Risk Parity Radio

Episode 414: Another RPR Variation, More Cowbell, Accounting For Social Security And Portfolio Reviews As Of April 11, 2025

• Frank Vasquez • Season 5 • Episode 414

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In this episode we answer emails from Jeremy, Brad, and James.  We discuss a more aggressive risk-parity portfolio similar to the Weird Portfolio, the problems with data analysis and recency bias and considerations in accounting for Social Security or pensions in retirement portfolio planning.

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:

Jeremy's Portfolio on Portfolio Visualizer:  https://www.portfoliovisualizer.com/backtest-asset-class-allocation?s=y&sl=LDhLHuhVF5zOKfTZckLT7

Weird Portfolio:  Weird Portfolio – Portfolio Charts

Testfolio Portfolio Comparison (90/10 vs. 50/50):  https://testfol.io/?s=2TDnqWEw5FE

Bogle Interview (re Social Security):  Jack Bogle on Index Funds, Vanguard, and Investing Advice

Kitces Interview (re Social Security):  Social Security: Part of Your Asset Allocation?

Breathless AI-Bot Summary:  

"A foolish consistency is the hobgoblin of little minds," begins this episode, capturing the essence of breaking away from conventional investment thinking. Stepping into Frank's metaphorical "dive bar of personal finance," listeners are treated to an exploration of portfolio diversification during turbulent market conditions.

Frank tackles three thought-provoking listener questions that challenge common investing assumptions. First, he analyzes a balanced portfolio proposal with equal allocations to large-cap growth, small-cap value, REITs, long-term treasuries, and gold, explaining why this more aggressive risk parity approach shows promising safe withdrawal rates. The conversation shifts to the dangers of recency bias when a listener questions the underperformance of a 50-50 small-cap value/large-cap growth portfolio over just five years. Frank emphasizes that even a decade of data can be "just noise" when evaluating investment strategies, reminding us to focus on performance during challenging market periods rather than recent returns.

Perhaps most compelling is Frank's fresh perspective on integrating Social Security into financial planning. Challenging the notion that Social Security should be viewed as fixed-income allocation, he suggests treating it more like an annuity that reduces expenses rather than an asset within your portfolio. This shifts the conversation from wealth preservation to life maximization, encouraging retirees to consider increasing discretionary spending rather than hoarding assets.

The weekly portfolio review reveals a fascinating market story: while the S&P 500 has fallen 8.64% year-to-date and small-cap value has plummeted 19.69%, gold has surged 23.12%. This perfect illustration of risk parity principles shows how properly diversified portfolios maintain remarkable stability despite individual asset volatility. The unlevered sample portfolios remain down less than 1% year-to-date, demonstrating the power of hearing that "different drummer" when constructing your investment approach.

Have questions about building your own diversified portfolio? Email frank@riskparityradio.com or visit the website to connect directly. Don't forget to subscribe and leave a review wherever you listen to podcasts!


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Voices:

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.

Mary and Voices:

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. We have no sponsors, we have no guests and we have no expansion plans.

Voices:

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

Mostly Uncle Frank:

What we do have is a little free library of updated and unconflicted information for do-it-yourself investors.

Voices :

Now, who's up for a trip to the library tomorrow?

Mostly Uncle Frank:

So please enjoy our mostly cold beer served in cans and our coffee served in old chipped and cracked mugs, along with what our little free library has to offer. Welcome of the eight sample portfolios you can find at wwwriskparryweavercom on the portfolios page.

Voices:

I love gold.

Mostly Uncle Frank:

Yeah, well, we better love gold, because not much else is doing that well.

Voices:

And that's the way. Uh-huh, uh-huh, I like it. Casey and the Sunshine Band.

Voices:

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

Mostly Uncle Frank:

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

Voices:

He's a real nowhere man Sitting in his nowhere land Making all his nowhere plans for nobody.

Mary and Voices:

And jeremy writes hello, frank and mary. I enjoy the podcast and have been listening for several weeks now. I was messing around with the golden ratio and golden butterfly portfolios. Recently on portfolio charts I found a different combination that is perplexing me and wondered about your thoughts on it. I've run a comparison and it has a 6.6 safe withdrawal rate for 30 years, which is larger than the other two. Am I missing something important? I really enjoy your show and perspective. Thanks, jeremy.

Voices :

I must complete my bust. Two novels finish my blueprints, begin my beguine, hey Jeremy most of you always talk in rhyme. If I spoke prose, you'd all find out. I don't know what I talk about.

Mostly Uncle Frank:

All right, so just so we can all orient ourselves, what Jeremy is running in this simulation is a portfolio that is 20% large cap growth, 20% small cap value, 20% REITs, 20% long-term treasury bonds and 20% gold. And yes, jeremy, I think that portfolio should perform pretty well. It's very similar to what is called the weird portfolio from Value Stock Geek, which you can find at Portfolio Charts as well. If you do look at your portfolio visualizer simulation, you'll see that essentially it's just a more aggressive kind of risk parity style portfolio, since it's got effectively 60% in stocks in it, whereas something like the Golden Ratio and Golden Butterfly are looking at 40 and 50 percent-ish allocations to riskier assets like that, and you can see a little bit of that. If you look at the portfolio visualizer analysis I will link to in the show notes, you'll see that the sharp and sortino ratios of the golden butterfly and golden ratio are higher than your proposed portfolio, even though your proposed portfolio performs better, and that just means you have a more aggressive allocation. The other big difference between your proposal and these other ones is that you do not have any short-term bonds or cash-like instruments in there, which also will tend to dampen the performance both in volatility and in returns in the golden butterfly and golden ratio portfolios, and I suppose you should also bear in mind that if you run this in Portfolio Visualizer, the read data only goes back to 1994, so you're limited in that circumstance.

Mostly Uncle Frank:

I would also play around with it at the Testfolio site because you may be able to get some different time frames out of it there, but it looks good to me. I should say I would not rely on the 6.6% number as a absolute number, simply because the data for portfolio charts does not go back into the 1960s or the 1930s, so I always tend to mentally subtract about half a percent from whatever number I get in portfolio charts when I'm thinking about what would I really think the limit of this thing is. Anyway, thank you for presenting that to us. I hope other people will find it useful to use or to play with. This is what I would hope people would do with this information here not to simply copy, but to add something of their own. Either way is pretty good, though, and thank you for your email.

Voices :

So little time, so much to know. Hey fellas, look the footnotes for my 19th book. This is my standard procedure for doing it, and while I compose it, I'm also reviewing it. A boob for all seasons. How can he lose? Well, your notice is good. It's my policy never to read my reviews. There must be a word for what he is.

Mostly Uncle Frank:

Second off. Second off an email from Brad.

Voices:

You worked at All-American Burger.

Voices:

Seven months ago. Uh, I knew it.

Mary and Voices:

And Brad writes Hi Frank, I have two portfolios. I always had a 90% total market and 10% small cap blend IJR. However, from listening to your episodes, I created another account where I hold 50% small cap value and 50% large cap growth Consistently for the past five years. The 50-50 account has underperformed my 90-10 portfolio. I've been adding only to the latter, but I'm wondering if I shouldn't go back to my original 90 10 mix. Is the cowbell really worth it and my result is only circumstantial, or is cowbell overrated? I know your answer, but I want to brain tease you anyway. Thanks, brad.

Voices:

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

Mostly Uncle Frank:

Well, the issue really is that you're only looking at five years of data, and Fama and Ken French in particular have famously said that even only 10 years of data is just noise in terms of these kinds of analyses. So a five-year analysis is really kind of meaningless, because if you take any given five years, you'll find different combinations of things that perform the best within that time frame. So no, it doesn't mean anything it doesn't work for me.

Voices:

I gotta have more cowbell.

Mostly Uncle Frank:

I gotta have more cowbell what you really most care about are performances in the worst periods, like the early 2000s or the 1970s or things like that, because if you're just looking at the best periods, I can tell you that anything that's large-cap growth is probably going to outperform just about anything else. The end of the story.

Voices:

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

Mostly Uncle Frank:

The problem with allocations like that is you can run into periods like the early 2000s. Those first three years were brutal for growth stocks of all shapes and sizes, whereas value stocks didn't do so bad and actually look pretty good, and the same thing for a year like 2022. The problem is you just don't know when you're going to have those kind of years in the future. I don't know.

Voices :

You don't know, you're not a doctor.

Mostly Uncle Frank:

So what you're really just showing here is what's called recency bias.

Voices :

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

Mostly Uncle Frank:

Which is exactly what most amateur investors do. They look at the last one to ten years and try to pick things based on that, thinking that whatever's happened in the last one to ten years is going to be predictive of the future. And it usually isn't, and they usually underperform their own holdings due to that habit or procedure.

Mary and Voices:

That's not an improvement.

Mostly Uncle Frank:

I did run these for comparison purposes in the Testfolio site and it goes back to 1994 for these two particular things and you can see the difference that the 50-50 portfolio is the better one in most of the time frames that you could model there, including the longest one. So I'll let you check that out. You can contemplate your recency bias.

Voices:

You're not going to amount to jack squats. You're going to end up eating a steady diet of government cheese and living in a van down by the river.

Mostly Uncle Frank:

And thank you for your email.

Voices:

Guess what.

Voices:

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

Voices:

All right, Hamilton.

Mostly Uncle Frank:

Last off. Last off, an email from James.

Voices:

Hey Jim baby.

Mostly Uncle Frank:

And James writes Hi Frank.

Mary and Voices:

How do you factor Social Security income into a financial plan slash asset allocation? Bogle and Kitsis seem to have advised to count the present value of future SSI payments as a fixed income allocation to your portfolio. This approach would steer an investor towards a higher equity allocation to balance out that fixed income exposure. Option B would be only consider how much less you will need to draw down from your portfolio in the future, resulting in a smaller necessary portfolio size. Asset allocation considerations in this context are unchanged. The investor just needs a smaller asset pool due to the SSI income reducing overall withdrawal needs.

Mary and Voices:

Are you in the camp of option B? If you're in camp A, counting it as an asset within the portfolio, how would you define its contribution? Certainly not the 100% nominal treasuries because of the inflation adjustment aspect 80% treasuries and 20% gold. As a side note, anytime I've looked at the present value of future projected SSI, I've applied a discount to the value to account for risks of means testing, higher taxation or just generally lower benefits in future decades Probably a worthwhile consideration for younger listeners. Links to the Bogle and Kitsis interviews below Best James.

Voices:

I see you brought up reinforcements. Well, I'm waiting for you, Jimmy boy.

Mostly Uncle Frank:

Well, this is a very interesting question.

Mostly Uncle Frank:

I actually don't think it's appropriate to just look at a pension payment as a fixed income allocation in a portfolio, because you can't rebalance it.

Mostly Uncle Frank:

It is actually akin to an annuity, and so, in order to value it, you would go to someplace like immediateannuitiescom, play around with that and see what it would cost to buy a similar annuity that would have a similar payment stream.

Mostly Uncle Frank:

I much prefer option B as a practical matter, where you're simply reducing your expenses by the amount of this payment stream.

Mostly Uncle Frank:

However, I don't agree with your assertions or your limitation in option B that asset allocations considerations in this context are unchanged, because ultimately, what you would need to do here is look at how much of this income stream is covering things like your mandatory expenses. So it's not just looking at it in a raw sense, because if the only expenses left to be covered by the portfolio are all discretionary, then you can probably be more aggressive with that portfolio, but that's going to be more of a preference. And then you get to this question of well, what is the goal of the portfolio if a substantial part of the expenses are covered by Social Security or the payment stream? And this is where, in reality, people's goals often for that are to do nothing with it and leave it for their heirs. That's kind of the sad truth of it, and I do think it's sad when people sit on money like that and don't spend it while they're alive like that and don't spend it while they're alive.

Voices:

I'm a grumpy old man. I don't like everything the way it is now, compared to the way it used to be. In my day we had radio and you couldn't see anything and it was primitive and lousy and we liked it.

Mostly Uncle Frank:

And so, if you're one of those people, you should be holding 100% equities or Warren Buffett's 90-10 kind of portfolio, because the purpose of that money, then is no longer for current spending but to maximize it at death.

Voices:

Death stalks you at every turn.

Mostly Uncle Frank:

Now, if you're on the opposite end of the spectrum, where you're looking at that portfolio as something that you can spend out of and you're going to try to maximize the spending out of it, then you're going to be looking for portfolios that have the highest safe withdrawal rate and you are actually going to increase your spending, your discretionary spending, to match whatever you feel like you can maximally spend out of this diversified portfolio. And that would be the choice that I would make and that we are making effectively is that when we start getting more money out of social security and stuff, if we still have an excess of funds which I expect we probably will we will just spend more money at that point.

Voices:

More money, more money, more money.

Mostly Uncle Frank:

Or give it away, and that is the wild card here. I don't think that is being considered, because this is thinking of your expenses as some fixed amount that you've already set, independent of the assets, whereas I think that you could set your spending based on the assets in your allocation, and I think that is actually a preferable way to effectively maximize life and it's really what we plan on doing. It's also what we do now. If we have excess income, it goes into more spending. It doesn't go into more hoarding, at least after the tax man takes his cut what guy in a suit?

Mostly Uncle Frank:

no, it's a tax collector so, to summarize my answer, it is option b, with a modification of spending to increase it based on the type of portfolio held, so as to maximize spending during retirement. Your mileage may vary and may be different if your priority is hoarding and not spending.

Voices:

Today, everybody, everybody spoiled run. When I was a boy, we didn't have these video games. We made up our own games like chew the bark off the tree. You and your friends would find a nice oak tree and you start chewing the skin off of it and there were no winners. Everybody was a loser. It rotted your teeth and left your intestines scarred and knotted. And that's the way it was and we liked it. We loved it.

Mostly Uncle Frank:

I would not attempt to model Social Security as a fixed income allocation, because it's akin to an annuity. It's not an asset that you can hold, rebalance, purchase more of or do anything like a typical fixed income asset that you could do. So I don't think that analogy is apt To me. It only really makes sense in the kind of hoarding scenario where your goal is to maximize the amount of money at death.

Voices:

There it is, death.

Mostly Uncle Frank:

In which case, maybe you do think of that as your fixed income and then get more aggressive on the portfolio side so as to maximize your net worth when you're dead.

Voices:

Dead is dead.

Mostly Uncle Frank:

Probably wasn't the answer you were expecting, although some of you probably expected it.

Voices:

Expect the unexpected.

Mostly Uncle Frank:

But it was a very interesting question.

Voices:

Flippity flu.

Mostly Uncle Frank:

Hopefully that helps and thank you for your email.

Voices:

In my day. We didn't know what to say when we were mad, so we just made up things like flippity flu because we were idiots and that's how it was Just a bunch of people flying out of car windows in their burning pajamas, shouting into a melon and chewing on trees. And that's the way it was and we liked it.

Voices:

Now we're going to do something extremely fun.

Mostly Uncle Frank:

And the extremely fun thing we get to do now is our weekly portfolio reviews of the eight sample portfolios you can find at wwwriskparryweavercom on the portfolios page. The financial markets continue to be extremely volatile, but this has resulted in not really much movement year to date for most of these portfolios. It's kind of a snooze fest actually when you look at the results. Boring Looking at those markets. The S&P 500, represented by VOO, is down 8.64% for the year. The NASDAQ, represented by the fund QQQ, is down 10.99% for the year. Small cap value continues to be the worst performer this year. Representative fund VIOV is down 19.69% for the year. Small cap value continues to be the worst performer this year. Representative fund VIOV is down 19.69% for the year, but gold continues to be the big winner this year.

Voices:

This is gold, Mr Bond. All my life I've been in love with its color, its brilliance, its divine heaviness. I welcome any enterprise that will increase my stock.

Mostly Uncle Frank:

Representative Fund GLDM is up 23.12% for the year.

Voices:

I think you've made your point. Goldfinger, Thank you for the demonstration. Do you expect me to talk? No, Mr Bond, I expect you to die.

Mostly Uncle Frank:

Long-term Treasury bonds, represented by the fund VGLT, were down substantially last week but are still up 0.66% for the year. Reits, represented by the fund REET, are down 4.6% this year. Commodities, represented by the fund PDBC are down 2.31% for the year. Preferred shares, represented by the fund PFFV are down 3.24% for the year. Preferred shares represented by the fund PFFV are down 3.24% for the year and managed futures, represented by the fund DBMF, are down 3.57% for the year. Moving to these portfolios, first one's the all-seasons portfolios, or reference portfolio. It's only got 30% in stocks in a total stock market fund, vti, 55% in intermediate and long-term treasury bonds and the remaining 15% in gold and commodities. It is down 3.24% for April. So far, it's down 0.69% year-to-date and up 7.81% since inception in July 2020.

Mostly Uncle Frank:

Now, moving to these kind of bread and butter portfolios. Next one's the 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 the remaining 20% in gold. It is down 2.82% month to date for April, down 0.72% year to date and up 32.96% since inception in July 2020. Next one's the golden ratio.

Mostly Uncle Frank:

This one's 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 a managed futures fund and 6% in cash. Percent in gold, 10 percent in a managed futures fund and 6 percent in cash. It is down 3.12 percent month to date, for April and pretty much down that year to date. It's down 3.15 percent year to date and up 25.85 percent since inception in July 2020. Next one's the risk parity ultimate. I won't go through all 14 of these funds, but it is down 4.19% month-to-date for April, meaning it's down 3.54% year-to-date and up 17.01% since inception, july 2020. Now, moving to these experimental portfolios, where we see some scary stuff, because these involve leveraged funds and are not something you should be trying at home.

Voices:

We got a scary one for you this week.

Mostly Uncle Frank:

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 PFFV, a preferred shares fund, and 22.5% in gold GLDM. Although it's up to 28% in gold right now, it is down 7.59% month to date, which means it's down 3.92% year to date and down 2.93% since inception in July 2020. Next one's the aggressive 50-50. This is the worst performer of these portfolios. It has the most leverage in it and the least diversification, and it all shows. So this one's one-third in a levered stock fund UPRO, one-third in a levered bond fund TMF, and the remaining third divided into PFFV, a preferred shares fund, and VGIT, a intermediate treasury bond fund. It is down 10.59% month-to-date. It is down 11.96% year-to-date and down 22.46% since inception in July 2020.

Mostly Uncle Frank:

And the next one's one of the newer portfolios the levered golden ratio. This one is 35% in a composite levered fund called NTSX that's, the S&P 500 and Treasury bonds levered up 1.5 to 1. In treasury bonds, levered up 1.5 to 1. 20% in gold GLDM, 15% in a international small cap value fund called AVDV, 10% in KMLM, which is a managed futures fund, 10% in a levered bond fund TMF, and the remaining 10% divided into two levered funds UDOW, which tracks the Dow, and UTSL, which is a utilities fund. It is down 4.22% month-to-date for April. It's down 1.91% year-to-date and down 6.24% since inception in July 2021.

Mostly Uncle Frank:

And now, moving to the last portfolio, the Optra portfolio, which is the newest one. This one is 16% in a levered stock fund Upro, 24% in a composite worldwide value fund AVGV, 24% in a treasury bond strips fund GOVZ, and the remaining 36% divided into gold and managed futures. It is down 4.86% month to date. It's down 4.86% month-to-date. It's down 3.91% year-to-date and down 1.11% since inception in July 2024. And that concludes our weekly portfolio reviews. You would think these portfolios would move a lot more with the recent market turmoil, but it's really the diversification in them having things that are going up a lot like gold and things that are going down a lot like stocks that result in a pretty flat performance, at least for the unlevered ones, which are really the ones we care about the most anyway. So what does this mean for the future? Well, we can consult our little crystal ball here.

Mary and Voices:

My name's Sonia. I'm going to be showing you the crystal ball and how to use it, or how I use it.

Mostly Uncle Frank:

But you know the Risk Parity Radio crystal ball always tends to say the same thing. It's like a magic eight ball that gets stuck.

Mary and Voices:

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

Mostly Uncle Frank:

And here's what it has to say today.

Voices:

We don't know. What do we know? You don't know, I don't know, nobody knows.

Mostly Uncle Frank:

All we really know at this point is that we will have some significant rebalancings to do. When it comes time for that, we'll be selling a lot of gold and buying a lot of stocks and other things.

Mostly Uncle Frank:

Buy low sell high Fear. That's the other guy's problem. Most of that is going to happen in July for at least the first four portfolios, but now I see our signal is beginning to fade. If you have comments or questions for me, 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 and give me some stars, a follow or a review.

Voices:

That would be great.

Mostly Uncle Frank:

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

Voices:

No real man. Please listen, you don't know what you're missing. No real man, the world will act your command. He's a real Nowhere man Sitting in his Nowhere Land Making all his Nowhere plans for nobody. Making all his nowhere plans for nobody. Making all his nowhere plans for nobody. Making all his nowhere plans for nobody.

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.

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