Voices [0:01]

A foolish consistency is the hobgoblin of little minds, adored by little statesmen and philosophers and divines. If a man does not keep pace, with his companions.

Mostly Uncle Frank [0:13]

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 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 to episode 444. Today, on Risk Parity Radio, we're just going to do what we do best here, which is attend to your emails, and so, without further ado, here I go once again with the email. And First off. First off, we have an email from Ian.

Voices [2:00]

If you don't do your revision properly, do you know what will happen? You shall not pass.

Mostly Mary [2:12]

And Ian writes Hi, uncle Frank and Aunt Mary. Thank you for answering my question in episode 420 regarding my 401k. Frank had requested more information, slash cowbell, so here it is. One question he asked was what the other funds were available to me, so I have attached all the investment options available in my 401k. I didn't include the TRP target date funds since Frank to test them. Hopefully Mary won't have to read all the ticker symbols.

Voices [2:43]

Hopefully Mary won't have to read all the ticker symbols.

Mostly Mary [2:52]

To refresh the listener, I would like to summarize my original question, which was what would be the best choices for a risk parity type portfolio, based on the limited options available to me in my company sponsored 401k? In Frank's thoughtful response, he asked me to clarify how close I was to achieving my financial independence number and if I had other investment vehicles.

Voices [3:11]

Man's got to know his limitations.

Mostly Mary [3:14]

If I were to consult my crystal ball, I would say I am four to six years away from financial independence. Of course, depending on market conditions, the crystal ball can help you. Of course, depending on market conditions, A crystal ball can help you. It can guide you.

Mostly Mary [3:27]

I do have a Roth set up for both me and my wife. To add perspective, my wife hasn't worked for almost 30 years due to medical issues. Both our Roths together consist of a combined golden ratio investment allocation. I haven't had as much extra money until recently to put it into the Roths, so my 401k has significantly more money, about 30 to 35 times the size. But I am happy to say that last year was the first time we were able to max out my 401k and both our Roths. We also have an emergency fund in an Ally account.

Mostly Mary [3:59]

I know Uncle Frank teaches us to treat all our investments as one portfolio, which I am definitely working towards. For now I am focusing on maxing out my 401k and VIIX to get to my FI number and using our Roths to start a risk parity portfolio. Once I reach financial independence, I'm hoping to move my 401k money to a risk parity style allocation, go down to part-time, stop contributing to my 401k and eventually start doing Roth conversions. The plan is to use the Roth money we're contributing into now as supplemental income during that conversion process. I would like to also put money in a brokerage to help with the supplemental income, but haven't been able to yet, Although this email is shaping up to be about as dry as white toast.

Mostly Mary [5:01]

does it help provide more feedback on what specific funds I should transition my 401k investments into once I reach financial independence in the next four to six years? Sorry for the long email, mary Ian.

Mostly Uncle Frank [5:14]

Mary, Mary, I need your huggin' Well, Ian, I looked at the screenshots you sent me of these options in your 401k and it's gone Poof. There doesn't seem to be a whole lot there, honestly.

Mostly Mary [5:38]

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

Mostly Uncle Frank [5:41]

And it was difficult for me to determine what some of the things actually were, because there are ticker symbols that do not come up when I run them. In Morningstar, for example, there's something called LCVAL, and I don't know what that is, other than it's a large cap value fund, and so, without knowing what the expense ratios are for any of these funds, or actually what's in them other than their kind of vague description, it's not very easy to tell you anything about them. It looked to me, though, you have VIIX, which is essentially VTSAX in an institutional form, and so, yeah, you can use that as your main driver for accumulation when you want to convert. You have very slim options in here. I didn't see a small cap value fund, for example. I saw a mid-cap growth fund and a large cap value fund and some other random things. A large cap value fund and some other random things.

Mostly Uncle Frank [6:46]

What I would probably do is use the total bond market fund that's in there, you basically have the equivalent of BND, the Vanguard Total Bond Market Fund, and that is an okay place to just park a bond allocation, or an allocation that is not stocks, if you will, while you're still stuck with the 401k, because really the main point of doing the transition before you leave is to make sure that you are not taking too much risk by leaving too many stocks in your portfolio, and moving it over to that bond fund seems to make sense for me for a short period of time, until you can actually move it to an IRA and then buy exactly what you want. I would also look at that large cap value fund to see what's in it and see how much it costs, because ultimately you do want to have a portfolio that is basically split between growth and value. That is basically split between growth and value, and that might be a kind of a way to do it within your limitations in this 401k right now. Man's got to know his limitations and that would also reduce the overall risk in the portfolio, and since it sounds like you have almost all of your money right now in the 401k, you'll just have to work with what's in there In terms of additional contributions. You do have the two Roths, so that will give you some more space to put whatever you want in those.

Mostly Uncle Frank [8:16]

You didn't mention what your actual income is, so I'm wondering whether you are better off using a traditional IRA or not, but that has to do with your current tax situation. So I'm sorry. My response here is more like more dry white toast and not like four fried chickens and a coke.

Mostly Mary [8:36]

Bring me four fried chickens and a coke.

Voices [8:39]

You want chicken wings or chicken legs, four fried chickens and a Coke.

Mostly Uncle Frank [8:44]

But I think the best you're going to be able to do in terms of diversification with what's in the 401k is something that is going to look like a 60-40 kind of portfolio, with perhaps the stocks divided into the large cap value fund and perhaps not, depending on what's really there, since I wasn't able to look at it.

Mostly Mary [9:03]

That's not an improvement.

Mostly Uncle Frank [9:05]

But I think that's serviceable for the short term until you can move the money to an IRA and get what you want. So I'm sorry that wasn't very helpful, but hopefully it was a little helpful.

Voices [9:17]

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

Mostly Uncle Frank [9:24]

And thank you for your email.

Voices [9:26]

We got two honkies out there dressed like Hasidic diamond merchants.

Mostly Mary [9:31]

Say what.

Voices [9:32]

They look like they're from the CIA or something. What they want to eat?

Mostly Mary [9:36]

The tall one wants white bread, toast dry with nothing on it.

Voices [9:39]

I would, and the other one wants four whole fried chickens and a Coke White bread toast dry with nothing on it I would, and the other one wants four whole fried chickens and a Coke and Jake sent the blues brother Second off. Second off, we have an email from Bruce, and the name of this young man is Mr Bruce Springsteen. That's right. Yeah, we talked about this kind of woodblock or something new guitar we like, and you know what he said to me. I'll tell you what he said to me.

Mostly Mary [10:15]

And Bruce writes Hi, Uncle Frank, Do you have any feedback on the unexpected results I got from Portfolio Visualizer when using 25% individual stocks in a portfolio? When I add individual stocks below the end balance, max drawdown, worst year and best year are all significantly better than a portfolio made up of only ETFs. I use the individual stocks below because I already have roughly 1% positions in each of them and I am attempting to drift towards a risk parity portfolio as I get near retirement about two years from now. It was Copilot that suggested 5% instead of 1% for the individual stocks in a risk parity portfolio, so I tried it and got the surprise below.

Mostly Mary [11:02]

I was at Camp Fi this weekend and spoke to someone from the DC Choose Fi group who said you spoke to their group once at a Virginia library. He had great feedback about your show and your presentation to their group. Bruce PS, I only plan to buy SOXL when it is severely beaten down, like it was around April 4th. I invested about 0.5% of my portfolio in SOXL and it popped up to a 1% position since then.

Voices [11:29]

You have a gambling problem.

Mostly Mary [11:32]

I used 5% SOXL in the simulations below because I would start trimming if it got above 5%.

Mostly Uncle Frank [11:52]

He said Brad, I'm glad you are participating in your local ChooseFI or Campfi events. Usually those are very informative. And I'm not sure whether you're referring to my presentation to the Baltimore group or to a Virginia group. I have not done my presentation to the Virginia group, which is going to be at the Lorton Library on August 23rd at 1015. But we are going to be discussing Portfolio Visualizer as well as the book Soul of Wealth by Daniel Crosby. If you're interested in that and you are locally enough to attend and it seems like you are- yes.

Mostly Uncle Frank [12:34]

But as for your simulations here, yeah, I think the problem you're having is that, unless you pay money these days with Portfolio Visualizer, the backtester using ticker symbols is only good for the past 10 years, and that really is not enough to be of any real use other than just kind of looking at things to see how they performed in the past 10 years. Forget about it, because it's basically highly dependent on which stocks you're using, or which tickers you're using in particular, and since the past 10 years has been a very good period for the stock market generally in fact, one of the best in history, it's not going to tell you a whole lot about what it's likely to be like going forward, which is more likely to be looking like the rest of history and not just this past 10-year period.

Mostly Mary [13:25]

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

Mostly Uncle Frank [13:29]

What the free version of Portfolio Visualizer is actually very still good at doing or using for is, if you set it on the asset allocation setting for the analyzer, where it's looking at things like total stock market or small cap growth or emerging markets, you can put in gold 10 different kinds of bonds basically 30 or 40 different things, and that is really what you want to do when you're doing portfolio construction is not fixate on ticker symbols. You need to get the macro allocations set first and then pick ticker symbols after that, because otherwise you're looking at very idiosyncratic things that may or may not work in the future you're gonna end up eating a steady diet of government cheese and living in a van down by the river.

Mostly Uncle Frank [14:22]

So the upside is, I wouldn't derive any conclusions out of this analysis.

Mostly Uncle Frank [14:26]

If you're looking for something with more ticker symbol data, you should go over and use Testfolio, because that site has all of the ticker symbol data as long as there are tickers, and it also has simulated data that goes back much further, some of it going back to the 1920s, and if you check the help section and the ticker symbol section there, you'll see what I'm talking about.

Mostly Uncle Frank [14:49]

But you can do all kinds of back tests and comparisons there, and so it is really my tool of choice now whenever we're talking about particular ticker symbols. Now, as for individual stocks, I personally would not use any of them at all, other than as a grouping in some kind of direct indexing. So, for example, we do hold an allocation to property and casualty insurance companies and instead of buying the ETF for that which is KBWP, we actually buy the individual companies, but as a group, not as individuals. We're not looking to market time with any of those, because I think if you're going to invest in individual companies, you really need to spend the time actually analyzing those individual companies, which is something that the value stock geek does, but I am much too lazy to be engaged in such activities.

Mostly Uncle Frank [15:46]

Yeah, I just stare at my desk but it looks like I'm working, so I will leave it to others.

Voices [15:53]

It's not that I'm lazy, it's that I just don't care. Don't care. It's a problem of motivation, all right.

Mostly Uncle Frank [16:02]

And just one little amendment to these thoughts that if you already have a bunch of individual stocks and you want to keep them or need to keep them for tax purposes or any other reason, what you really want to do in terms of your portfolio construction is categorize those things as what they are, by factors. I mean, is this a large cap growth stock? Is this a small cap value stock? Where does it fit with respect to those kind of metrics? You can analyze them on Morningstar or elsewhere. But if you know that, then you can just include that as part of the allocation to that particular macro allocation, without having to clear the decks which might be disadvantageous for tax reasons or other reasons.

Mostly Uncle Frank [16:49]

But other than this kind of residual cleanup or putting things in their proper places, I don't see any reason to be going out and engaging in individual stock investing unless you really want to analyze companies on a detailed basis by looking at their financials etc. Not going to do it Wouldn't be prudent at this juncture. So sorry I couldn't tell you anything interesting about what you've got here, but my advice is to get your asset classes set up first your macro allocations to those sorts of things and then only look at individual ticker symbols after that, and if you're fooling around with things like SOXL, which is a three-time semiconductor fund, that is really speculation on your part, and all I can say is good luck with that, because I don't have any opinion on how that's going to work or not work in the future.

Voices [17:46]

Well, you have a gambling problem.

Mostly Uncle Frank [17:50]

Hopefully that helps and thank you for your email. My life is good. My life is good. Last off. Last off is an email from Boone.

Voices [18:18]

We just got here, no, boone, you just got here.

Mostly Mary [18:25]

I've been downstairs for an hour entertaining some kid from Pigs. Knuckle, arkansas and Boone writes. Frank and Mary, thanks so much for your ongoing efforts to help the DIY investor community and Boone writes towards the sciences as their backgrounds. I'm in that category. I'm a primary care physician and five to 10 years away from retirement, depending on the markets and my ability to tolerate healthcare insurance companies. Just giving you a data point.

Voices [19:03]

I am a scientist not a philosopher.

Mostly Mary [19:06]

My question is about portfolio construction with levered ETFs. Is about portfolio construction with levered ETFs Cue.

Voices [19:12]

Homer here, Frank Ooh, how convenient.

Mostly Mary [19:14]

93% of my retirement funds are in my 403B, but I have an M1 account into which I put taxable income. I'm really using this as a test portfolio for retirement and over the last few years have drifted to a variant of the Optra portfolio. Mine includes property and casualty insurance and a small allotment of Bitcoin and Ethereum. Fortune favors the brave. My question is actually about leverage percentages. Upro has returned 2.2 times the S&P 500 in its lifetime. Tmf is significantly more than three times worse than TLT over its life. At what point do we stop using 300% as the multiplier for portfolio construction for these funds? Tmf is really difficult to consider as it is so much worse than the annualized return for TLT. But UPRO has a return of 2.2 times that of the S&P since inception. When putting together a portfolio, should that actually be the multiplier, not the stated three times amount? Thanks for all your work, boone. Ps. I'm a little surprised. I haven't heard any weird science clips in your soundbite repertoire. I would have thought that would have been right up your alley.

Voices [20:28]

She's alive, alive. What would you little maniacs like to do first?

Mostly Uncle Frank [20:34]

well, boone, I'm glad you're enjoying the podcast. You have, though, hit upon one of the issues with trying to use these levered funds in these kinds of portfolios, because things like you pro and tmf were really designed for short-term trading and not long-term holding, even though I know people have successfully used them, particularly UPRO for longer-term investing. But they do have that characteristic they do not, over long periods of time, mimic three times the underlying. It's going to be something less than that, just because of the way they are structured Now. Whether that's 2.2 in the future or something closer to 3 for you Pro, I don't know. I like that?

Voices [21:18]

I don't know. That's nice, mr Hand, will I pass this class? Gee, mr Spicoli, I don't know, that's nice. I really like that. You know what I'm going to do. I'm going to leave your words on this board for all my classes to enjoy, giving you full credit, of course, mr Spicoli.

Mostly Uncle Frank [21:38]

I would look at the site optimized portfolio, where they go over these things in a lot of detail and analyze different levered funds to tell you what their characteristics are. Then that might give you a good idea as to what to use these for. I am pretty reticent to use them in retirement portfolios at all, and only in very small quantities or in something that's not going to matter too much. It's all one big crapshoot anywho, simply because they haven't been around that long and there is a concern that something like that could go to zero or close to it.

Voices [22:13]

What's all gone?

Mostly Uncle Frank [22:13]

The money in your account it didn't do too well.

Mostly Uncle Frank [22:15]

It's gone, but this is actually an area of development right now. The first funds came out from WisdomTree. One's called NTSX that we use in one of our sample portfolios. There's another one called GDE. That's the stock market in gold. Ntsx is the stock market and treasury bonds, and now Corey Hofstein and the people at Resolve Asset Management have come up with what they call return stacked ETFs, which are various combinations of stocks, bonds, managed futures and gold, and I think they have one that's a combination of Bitcoin and gold, but that's a way to get leverage into a fund by combining more than one asset. My problem with those things is, I feel like it makes things more difficult to separate out, and obviously you can't rebalance the individual assets against the rest of the portfolio because they're bound up in one of those kinds of funds. But this is all evolving. These funds are less than five years old for the most part, and I don't know what the evolution of this is going to look like.

Voices [23:22]

I don't know.

Mostly Uncle Frank [23:24]

That Optra portfolio is designed to look like one of those return-stacked portfolios that Resolve Asset Management and Corey Hofstein talk about, but it's designed in such a way as to separate out the individual components so that you can facilitate more rebalancing, and it is also structured in a way to make it similar to the risk profile of the overall stock market, but with less volatility At least that's the idea.

Mostly Uncle Frank [23:57]

So, while I think it's good to experiment with these things now, I'm not sure I'd be comfortable betting the farm on using a lot of them in the actual retirement portfolio you plan on holding, unless you're talking about allocations of something like 5% or something like that. Anyway, I'm sorry I can't say much definitive about this. I would check out Optimize Portfolio, if you don't look at that site and you're interested in levered ETFs, because it's got an endless supply of information about a lot of the individual ones, including the ones you're talking about, and it's also got variations of levered portfolios. If you're interested in looking at more of those, I will still view them as experimental, at least for serious money.

Voices [24:41]

Tony Stark was able to build this in a cave With a box of scraps. And confine my real gambling to the local craps table shake them up, shake them up, shake them up, shake them now, as for weird science, I have used a few of those clips, although I certainly haven't used one recently.

Mostly Uncle Frank [25:04]

That movie just doesn't seem to have as many really good sound bites out of it as some of the other ones. It's more of a visual movie. I think you can forget that other one. You got this fine juicy metal ear bite.

Voices [25:19]

Yeah, that's the truth, baby, that's the clean truth. Oh, there we go Party's over, party's over.

Mostly Uncle Frank [25:33]

So hopefully that helps at least a little bit.

Voices [25:42]

And thank you for your email.

Mostly Uncle Frank [25:53]

But now I see our signal is beginning to fade. There will not be a podcast this weekend, going on a little hiatus. Going to go visit a child in North Carolina.

Voices [26:05]

Patrick just how dumb are you?

Mostly Uncle Frank [26:08]

It varies. If you want to hear more from me in the interim, I recorded a podcast for the Mile High podcast a couple of months ago and that came out last week. I'll link to that in the show notes. It's also there on YouTube so you can see me in the flesh. But we're talking there about the things that I mostly talked about at the last economy conference, as well as cooked green vegetables. I'll leave that to your imagination until you actually listen to it.

Voices [26:39]

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

Mostly Uncle Frank [26:45]

We'll be updating the website at some point and we are working on actually revamping the website.

Voices [26:51]

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

Mostly Uncle Frank [27:02]

Hopefully that'll get done around the end of the month, but in the meantime, if you have comments or questions for me, please send them to frankatriskparityradarcom. That them to frankatriskparityradarcom. That email is frankatriskparityradarcom. Or you can go to the website, wwwriskparityradarcom. 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.

Mostly Mary [27:33]

Give me some stars a follow a, a review that would be great, okay.

Mostly Uncle Frank [27:36]

Thank you once again for tuning in. This is frank vasquez, with risk party radio signing off. It's my creation.

Voices [27:45]

Ooh, my creation. It's my creation From my heart and from my head. Why don't people understand my intentions? Ooh weird, ooh weird science. It's my creation. Ooh weird, we're in science. We're in science.

Mostly Mary [28:28]

The Risk Parody Radio Show is hosted by Frank Vasquez. The content provided is for entertainment and informational purposes only and does not constitute financial, investment tax or legal advice. Please consult with your own advisors before taking any actions based on any information you have heard here, making sure to take into account your own personal circumstances.