Risk Parity Radio
Risk Parity Radio is a podcast about investing located at www.riskparityradio.com. RPR explores risk-parity style portfolios comprised of uncorrelated or negatively correlated asset classes -- stocks, selected bonds, gold, managed futures, and other easily accessible fund options for the DIY investor. The goal is to construct portfolios that are robust and can be drawn down on in perpetuity, and to maximize projected Safe Withdrawal Rates regardless of projected overall returns.
Risk Parity Radio
Episode 405: Treasury Strips Funds As A Form Of Leverage, A Return Stacked Portfolio, The Golden Ratio And Portfolio Reviews As Of March 7, 2025
In this episode we answer emails from Eli, Garrison and Van. We discuss usig treasury strips ETFs like GOVZ and ZROZ and how they relate to long-term treasury bond funds like TLT and VGLT, a "returned-stacked" portfolio similar to O.P.T.R.A. for accumulation and early retirement and why the Golden Ratio portfolio performs very well on many metrics.
And THEN we our go through our weekly portfolio reviews of the eight sample portfolios you can find at Portfolios | Risk Parity Radio.
Additional links:
Father McKenna Center Donation Page: Donate - Father McKenna Center
Portfolio Charts Portfolio Matrix Tool: Portfolio Matrix – Portfolio Charts
(Note to compare the discussed Golden Ratio portfolio to other portfolios, input 21% LCG, 21% SCV, 26% LT bonds, 16% gold, 10% REITs and 6% t-bills as "My Portfolio")
Amusing Unedited AI-Bot Summary:
Dive into the nuanced world of portfolio construction with insights that challenge conventional wisdom about retirement planning and asset allocation. We kick off with an exploration of treasury bond strategies, examining whether STRIPS funds like ZROZ or GOVZ offer "free" 1.5x leverage compared to standard long-term treasury funds. This seemingly technical distinction opens fascinating possibilities for freeing up portfolio space while maintaining effective recession hedging.
The heart of the episode tackles a young investor's audacious plan for early retirement using a leveraged portfolio containing 11% UPRO (3x leveraged S&P 500) alongside small-cap value, treasuries, gold, and managed futures. We dissect the Monte Carlo simulations suggesting sustainable withdrawal rates above 6% and consider whether such "return stacked" portfolios represent the future for younger investors seeking growth with manageable volatility.
Most surprising is our deep dive into the Golden Ratio portfolio, which a listener discovered ranks #1 overall on Portfolio Charts despite containing just 42% stocks. We unpack the five fundamental rules that drive this portfolio's exceptional performance: strategic stock allocation between 40-70%, balanced growth and value exposure, precise treasury bond positioning, thoughtful alternative asset integration, and minimal cash holdings. The revelation that this construction is essentially an expanded 60/40 portfolio demonstrates how traditional wisdom can be enhanced rather than abandoned.
Our weekly portfolio review reveals gold's dominant performance in 2023 (up 10.89%) while small-cap value struggles (down 6.47%), reinforcing the value of thoughtful diversification in navigating today's market landscape. Whether you're planning for early retirement, optimizing your current portfolio, or simply seeking investment wisdom beyond mainstream advice, this episode delivers practical insights for the serious do-it-yourself investor.
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, perhaps it is because he hears a different drummer. 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: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:Expect the unexpected.
Mostly Uncle Frank:It's a relatively small place. It's just me and Mary in here, and we only have a few mismatched bar stools and some easy chairs. There are basically two kinds of people that like to hang out in this little dive bar.
Voices:You see, in this world there's two kinds of people.
Mostly Uncle Frank:my friend, the smaller group are those who actually think the host is funny, regardless of the content of the podcast.
Voices:Funny how, how am.
Mostly Uncle Frank:I funny. These include friends and family and a number of people named Abby.
Voices:Abby, someone Abby who Abby, normal Abby normal.
Mostly Uncle Frank: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:The best, jerry the best.
Mostly Uncle Frank: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.
Mary and Voices:What we do is, if we need that extra push over the cliff.
Voices:You know what we do Put it up to 11. 11, exactly.
Mostly Uncle Frank:But whomever you are, you are welcome here I have a feeling we're not in Kansas anymore. But now onward, episode 405. 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. And you may notice my voice is kind of out of it. I am suffering from a cold today. Sorry about that. I will try to edit out the coughing fits.
Voices:But before we get to those portfolio reviews, I'm intrigued by this, how you say edit out the coughing fits.
Mostly Uncle Frank:But before we get to those portfolio reviews, I'm intrigued by this how you say Emails and First off. First off, we have an email from Eli.
Mary and Voices:Eli Porter, does my sermon bore you?
Mostly Uncle Frank:Yes, Father.
Mary and Voices:If you feel you could do better, would you?
Mostly Uncle Frank:like to come forward and share your thoughts with us.
Mary and Voices:Thank you, father. Hello Frank, I've made a donation to the Father McKenna Center through my donor advised fund. For those who are holding long-term treasuries as recession slash deflation hedging purposes, is there any reason to prefer a long-term treasury fund like VGLT over a STRIPS fund like ZROZ or GOVZ? It seems to me like you are getting 1.5 leverage for free, as these funds are also very low cost. This frees up space for another diversifying asset. I can see the case for not leveraging up equities with SSO or UPRO due to the fees or trading implementation concerns, but Strips don't seem to have that problem. Thank you for your consideration and such a great podcast, eli.
Mostly Uncle Frank:Well, first let me thank you for your donation to the Father McKenna Center. As most of you know, we do not have any sponsors on this podcast, but we do have a charity we support. It's called the Father McKenna Center and it supports hungry and homeless people in Washington DC. Full disclosure I am on the board of the charity and I am the current treasurer. Full disclosure I am on the board of the charity and I am the current treasurer. But if you give to the charity, as Eli has here, you get to go to the front of the email line, as Eli has here. Cool, and you can do that in two ways. You can go to our support page at wwwriskparadisecom and join our patrons on Patreon, or you can give directly to the Father McKenna Center at their donation page, which I will link to in the show notes again. Either way, you get to go to the front of the email line, as Eli has here. And that's actually becoming more valuable by the day, as we are still mired in emails from early January. So if you're not a donor, you're going to be waiting a couple months to get your email answered.
Mostly Uncle Frank:Now, turning to your email, I think you are probably correct in your assertion that you could just use ZROZ or GOVZ as your long-term treasury bond exposure and then reduce it because it does seem to have a 1.5 volatility relationship with VGLT or TLT. But I don't have any way of proving that or disproving that one way or the other. Simply because these funds have not been around that long and the oldest fund in this category is EDV, which is a Vanguard fund from about 2008 or 2009 is when that originated that one seems to be less correlated with TLT or VGLT. I think it's just the way it's constructed. Zroz and GOVZ seem to be more reliable in terms of how they perform against the standard long-term treasury bond fund. I will tell you in our personal portfolios we use both VGLT or TLT and ZROZ and GOVZ because they also make a useful way of tax loss harvesting and you could basically dial up or dial down your exposure to treasury bonds by moving from one to the other.
Mostly Uncle Frank:Now you should also be aware that you are going to get less in terms of income from ZROZ or GOVZ, and what I mean is if you're in a circumstance where you are holding $3 of VGLT, that's going to pay these days about 4.5%, and equivalent exposure is $2 of ZROZ or GOVZ and that's also going to pay about 4.5% these days, but obviously it'll be less money total.
Mostly Uncle Frank:I'm not sure that really matters in the way we use these funds in our portfolios, because we're not really looking for the income, we're looking for the diversification out of these. But you should also be aware of that, and I suppose there's going to be some circumstance where there's tracking error and these do not actually perform exactly like one and a half times the ordinary treasury bond fund, but I don't see that happening, at least in the time they've been in existence. I think this is all part of the kind of golden age of investing that we are living in these days, where you can get ETFs that invest in virtually anything and buy them for no transaction fees and in fractional share amounts. But whether these will pan out exactly like you would predict them to is not something I can actually predict.
Mary and Voices:A crystal ball can help you, it can guide you.
Mostly Uncle Frank:I suspect they will though.
Mary and Voices:Now the crystal ball has been used since ancient times. It's used for scrying, healing and meditation.
Mostly Uncle Frank:So I'm sorry, I really couldn't answer your question definitively, but it's a good observation that you make and thank you for your email.
Voices:And Joseph was not about to let that happen, and neither should you, enough Enough, go to my office.
Mostly Uncle Frank:Now Second off. Second off we have an email from Garrison Harrison. Garrison Bubble TV, cornelius.
Voices:Aurelius Rover, miggy Daniel, nathaniel Hooligan, flea, horowitz, huntington, Climber.
Mostly Uncle Frank:Mick Tree and Garrison writes.
Mary and Voices:Hi Frank, you answered my previous questions about the risks of holding you pro in an Optra-style portfolio in episode 365. I found it very helpful, so thank you very much for that. I would like to provide some context for my initial question and ask a few follow-ups. I'm 32 and hopefully 8 to 10 years away from retirement. The retirement portfolio I'm considering is the following 11% UPRO, 16.5% AVUV, 8.25% AVDV, 8.25% AVES, 22% ZROZ, 17% GLDM, 17% DBMF. This portfolio is levered up to 1.33 to 1, counting the 1.5 times pseudo leverage in ZROZ, and is expected to behave as 50% stocks, 25% long-term treasuries, 12.5% gold and 12.5% managed futures. In order to get an idea of the safe withdrawal rate, I plugged this portfolio into Testfolio only using US small cap value and got a compound annual growth rate of 11.82% and a standard deviation of 11.78%. This data set goes back to 1993 and thus covers a wide range of economic events. I also played with the start and end dates throughout this time period and the results are fairly consistent. I then used these values to run a Monte Carlo simulation at Portfolio Visualizer, which returned a perpetual withdrawal rate of 6.6% and a 30-year safe withdrawal rate of 7.9%. The only reservation I have about this portfolio is holding 11% UPRO and it going to zero in a Black Swan event. You brought up a very good point that if it were to go to zero, I can rebalance into whatever replaces it.
Mary and Voices:I'm trying to evaluate how risky it would be to hold a portfolio like this in retirement. Would you consider this betting the farm on it if I put my entire net worth into a portfolio containing 11% UPRO, or would you consider this not betting the farm on it because only 11% of the portfolio is in UPRO? Additionally, I'd love to get your thoughts on the withdrawal rate. I don't know if I could bring myself to actually take out 6.5% of the portfolio at the age of 40. I know there are variable withdrawal techniques that can be implemented to raise the withdrawal rate even further, but for comparison's sake let's assume the Bangan withdrawal method. I'm also considering an unlevered version of this portfolio, but that would require me to work a few more years. To summarize, here are my questions. One, how comfortable would you be holding a portfolio like this? Two, how much would you be comfortable withdrawing, giving this analysis? Three, should I just use the unlevered version of this portfolio and work a few more years? Thanks for all the help, garrison.
Mostly Uncle Frank:All right, this is kind of a follow-up email to the one we answered in episode 365. That was also from Garrison. Well, let's just go through your questions as they appeared.
Mostly Uncle Frank:First one was how comfortable would you be holding a portfolio like this? And the answer is at my stage of life, I would not be that comfortable holding a portfolio like this at least if it was my entire portfolio, because I'm 60 years old and I'm not planning on going back to work, and since I don't need to be holding a portfolio that has a lot of leverage in it, I choose not to, because I could still meet my retirement goals of spending about 5% of the invested amount every year. Now, if I was 32, I probably would feel a lot more comfortable holding something like this, particularly if I was still working and had time to recover. I do think these kinds of return stacked portfolios is kind of the term that is used these days may be the future, at least for accumulation, because you're basically getting a similar exposure to 100% stock portfolio with less volatility in it, and our sample portfolio, the Optra portfolio, is meant to model something like that too, because, again, you have the advantage of youth and time.
Voices:Oh, I get it Let me try that.
Mostly Uncle Frank:Us old fogies don't really have Death stalks you at every turn. If we do actually have a recession this year, I will be interested to see how these portfolios perform through that, because we really haven't had a recession since I started this podcast. It's kind of odd, but you know it's. The last one we had was really the COVID recession, which was very short-lived, and the podcast started a few months after that. But that's kind of the way things work in the real world. You don't go through a complete economic cycle for oftentimes the better part of a decade. So I do applaud your ingenuity in constructing such a thing, particularly at your age, because you have time and space to experiment.
Mostly Uncle Frank:Your second question how much would you be comfortable withdrawing, given this analysis? Well, I would still probably just be withdrawing 5%, simply because I don't have any good way of modeling these things long term. But we are, for example, taking out 6% from that Optra portfolio just as a test model. I really think the key to withdrawals is being flexible enough that some years you would take out more than 5% and some years you might take out less and use the 6.5% that you've calculated as a kind of upper limit, because that's really what goes on in your drawdown phase. You're not just looking at your portfolio and taking out some percentage, you're actually matching up your withdrawals to specific expenses, which can vary from month to month, and do in our case.
Mostly Uncle Frank:And then your third question should I just use the unlevered version of this portfolio and work a few more years? Well, you could do that too, or you could do both, and what I mean by that is you could take part of your portfolio and construct it this way and then have another part of your portfolio that's constructed in a more traditional way and see how it goes for the next five years or so. So we shall see, and I will be interested to see how this goes for the next five years or so.
Voices:So we shall see and I will be interested to see how this all plays out for you over time. If you stick with it, I'm going to end up eating a steady diet of government cheese and living in a van down by the river.
Mostly Uncle Frank:All this does confirm to me that I do have the finest podcast audience available.
Mary and Voices:Top drawer, really top drawer.
Mostly Uncle Frank:And so thank you for your email.
Voices:I have officially amounted to Jack U Squat Last off.
Mostly Uncle Frank:Last off, we have an email from Van.
Voices:When it's not always raining, there'll be days like this. When there's no one complaining, there'll be days like this.
Mostly Uncle Frank:And Van writes.
Mary and Voices:Hi Frank, thanks for taking my question on episode 383 about the pinwheel portfolio. I know we have talked about the golden ratio before. I was surprised to see that the golden ratio is ranked number one overall on portfolio charts. When I entered the data that you have suggested in your podcast, I also reached out to Tyler at Portfolio Charts with this same data. I'm not chasing the biggest safe withdrawal or growth, but a good overall portfolio ulcer rate and safe withdrawal rate. I think more people need to know about this allocation. Here is the chart I am talking about with the allocation that you have suggested. I believe Tyler is working on an article about this portfolio. I'm surprised that a portfolio like this can perform this well safe withdrawal rate wise, since it is only 42% stocks, not including REITs. Would you give me some additional comments? Thanks, Van.
Mostly Uncle Frank:Okay, just for everybody's reference what we are talking about is a variation of the golden ratio portfolio that has 21% in large-cap growth, 21% in small-cap value growth, 21% in small cap value, 26% in long-term treasury bonds, 16% in gold, 10% in US REITs and 6% in T-bills or cash or money market. And I could tell you I'm surprised at how it performs. But at this point I'm not surprised because that's the way it was constructed, as a essentially more aggressive form of the golden butterfly that has over 50% in stocks in it when you include the REITs, but does really well on all kinds of metrics. And Van had put this into the portfolio matrix over at Portfolio Charts to compare it with the 19 other sample portfolios there and it does come out number one in terms of things like the baseline long-term return and the safe withdrawal rate. But I'll link to that in the show notes and you can run it yourself. It also does really well if you run it back 100 years and we talked about how to do that in episode 223, if you want to go back to that using the toolbox calculator from early retirement now and it tells you how to set that up in there.
Mostly Uncle Frank:But you will find that portfolios like this that conform to some basic rules of thumb tend to have good performance metrics like this, and those rules of thumb for having a high safe withdrawal rate is that first, you want a portfolio that has between 40 and 70 percent in stocks. I think Bill Bengen has settled on 55 percent as the best amount to hold, but I think usually anywhere between 50 and 60 percent works pretty well. In this case you're talking about a portfolio with 52 percent in stocks, but it's also notable that the large cap growth and small cap value allocations tend to have a higher beta than the total stock market because they are less focused on large cap value and when you have a higher beta overall, it's essentially like a miniature form of leverage. It's essentially like a miniature form of leverage. The next rule of thumb is to try to split your stock allocation into half growth and half value, which this does, and REITs are kind of in the middle, so they kind of do their own thing. Then the next rule of thumb is to have between 20% and 30% in treasury bonds, and this has 26% in long-term treasury bonds. And then the next rule of thumb is to have between 10 and 25 percent in alternative assets, and this has 16 percent in gold, which is the alternative asset. And then the last rule of thumb is to keep the cash holdings to less than 10 percent of the portfolio, and this has 6 percent in cash.
Mostly Uncle Frank:Now, as I've mentioned many times before, you can take a golden ratio portfolio and either make it more conservative or more aggressive simply by adjusting the 10% allocation and the 6% allocation. So, for instance, you could just take that 6% allocation and put it into stocks and you'll get a basically a similar portfolio that's more aggressive than this one. Or you could add short-term treasury bonds to make it more conservative, or you could use utilities instead of REITs, or you could add managed futures to the mix, like we have in the current sample portfolio version of the golden ratio, which gives you a more diversified exposure. And this portfolio, in fact, is based fundamentally on a 60-40 portfolio.
Mostly Uncle Frank:If you think about a 60-40 portfolio, if you turned it into a 61-39 portfolio, you would have a golden ratio portfolio with two asset classes by expanding it out to having five asset classes in these ratios of 42, 26, 16, 10, and 6. Those are all essentially 60-40 if you match up, say the 42 and the 26, or the 26 and the 16, and down to the 6. But having five slots, if you will, just allows for much easier and better diversification of this kind of portfolio. So I'm very happy with it, and it is essentially what we use as the base, with a little more complications that I have to insert into it, given my personality, and so I think it's a very nice template for constructing a retirement or drawdown style portfolio that you can build to taste, if you will, or build to suit.
Mary and Voices:Can we fix it?
Voices:Yes, we can.
Mostly Uncle Frank:So I'm glad you like it and thank you for your email.
Mary and Voices:And now for something completely different.
Voices:What is that? What is that? What is it? Oh no, not the bees, not the bees. Ah, I don't know. My eyes, my eyes, ah.
Mostly Uncle Frank:Well, I'm afraid the bees did descend upon us. Last week, I think I heard that it was the worst week for financial markets since September, or something like that. Ah, week for financial markets since September, or something like that. So, before we get to the portfolios, just taking a look at where the markets stand this year, our S&P 500 fund, voo, is down 1.73% for the year. Qqq, our NASDAQ representative, is down 3.8% for the year. Small cap value, represented by the fund VIOV, is a big loser. This year, it's down 6.47% for the year. Gold is the big winner.
Voices:I love gold.
Mostly Uncle Frank:Gold is up 10.89% for the year. Long-term treasury bonds are also winning this year. Representative fund VGLT is up 3.73% for the year. Long-term treasury bonds are also winning this year. Representative fund VGLT is up 3.73% for the year. Reits are also doing well. Our representative fund REET is up 2.88% for the year. Commodities are also up. Representative fund PDBC is up 2.54% for the year. Preferred shares are up for the year. Preferred shares are up. Representative fund PFFV is up 2.05% for the year. But managed futures managed to be down this year. So far they are down 3.02% for the year.
Mostly Uncle Frank:Moving to these portfolios first ones of the all season, this is a reference portfolio. It's only 30% in stocks and it's got 55% in intermediate and long-term treasury bonds and the remaining 15% in gold and commodities. It is down 1.65% for the month of March. So far it's up 2.08% year-to-date and up 10.82% since inception in July 2020. Moving to these bread and butter kind of portfolios, first one's a golden butterfly. This one is 40% in stocks, divided into a total stock market fund and a small cap value fund, 40% in bonds treasury bonds divided into long and short and 20% in gold. It's down 1.13% for March. It's up 1.4% year to date and up 35.81% since inception in July 2020.
Mostly Uncle Frank:Next one's a golden ratio. Our sample version is 42% in stocks, divided into a small cap value fund and a large cap growth fund, 26% in long-term treasury bonds, 16% in gold, 10% in managed futures and 6% in cash. It is down 1.79% month to date. For March, it's down 0.07% year to date and up 29.86% since inception in July 2020. Next one's the risk parity ultimate. This is our kitchen sink portfolio. I'm not going to go through all 14 of these funds, but it is down 1.78% for the month of March. So far, it's up 0.73% year-to-date and up 21.72% since inception in July 2020. Moving to these experimental portfolios, which all involve leveraged funds. So don't try this at home, even though I know some of you do.
Voices:Well, you have a gambling problem.
Mostly Uncle Frank:First one's the Accelerated P'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 PFFV, a preferred shares fund, and 22.5% in gold GLDM. It is down 3.92% months to date so far. In March it's up 3.73% year to date and up 4.8% since inception in July 2020. Next one is the aggressive 50-50. This is the least diversified and most levered of these portfolios and also the worst performer. It is one-third in a levered stock fund UPRO, one-third in a levered bond fund TMmf, and the remaining third, divided into a preferred shares fund and an intermediate treasury bond fund, is ballast. It's down 5.32 percent for the month of march. So far. It's up 0.58 year to date and down 11.42 percent since inception in july 2020.
Mostly Uncle Frank:Next one's a levered golden ratio. This one's a year younger than the rest of them. It is 35% in a composite levered fund called NTSX that's the S&P 500 in treasury bonds, 25% in gold GLDM, 15% in a REIT O, 10% each in a levered small cap fund TNA, and a levered bond fund TMF. The remaining 5% in a managed futures fund KMLM. It is down 1.91% for the month of March. It is up 2.2% year-to-date and down 2.32% since inception in July 2021. And our last one is our newest one the Optra portfolio.
Mostly Uncle Frank:One portfolio to rule them all this is a return stacked portfolio that we put out last year. It is 16% in a levered stock fund UPRO, 24% in a composite worldwide value fund AVGV, 24% in GOVZ, a treasury strips fund, and the remaining 36% divided into gold and managed futures. It was down 2.5% for March so far. It's up 1.21% year to date and at 4.16 since inception in july 2024. And that concludes our portfolio reviews, which is a good thing, because my voice is really flagging.
Mostly Uncle Frank:I award you no points and may god have mercy on your soul. But now I see our signal is beginning to fade. If you have comments or questions for me, please, please send them to frank at riskparityradiocom. That email is frank at riskparityradiocom. Or you can go to the website wwwriskparityradiocom. 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. Give and like subscribe. Give me some stars, a follow, a review that would be great.
Mostly Uncle Frank:Okay, Thank you once again for tuning in. This is Frank Vasquez with Risk Parity Radio signing off.
Voices:Oh, my mama told me There'll be days like this. Oh, my mama told me There'll be days like this. Oh, my mama told me There'll be days like this. Oh, my mama told me There'll be days like this. Oh, my mama told me There'll be days like this.
Mary and Voices: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.
