Risk Parity Radio

Episode 408: Rebalancing Frequency, Share Lending, Style Boxes, Strips, And The Golden Ratio Portfolio

• Frank Vasquez • Season 5 • Episode 408

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In this episode we answer emails from Randy, Richard and Jamie.  We discuss rebalancing frequency, share-lending at Fidelity, moves in Morningstar's style boxes and strips treasury funds vs. long term treasury bond funds.

And we announce the new listing of the Golden Ratio portfolio at Portfolio Charts and thank Tyler and Van for that.

Links:

Father McKenna Center Donation Page:  Donate - Father McKenna Center

Golden Ratio Portfolio at Portfolio Charts:  Golden Ratio Portfolio – Portfolio Charts

Golden Ratio Portfolio Write-Up:  Beautiful Constants and the Golden Ratio Portfolio – Portfolio Charts

Kitces Article re Rebalancing: 
Optimal Rebalancing – Time Horizons Vs Tolerance Bands

Discussion of Changes to Morningstar's Style Boxes:  Morningstar redefines growth/value style box criteria - Bogleheads.org

Risk Parity Radio All Episodes Feed Page:  Risk Parity Radio RSS Feed

Amusing Unedited AI-Bot Summary:

Exciting news opens this episode as Frank announces the Golden Ratio Portfolio has been officially added to Portfolio Charts, complete with its own dedicated page and insightful write-up. This recognition represents a significant milestone for a portfolio strategy that has been a cornerstone topic throughout Risk Parity Radio's 400+ episodes.

The heart of the episode focuses on answering thoughtful listener questions about portfolio management techniques. Randy inquires about rebalancing frequency and whether to participate in Fidelity's securities lending program for gold ETFs. Frank explains that while rebalancing more frequently than once a year generally doesn't improve performance, coordinating semi-annual rebalancing with tax planning can be advantageous. As for securities lending, Frank shares his personal experience that these programs work smoothly but typically generate minimal income—setting realistic expectations for listeners considering this option.

A particularly detailed discussion explores the nuances between traditional long-term treasury funds and STRIPS funds (GOVZ, ZROZ, EDV). Frank clarifies that STRIPS-based ETFs typically move at approximately 1.5 times the rate of standard long-term treasury funds when interest rates change, effectively functioning as a form of leverage. This characteristic makes them valuable tools for tax-loss harvesting or creating more efficient allocations by achieving similar interest rate sensitivity with smaller position sizes. Rather than focusing on market timing for transitions between these instruments, Frank emphasizes coordinating such moves with broader tax management strategies—practical advice that demonstrates how risk parity investors can implement sophisticated portfolio techniques while maintaining tax efficiency.

Want to connect with other Risk Parity Radio listeners? Frank announces a meetup at the Economy Conference at the Solari Hotel. Email frank@riskparityradio.com for details and to join the community of thoughtful DIY investors exploring alternatives to traditional asset allocation.

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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.

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 are new here and wonder what we are talking about, you may wish to go back and listen to some of the foundational episodes for this program.

Voices:

Yeah, baby, yeah.

Mostly Uncle Frank:

And the basic foundational episodes are episodes 1, 3, 5, 7, and 9. Some of our listeners, including Karen and Chris, have identified additional episodes that you may consider foundational, and those are episodes 12, 14, 16, 19, 21, 56, 82, and 184. Whoa, and you probably should check those out too, because we have the finest podcast audience available.

Mostly Mary:

Top drawer, really top drawer.

Mostly Uncle Frank:

Along with a host named after a hot dog. Lighten up, francis. But now onward, episode 408. Today, on Risk Parity Radio, we're just going to get back to doing what we do best here, which is answer your emails.

Voices:

Looks like I picked the wrong week to quit amphetamines.

Mostly Uncle Frank:

But before we get to that, I just want to say a very nice thing has happened to us and I wanted to thank the people involved, and that very nice thing is that Tyler at Portfolio Charts has put up the Golden Ratio Portfolio on the sample portfolios there and so you do not have to put it in on your own anymore. It's right there in the portfolio matrix and has its own page, and he also did a very nice write-up of it for Insights, the blog portion of the Portfolio Charts site. I will link to that in the show notes as well. But I really wanted to thank Tyler for doing that and I also wanted to thank our listener, van, who I know was suggesting it to Tyler, that he put that up there, and so it's very kind of both of you and thank you for your support here.

Voices:

The best, Jerry the best.

Mostly Uncle Frank:

Now, for those of you who may have just stumbled into this podcast because you read the article at Portfolio Charts or the new portfolio page, I should probably warn you that this podcast is not like other podcasts in that it is not a commercial endeavor. Surely you can't be serious. I am serious and don't call me Shirley. It's a retirement hobby and the original purpose of it was for me to pass on some knowledge to our adult children. Why, what have children ever done for me?

Mostly Uncle Frank:

So if it just sounds like you're hanging out with me at my house and I'm goofing off yeah, that's what it sounds like this is pretty much the worst video ever made and that's not going to change. But I'm glad you're here and you probably do want to go listen to episodes 1, 3, 5, 7, and 9, if this is your first time here, and you can also go to the RSS feed page, which you should open in a browser, because it's huge and it has all of the podcasts on one web page which you can then word search with all the show notes for particular topics, because there are over 400 podcasts now and you probably don't want to listen to all of them, at least not all at once.

Voices:

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

Mostly Uncle Frank:

But now let us attend to our listeners and their queries.

Voices:

Here I go once again with the email.

Mostly Uncle Frank:

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

Voices:

Well, here we are, my friends. You have brought the economy's vengeance upon yourselves. What can we do, randy? What can we do? What can we do? What can we do? What can we do, randy?

Mostly Mary:

And Randy writes Hi Frank and, of course, mary. I'm a recent listener and a fan of the podcast.

Voices:

Groovy baby.

Mostly Mary:

I have listened to the foundational episodes and now working my way backwards and getting caught up. I am in the process of migrating my own version of the Golden Butterfly portfolio, but adjusting VTI to 15% and GLDM to 15% to make room for 10% BRKB that I already own and would like to keep in the portfolio. Excuse my questions if they have been answered in a previous episode, but here they are. 1. I was thinking about rebalancing semi-annually instead of annually, in June and December, so I have a chance to tax loss harvest before the end of the year. Do you think this makes sense or should I just stick to once a year? 2. Fidelity has sent me a message asking if I would like to loan out my GLDM shares, which would pay me 0.5% interest. Since gold does not pay a dividend and I am going to be holding it anyway, what are your thoughts about doing it this way? Thank you for all of the information provided in your podcast. It certainly has opened my eyes to new possibilities, Randy.

Voices:

We must all wear sheets instead of buying clothes that need detergent. Instead of cars that take gasoline, we can get around on llamas from Drake's Farm. Instead of video games that take batteries and software, our kids will play with squirrels. We must let the economy know that we are capable of respecting it. No more needless spending. The economy is our shepherd.

Mostly Uncle Frank:

We shall not want the economy is our shepherd we shall not want. Well, randy has gone to the front of the line because he has donated to the Father McKenna Center. As most of you know, we do not have any sponsors here, but we do have a charity we support. It's called the Father McKenna Center and it supports hungry and homeless people in Washington DC. Full disclosure. I am on the board of the charity and am the current treasurer, and if you give to the charity, I will move your email to the front of the email line, which skips you over a couple of months' worth of emails these days. You can do that in two ways one by going to the support page at wwwriskprioritycom, which Randy has done and then became a new patron on Patreon, or you can go directly to the Father McKenna website donation page and either way, I'll move you to the front of the line. Please do mention it in your email when you send it so I can flag the email and move it to the front of the line.

Voices:

Yes, I can flag the email and move it to the front of the line.

Mostly Uncle Frank:

Yes, Now getting to your questions. Well, we haven't talked about rebalancing in a while. There is a nice article that I've linked to before and I'll link to again, from Michael Kitsis about optimized rebalancing and in terms of rebalancing schemes that go on a calendar basis. What he's basically found there, at least for kind of ordinary stock bond portfolios, is that rebalancing more than once a year does not really help you. On the other hand, it doesn't really seem to hurt you either. So it's not wrong to rebalance more than once a year.

Mostly Uncle Frank:

I just wouldn't expect to get any real benefit out of it other than luck and circumstance in particular years. So if you want to do it in June and December, that would be fine. Make sure you do it early enough in December that you don't have any problems with your tax moves, if you will, which is something you generally want to plan out, starting in October or November each year, depending on what your account situation is. So if that helps you, you should go right ahead. Your second query was about the message you got from Fidelity about their new loaning program where you can loan shares out to other traders if you will and get paid for it. I've actually done this for a number of years at Interactive Brokers. You can do it at Fidelity now. You won't make a whole lot of money off of it, so don't get your hopes up there. But I haven't had any issues with it in terms of the holdings or anything happening to them.

Voices:

And it's gone, poof.

Mostly Uncle Frank:

I did have one issue with one of them, like a month ago, where I tried to sell something and buy something else and it would not credit my account right away. But that was resolved, so I don't know whether that was just a glitch that day or something else. If you're not making a lot of transactions, it's probably not going to matter, so you can do that if you want, but the fees or remuneration you're going to receive is generally pretty trivial in my experience.

Voices:

That and a nickel will get your hot cup a jack squat.

Mostly Uncle Frank:

So it's not going to be life-altering either way, and so hopefully that helps. Thank you for joining our program, thank you for your support of the Father McKenna Center and thank you for your support of the Father McKenna Center and thank you for your email.

Voices:

Hey, I'm trying to teach my son the importance of savings. You already lost his money. Oh, Mr Marsh, don't worry, we can just transfer money from your account into a portfolio with your son and it's gone. This line is for people who have money with the bank only. Please step aside. Second off.

Mostly Uncle Frank:

Second off, we have an email from Richard.

Voices:

Yes, oh, richard, I'm so happy, hold me.

Mostly Uncle Frank:

And Richard writes.

Mostly Mary:

Hi Frank, Just listening to episode 395 where you answered a question regarding the growth slash value positioning of VOOVTI on the Morningstar style box V-O-O-V-T-I on the Morningstar style box and I wanted to bring to your attention that Morningstar appears to occasionally redefine the boxes according to current market weights. This was noted back in September 2024 on Bogleheads. Just something for people to be aware of when using the style box over there.

Mostly Uncle Frank:

Well, thank you for making us aware of this, Richard. I feel like I knew this in the past but I'd forgotten it. But anyway, I will link to the link you provided in the show notes so people can check out this article. And I did then go over to Morningstar and it actually will let you go back years to different years, as to how it did its style boxes with the growth and value factors and the small and large cap factors, and so you can see how it's changed from one year to another. And I guess it does make sense that it would change some over time, simply because the overall P-E ratio of the market is changing over time and has tended to be going up since 1980, but not in a straight line. So in retrospect I guess it's not that surprising they would have to do that. Anyway, thank you for bringing this to our attention. Thank you for the link and thank you for your email.

Voices:

Don't run away from your feelings. Last off.

Mostly Uncle Frank:

Last off, we have an email from Jamie.

Voices:

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

Mostly Uncle Frank:

And Jamie writes.

Mostly Mary:

Hi Frank, I have some questions about long-term treasury funds. Around 2020, I switched to a risk parity style portfolio to be ready for possible retirement in the next few years. I currently have about 20% allocation to long-term treasury funds, eg FNBGX. I have wanted to switch to a strips type extra long duration fund eg GOVZ or ZROZ for a few years now in order to open up some more space in my portfolio to allocate to other assets, but have held off for two reasons. First, I had an exchange with Tyler at PortfolioChart some time back where he stated a personal preference to use bond funds that pay yields. While I respect his preference, it struck me as almost similar to a dividend versus total return. Debate Is are there reasons why that should matter in practice? In my mind, a 10% STRIPS fund allocation should provide a similar return to a 15% long-term treasury fund. Second, with long-term treasuries being hammered in the past few years, it seems a bad time to sell my current long-term treasury fund only to buy a STRIPS fund. That would be essentially locking in losses. I'm thinking that it would be best to wait for a flight to safety moment, when long-term treasuries are up significantly, before transitioning to a Strips fund. Thoughts Finally, as a point of possible interest to other listeners. Tyler provided some insights on how he models long-term treasury bonds, and be aware they may not track Strips well. Thanks, Jamie. Ps. I included part of my exchange with Tyler below as additional context for you.

Mostly Mary:

The long-term bonds on the site track a laddered basket of bonds between 10 to 30 years. The ETF I use when data is available is TLT, which currently has a weighted average maturity of about 26 years. The duration is 18.5. And to fill in older years, I use my bond model that tracks a bond letter with equal rungs between 10 to 30 years. That means the average maturity is closer to 20 years, but practically speaking, the performance difference between 20 years and 25 years isn't huge because of how yield curves flatten out with longer maturities. Importantly, though, I stick to bond funds that pay yields. You're correct that zero coupon funds are a bit of a different animal and are a lot more volatile, so I wouldn't assume that the site data tracks them particularly well. I can't immediately think of a way to tweak the tools to account for that, but I appreciate your question. I've been tinkering with a few ideas to help people model alternative data sources, so it's great to hear from people trying to push the tools beyond their limits.

Voices:

I'm giving her all she's got. Captain, If I push it any harder, the whole thing will blow.

Mostly Uncle Frank:

Well as to these STRIPS funds. I'm not sure we're all talking about the same thing here. Basically, there are three ETFs that you could buy that fulfill this role, and they're GOVZ, zroz and EDV. Now, zroz and EDV have been around since around the time of the financial crisis, but GOVZ has only been around for about five or six years. However, govz and ZROZ tend to follow the same kind of strips index. In my experience, they do tend to move at a rate of 1.5 times a TLT over a VGLT, at least with respect to GOVZ and ZROZ. They don't do it precisely, but it does track pretty well, all things considered. Now, edv is a Vanguard fund that's on kind of a Vanguard propriety index and does not track as well and for some reason, also kicks out strange distributions in December that can be quite large, whereas the other two tend to just pay monthly dividends and they do pay yields. I mean you can look these up. They're paying like 4.6 or something like that right now. It is very similar to the yield that you're going to get on a VGLT or a TLT. So the main difference is, when interest rates move, these strips funds tend to move at a rate of one and a half times the move that you'll see in a VGLT or a TLT. So you can kind of use them as a form of leverage, as we do in the Optra portfolio, the last sample portfolio or you can also use them, as I've used them, for tax loss harvesting, because basically you just have to buy less of one of those than you were holding out of a BLGT or a TLT. That all being said, I mean we can't say in the grand scheme of things, that these have been around that long. Less than 20 years is not that long for the longest ones and so it's true we don't actually have any actual data that goes back into the 20th century. However, there is simulated data that you can find at Testfolio now, at least I think for ZROZ, and so that may be of use for some modeling purposes.

Mostly Uncle Frank:

Now, as to your second query, whether it's a bad time to sell long-term treasury and buy a strips fund, no, it's not really, but the issue is this If you have a loss hanging there, then you want to use tax loss harvesting, and so whatever tax loss harvesting you're doing needs to be done in concert with whatever you're managing in the rest of your portfolio and considering what tax brackets you're actually in, because if you sell that and then buy a strips fund, you're essentially buying back the same thing or the same kind of thing that's going to perform in a similar way, so you can actually use the STRIPS fund as a tax lost harvesting vehicle. So you'll want to coordinate with whatever other transactions you're doing this year in your portfolio, but I would take advantage of it at least towards the end of the year. That's usually when you look at tax lost harvesting opportunities. Not going to do it Wouldn't be prudent at this juncture. So hopefully all that helps and thank you for your email.

Voices:

I don't think it means what you think it means.

Mostly Uncle Frank:

But now I see our signal is beginning to fade. We had a shorter podcast today because I'm still recovering from a cold and I'm hoping to get my voice entirely back before the economy conference this weekend. There will be no podcast this weekend because of the Economy Conference, and so we will see you again next week. I should be able to update the website, though, at some point over the weekend. If you are coming to the Economy Conference and haven't sent an email to us yet, we are having a little Risk Parity Radio listener meetup at the Solari Hotel on Friday at 3 pm.

Mostly Uncle Frank:

But send me an email to frankatriskparityradiocom if you haven't already, and I'll send you the details for that. In the meantime, if you have comments or questions for me, please send them to frankatriskparityradiocom. That email is frankatriskparityradiocom. Or you can go to the website wwwriskparityradiocom. That email is frankatriskparityradiocom. 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.

Voices:

This is Frank Vasquez with Risk Party Radio Signing off.

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.

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