Risk Parity Radio

Episode 370: Jamming In Joe's Garage With Simba's Backtester And SVOL And Portfolio Reviews As Of October 11, 2024

• Frank Vasquez • Season 5 • Episode 370

Share episode

In this episode we answer emails from Jimmy, Dave and Richard.  We discuss the joys of Joe's Garage, the Bogleheads Simba spreadsheet and Lazy Portfolios and a revisit of the ETF SVOL.

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:

Simba's Spreadsheet (Article And Link):  Simba's backtesting spreadsheet - Bogleheads

SVOL Webpage:  SVOL Simplify Volatility Premium ETF | Simplify

Richard's SVOL vs. Equity ETFs Analysis:  testfol.io/analysis?d=eJxdikEKwjAQRa8S%2FjoL68JFruEBwtCkMu04kUmaIuLdDbgR3%2B7x3guN5y1bRYC79iKuPp5ur%2FfuqO8dHrWRtZio5bEMz5p%2B7Fs7CcJ0GnhQWiPrItS4KMJCUrOHFRHWWzxYUzkQLuOci1n8D9P5%2FQF55jJ4

Richard's SVOL Portfolio Analysis:  https://tinyurl.com/bddjy2k4

Eric Balchunas Interview:  Eric Balchunas on The Hidden Gems of the ETF World You Need to Know! (youtube.com)

Amusing Unedited AI-bot Summary:

Imagine a finance podcast that's as entertaining as a night out at your favorite dive bar. I'm Frank Vasquez, and on this playful yet insightful episode of Risk Parity Radio, we hit a milestone of 750,000 downloads, a delightful gift for my 60th birthday. Join me as I reminisce about the impact of Frank Zappa's "Joe's Garage" on my youth and answer listener emails, including a deep dive into Simba's Backtesting Spreadsheet. We ponder the Bogleheads' seemingly timeless investment models and their reluctance to embrace change.

Turning our focus to innovative ETF strategies, we dissect the SVOL ETF, an inverse VIX fund with the potential to spice up your portfolio. Despite its lack of historical data and the risk of significant distributions in taxable accounts, this ETF might just find its rightful place in your retirement portfolio. We examine the broader trend of creative ETFs, thanks to recent SEC rule changes, and weigh the psychological appeal against the need for financial prudence. Curiosity piqued, we also explore SVOL's correlation with growth or value stocks.

Rounding out the episode, we analyze weekly portfolio performances with strategies like the All Seasons, Golden Butterfly, and Risk Parity Ultimate. I update you on specific portfolio allocations and performances, highlighting the beauty of consistent returns, even if they might seem uneventful. Engage with us through questions or comments, subscribe, and leave a review. As we wrap up, enjoy a humorous tale that weaves together music, relationships, and personal growth, leaving you informed and entertained. Remember, this episode offers insights for entertainment and informational purposes, so consult your personal advisor for tailored financial advice.

Support the show

Mary and Others:

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

Mary and Others:

If a man does not keep pace with his companions.

Mostly Uncle Frank:

Perhaps it is because he hears a different drummer.

Mary and Others:

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.

Mary and Others:

Expect the unexpected.

Mostly Uncle Frank:

There are basically two kinds of people that like to hang out in this little dive bar. You see, in this world there's two kinds of people my friend See, in this world there's two kinds of people my friend, the smaller group are those who actually think the host is funny, regardless of the content of the podcast.

Mary and Others:

Funny. How, how am I funny?

Mostly Uncle Frank:

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

Mary and Others:

Abby, someone Abby who Abby, normal 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 the best, jerry, the best and they are here to share information and to gather information to help them continue managing their portfolios as they go forward, particularly as they get to their distribution or decumulation phases of their financial life.

Mary and Others:

What we do is, if we need that extra push over the cliff. 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 370. 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. Boring, yes, it was pretty boring, but we'll do it anyway. But a couple of things before we get to that. First, I had my 60th birthday yesterday.

Mary and Others:

Death stalks you at every turn, grandpa. Well, it does. There it is Death.

Mostly Uncle Frank:

And, as fortune had it, we also crossed 750,000 downloads for this podcast. So it was a very nice birthday present and I thank you all for your participation in such a feat.

Mary and Others:

It's because it's my birthday and I want it Next stop one million downloads.

Mostly Uncle Frank:

And, of course, the reason many, if not most, of you listen to this is so I can answer your emails, and so, without further ado, here I go once again with the email. And First off, first off, an email from Jimmy.

Mary and Others:

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

Mostly Uncle Frank:

And Jimmy writes Hi Frank.

Mary and Others:

Thank you for the Frank Zappa Joe's Garage clips in episode 356. It really made my day. Keep doing what it's funny, jimmy.

Mostly Uncle Frank:

Frank Zappa's Joe's Garage was actually part of my formative education. It was popular when I was in high school and had a bunch of friends who were all in a German class.

Mary and Others:

as it happened, joe has just learned to speak German. Now get this. Here's why he did it. He's going to go to this club on the other side of town. It's called the Closet, and they got these appliances in there that really go for a guy dressed up like a housewife who can speak German. You know what I mean. So Joe's learned how to speak German. He goes into this place and he sees these little kitchen machineries dancing around with each other, and we would sing things off of this, most of which I will not repeat here right now.

Mostly Uncle Frank:

But I am getting together with these friends in about a month because we are all celebrating our 60th birthdays.

Mary and Others:

Oh, where were we Dad?

Mostly Uncle Frank:

And I would imagine that we'll be bursting into some songs from Joe's Garage.

Mary and Others:

It's really exciting, and when he sees it he bursts into song.

Mostly Uncle Frank:

So I'm glad you enjoyed it and thank you for your email. Second off.

Mary and Others:

Second off, we have an email from Dave.

Mary and Others:

And Dave writes Frank, this is a follow-up to today's episode where you talk about different portfolio simulation tools. I have found this spreadsheet much more useful than early retirement nows. It has a bunch of lazy portfolios already built into it, like portfolio charts, allows for pretty easy comparison between different portfolios and, best of all, I have been able to use the Excel built-in solver to optimize various mixes of assets to various objective metrics, effectively performing my own efficient frontier analysis. Best regards, Dave.

Mostly Uncle Frank:

Well, thank you for this reference, dave. This is called Simba's Backtesting Spreadsheet and it is something that is updated by the mogul heads regularly and has a plethora of data that can be used for various analyses, some of which goes back 100 years and some of which goes back more like 50 years, but it does tell you how far each set goes back on the spreadsheet itself. I think Tyler of Portfolio Charts actually has incorporated a lot of this into what you see at portfolio charts, and I did take a look at those lazy portfolios that are built into this spreadsheet and I thought this was kind of interesting and indicative of the Bogleheads culture. If you look at those sample portfolios, they're all over 10 years old and some of them are over 20 years old and it doesn't look like anyone's really tried to update that in over a decade or more. And they're all named after particular people, as if the identity of the person who came up with it is the important thing. It's as if the whole concept of portfolio construction went into some kind of stasis 10 or 15 years ago and there has been no progress since then in Boglehead world and unfortunately that is part of that culture Not everybody in that culture, but a great number of people in that culture refuse to look at anything after circa 2010, 2011,.

Mostly Uncle Frank:

Or consider anything new, and, unfortunately, what some of that has devolved into is this kind of groupthink and guru worship, where what's important about the portfolio is the name of the person and not what the portfolio is constructed of, or what it does, or how it works, or whether it's better for decumulation or accumulation, or what it is, and so you need to recognize that whenever you're dealing with Bogle head material, there's a good chance that a good part of it is going to be obsolete. That it was state of the art in 2010, but it's probably no longer state of the art today, and when I hear people defending it against all new ideas and essentially sticking their fingers in their ears and yelling blah, blah, blah, I don't want to listen to anything new. I am reminded of Emerson's quote a foolish consistency is the hobgoblin of little minds, adored by little statesmen, philosophers and divines. But you should treat personal finance as an evolving technology. It's not a physical science like physics. It's not a religion, a Dead Sea Scrolls.

Mostly Uncle Frank:

There are no prophets of personal finance that need to be obeyed at all costs and at all times, and we always need to do what Bruce Lee advises when confronted with expert material, which is absorb what is useful, discard what is useless and add something that is uniquely your own, and that's how we're going to get better at this. So use the calculator, but I would forget about the lazy portfolios listed there. To the extent you want to look at some of those, they're also on portfolio charts with things that are newer and better for withdrawing from, and if you are involved in maintaining that tool, I would suggest that you start adding new portfolios to it so that they can be compared with old portfolios and stop pretending that there isn't new or better information since somebody came up with those, because there is, you saying you want a piece of me.

Mary and Others:

You want a piece of me, you got it.

Mostly Uncle Frank:

Thank you for the tool though. It's a great tool and hopefully people can make use of it. I will link to it in the show notes, of course, and thank you for your email.

Mary and Others:

Serenity now. Serenity now. What is that? Doctor gave me a relaxation cassette. When my blood pressure gets too high. The man on the tape tells me to say Serenity now. Last off.

Mostly Uncle Frank:

Last off, an email from Richard.

Mary and Others:

Oh, richard, I'm so happy, hold me.

Mostly Uncle Frank:

And Richard writes.

Mary and Others:

Hi Frank. You discussed SVOL once last year and at the time dismissed it as not useful in most portfolios.

Mostly Uncle Frank:

Not going to do it Wouldn't be prudent at this juncture.

Mary and Others:

But I wonder if you wouldn't mind giving it a second look. Given the positive correlation with equities, but significantly lower beta, I wonder if it wouldn't work as an equity alternative. Here's a comparison with a couple of equity funds. With that premise, I randomly swapped out about 30% equities with SVOL and a couple of sample portfolios. Equities with SVOL and a couple of sample portfolios links below Obviously, the back test period is short from mid-2021, and I've so far been unable to find a way to simulate the SVOL strategy to go back further, but in all cases the returns were improved with better Sharpe and Sortino ratios. Thoughts Are we all dumber now? In any case, I've implemented it with a small test portfolio to see how it performs going forward. Cheers, richard.

Mostly Uncle Frank:

Don't run away from your feelings. All right, just to orient people here, we did discuss this ETF, svol S-V-O-L back in episode 254. And it's one of the Simplify ETFs that are relatively new. I will link again to the webpage for it in the show notes. But what it is is kind of an inverse VIX fund, so the VIX, or volatility index, tends to move opposite to the stock market. When the VIX is high, that usually means the stock market is doing poorly. So what they've constructed here using derivatives is something that goes the opposite way of the VIX, essentially something that is positively correlated with the stock market, but it's not exactly the same thing as the stock market correlated with the stock market, but it's not exactly the same thing as the stock market. And so the idea here would be to use this as part of your stock allocation, as something that is going to perform as well or similarly over a long period of time, but have different performances at different times, thereby giving you some additional diversification in the stock part of your portfolio. And I think I said at the time in episode 254 that it's an interesting concept, but we don't have really enough data to say whether it's really a good addition to a portfolio or not, and I still think the same thing is true. We don't really have enough data to properly evaluate this thing, and the reason is that the data we do have is largely data involving lower VIX prices, and so it probably makes this thing look better than it actually is or would look if you were analyzing it across the course of, say, 30 or 40 years. Were analyzing it across the course of, say, 30 or 40 years? One thing you should note, though, is there was one big spike during the time of its existence, which actually occurred recently, back in early August or late July of this year, when the VIX spiked up considerably due to the unwind of a carry trade, and you can see that this thing really took a huge dive. It did recover right away, like the stock market did generally, but it looks like it dived at least 10 or 12% within a week or less, so I think it's likely more volatile than the current data would suggest. That being said, I'm still intrigued by it, and I'm glad you are running a little experiment with a test portfolio. As long as you don't bet the farm on it, you might get better results, as your tests have suggested, and I will link to that in the show notes.

Mostly Uncle Frank:

There are a couple other issues with S-Ball, one being that it pays large distributions and so I would definitely not want to be holding this in a taxable account. Now, a lot of those are also return of capital and they actually put out a monthly report on what part of it is income and what part of it is return of capital. Anyway, if you have this in a taxable account, your taxes surrounding it may get somewhat and they will be more than a comparable allocation, to say, an index fund. But obviously, if you put it in a retirement account, you're not going to have those kinds of problems, which is probably where this thing would belong. But this is a good example of a new financial technology and there was an excellent podcast I heard this week.

Mostly Uncle Frank:

I will link to the YouTube version in the show notes and what it is. It's from Resolve Asset Management and they're interviewing a guy named Eric Balchunas who has written extensively about the developments of ETFs and other investments, including a book that's kind of the biography of Vanguard. Anyway, they talked with him about the recent development of all of these ETFs, because prior to about 2018 or 2019, you really couldn't use derivatives inside of ETFs. The SEC started allowing that, which has led to this whole plethora of new products. Some of them are like this one, other ones are like the managed futures ones we talk about DBMF and KMLM. And then you have the ones that are heavily marketed on the profitable side for their creators, and that would include the Infernal JEPI and all of those other buy right kind of products. And they also discuss some of these newer sort of collared or buffered ETFs that give you part of the stock market return in exchange for not losing money. A lot of those sorts of products have become popular now with financial advisors because they go down easy psychologically.

Mary and Others:

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

Mostly Uncle Frank:

They're not very efficient. However, and one of the things they pointed out was what I've always said about these buy-write ETFs like JEPI or QYLD or any number of other ones, is that you can replicate that simply by holding less of the underlying in an allocation to cash, and when they were talking about Chepi, they said, yeah, this is no different than holding 60% in the market and 40% in T-bills. So it's a great thing that we have all of these new products and options that we didn't have before, but on the other hand, there are a lot of these things that really aren't that great for your finances and are psychologically appealing but not financially attractive. So I think you need to be careful about all of these products and be mindful that most of them are very new, with the exception of ones that are based on older algorithms that you could actually test going back for 20 or 30 years. Something like KMLM would fall into that category. I would say.

Mostly Uncle Frank:

The jury is still out on SVOL, but I'll be curious to see how it all works out for you, because it is an interesting product and an interesting additional approach. I'm also interested to know whether it correlates more with growth stocks an interesting additional approach. I'm also interested to know whether it correlates more with growth stocks or with value stocks. I would expect that it correlates more with growth stocks and large cap growth in particular. Anyway, very interesting stuff. Everyone in this room is now dumber for having listened to it, and thank you for your email, and may God have mercy on your soul.

Mostly Uncle Frank:

And now for something completely different, and the something completely different that we get to do now is our weekly portfolio reviews of the eight sample portfolios you can find at wwwriskparityravecom on the portfolios page. Really not much happened this week. The S&P 500 was up 1.11% for the week. The NASDAQ was up 1.13% for the week. Small cap value, represented by the fund VIOV, was up 0.53% for the week. Gold was nearly flat. It was up 0.03% for the week. Nearly flat it was up 0.03% for the week. Long-term treasury bonds, represented by the fund VGLT, were the big loser. They were down 1.71% for the week. Reits were also down. Our representative fund, reet, was down 0.76% for the week. Commodities, represented by the fund PDBC, were up 0.14% for the week. Preferred shares, represented by the fund PFF, were up 0.24% for the week and finally, our representative managed futures fund was down. Dbmf was down 0.58% for the week. Now moving to these portfolios, and this will put you to sleep, I think.

Mary and Others:

Ranger, feel drowsy. It's only mid-afternoon. Well, I took the liberty of putting away something in your tea. What are you talking about? I'm putting you to sleep.

Mostly Uncle Frank:

First one's a reference portfolio we call the All Seasons. It is 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 was down 0.35% for the week. It's up 9.17% year-to-date and up 10.83% since inception in July 2020. Moving to these kind of bread-and-butter portfolios First one's Golden Butterfly since inception in July 2020. Moving to these kind of bread and butter portfolios First one's Golden Butterfly this one is 40% in stocks in a total stock market fund and a small cap value fund, 40% in treasury bonds, divided into long and short, and 20% in gold GLDM. It was up 0.05% for the week nearly flat. It's up 11.51% year to date and up 34.39% since inception in July 2020.

Mostly Uncle Frank:

Next one's golden ratio this one's 42% in stocks and three funds, 26% in long-term treasury bonds, 16% in gold, 10% in REITs and 6% in a money market fund. In cash, it was down 0.07% for the week. So another almost flat performance. It's up 12.67% year-to-date and up 31.88% since inception in July 2020. Next one's the risk parity ultimate kind of the kitchen sink here. It's got 15 funds in it that I'm not going to go through. One fund that's notable is a fund called KBA which invests in Chinese A shares and was up by ridiculous amounts in the prior couple of weeks and was down by a ridiculous amount in the past week, which caused this portfolio to lose ground. So it was down 0.92% for the week. It's up 14.91% year to date and up 22.68% since inception in July 2020. Now moving to these experimental portfolios involving leveraged funds. You have a gambling problem.

Mostly Uncle Frank:

First one's the accelerated permanent portfolio. This one's 27.5% in a levered bond fund TMF, 25% in a levered stock fund Eupro, 25% in PFF, a preferred shares fund, and 22.5% in gold GLDM. It was down 0.60% for the week. It's up 17.13% year-to-date and up 7.34% since inception, July 2020. Next one's the aggressive 50-50. This one 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 in ballast in a preferred shares fund, PFF, and an intermediate treasury bond fund, VGIT. It was down 0.55% for the week. It's up 14.47% year-to-date and down 6.12% since inception in July 2020. Next one's the levered golden ratio. This one is 35% in a composite levered fund called NTSX, that is, the S&P 500 and Treasury bonds together. 25% in gold GLDM, 15% in a REIT O, 10% each in a levered small cap fund TNA, and a levered bond fund, TMF, and the remaining 5% in a managed futures fund KMLM. It was up 0.10% for the week. It's up 14.97% year-to-date and down 0.51% since inception in July 2021.

Mostly Uncle Frank:

And moving to our last one and newest one, the Optra portfolio One portfolio to rule them all. Yes, that's a joke. This one is 16% in a levered stock fund, UPRO, 24% in a composite worldwide value fund called AVGV, 24% in a Strips treasury bond fund, GOVZ, and the remaining 36% divided into gold and managed futures, GLDM and DBMF. It was down 0.19% for the week. It's up 6.05% year-to-date and since inception in July 2024. All in all, that was a very big snoozer this time around, but that's not a bad thing Snooze and dream.

Mary and Others:

Dream and snooze. The pleasures are unlimited.

Mostly Uncle Frank:

And now I see our signal is beginning to fade. If you have comments or questions for me, please send them to frank at riskparityradarcom. That email is frank at riskparityradarcom. Or you can go to the website, wwwriskparityradarcom. Put your message into the contact form and I'll get it that way. If you haven't had a chance to do it, please go to your favorite podcast provider and like subscribe. Give me some stars, a follow or a view. That would be great. Okay, thank you once again for tuning in. This is Frank Vasquez with Risk Party Radio Signing off. Hi, it's me again, the Central Scorotenizer.

Mary and Others:

Joe says Lucille has messed his mind up. But was it the girl? Or was it the music? As you can see, girls, music, disease, heartbreak, they all go together. Joe found out the hard way, but his troubles were just beginning. His mind was so messed up he could hardly do nothing. The guy was a wreck. So what does he do? For once, he does something smart. For once he does something smart.

Mary and Others:

He goes out and pays a lot of money to L Ron Hoover at the First Church of Appliantology. 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