Voices [0:01]

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

Mostly Uncle Frank [0:10]

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

Mostly Mary [0:19]

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

Mostly Uncle Frank [0:37]

Thank you, Mary, and welcome to Risk Parity Radio. If you 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 [0:52]

Expect the unexpected.

Mostly Uncle Frank [0:55]

There are basically two kinds of people that like to hang out in this little dive bar.

Voices [1:00]

You see, in this world there's two kinds of people. My friend, you see, in this world, there's two kinds of people, my friend.

Mostly Uncle Frank [1:04]

The smaller group are those who actually think the host is funny, regardless of the content of the podcast.

Voices [1:12]

Funny how, how am.

Mostly Uncle Frank [1:12]

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

Voices [1:22]

Abby, someone Abby who Abby normal, abby someone Abby who?

Mostly Uncle Frank [1:27]

Abby normal, abby 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 [1:43]

The best, jerry, the best over a period of years.

Mostly Uncle Frank [1:45]

The best, Jerry, the best. 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. What we do is if we need that extra push over the cliff.

Voices [2:07]

You know what we do Put it up to 11. 11, exactly.

Mostly Uncle Frank [2:11]

But whomever you are, you are welcome here. I have a feeling we're not in Kansas anymore. But now onward, episode 422. 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 [2:35]

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

Mostly Uncle Frank [2:45]

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

Voices [2:51]

Hello.

Voices [2:52]

I'm Mr Ed.

Mostly Mary [2:54]

And Ed writes Hello Frank and Mary. I hope all is well and, as always, many thanks for the work you do for us DIYers. Always many thanks for the work you do for us DIYers. I'm looking over my risk parity ETF investments that I picked four years ago and kicking the tires to make sure they still meet my criteria for low expense ratio, asset size, abundant trade volume, etc. I've also included in my review Paul Merriman's best-in-class ETF work, which you mentioned in several episodes, eg 419, 411, and 404. My question is regarding commodities, where I hold 5% of my portfolio in PDBC. I found that the Aberdeen All Commodities Strategy ticker BCI fits my criteria and I'd greatly appreciate your opinion on it, as compared to PDBC, which I know you hold in the sample portfolios. I didn't see BCI anywhere in the RSS feed and Paul Merriman doesn't touch on commodities at all. Here's a summary for you and listeners with insomnia I'm putting you to sleep.

Mostly Mary [4:04]

BCI 8 years old. Pdbc 10 years old. Bci passively managed PDBC actively managed. Bci 0.26% expense ratio. Pdbc 0.59% expense ratio. Show BCI 1.4 billion in assets, pdbc 4.3 billion. Bci average volume 600,000, PDBC 5 million. They both hold oil and gas, futures agriculture, base metals and treasuries with different allocations to each. Bci follows the Bloomberg Commodity Index with a 0.08 tracking error. Pdbc follows the Deutsche Bank Diversified Commodity Index whatever that is, lol with a 7.4 tracking error. Many thanks and have a blessed day, ed.

Mostly Uncle Frank [4:56]

Market drops five points, I'm glad my money's tied up in hay Well. First off, thank you for being a donor to the Father McKenna Center. As most of you know, we do not have any sponsors on this podcast. We do have a charity we support. It's called the Father McKenna Center. It supports hungry and homeless people in Washington DC. Full disclosure.

Mostly Uncle Frank [5:18]

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, as Ed has done here, and it's a pretty long line these days. It still goes back to February. Surely you can't be serious. I am serious and don't call me Shirley. So you can do that in two ways. Either you can give directly to the Father McKenna Center at their donation page, and I'll put that in the show notes, or you can go to our support page at wwwriskparadiocom and join our patrons on Patreon. Either way you get to go to the front of the line. But please do mention that in your email when you send it to me so I can have my crack team move you to the front of the line.

Voices [6:02]

We have top men working on it right now. Who Top men?

Mostly Uncle Frank [6:12]

Now getting to your email BCI versus PDBC. I did take a look at this. They do look pretty comparable overall. As you've mentioned, they follow different indexes. I think PDBC has outperformed BCI in the term of its lifetime, which actually isn't that long for either one of these things.

Mostly Uncle Frank [6:32]

I did also check BCI to see whether it issued a K-1 or not, and that is the irritating bugaboo about some of these kinds of funds although it's less common these days is that many of them are structured as partnerships and issue a K-1 form for tax purposes, which is really annoying to deal with. But I'm happy to report that BCI does no such thing and is designed, like PDBC, to avoid having to issue a K-1 and can just simply report it on the regular 1099. So yeah, this is certainly a viable option in this category. The other things you should consider is COM C-O-M, which we talked about in episode 99, if you want to go back there. That is a long-only commodities fund which seems to help it a little bit.

Mostly Uncle Frank [7:22]

And then I have segued out of commodities entirely, just so you know, in our personal portfolio and just put that into the managed futures category, because managed futures does cover at least some of the commodities. It doesn't have as broad a selection of commodities as most of these commodities funds and does not have as much exposure to the agricultural section Tina, you fat lard, come get some dinner. But it does kind of do the same job, especially when you're talking about performing well on an inflationary environment, which is really the job that commodities perform typically in one of these kind of portfolios.

Voices [8:07]

You had only one job.

Mostly Uncle Frank [8:10]

So I consulted the new pope and you have my blessing.

Voices [8:23]

While you two have been plotting and loving with each other, I have become king of the popes.

Mostly Uncle Frank [8:30]

For what that's worth.

Voices [8:32]

That and a nickel. Get your hot cup a jack squat.

Mostly Uncle Frank [8:38]

And thank you for being a donor to the Father McKenna Center and thank you for your email.

Voices [8:45]

What are we doing here?

Voices [8:48]

You promised you'd visit the Penguin the day you got out. Yeah, so I lied to him. You can't lie to a nun. We've got to go in and visit the Penguin.

Mostly Uncle Frank [9:00]

Second off. Second off we have an email from Joe, and Joe writes.

Mostly Mary [9:21]

Hello Frank and Mary. First off, thank you for sharing your wisdom and humor Cue Young Frankenstein.

Voices [9:28]

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

Mostly Mary [9:34]

Question about the cowbell small cap value, that is Guess what?

Voices [9:39]

I got a fever, and the only prescription is more cowbell, and the only prescription is more.

Mostly Mary [9:45]

cowbell Portfolio charts very strongly pushes small cap value in any analysis due to its dramatic 1970s 80s run. Can you walk through the benefits of small cap value in a risk parity portfolio? An ideal breakout of equities in a 50% equity, 50% alternative asset portfolio? Interesting article from Big Earn on the topic. Appreciate what you do and hope to follow in your footsteps one day.

Voices [10:10]

I'm telling you, fellas, you're going to want that cowbell.

Mostly Uncle Frank [10:15]

Well, we talked about this Big Earn article back in episode 401.

Voices [10:20]

I don't think it means what you think it means.

Mostly Uncle Frank [10:22]

And so, rather than rehashing that over again, I would direct you to go back and listen to that. It did come out around the same time you sent me this email, so I'm not surprised there's some overlap there. But, as I mentioned in episode 401, I think the debate there actually misses the whole point, because the debate going on there was between Big Earn and Paul Merriman about whether small-cap value will outperform in the future. In fact, it has outperformed in the 21st century. The 21st century.

Voices [10:55]

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

Mostly Uncle Frank [10:59]

You don't need to go back to the 70s or 80s to see that small-cap value has outperformed the S&P 500 since the beginning of this century. I did not know that. I did not know that, but that is addressed back in episode 401. What's important for us in this context is the diversification qualities of value stocks, in particular, in a risk parity style portfolio, and how they perform against growth stocks in different environments and, in particular, in negative environments for the stock market, because I'm not assuming, actually, that small cap value is going to outperform the rest of the market in the future. I'm assuming that it's going to have a similar performance, even though, as I mentioned, it's outperformed the S&P 500 in this century, just not in the past 10 or 15 years.

Mostly Uncle Frank [11:54]

But what we really care about is what happened most recently in 2022, when you saw the growth part of the stock market decline by over 30% and up to 50% with some of these tech stocks, whereas on the value side of the stock market, you saw anything from performances of about minus 10% to plus 10%, and that is a huge difference in terms of correlations and in terms of your ability to rebalance.

Mostly Uncle Frank [12:25]

But that is typical of what happens with the stock market that, when it is performing badly, value tends to outperform growth and therefore gives you a buffer, or cushion if you will, and reduces the overall volatility of the portfolio and then gives you a rebalancing opportunity.

Mostly Uncle Frank [12:44]

Because, obviously, if you were holding the value stocks in 2022, when the growth part of the stock market really crashed hard, you got to sell some of the value, buy the growth and then watch the thing take off again in 2023 and 2024. And that's really the kind of action you're looking for. So we don't care whether small cap value is in fact going to outperform the rest of the market. What we care about is the interplay between growth and value in the stock market. Primarily, it would be more accurate to say that it is most probable that small cap value will outperform large cap value over time and in the future, because large cap value is the most stable, easiest to price and lowest volatility and lowest return area of the overall stock market over long periods of time, unless you add some kind of quality factor to it or your name is Warren Buffett.

Voices [13:43]

I eat exactly what I like to eat. If I liked it on my sixth birthday, at my sixth birthday party, when we had hot dogs and hamburgers and Coke and ice cream with chocolate, I still like it and I don't care about anything. Subsequently, I discovered it all by the time I was six.

Mostly Uncle Frank [14:01]

So the basic playbook for the kinds of portfolios we're talking about here and what you see in the golden butterfly and the golden ratio portfolios in particular, it's most obvious is that division of the stock portion of the portfolio between growth and value, and then how you subdivide that on the growth side or the value side is more to taste of what you're really wanting or getting and how complicated you want it to be.

Mostly Uncle Frank [14:30]

The sample portfolios really look for the simplest formulation of this concept and to give you a little illustration of this, I did run a little portfolio visualizer analysis that goes back to 1972 of the US stock market, large cap growth and small cap value, and go look at that and look at the histogram for it, where it has the little bars that go year by year showing the relative performances and what you'll see in that. In a lot of the bad years for the total stock market or large cap growth, you see small cap value having a much better year or even a positive year, and so that's really what you're looking for out of value stocks and small cap value in particular when you're talking about including them in a diversified risk parity style portfolio.

Voices [15:18]

I gotta have more cowbell. I gotta have more cowbell.

Mostly Uncle Frank [15:21]

Because it's those uncorrelated performances that get you to higher safe withdrawal rates, at least out of the stock component of your allocation. And I think you're going to see the same thing when bill bangin's new book comes out this year, where he constructs better portfolios for drawing down on, and a lot of the better things that he puts in these portfolios are value stocks and small cap value stocks.

Voices [15:46]

That is the straight stuff. Oh funk master.

Mostly Uncle Frank [15:51]

And we can look forward to that in August, although lots of the bits and pieces of it are already out scattered around the internet. Hopefully that helps and thank you for your email.

Voices [16:01]

Babies. Before we're done here, y'all be wearing gold-plated diapers.

Voices [16:08]

What does that mean?

Mostly Uncle Frank [16:08]

Last off Last off, we have an email from Jack.

Voices [16:24]

Wendy.

Mostly Uncle Frank [16:26]

I'm home and Jack writes.

Mostly Mary [16:30]

Hi Frank and Mary. Fidelity recently began offering me their fully paid lending program. I'm intrigued but suspicious. My portfolio is similar to the golden butterfly almost 100% in IRAs, 90% traditional, 10% Roth. I have about $600,000 in GLDM which they would like to enroll in the fully paid lending program, which could hypothetically earn 0.625% interest, or about $276 per month.

Voices [16:58]

I love gold.

Mostly Mary [17:02]

Now this ain't nothing, but it's not tempting enough that I've been ignoring their offer for months. But I keep thinking maybe it's not as scammy as it seems. I finally started looking into it and read through the four-page fully paid lending program document attached. They basically want to lend my shares to short sellers and there doesn't seem to be a downside for me. I can still sell shares when I need a redistribution or rebalance. According to the document, the primary risk is counterparty default. With fidelity as the counterparty, I'd also lose coverage from the Securities Investor Protection Act of 1970. I don't trust that. There aren't drawbacks not included in the document and I'm very suspicious whenever given an offer that requires me to fork over money. The risk seems very low, but I don't trust my judgment in this case as this is my retirement account and I need it to live for the rest of my life.

Voices [17:55]

What's up? Gunn the money in your account. It didn't do too well, it's gone. What do you mean? I have a hundred dollars, not anymore. You don't poof. Well, what can I do to get back my? I'm sorry, sir, but this line is for bank members only.

Mostly Mary [18:07]

I just opened an account.

Voices [18:08]

Do you have any money invested with this bank? No, you just lost it all. Then please stand aside for people who actually have money with us Next, please, hey. Hello, mrs Farnickle, how are you today Making a deposit? Are we Great? We can just put that into your retirement account and make it go to work for you, and it's gone.

Mostly Mary [18:27]

It's unlikely Fidelity will go under, but I'm sure there are other considerations I'm not aware of. I'd love to hear your thoughts on this program. Thanks, Jack here's.

Voices [18:38]

Johnny.

Mostly Uncle Frank [18:39]

Well, jack, these types of things have been around for quite a long time, although I think this is the first time that Fidelity has really rolled it out en masse. I've used a similar program at Interactive Brokers for many years, basically loaning some stock and getting paid a little bit of income or interest on it. Honestly, the interest or income on it is so paltry that it really doesn't make a big difference in the grand scheme of things, but on the other hand, it doesn't seem to be causing any problems that I've seen. Potentially it could cause some delays in closing trades or confirming trades, but I don't think that's going to be an issue. If you're not trading very much, so you can go ahead and do it if you want, but I wouldn't expect to get much out of it. Put it that way, maybe you try it out for a couple of months and if you don't like it, then you ditch it. It's not an irreversible decision and it won't affect the overall performance of your portfolio.

Voices [19:38]

What? Sorry? Yeah, that's gone. Please step aside for people who actually have money with the bank Next, please, Dad. Hey, I'm trying to teach my son the importance of savings. You already lost his money. Oh, Mr Marsh, don't worry, we can just transfer money from your account into a portfolio with your son and it's gone. This line is for people who have money with the bank only. Please step aside.

Mostly Uncle Frank [20:00]

I do note that your $600,000 allocation to GLDM is probably worth more than like $700,000, given you sent this to me in February 27th, but that's been the kind of year it's been, at least for gold.

Voices [20:14]

And that's the way. Uh-huh, uh-huh, I like it. Kc on the sunshine band.

Mostly Uncle Frank [20:20]

Anyway, hopefully that helps and thank you for your email. Now we're going to do something extremely fun, and the extremely fun thing we get to do now is our weekly portfolio reviews of the eight sample portfolios you can find at wwwriskprioritycom on the portfolios page. Just looking at how the markets are doing this year so far the S&P 500, represented by VOO, is down 3.41% for the year. Nasdaq 100, represented by the fund QQQ, is down 4.41% for the year. Small cap value, represented by the fund VIOV, is down 12.55% for the year. Still the worst of the lot, but doing a little better than it was. Moving to the worst of the lot, but doing a little better than it was Moving to the best of the lot. Gold, represented by the fund GLDM, continues to shine and is up 26.81% for the year so far.

Voices [21:14]

You're insane gold member.

Mostly Uncle Frank [21:17]

Long-term treasury bonds, represented by fund VGLT, are up 1.44% for the year right now. Reits, represented by the fund REET, are up 1.44% for the year right now. Reits represented by the fund REET are up 2.7% for the year. Commodities, represented by the fund PDBC, are down 1.77% for the year. Preferred shares, represented by the fund PFFV, are down 0.15% for the year so far, and managed futures are a little better, but they're still bad. Not really that bad. Our representative fund, DBMF, is down 2.57% for the year so far. Moving to these portfolios, first one's a reference portfolio called the All Seasons. It's only 30% in stocks and a total stock market fund. Vti. It's got 55% in intermediate and long-term treasury bonds and the remaining 15% in gold and commodities. It's down 0.2% for the month of May. So far. It's up 1.9% for the year and 10.62% since inception in July 2020.

Mostly Uncle Frank [22:16]

Now moving to these bread-and-butter kind of portfolios. First one's golden butterfly. This one is 40% in stocks divided into a total stock market fund and a small cap value fund, 40% in treasury bonds divided into long and short and 20% in gold GLDM. It is up 0.63% for the month of May so far. It's up 2.89% year to date and up 37.8% since inception in July 2020. Next one's Golden golden ratio. This one is 42% in stocks, divided into a large cap growth fund and a small cap value fund, 26% in long-term treasury bonds, 16% in gold, 10% in managed futures and 6% in cash in a money market fund. It's up 0.75% for the month of May so far. It's up 0.88% year to date and up 31.09% since inception in July 2020.

Mostly Uncle Frank [23:10]

Next one's the risk parity ultimate kind of the kitchen sink here. I will not go all through all 14 of these funds. Although the Bitcoin and Ether have been doing pretty well recently, they're a tiny percentage of this portfolio. So this one is up 0.52% for the month of May. So far. It's up 0.85% year-to-date and up 20.78% since inception in July 2020. Now turning to these experimental portfolios, which all involve levered funds. Don't try this at home.

Voices [23:41]

Well, you have a gambling problem.

Mostly Uncle Frank [23:44]

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 PFFVA preferred shares fund and 22.5% in gold GLDM, although it's looking more like 28% in gold right now. Although it's looking more like 28% in gold right now, it is down 1.11% for the month of May so far. It's up 0.5% year-to-date and up 1.53% since inception in July 2020. The next one is the most levered, least diversified and worst performer of all these portfolios. It's the aggressive 50-50. It's essentially half stocks and half bonds. So it's 33% in a leveraged stock fund UPRO, 33% in a leveraged bond fund TMF, and the remaining third divided into a preferred shares fund, PFFV, and an intermediate treasury bond fund, vgit. It's down 1.52% for the month of May. So far. It's down 7.33% year-to-date and down 18.39% since inception in July 2020.

Mostly Uncle Frank [24:49]

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 combined. It's got 20% in gold GLDM, 15% in a international small cap value fund, avdv, 10% in managed futures and KMLM, 10% in a levered bond fund, tmf, and the remaining 10% divided into UDAO and UTSL, which are levered funds. Following the Dow Anti-Utilities Index, it is up 0.36% month to date. It's up 2.83% year to date and down 1.72% since inception in July 2021. And the last one is our newest one, the Optra portfolio. One portfolio to rule them all, my boss wants to get to my love.

Mostly Uncle Frank [25:52]

It is 16% in a levered stock fund, upro, 24% in a worldwide value fund called AVGV, 24% in GOVZ, a treasury strips fund, and the remaining 36% divided into gold and managed futures. It's up 0.83% for the month of May. It's up 0.88% year-to-date and up 3.56% since inception in July 2024. So not even a year old yet. And that concludes our weekly portfolio reviews. Hope you're having a happy Mother's Day.

Voices [26:32]

If you celebrate Mother's Day, Times have changed and times are strange. Here I come, but I ain't the same Mama, I'm coming home, but now I see our signal is beginning to fade.

Mostly Uncle Frank [26:52]

If you have comments or questions for me, please send them to frankatriskparodyradarcom. That email is frankatriskparodyradarcom. Or you can go to the website, wwwriskparodyradarcom. Put your message into the contact form and I'll get it that way. If you haven't had a chance to do it, please go to your favorite podcast provider and like, subscribe and be some stars. A follow, a review that would be great.

Mostly Mary [27:15]

Okay.

Mostly Uncle Frank [27:17]

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

Voices [27:25]

I've seen your face a thousand times Every day. We've been apart.

Voices [27:39]

I don't care about the sunshine yeah, cause, mama, mama, I'm coming home, I'm coming home, I'm coming home, I'm coming home.

Mostly Mary [28:29]

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.