Risk Parity Radio

Episode 432: A Transition Quandary, The 25 x 4 Portfolio, RPR On Afford Anything Podcast, Other Stuff And Portfolio Reviews As Of June 20, 2025

• Frank Vasquez • Season 5 • Episode 432

Share episode

In this episode we answer emails from Isaiah, Jack, Jon and Luke.  We discuss preliminary transition issues and de-risking, Jack's "25 x 4" risk parity style portfolio, Invictus and similar themes, treasury bonds and gold as co-diversifiers and ESG funds.  And revel on how we Tom Sawyer'ed Paula Pant into creating a nice 'Risk Parity Portfolio Blueprint" for us.

And THEN we our go through our weekly portfolio reviews of the eight sample portfolios you can find at Portfolios | Risk Parity Radio.

To donate to the Top of the T-Shirt campaign and double your fun, please visit the Father McKenna Center donation page and note "Risk Parity Radio Match" when making your contribution.

Additional Links:

Father McKenna Center Donation Page:  Donate - Father McKenna Center

Afford Anything Podcast Episode:  #618: How to Retire at 50 While Supporting Aging Parents, with Frank Vasquez - Afford Anything

Paula Pant's Risk Parity Radio Blueprint:  Frank Vasquez Risk Parity Portfolio Giveaway.docx

Claudia Moise Paper:  Flights to Safety, Volatility Risk, and Monetary Policy by Claudia E. Moise :: SSRN

Professor Aswath Damodaran on ESG Funds:  The Difficult Truth about ESG Investing with Aswath Damodaran

FRDM Fund:  FRDM – Freedom 100 Emerging Markets ETF – ETF Stock Quote | Morningstar

Breathless AI-bot Summary:

What happens when retirement portfolio theory meets real-life investment challenges? In this illuminating episode of Risk Parity Radio, Frank Vasquez responds to listener questions that cut to the heart of creating resilient, diversified portfolios for financial independence.

A military member with six years left before retirement asks how to transition from a heavy equity allocation to a risk parity approach without triggering unnecessary tax consequences. Frank offers practical guidance on using existing retirement accounts to begin de-risking immediately, demonstrating how macro allocation principles can work within institutional constraints. The advice highlights a crucial lesson: reducing overall market exposure takes precedence over perfecting individual asset selections.

The psychological challenges of portfolio construction take center stage when a medical professional shares his "25 by 4" portfolio, showing equal allocations to large cap blend, small cap value, gold, and intermediate treasuries. While validating the approach, Frank addresses the emotional resilience needed when certain assets inevitably underperform for extended periods. This conversation exposes a troubling disconnect between certified financial planning education and practical portfolio construction, particularly regarding gold's vital diversification benefits.

Misconceptions about long-term treasury bonds receive special attention, with Frank explaining why their value in risk parity portfolios transcends historical performance during falling interest rates. Their tendency to show negative correlation with stocks during recessions provides the portfolio protection that enables sustainable withdrawal strategies.

For those interested in values-based investing, Frank challenges the notion that commercial ESG products truly align with personal ethics. His recommendat

Support the show

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.

Mostly Mary:

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 sample portfolios that you can find at wwwriskpartyradarcom on the portfolios page. Boring and I realize I missed. Last week I was off in Montana visiting my parents and celebrating Father's Day with my 96-year-old father.

Voices:

Grandpa, how'd you take off your underwear without taking off your pants?

Voices:

I don't know.

Mostly Uncle Frank:

We were able to get him out a couple times, including meeting up with one of our listeners here, Chuck, who's become a good friend in the Missoula area and is also a lawyer, if you're looking for one there.

Voices:

He used to be a caveman, but now he's a lawyer, a frozen caveman lawyer.

Mostly Uncle Frank:

And so good times were had by all. Oh, behave, yeah. But I am back in front of the microphone again at home and since the emails continue to stack up, I suppose it's time to tend to some of them. But before we get to that, and in late breaking news as I'm recording this podcast, it appears that Paula Pant has released an episode on Afford Anything, the Afford Anything podcast. That is an interview of me about risk parity radio and risk parity concepts. I know some of you had been waiting for that.

Voices:

Oh, how convenient.

Mostly Uncle Frank:

And, of course, she did an excellent job because she is a professional journalist and it shows. Sometimes people think that interviewing people on podcasts is easy. It's actually quite a skill that needs to be developed and she is one of the best.

Voices:

The best, Jerry the best.

Mostly Uncle Frank:

For my part, I was able to pull a Tom Sawyer maneuver on her. Looks like you've been missing a lot of work lately. I wouldn't say I've been missing it, bob, and get her to put together a little cheat sheet, if you will, of risk parity concepts and you can download that from the podcast page. I will link to that in the show notes, the Afford Anything podcast page, and I'll try to link directly to the place where you can download the cheat sheet. But I know that will be of interest to some of you too. Imagine having Paula Pant be one of your top men working on your podcast.

Voices:

We have top men working on it right now.

Mostly Uncle Frank:

Who Top men. I am certainly quite fortunate, Lucky, and for those of you who have never been here before but have come over here to listen to this podcast because you just heard about it on the Afford Anything podcast, the one thing you need to know about what we do here is that this is a retirement hobby for me, so it does not sound like a commercial podcast and it's not intended to and it never will, and so you also have to put up with my sense of humor.

Voices:

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

Mostly Uncle Frank:

Which is actually why some people listen to this podcast. Not for the content at all.

Voices:

What is this? Wonka Some kind of fun house.

Mostly Uncle Frank:

Why having fun? Anyway, if you can bear with me, you'll probably learn something at some point in time.

Voices:

You're that smart. Let me put it this way have you ever heard?

Voices:

of Plato, Aristotle, Socrates.

Mostly Uncle Frank:

And, if not, have a nice day.

Voices:

You know what Napoleon?

Mostly Uncle Frank:

You can leave, but now let's turn to those emails.

Voices:

And so, without further ado, here I go once again with the email go once again with the email, and first off first off an email from Isaiah.

Mostly Mary:

And Isaiah writes. Hi, frank and Mary, thanks for the great work you do. I've learned a ton from listening to you and reading the sources you've recommended. I also love hearing about the Father McKenna Center and the generosity of your audience. I signed up to support on Patreon and plan to stay a member indefinitely.

Mostly Mary:

My wife and I have accumulated a little over a million dollars in retirement assets and live frugally enough that we could be financially independent in the next year or two if accumulation were the only factor. However, I have six years of service commitment left Air Force, so I'll be working until age 44. She'll probably retire the same time I do. I want to transition our assets from our 95% equity allocation to a risk parity portfolio as we approach retirement. I've listened to several of your past episodes about transition and think I understand your views on it, but I am facing some limitations with the accounts the money is in now, the options available in those accounts and the fact that there is a high cost in relationship capital. If I want my wife to change anything about her accounts, here is a spreadsheet with the details, but in a narrative format for the podcast.

Mostly Mary:

We each have 401ks, roth IRAs and taxable brokerage accounts. I also have some cryptocurrency and some non-public REITs that I'm in the process of unwinding. I'm looking to go to a golden ratio style portfolio that I extended one more slot with 3.5% at the bottom allocated to crypto. The transition plan I drew up puts long-term treasuries and gold in a taxable account and REITs in a Roth which isn't tax efficient but works with the dollar amounts I have in each account to get close to my desired allocation and the fact that there aren't any long-term treasury, gold or REIT options in either of our 401ks. I think the cost and tax inefficiency and capital gains realized in converting from equities to alternatives is worth the diversification leading up to retirement to avoid negative sequence of returns issues, as opposed to waiting until retirement when I can roll the 401ks into IRAs and locate the assets more appropriately. What do you think, isaiah? We can put that check in a money market mutual fund.

Mostly Uncle Frank:

Then we'll reinvest the earnings into foreign currency accounts with compounding interest. And it's gone Well. First off, isaiah has gone to the front of the email line because he has become a donor to the Father McKenna Center. As most of you know here, 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. We are currently running a promotion which we're calling the Top of the T-Shirt Campaign. One of our listeners put up $15,000 in matching funds and we're hoping to match that in more, and in fact we are matching that in more.

Voices:

Yes.

Mostly Uncle Frank:

But we'll be running it for another month here and we're hoping to get as many donors as possible. So if you're thinking of sending in an email, I suggest you also send in a donation. Otherwise it's going to be a long wait before I get to your email. You can donate in two ways Either go through the support page and go to Patreon, as Isaiah has done here that's at our website, wwwriskparityradiocom or go directly to the Father McKenna website. I'll put it again in the show notes, the donation page there. If you donate there, please put a little note in the dedication box indicating that it's in connection with Risk Parity Radio and your donation will be greatly appreciated.

Mostly Uncle Frank:

Now let's get to your questions. I did take a look at your spreadsheet and I think there may be some more efficient ways to approach this than what you're thinking about. Before I talk about that, I think one of the key issues here is how much of your expenses are going to be covered by your pension from the Air Force and how much need to be covered by this portfolio, because you can be a lot more flexible on this portfolio if most or all of your expenses are actually being covered by the pension, and we'll talk a little bit about that as to how it plays into this portfolio. But looking at your spreadsheet, what I saw was that you had about one quarter of your assets in either the TSP, which is the government 401k plan or its equivalent, and a 401k plan or its equivalent and a 401k plan. And I think the easiest thing to do with that since you want to have about that much in bonds and you want it in long-term treasury bonds eventually is to actually move all of that into whatever bond funds you have available right now. I know in the TSP you have the F fund and that would be a good place to park this until you can move it out into an IRA and put it in exactly what you want. But I think that's close enough for the purpose of de-risking the portfolio, because that's really what you're talking about here. If we are applying the macro allocation principle, the first task here is reducing the exposure, the overall exposure, to the stock market, and so, whether it's in the exact bond fund you want or some other bond fund, that's close enough for de-risking purposes. We can just go ahead, or you can just go ahead and do that right now and that will make, I think the rest of your proposals a lot easier to deal with.

Mostly Uncle Frank:

The next thing I would be looking at is I'm not sure what your stocks are actually invested in in terms of the mix of funds. That wasn't clear. If you are trying to move some into value-tilted funds, which you should probably be doing, I think you can do that most easily in the Roth, because you have a lot of Roth money floating around in there and that is a reasonable place to put more stock index funds. All of this is to try to reduce the number of transactions you need to actually do in a taxable account. Now, one thing I wasn't sure about, because I didn't know the income levels we're talking about here, is what is your long-term capital gains tax rate? I'm assuming it's probably 15%, because that is true for most people At least most people listen to this podcast. If it's 0%, obviously you should be tax gain harvesting, but if it's 15%, then maybe we can reduce the transactions that you're planning on doing in the next five years to instead of $100,000 a year. You can shift that to maybe only $50,000 a year or less, because I think that is where you can actually put the gold and perhaps put the managed futures, since there doesn't appear to be room in the Roth or traditional IRAs, 401ks, tsps but I think that would be a more efficient way of approaching this than what you've proposed.

Mostly Uncle Frank:

You'd also suggested putting the managed futures, or some of the managed futures, in the Roth IRAs. That would not be a bad choice either. Now it looked like you were going to let the REITs run off and then put that in cash or something else. In that context, I would also be turning off any reinvestment you have of dividends in the taxable account, so you can just use those dividends to buy whatever else you're missing and reduce the number of transactions you have to do in terms of conversions. You can also think about when you add money to the portfolio to build out whatever is missing.

Mostly Uncle Frank:

Now you also indicated that you'd planned on holding 6% in cash. I'm not sure you need that much cash given your pension, but it's difficult for me to know. You didn't put the parameters of that, but I would think about maybe reducing that and then putting more of that money maybe back into an additional stock allocation, because you can be a little bit more aggressive in this portfolio than somebody who's living off it entirely because of that pension, but I would probably not hold 6% cash, given what you've got going on here, and would use that 6% for other investments in the portfolio, or most of it. I think you are doing this at the right time. The stock market is at, or near an all-time high. It sounds like interest rates are likely to decline in the future, although people seem to argue about that every day, at least from the Fed perspective.

Voices:

Forget about it.

Mostly Uncle Frank:

So that means it's a good time to move some of the money into bonds, even though I would not market time that. But if you do shift that TSP money and 401k money into the bonds kind of immediately, that will sufficiently de-risk your overall portfolio a lot and then you can take your time building out the other assets in the portfolio and then once you do retire you can roll those into an IRA and buy whatever you want, as opposed to the limited fund selections you probably have in there. I think that's the F fund for the TSP, but sometimes I mix those up since I don't have one.

Mostly Uncle Frank:

There is probably something similar to that in your wife's 401k, or maybe a treasury bond fund, an intermediate treasury bond fund, that you can move things into. But I think you're in good shape and it sounds like it's a good time to be doing this stuff.

Voices:

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

Mostly Uncle Frank:

And so hopefully that helps. Thank you for your donation and thank you for your email, and so hopefully that helps. Thank you for your donation.

Voices:

And thank you for your email.

Mostly Uncle Frank:

Second off, we have an email from Jack. Here's Johnny.

Mostly Mary:

And Jack writes Monkey, watch me pull a rabbit out of my hat Again. I've hit financial independence, but haven't pulled the trigger on retirement yet. It's tough in the medical field, where any pause of more than a year or two can make it impossible to return to your former specialty due to loss of skills, certification and licensure.

Voices:

As you can see, all communication is shut off. In spite of our mechanical magnificence, if it were not for this continuous stream of motor impulses, we would collapse like a bunch of broccoli.

Voices:

Oh God.

Voices:

In conclusion, it should be noted give him an extra dollar. An extra dollar, yes, sir, that any more than common injury to the nerve root is always serious, because once a nerve fiber is severed, there is no way in heaven or on earth to regenerate life back into it.

Mostly Mary:

One more year syndrome is real. After looking at calculators like Portfolio Visualizer, portfolio Charts and Testfolio, I came up with a simple risk parity style portfolio that checks all the boxes for me. It starts with a golden butterfly portfolio, eliminates the cash portion and puts all of the treasuries in intermediate term. I have followed a risk parity style portfolio since late 2021, but arrived at this final form in 2024. I call it 25 by 4 because it consists of 25%. Each large cap blend, small cap value, gold and intermediate treasuries. Portfolio charts says the safe withdrawal rate is over 6%. I rebalance quarterly and my plan is to withdraw money to live on. With each rebalancing I would take out 3% annually for basic expenses, an additional 1% for nice to have items and another 1% for luxuries if market conditions allow.

Mostly Mary:

I've run this through some retirement calculators, such as Bolden, but they don't really handle risk parity style portfolios all that well. I had a one-time meeting with a CFP who basically told me gold has a negative real return and it makes no sense to hold it. What are they teaching in CFP school these days? That's not how it works. That's not how any of this works. What do you think of this portfolio? What am I missing. Anyway, thanks again for all you do for us DIY investors. I've enclosed the readout from portfolio charts for reference Jack.

Voices:

Wendy, I'm home.

Mostly Uncle Frank:

Well, jack, first thank you for being a donor to our Top of the T-Shirt campaign, which is also why you've gone to the front of the email line here today.

Voices:

That is the straight stuff. Oh funk master.

Mostly Uncle Frank:

And congratulations on hitting financial independence. Yes, I think the next step is to organize your portfolio so it's all lined up before you actually pull the plug on employment. Now, looking at your portfolio, your 25 by 4 portfolio this actually reminds me of the permanent portfolio, since it's got the four asset classes there is there, and if you took a permanent portfolio which has 25% in cash in it and just flip that cash into small cap value stocks, you would get something that looks almost exactly like the 25 by 4 portfolio. Surely you can't be serious. I am serious and don't call me Shirley, but I think this ticks all the boxes in terms of portfolios that tend to have higher safe withdrawal rates. It has 50% in stocks, which is close to the sweet spot for that. It has between 15 and 30% in treasury bonds, it has between 10 and 25% in alternative assets and it has less than 10% in cash, and also you have a 50-50 growth and value split in the stock portion. So, yeah, it's a very serviceable portfolio. Look, it's MacGyver.

Voices:

Do you know how to pick locks?

Mostly Uncle Frank:

The one issue you may encounter with it is psychological and it has to do with the gold in it, because 25% is a lot of gold we're having in a portfolio, and gold has a habit of having good decades and then having bad decades. And so, for example, if you would have retired with this around 1980, you would have seen two bad decades in a row for your gold holdings and it would not have been pleasant. Of course, your stock and treasury bond holdings would have done fantastic, especially the treasury bond, since the interest rates were falling. But that's the way these portfolios work. Something's going to be having a bad time and something's going to be having a good time. If you look at this decade, you would say, well, treasury bonds are terrible and they're having a bad time. And you hear people say, well, I don't want those, can't be in those, I want gold. Now the point of holding both of them is you don't know what you're going to get. It's the old Forrest Gump world here.

Mostly Mary:

My mom always said life was like a box of chocolates you never know what you're going to get, and that's why you hold both of them.

Mostly Uncle Frank:

But just be aware that you could have a bad decade in the next few for gold and it could go nowhere or even decline. That doesn't mean you'll have a problem with the portfolio, but it does mean that it will look like it's underperforming the whole time, even though it's performing well enough to take your withdrawals out of. If you wanted to reduce that exposure, you would reduce it by 5% or 10% and then put that in either a different asset class, like managed futures, or you could put it in some kind of additional stock fund or utilities fund or REIT fund or something like that, and then you'd probably be disappointed when gold continued to rise like it has done in the past couple of years here. So if you've liked what you've constructed here, I think you can roll with it.

Voices:

It's 106 miles to Chicago. We got a full tank of gas, half a pack of cigarettes, it's dark and we're wearing sunglasses. Hit it sunglasses.

Mostly Uncle Frank:

Hit it Now. As for your encounters with this CFP, my experience is that just because someone has a CFP doesn't mean they actually know anything, because some people seem to have studied for that and then completely forgot everything they learned. I did ask ChatGPT what a CFP would do in terms of a gold allocation and ChatGPT said a CFP would put probably 10% in a retirement portfolio. I'm not sure that's the case, but that's what it said. I always find it amusing to ask artificial intelligence these kinds of questions just to see what comes up.

Mostly Uncle Frank:

The statement you got, from whoever you talked to, is clearly wrong that gold has a negative real return and it makes no sense to hold it Wrong Wrong, I mean. You can just run a back test and you'll see that gold tends to go up and to the right over time, at least since it's been tradable and we've been off the gold standard since 1970. And it seems to have a return that is somewhere between bonds and stocks and is uncorrelated with both of them, which is really why you're holding it. You're not holding it to generate returns. You would hold more stocks if you were just trying to generate returns. You're holding it for diversification purposes so you have a lower drawdowns and therefore a higher safe withdrawal rate. And if the CFP didn't understand that, then they do not understand how it works.

Voices:

I award you no points and may God have mercy on your soul.

Mostly Uncle Frank:

But they may also be working for some company that basically tells them what to say and what to sell, because that is the way the financial services industry works.

Voices:

Am I right or am I right or am I right Right?

Voices:

right right.

Mostly Uncle Frank:

And if they are not recommending something like gold to their clients, then they have to come up with a whole series of excuses to justify that. And that's what you often see the financial services industry doing is they will come up with kind of a set plan as to what they do and then come up with a series of reasons why they don't do something else. That may or may not actually be valid, and oftentimes they're not valid because they're more marketing than they are finance.

Voices:

Because only one thing counts in this life Get them to sign on the line which is dotted.

Mostly Uncle Frank:

As for Bolden and many retirement calculators, they often obscure what they're actually doing in terms of calculations and make it actually more difficult to run analyses of portfolios. And that's the problem you have with a black box calculator that's doing both expense projections and portfolio projections, because those are two completely different exercises and I would try to keep them at least separate in your head, even if they aren't separate in the calculator, because a projection of expenses has everything to do with the person involved, in their lifestyle, and so that can be adjusted fairly easily and is largely predictable, in the sense that it's more about risk and less about uncertainty. When you're talking about projecting returns out of a portfolio, then you are talking about degrees of uncertainty, and so you are not going to get precise readings or printouts out of a proper portfolio projection. What you should be getting out of a portfolio projection is a range of potential outcomes, like in a Monte Carlo simulation, and then you work with that. So it's not the same as just adding up a stream of numbers and saying this is the number in the end.

Mostly Uncle Frank:

And from what I hear from the creator of Bolden, I don't think he really understands proper forecasting techniques. At least it's not clear to me that he does, because it's got a lot of misleading settings in there that allow people to basically set things to conservative or aggressive in terms of return assumptions, and that's not how you should be doing this. You should put in the best estimate you have. The easiest way to get that is to be using historical averages. But if you're going to be putting in some other numbers for those returns, then they better be the best estimate that you have, based on whatever crystal ball you think is the most accurate.

Mostly Mary:

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

Mostly Uncle Frank:

Because if you're not using your best estimates, you are inserting an error into the calculator, then compounding it and it will get you way off the reservation. And oftentimes these calculators inadvertently encourage people to do that, and so you get a lot of garbage out of calculators based on the erroneous assumptions that are input into them. And most CFPs don't know how to do that either, because they don't learn anything about proper forecasting techniques in the CFP curriculum.

Voices:

Almost as stupid as a stupid does.

Mostly Uncle Frank:

Anyway, that's my cautionary rant about retirement calculators once again.

Voices:

You need somebody watching your back at all times.

Mostly Uncle Frank:

Because they can easily be turned into never retirement calculators, or very precise and precisely wrong.

Voices:

Forget about it.

Mostly Uncle Frank:

Thanks for being a loyal listener all these years, Jack. I'm glad to see you are getting to that point of pulling the plug.

Voices:

Hearts and kidneys are tinker toys.

Mostly Uncle Frank:

I'm sure it'll come soon enough and thank you for your email.

Voices:

Bow to your sensei. Bow to your sensei.

Mostly Uncle Frank:

Next off, we have an email from John.

Mostly Mary:

Well, how about, john? That's nice and simple.

Voices:

What are you serious?

Voices:

Well, yeah.

Voices:

John, you want to do that to the kid.

Mostly Uncle Frank:

And John writes Hi Frank.

Mostly Mary:

Thanks to you and folks like Tyler at Portfolio Charts, I'm in such a better position to handle stock market volatility than I was five years ago when the stock market dropped at the beginning of COVID. My psychology is so much better, I have so many more tools at my disposal and I have a much greater perspective. I'm so grateful to have found Risk Parity Radio. No questions, just thanks, John.

Mostly Uncle Frank:

Well, John, I'm glad we have been of assistance here and I agree that Tyler of Portfolio Charts has probably been of more assistance to you. I just add the colored commentary.

Voices:

Hey, talk about it.

Voices:

What do you say? I just got back from the Horde of the Fae. Horde of the Fae? What's an Horde of the Fae? It's what you ought to do, but you do anyway.

Mostly Uncle Frank:

But I think this goes back to kind of an ethos that we had in the OG fire community back in the day, when I'm talking about 2009,. 2010, on the boards at early retirement extreme where both Tyler and I hung out. The first rule of Fight Club is you do not talk about Fight Club. The second rule of Fight Club is you do not talk about Fight Club, and the idea there was we're just going to figure things out, that we can learn the things we need to learn to manage our own investments and do whatever else we needed to do, and create the things that we need to learn to manage our own investments and do whatever else we needed to do, and create the things that we need to create it matters not how straight the gate, how charged with punishments the scroll.

Voices:

I am the master of my fate, I am the captain of my soul.

Mostly Uncle Frank:

And we were just going to do it and put it out there and share it. No one can stop me and not accept the kinds of limitations that seem to be imposed by the financial services industry or even now, a lot of people in the personal finance world and maybe I'm just an old grump, but I feel like some of that has been lost, because it seems like there is a lot more of what I would call learned helplessness in the fire community these days, of people making up reasons why they can't spend money or why they have a problem and I can't change and I can't solve this and I don't know how, and all of that's just not true. Where's the spirit?

Voices:

Where's the guts? Huh?

Voices:

This could be the greatest night of our lives.

Voices:

But you're going to let it be the worst. Oh, we're afraid to go with you, bluto, we might get in trouble.

Mostly Uncle Frank:

If you are listening to this program, you can probably learn this stuff or anything else you need to learn to manage your own money. That's the truth and we will help you. Just ask, no charge.

Voices:

Ludo's right Psychotic, but absolutely right. In this case, I think we have to go all out.

Voices:

We're just the guys to do it.

Voices:

Let's do it. Let's do it.

Mostly Uncle Frank:

Go, go, go Go. So thank you for your support. I'm glad your psychology is better. And thank you for your support. I'm glad your psychology is better.

Voices:

And thank you for your email, always with you. What cannot be done? Hear you nothing that I say. You must unlearn what you have learned Last off.

Mostly Uncle Frank:

Last off, we have an email from Luke.

Voices:

All right, I'll give it a try.

Voices:

No try, not Do or do not. There is no try.

Mostly Uncle Frank:

And Luke writes.

Mostly Mary:

Frank, two quick questions. First, I understand the benefit of the lack of correlation of long-term bonds to stocks, but doesn't that asset class just backtest well due to 40 years of declining interest rates? Second, I haven't heard you refer to ESG funds at all. I would be curious to hear your thoughts on why adding that level of active management isn't worth it. Even if the screening process doesn't perfectly align with one's worldview, it seems like something might be better than nothing. Thanks for the continued lessons you're passing on, Luke.

Mostly Uncle Frank:

All right, two questions. Doesn't the asset class of long-term bonds backtest well due to four years of declining interest rates? Well, they're not declining anymore, but what you say is applicable to any period when an asset is doing well. So you might say well, doesn't the stock market just test well since 2010, since it's been going up? Doesn't gold just test well because it's been going up? Doesn't gold just test well because it's been going up in the past five years? So it's not really a meaningful question. The real question is do long-term treasury bonds fulfill the purpose that you want them to fulfill in a portfolio like this?

Voices:

You had only one job.

Mostly Uncle Frank:

And that question is answered by whether they will go up and be negatively correlated with stocks in a recessionary environment. And the answer to that is yes since the 1950s, and it was true in the 1970s and 60s it's true today. I'll link to a paper that I've linked to before by Claudia Moise, m-o-i-s-e, which is about the volatility of stock markets and treasury bonds, and there is a nice little chart that is appended to the end of it I think it's Annex 1 or something like that which shows you how the correlation between treasury bonds and stocks varies over time. But it goes negative every time there's a recession and that's why you're holding them, not because you think there's some particular crystal ball that's going to tell you what they're going to do next.

Mostly Mary:

As you can see, I've got several here.

Mostly Uncle Frank:

A really big one here, which is huge.

Mostly Uncle Frank:

But the point I'm trying to make is that asset class is no different than any other asset class in that it has good periods and bad periods.

Mostly Uncle Frank:

It does kind of go with the last question, though, which is in that period, particularly in the 80s and 90s, when long-term treasury bonds were one of the best things to hold, you would also have been holding gold in your portfolio, and that would have performed terribly, and so you would say, well, doesn't that asset class just test poorly because it tested poorly in the past 20 years? Well, it's true for that period, but it's not meaningful in terms of what the future is likely to bring. So whether one asset class tests well or badly in one particular period does not tell you whether it's a good thing to have in your portfolio or not by itself. What's more important really is how does this set of assets perform in a particular economic environment? I think the other mistake that is implied by these kinds of questions that I hear often is the magic hand of mean reversion, the idea that, well, treasury bond yields have fallen for a period of decades, therefore in the future they will rise for a period of decades. That is completely fallacious reasoning.

Mostly Mary:

That's not how any of this works.

Mostly Uncle Frank:

Because we do not know what yields will be in the future. If you did, you could be very rich very quickly.

Mostly Mary:

You can actually feel the energy from your ball by just putting your hands in and out.

Mostly Uncle Frank:

But unless you have an accurate crystal ball that predicts such things, I suggest you not try to predict them.

Mostly Mary:

Now you can also use the ball to connect to the spirit world.

Mostly Uncle Frank:

Because I will tell you that in the early 1980s people didn't want to buy treasury bonds. They didn't want to buy them all through the 80s and into the 90s because they were waiting for the 70s inflation to return and it didn't come back. So somebody who just held them and bought more of them through the 1970s is the kind of person who would have benefited. So if you were holding one of these kind of portfolios, say, through the 60s and 70s and into the 80s, yeah, your treasury bonds did terrible in the 1970s while your gold was doing well. And then in the 1980s, the treasury bonds did great while the gold was doing poorly and stocks were up and down, mostly down. In the 1980s, the treasury bonds did great while the gold was doing poorly and stocks were up and down, mostly down in the 70s, except for value-tilted stocks and mostly up in the 80s. All right. Second question ESG funds. Well, my opinion of them is the same as Oswalt de Moterans, the professor at NYU who's the god of all things valuation, and basically what he says is don't bother for commercially prepared ESG funds, because if you are really serious about this, you need to do direct indexing. Don't kid yourself.

Mostly Uncle Frank:

If you are serious about choosing investments based on values personal values then it is your job and it is incumbent on you to actually review all the companies you are investing in. And that is what he does, because his wife his example was my wife did not want to hold any fund with an investment in Monsanto, and so he did not hold any index funds that invested in Monsanto. Instead, he went through and created a portfolio of individual stocks that suited what they were wanting to invest in or not invest in. And if you are really interested in this topic, that is what you need to do.

Mostly Uncle Frank:

Go, take an index fund that you would have invested in, say, the S&P 500. Look at the top 50 stocks in there. That'll be basically mimicking the rest of the index. Exclude anything that you don't want to invest in after you've read all of the information about them, and then add on new ones at the end of it, and then you will have created your own ESG fund and it will be tailored to your particular values, because if you're thinking that some other company is going to create something that actually conforms to your values, you're just kidding yourself. This is one of those things that either you need to do it the right way, or don't do it at all and don't pretend that buying some product off the shelf actually makes you more righteous in some way, because it doesn't.

Voices:

Bing again.

Mostly Uncle Frank:

Now there are a lot of funds out there that you may want to take a look at that are very specific as to what kind of values they're investing in. I'll give you an example. There's a fund called Freedom F-R-D-M that invests in emerging markets, but only the ones that have a positive score for things like human rights. Now, you can certainly use funds like that in a risk parity style portfolio. Just make sure that you know what they are in terms of growth versus value and small versus large, et cetera, and then put them in the right category. As far as that is concerned, now, that particular fund actually has performed pretty well, particularly this year. It's up about 20%. But other than the fact that it's a large cap blend fund, I really couldn't tell you much of anything else about it. But you can look a lot of this stuff up on Morningstar if you're so inclined. Anyway, that's all I got for you on that. Hopefully that helps, and thank you for your email.

Voices:

It's a trap, it's a trap, it's a trap.

Voices:

It's a it's a trap. And now for something completely different.

Mostly Uncle Frank:

And the something completely different is our weekly portfolio reviews of the eight sample portfolios you can find at wwwriskprioritycom on the portfolios page.

Voices:

Boring.

Mostly Uncle Frank:

Yes, it was pretty boring last week Checking out these markets for the year. The S&P 500, represented by the fund VOO, is up 2.31% for the year. The NASDAQ 100, represented by QQQ, is up 2.31% for the year. The NASDAQ 100, represented by QQQ, is up 3.2% for the year. Small cap value, represented by the fund VIOV, is down 10% for the year and is still the big loser. Gold is still the big winner.

Voices:

I love gold.

Mostly Uncle Frank:

Gold is still the big winner. I love gold. Gold is currently up 28.22% for the year, as represented by the fund GLDM. Long-term treasuries, represented by the fund VGLT, are up 1.32% for the year. Reits, represented by the fund REET, are up 4.49% for the year. Commodities did have a big week it is the oil spike week. Our representative fund, pdvc, is up 7.01% for the year. Now, preferred shares, represented by the fund PFFV, are down 0.01% for the year, and managed futures, represented by the fund DBMF, are now down 1.18% for the year.

Mostly Uncle Frank:

Moving to these portfolios, first one's a reference portfolio the All Seasons. It's only 30% in stocks and a total stock market fund, 55% in intermediate and long-term treasury bonds and the remaining 15% in gold and commodities. It is up 1.59% month-to-date. For June, it's up 4.41% year-to-date and up 13.35% since inception in July 2020. Moving to the 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 in long and short, and 20% in gold. In GLDM. It's up 1.23% Month to date. For June, it's up 4.89% Year to date and up 40.47% since inception in July 2020.

Mostly Uncle Frank:

Next one's 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 DBMF and 6% in cash in a money market fund. It's up 1.33% month to date. For June, it's up 3.45% year to date and up 34.44% since inception in July 2020. Next one's the kitchen sink the risk parity ultimate. I'm not going to go through all 14 of these funds, but it's up 1.03% month to date. For June, it's up 3.01% year to date and up 22.93% since inception in July 2020. Moving to these experimental portfolios, we do hideous experiments here, so you don't have to.

Mostly Uncle Frank:

Don't try this at home. These all involve leveraged funds.

Mostly Uncle Frank:

First one's the Accelerated Permanent Portfolio. This one is 27.5% ina 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's up 1.46% month-to-date, it's up 3.15% year-to-date and up 4.21% since inception in July 2020. Now, moving to our most hideous experiment, the aggressive 50-50, which is our least diversified and most levered of these portfolios. It's one-third in a levered stock fund Upro, one-third in a levered bond fund TMF, and the remaining third divided into a preferred shares fund and an intermediate treasury bond fund. It's up 1.24% month-to-date, it's down 3.75% year-to-date due to its lack of diversification and it's down 15.23% since inception in July 2020.

Mostly Mary:

That's not an improvement.

Mostly Uncle Frank:

Moving to one of our newer ones, the levered golden ratio. This one is 35% in a composite fund called NTSX that's, the S&P 500 and and Treasury bonds levered up 1.5 to 1. 20% in gold GLDM, 15% in an international small cap value fund AVDV, 10% in a managed futures fund KMLM, 10% in a levered bond fund TMF, and the remaining 10% divided into UDOW and UTSL, which are levered funds following the Dow and a utilities index. It's up 0.35% month-to-date, still leading the pack year-to-date. It's up 5.59% year-to-date and up 0.92% since inception, july 2021, which was an inauspicious start date. Now moving to the last one, our newest one, the Optra portfolio. It's a return stacked portfolio, so it's 16% in a levered stock fund UPRO, 24% in a worldwide value fund AVGV, 24% in a US Treasury Strips Fund GOVZ, and the remaining 36% divided into gold and managed futures. It is up 1.62% month-to-date. It's up 4.2% year-to-date and up 7.23% since inception in July 2024. It's almost a year old now.

Voices:

Well, la-dee-frickin'-da.

Mostly Uncle Frank:

But that concludes our portfolio reviews for the week. Hopefully you aren't snoring too loudly at this point.

Voices:

Well, you haven't got the knack of being idly rich. You see, you should do like me just snooze and dream, dream and snooze. The pleasures are unlimited.

Mostly Uncle Frank:

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, a review. That would be great. Okay, Thank you once again for tuning in. This is Frank Vasquez with Risk Party Radio Signing off.

Voices:

Up we go into the wild sky, yonder. If the Thank you Fighting men guarding the nation's border, we'll be there for the fireball In actual war. We carry on, for nothing will stop the Air Force, for nothing will stop the US Air Force.

Mostly Mary:

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.

People on this episode

Head Shot

Frank Vasquez

Host