-date performance, mostly because it's just a lot easier for me to get that off of Fidelity than have to actually calculate something.

Voices [25:34]

It's not that I'm lazy, it's that I just don't care.

Mostly Uncle Frank [25:38]

I'm also going to reference actual funds for the S&P 500 and NASDAQ, as opposed to the indexes which we'll be using, voo and QQQ. Although QQQ is really the NASDAQ 100 and not the complete NASDAQ, it's close enough and I'm sure this is of interest to only a very small proportion of you, since this is the least interesting thing to listen to, probably in your podcast week. This is pretty much the worst video ever made and the people who are really interested in it will go look at it on the website for the same information as there, anyway in written form, but just getting to it. Since the beginning of the year, the S&P 500, represented by VOO, was down 0.48% year-to-date. The NASDAQ, represented by the fund QQQ, is down 0.79% year-to-date. Small cap value, represented by the fund VIOV, is one of the big losers. It's down 2.52% year-to-date. Gold is one of the big winners. However, a representative fund, gldm, is up 3.29% year-to-date. Long-term treasury bonds, represented by the fund VGLT, are another loser. So far, they are down 2.13% year-to-date. They are down 2.13% year-to-date.

Mostly Uncle Frank [27:01]

Reits are the worst of this collection. Our representative fund REET, is down 3.05% year-to-date. Commodities are the big winner. Representative fund PDBC is up 3.54% year-to-date. Preferred shares, represented by the fund PFFV, are down 0.09% year-to-date and our managed futures managed to have a good start to the year. Representative fund at DBMF is up 2.33% year-to-date. So the stocks and bonds are all having a rough time and all the alternatives are dancing and chanting. Happy New Year.

Voices [27:38]

Merry New Year. Ha ha, ha, ha, ha ha.

Mostly Uncle Frank [27:48]

Moving to these portfolios, they really didn't move that much. First one's the all seasons. This is 30 in stocks and a total stock market fund, vti 55 in intermediate and long-term treasury bonds and 15 in gold and commodities. It was down 0.18 month% month-to-date and year-to-date and is up 8.37% since inception in July 2020. Moving to these kind of bread-and-butter portfolios, first one's gold and butterfly this one is 40% in stocks divided into a total stock market fund and a small cap value fund, 40% in bonds divided into long and short-term treasury bonds and 20% in gold. It is up in January. It is up 0.07% in January so far and it's up 34.01% since inception in July 2020. I told you this was going to be boring.

Voices [28:38]

I'm putting you to sleep.

Mostly Uncle Frank [28:40]

Next one's the golden ratio. I'm putting you to sleep. Next one's the golden ratio. This one is 42% in stocks, divided into a large cap growth fund, vug, and a small cap value fund, viov, 26% in long-term treasury bonds, 16% in gold that's GLDM 10% in a managed futures fund, dbmf, and 6% in a money market fund. It was up 0.08 for the month of January so far and it's up 30.05% since inception in July 2020. Next one's a risk parity ultimate, which we use as kind of a kitchen sink to throw things and see what they do. So I'm not going to go through all 15 of these funds. It was down 0.20% so far in January. It's up 20.53% since inception in July 2020. Now, moving to these experimental portfolios where we do hideous things with leverage, you have a gambling problem.

Mostly Uncle Frank [29:37]

These all involve leveraged funds. First one's the accelerated permanent portfolio. This one is 27.5% in TMF, a levered bond fund, 25% in UPRO, a levered stock fund, 25% in PFF, a preferred shares fund, and 22.5% in gold. It was down 0.17% in January so far and it's up 0.86% since inception in July 2020. Next one is the aggressive 50-50. This is the least diversified, most levered and worst performer of all of these portfolios, which wasn't always true, but it has been true for quite a while now. It is one-third in a levered stock fund, upro, one-third in a levered bond fund, tmf, the remaining third divided into Ballast in PFFV, a preferred shares fund, and VGIT, an intermediate treasury bond fund. It was actually the big loser of these last week. It was down 0.93% for the month of January, probably because it's got no alternatives in it, and it's down 12.74% since inception in July 2020.

Mostly Uncle Frank [30:47]

Next one's a levered golden ratio. This is actually the big winner of these portfolios so far this year. This one is 35% in a composite levered fund called NTSX, that's the S&P 500 and treasury bonds, 25% in gold, GLDM, 15% in a REIT O, 10% each in TMF and TNA, which are a levered bond fund and a levered small cap fund and 5% in KMLM, a managed futures fund. It is up 0.34% for January it's month-to-date and year-to-date but it's down 4.1% since inception in July 2021. It's got that bad start date going on for it. And finally, our last one and newest one, the Optra portfolio. One portfolio to rule them all.

Voices [31:43]

One ring to rule them all. One ring to rule them all, one ring to find them, one ring to bring them all and, in the darkness, bind them in the land of Mordor, where the shadows lie.

Mostly Uncle Frank [32:04]

This is the return stacked portfolio and it's 16% in UPRO. It's a levered S&P 500 fund 24% in AVGV, which is a worldwide value tilted fund, 24% also in GOVZ, a US Treasury bond strips fund, and 36% divided into gold and managed futures, gldm and DBMF. It was up 0.21% month-to-date and year-to-date and is up 3.12% since inception in July 2024. Still less than a year old. So, although the markets have been tumultuous already in January, the story here is move along. Nothing to see here or not much to see here.

Voices [32:53]

Forget about it.

Mostly Uncle Frank [32:54]

But now I see our signal is beginning to fade. If you have comments or questions for me, please send them to frank at riskparityradarcom. That email is frank at riskparityradarcom. Or you can go to the website wwwriskparityradiocom. Put your message into the contact form, the chat function, one of those things, and I'll get it that way eventually. 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.

Mary and Voices [33:23]

That would be great.

Mostly Uncle Frank [33:25]

Okay, thank you once again for tuning in. This is Frank Vasquez with Risk Parody Radio Signing off.

Voices [33:37]

And it's gone, Uh what?

Mary and Voices [33:39]

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