Risk Parity Radio
Risk Parity Radio is a podcast about investing located at www.riskparityradio.com. RPR explores risk-parity style portfolios comprised of uncorrelated or negatively correlated asset classes -- stocks, selected bonds, gold, managed futures, and other easily accessible fund options for the DIY investor. The goal is to construct portfolios that are robust and can be drawn down on in perpetuity, and to maximize projected Safe Withdrawal Rates regardless of projected overall returns.
Risk Parity Radio
Episode 416: The Tau Of El Yama, Accumulation Versus Decumulation Portfolios, Cracked CAPE Crystal Balls And Portfolio Reviews As Of April 18, 2025
In this episode we answer emails from El Yama, Graham, and James. We discuss using risk parity-style portfolios for intermediate term needs, the short-term bond allocation in the Golden Butterfly, accounting for child credit, rising equity glidepaths, the fundamental differences between 100% stock portfolios and diversified portfolios and why you want the latter for retirement unless your goal is to die with the most money, and a CAPE ratio critique from Meb Faber's podcast.
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:
Kitces Article re Rising Glidepaths: The Benefits Of A Rising Equity Glidepath In Retirement
Kitces/Pfau Paper re Rising Glidepaths: Reducing Retirement Risk with a Rising Equity Glide-Path by Wade D. Pfau, Michael Kitces :: SSRN
Meb Faber Podcast with Brian Jacobs discussing problems with CAPE ratio predictions: A Century of No Return! The Truth About The Beloved Bonds (Brian Jacobs of Aptus Reveals)
Breathless Unedited AI-Bot Summary:
"A foolish consistency is the hobgoblin of little minds," begins this thought-provoking exploration of why most investors are trapped in accumulation-phase thinking even as they approach or enter retirement.
The question at the heart of this episode strikes at a surprising disconnect in personal finance: Why do so many investors intellectually understand they're investing to enjoy retirement, yet construct portfolios clearly designed to maximize wealth at death?
Through a series of illuminating listener emails, Frank unpacks how portfolios optimized for accumulation often fail spectacularly during the decumulation phase. One listener confesses he "always wondered why anyone would buy bonds when clearly stocks give a far greater return," before discovering through portfolio testing that a 100% equity portfolio would have "failed catastrophically" for someone retiring around 2000-2003.
This recognition—that diversification isn't about maximizing returns but enabling sustainable withdrawals—represents the fundamental insight many investors miss until too late. As Frank colorfully puts it, if your goal is to "die with the most money possible" in your "golden coffin," then by all means stick with 90-100% equities. But if you actually intend to enjoy your retirement by spending more than 3% of your portfolio annually, a properly diversified approach becomes essential.
The episode also addresses why attempts to use valuation metrics like CAPE ratios to predict market movements have largely failed, and why separating your portfolio into growth and value components offers a more reliable approach to capturing rebalancing bonuses without attempting market timing.
Make sure your investment behavior actually matches your stated goals. If you're planning to spend in retirement, construct a portfolio that optimizes for sustainable withdrawals, not maximum theoretical returns.
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.
Mary and Voices:A different drummer and now, coming to you from dead center on your dial, welcome to Risk Parity Radio, where we explore alternatives and asset allocations for the do-it-yourself investor, Broadcasting to you now from the comfort of his easy chair. Here is your host, Frank Vasquez.
Mostly Uncle Frank:Thank you, Mary, and welcome to Risk Parity Radio. If you have just stumbled in here, you will find that this podcast is kind of like a dive bar of personal finance and do-it-yourself investing.
Voices:Expect the unexpected.
Mostly Uncle Frank:It's a relatively small place. It's just me and Mary in here and we only have a few mismatched bar stools and some easy chairs. 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:There are basically two kinds of people that like to hang out in this little dive bar.
Voices:You see, in this world there's two kinds of people.
Mostly Uncle Frank:my friend, the smaller group are those who actually think the host is funny, regardless of the content of the podcast.
Voices:Funny how?
Mostly Uncle Frank:How am I funny? These include friends and family and a number of people named Abby.
Voices: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.
Voices:The best, Jerry the best.
Mostly Uncle Frank:And they are here to share information and to gather information to help them continue managing their portfolios as they go forward, particularly as they get to their distribution or decumulation phases of their financial life.
Voices: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.
Voices:I have a feeling we're not in Kansas anymore.
Mostly Uncle Frank:But now onward, episode 416. Today on Risk Parity Radio, it's time for our weekly portfolio review. So the eight sample portfolios you can find at wwwriskparityradiocom on the portfolios page. Boring, yeah, it is kind of boring. Actually, it's the same story every week. Us stock market goes down, gold goes up.
Voices:You're insane gold member.
Mostly Uncle Frank:Everything else kind of goes up and down.
Voices:And that's the way. Uh-huh, uh-huh, I like it. Kc on the sunshine band.
Mostly Uncle Frank:So I think the only excitement we have to look forward to will be the rebalancings in July.
Voices:That is the straight stuff. Oh funk master. But before we get to that, I'm intrigued by this how you say Emails.
Mostly Uncle Frank:And First off. First off, we have an email from El Yama. This looks like a long one, mayor, mary Mary, why you buggin' Yama? This looks like a long one, mare.
Mary and Voices:And El Yama writes Hello Uncle Frank and Aunt Mary, Long time listener, first time caller, although you have had to spank me a few times on the ChooseFI Facebook group. Bow to your sensei.
Mostly Uncle Frank:Bow to your sensei.
Mary and Voices:I am an American physician assistant with a Japanese wife and now living in Germany for the past nine years raising my German-born children. Alles klar, herr Kommissar Not?
Voices:complicated at all right.
Mary and Voices:I have been working mostly for the US military for the past 15 years, providing health care for active duty service members.
Voices:What kind of training son? Army training sir. Army training sir.
Mary and Voices:But I've finally saved enough to call it quits. At 41 years old, I've averaged about $100,000 per year. Over those years, Despite doing dumb things like market timing and being way too conservative, I've managed to get to 20 times my expenses yes, only 20 times versus the recommended 25. As I mentioned, I have two young sons whom I absolutely adore, and now that one is school age, I refuse to sacrifice time away from him. I like doing the little things, like walking him to and picking him up from school. I think as parents, you can appreciate that the love for your boys definitely comes through in the podcast.
Mary and Voices:I have been poor my whole life growing up, and I'm currently at my highest net worth. I tend to be more on the conservative side with my investments. I will hopefully have a series of emails to the podcast, but not so as to inundate you, so let me start with a couple. First off, you commonly mentioned that some portfolios, like Golden Butterfly etc. Are good intermediate term portfolios. Do you mean they are also good intermediate term portfolios or only good as intermediate term portfolios? Could one hold it forever with its default AA, Speaking of which you commonly mention that having more than 10% cash will create a drag on a portfolio, so don't recommend it. Yet the golden butterfly has 20% and does well in backtesting and Monte Carlo simulations. So which is it?
Mary and Voices:Second off, we will likely be receiving about 500 euros per month from the German government to help pay for the costs of raising children for the next 20 years. Not only does it help reduce currency risk, since it is in euros, it is a nice cash flow to look forward to. My question is how do I incorporate this money? It really doesn't adjust for inflation, so the total value is about 120,000 euros. Should I add that to my current net worth of 800,000 and then change my AA to match it using this money as the cash portion 920,000 versus 800,000, or just reduce the amount of expenses I'll need to cover by 500 euros a month?
Mary and Voices:Last off, I respect you and a few other personal finance gurus, namely Michael Kitsis, Wade Pfau, Karsten Jeske and Bill Bengen. A couple of them recommend a rising equity glide path to help reduce SORR and improve SWR. What is your take? I currently have about 30% equities and want to get 50% over the next five years. I would add about 1% every quarter. This also helps me with not timing the market. I would have the contributions on a set schedule. That is all for now. I'm sorry you had to read all of this, Mary.
Mostly Uncle Frank:Mary, Mary, I need your huggin'.
Mary and Voices:Please let me know if you're ever in Germany. The first beer is on me Prost PS. Thank you for the work you do with the Father McKenna Center. As someone who has been temporarily homeless and had food scarcity a few times in my life, I really appreciate those efforts and will be a future donor. Ali Dibesti Eliema.
Mostly Uncle Frank:Well, first, congratulations for getting out of poverty, and also congratulations for having your head screwed on straight as to what is most important in life, because it certainly ain't a golden coffin.
Voices:As human beings, you and I need fresh, pure water to replenish our precious bodily fluids. Are you beginning to understand?
Mostly Uncle Frank:Yes, All right, going to your questions in turn. Your first question was about my statement that these kinds of portfolios, like the golden or Golden Ratio, are good intermediate term portfolios, and I mean that to say that they are also good as intermediate term portfolios. So if you have a long-term portfolio that is close to 100% equities for long-term accumulation and then you might have some short-term emergency fund money and cash In between that, you can have a risk parity style portfolio for these kind of intermediate term needs, and that's what our adult children actually do. So, for instance, when our eldest wanted to put solar panels on his house, he just dipped into this intermediate term portfolio, which is like a golden ratio kind of thing. The reason these work well for that is because their maximum drawdown time is generally three or four years, so the chances are you're always going to have something that you can pull from. So the way they work this is first they make all of their long-term contributions I'm talking about our adult children Then they have an emergency fund that they fill up and then any money after that goes into this intermediate-term portfolio, which they can then use for any big expenses that come along the way. Now your sub-question was could you hold a portfolio like this forever with its default asset allocation? And the answer is yes.
Mostly Uncle Frank:Actually, the originator of the Golden Butterfly portfolio, tyler, over at Portfolio Charts, just uses his also as his accumulation portfolio. I think he's passed that by now. I know that the value stock geek uses his weird portfolio as an accumulation portfolio and they plan to just keep that, and the reason they like it is because they don't want the volatility in accumulation, even though they know it's going to slow them down. I think there's a guy named Jared Dillian who has something called the awesome portfolio, which is another portfolio like this, and he makes his money writing newsletters and books and things, but he wants his portfolio to be relatively stable, since his income is not stable, and so he uses a risk parity style portfolio as his baseline accumulation portfolio and plans to just keep it at that long-term.
Mostly Uncle Frank:Now, your second sub-question here was about the Golden Butterfly's 20% allocation to a short-term bond fund and my admonition that having more than 10% in cash tends to create a drag on the portfolio over time. I have two thoughts about it. I do think that the Golden Butterfly is on the conservative end of things, but recognize that if you have a short-term bond fund. That's a one to three year bonds you're talking about. So those three years are more like intermediate bonds than short-term bonds. But if you tweak that and take money out of that allocation and put it into different allocations, you'll see you can get a better performing portfolio on some metrics like the safe withdrawal rate or total returns, even though the volatility is going to be more so. It's just a trade-off there, but it is significant that that portfolio is not 20% in T-bills or HYSAs or something like that, but actually has one to three year bonds involved there. All right.
Mostly Uncle Frank:Your next question is about your money from the German government the 500 euros per month for the cost of raising children for the next 20 years Donate to the children's fund. Why? What have children?
Voices:ever done for me.
Mostly Uncle Frank:If you wanted to value that strictly for like net worth purposes, yeah, you would model that as an annuity with a 20-year lifetime with that kind of payment over the month, and then figure out how much would it cost for you to buy one of those things on the open market, which you actually can do over at ImmediateAnnuitiescom. I just don't think it's probably a worthwhile endeavor. It is much easier and makes a whole lot more sense in this circumstance to simply reduce your expenses by that amount. That is a more practical solution and it's certainly a whole lot easier to calculate. So, while you can model it both ways, I think it's more useful to simply model it as a reduction to overall expenses and then look at what your portfolio has to cover after that. The same thing is true whether it's Social Security or pension or any other payment stream that you have coming in.
Mostly Uncle Frank:All right, your third question about rising glide paths to help reduce sequence of return risks.
Mostly Uncle Frank:Yeah, I did go back and take a look at the Kitsis and Wade Fowl papers from 2013, where this originated, and they are not doing what you are proposing doing, which is why I would not do what you're proposing doing, because, as far as I know it's never been modeled to make that sharp of an increase in equity allocations over a five-year period and I don't think it would work out.
Mostly Uncle Frank:What they were doing is increasing by 1% each year over a 30-year period, and that is completely different than increasing by 1% every quarter over a five-year period.
Mostly Uncle Frank:That's why I would go back and read the paper I will link to it in the show notes to see whether that is of any interest to you. My experiences with this is that, although the idea has been around since at least 2013, almost nobody actually uses this idea in practice. That I'm aware of, and I'm not aware of any financial advisors that base their modeling around an increasing glide path, I think because psychologically it's unattractive, and it's also kind of unattractive the way people actually spend, which is to spend more earlier than later, although you could argue that that augurs towards keeping a larger pile of cash to spend early on. But that was one of the more interesting things out of this research is that what they were really looking at to begin with is whether the declining glide path which has frequently been recommended in all kinds of hoary research about bonds, equal 100 minus your age or some stupid thing like that.
Mostly Uncle Frank:Stupid is what stupid does, sir. And what they found is those strategies actually detract from your safe withdrawal rate, and so you should not be decreasing your exposure to equities over time. And what they also observed is that, to the extent that a bucket strategy does anything for anybody, the reason has nothing to do with buckets, but because it's essentially mimicking one of these rising glide path ideas where people are just spending their cash down first, which results in their portfolio being more equity heavy. Now what you are proposing actually is kind of going to be completely determined on the five-year period you're talking about. So it's going to have a high variance as to what the outcomes are.
Mostly Uncle Frank:Sort of like that question should I invest in a lump sum right now or should I do it over the next six to eight months? And the answer to that is almost a coin flip, because the volatility of stock markets over that period of time is almost a random event. A random event that most of the time you're better off with the lump sum investment, but in a significant number of circumstances you're better off with the longer term dollar cost averaging. But there's no way of knowing which one was better in advance, just like there's no way of knowing, with your proposed strategy of increasing from 30% to 50% within five years, whether you're going to be better off with that or not. So there are just too many random factors to give that a recommendation one way or the other.
Voices:Random chance seems to have operated in our favor. In plain, non-vulcan English, we've been lucky. I believe I said that, doctor.
Mostly Uncle Frank:But on the other hand, I can't say that it's a bad process. So if your goal is to get from 30% to 50% in some reasonable amount of time, in a reasonable way, which you proposed makes sense to me I just don't have any reason to suggest that it's going to make your portfolio perform better or worse. I would say it's a better idea than trying to time the market better or worse. I would say it's a better idea than trying to time the market. Do you think anybody wants a roundhouse kick to the face while I'm wearing these bad boys? Forget about it, because I think the chances of you getting that wrong are higher than the chances of you getting screwed up by doing this every quarter for five years.
Mostly Uncle Frank:And I would be interested to see any more recent research that anyone's got showing that this strategy yields significantly better outcomes than simply holding a static allocation that gets rebalanced, because all the research that I've seen is simply talking about some kind of simple S&P 500 and Treasury bond kind of portfolio, a two-fund portfolio. So while that's of some interest, I don't think it's of particular interest if you're already having a highly diversified portfolio. So interesting questions, el-yama. Hopefully some of my answers helped. I look forward to your future donation to the Father McKenna Center and thank you for your email. Second off, second off. We have an email from Graham, and Graham writes.
Mary and Voices:Hi Frank, I've listened to the first several episodes and I'm really enjoying the podcast. It's my commute education nowadays. Have you ever heard of Plato, aristotle, socrates? Thanks to you, I've begun playing about on PortfolioVisualizercom and it was eye-opening. Thanks to you, I've begun playing about on PortfolioVisualizercom and it was eye-opening. In the past I've always wondered why anyone would buy bonds when clearly stocks give a far greater return. But now I'm in retirement and a simple test, like you've done in the sample portfolios, with a small withdrawal each month, shows that a simple 100% S&P 500, eg VOO, would fail catastrophically if one retired around 2000 to 2003,. And probably the GFC would have also been a bad time to start, and it seems to me that's the real reason for diversification.
Voices:You are correct, sir. Yes.
Mary and Voices:I've always been a hold 100% individual stocks investor, and this change in mindset towards bonds and gasp gold is a hard change to undertake. This is gold, mr Bond, not just mentally, but also financially in non-tax sheltered accounts. Still, I've learned a lot and will keep listening, yours Graham.
Voices:We had the tools, we had talent.
Mostly Uncle Frank:Well, I'm glad you're enjoying the podcast, graham. Yeah, I think what you're experiencing is what goes on every time. There is a long period where the stock market is just outperforming and the downturns are short and sweet, which is it becomes very popular to just say, well, I'll just keep 100% equities and I'll be fine no matter what happens. And that could be true under two circumstances One, that you're just accumulating and you have a very long time period to wait, and the second one is you're just not spending much money if you're talking about using a retirement portfolio.
Voices:What's with you? Anyway, I can't help it. I'm a greedy slob. It's my hobby.
Mostly Uncle Frank:Because the truth is, because a safe withdrawal rate is a worst-case scenario, in most cases you can hold a 100% stock portfolio and be fine in retirement most of the time. Surely, you can't be serious. I am serious and don't call me Shirley. Even if you're taking over 4%, even if you're taking 5%, now when does that fail? When does that not work very well? It doesn't work very well if the next period is essentially a decade-long downturn with multiple drops, and the last time we had one of those was starting the end of 1999, in the first decade of this century, and there was an older one back in the 70s and obviously there was one back in the 30s. But if you're really planning for worst-case scenarios, that is what you're planning for. The other common misconception that you are getting rid of now is the idea that the best portfolio for accumulation is necessarily the best portfolio for decumulation.
Mary and Voices:That's not how it works. That's not how any of this works.
Mostly Uncle Frank:Because there's a big difference in the way a portfolio performs if you're putting money into it versus taking money out of it. And when you start taking money out of it, all of a sudden you care a whole lot more about the overall volatility of the portfolio, and not only the length of drawdowns, but also how steep the drawdowns are going to be, because those are the two things that are the killers the steep drawdowns and the length of drawdowns, and the way you get around those, the way you ameliorate that problem, is through diversification into things that are not stocks, starting with treasury bonds and including things like gold. And so no, you do not buy bonds for their returns. Forget about it. If you're doing that, you're kind of foolish or you're taking a whole lot of risk on some very high-yield bonds.
Mary and Voices:That's not an improvement.
Mostly Uncle Frank:The reason you buy bonds in a mostly stock portfolio is for their diversification properties. So then the next question is which ones are the most diversified from your stocks? And they happen to be treasury bonds. The same thing with gold. You do not buy gold for its appreciation, because you know that, over the long term, stocks will appreciate more than gold. The reason you're buying it is for its diversification properties. So if you haven't done it already, I'd go back and listen to some of those initial episodes about bonds, which are episodes 14, 16, 64, and 69. And also you might want to listen to the episodes about gold, which are episodes 12 and 40.
Mostly Uncle Frank:Because what we are trying to do here is to maximize our ability to spend money out of a portfolio in retirement, which boils down to trying to maximize the safe withdrawal rate. That is why we are holding a diversified portfolio, for no other reason. If we wanted to accumulate the most money, we would not hold those kind of portfolios. Instead, we would spend as little as possible, keep all our money in equities, and then we would die with the most money as possible, and then we would win that game, that golden coffin game, where you have to die with the most money possible. That is facilitated best by not spending money. Not spending money. That's the important thing. Don't spend your retirement money. Whatever you do, don't spend it on anything Not on your friends, not on your family, not on yourself.
Voices:You no longer love me? When have I ever said that? In words? Never. Well, in what, then? In the way you have changed. But how have I changed towards you? By changing towards the world. Another idol has replaced me in your heart, a golden idol. You fear the world too much, with reason. But I am not changed towards you, aren't you? If you were free today, would you choose a direless girl with neither wealth nor social standing, you who now weigh everything by gain to bring you nothing but repentance and regret? You know I'm right, then I must bow to your conviction that you are. May you be happy in the life you have chosen. Thank you, I shall be.
Mostly Uncle Frank:Then you hold 90 to 100% in equities and then you will win that game. You'll die with the most money possible. You'll have a nice golden coffin and I'm sure you'll have wonderful estate planning documents to go with that. I would spend a little money on that and that should work fine as long as you're spending 3% or less of your portfolio. Now if you do want to spend more 4%, 5%, maybe even more than that, if you're older, then you probably want to have a diversified portfolio like the ones we talk about here.
Mostly Uncle Frank:But it does all come down to goals. Make sure that your behavior actually matches your stated goals. That is the biggest problem I see in personal finance these days. People say they have a goal I want to enjoy my retirement and then they behave as if they have a different goal, which is not to enjoy their money in retirement, it's to hoard it and die with the most money as possible. Make sure your behavior is matching your goals, because that dictates what kind of portfolio you want to hold. So I'm glad you're listening. I'm glad you're getting the memo. I hope more people get the memo.
Voices:Did you?
Mary and Voices:see the memo about this.
Mostly Uncle Frank:And I'm glad you're using the tools. You're using Portfolio Visualizer. I'd also use Portfolio Charts to model things, and now we have the new Testfolio Calculator to also model things, because it's important to model your portfolio against another portfolio, and you should always be comparing portfolios, because that's the question is, which one is better than the other one for the particular purpose. Didn't you get that memo. So use those tools, use your talents.
Voices:We had the tools, we had talent.
Mostly Uncle Frank:And I think you'll arrive the same conclusions that most of my listeners arrive at, which is that if you want to spend more money in retirement, then you better have a portfolio that allows you to do that, and I'll go ahead and make sure you get another copy of that memo. So I'm glad you're enjoying the podcast and thank you for your email.
Voices:One time I turned into a dog and they helped me. Thank you.
Mostly Uncle Frank:Last off. Last off, an email from James.
Mary and Voices:It's worse than that. Dad Jim, dad, jim, dad, jim. It's worse than that. Dad Jim, dad Jim, dad Jim.
Mostly Uncle Frank:And James writes Hi Frank.
Mary and Voices:I wanted to share this podcast clip from Meb Faber's show where his guest Brian Jacobs offers some insightful critiques of the Cape Ray Show. Big credit to Meb for being open to discussing challenges to the Cape Ray Show, especially given that he's been a strong advocate and even wrote a book on using it for investment signals. Thank you, james.
Voices:It's life, jim, but not as we know it, not as we know it, not as we know it. It's life, jim, but not as we know it, not as we know it, james.
Mostly Uncle Frank:Yes, this was a nice discussion you've linked to with Brian Jacobs of Aptis Financial, who runs a number of interesting funds. I'll try to link to this directly in the show notes. It comes towards the end of the podcast at around minute 28,. I believe is where it starts, but I thought this was a good discussion of kind of the current state of the discussion about the use of CAPE ratios and valuation ratios in trying to predict things.
Mary and Voices:A crystal ball can help you, it can guide you.
Mostly Uncle Frank:Because this was a very popular thing to try to do from, say, about 2010 to about 2016. By the time we got to about 2016 or 2017, most people had recognized that this method was actually a failure and it did not predict future returns like they thought it would.
Mary and Voices:It doesn't work for me.
Mostly Uncle Frank:And that has only been borne out by the past 10 years of history, because in fact, even though people thought Cape ratios were too high in, say, 2013, we've had one of the best performances by the stock market in history after that. So obviously that methodology just doesn't work.
Voices:Okay turn it on Ow Ow, ow, ow, ow, ow Ow, ow, ow, ow Ow Ow Ow Ow, ow, ow Ow Ow.
Mostly Uncle Frank:Ow, Ow Ow. It's a piece of crap. It doesn't work.
Voices:I could have told you that.
Mostly Uncle Frank:And if it does work in the future, it'll be more of a random event. So it's no better than just observing that you're going to have a big crash on average once a decade, and probably a smaller crash or two also once a decade. So what people at least the people that are informed now talk about is not whether it works or not. Everybody knows it doesn't work. Not going to do it Wouldn't be prudent at this juncture. What is really discussed now is why doesn't it work? And he points out a number of deficiencies with it, that your P and your E are actually comparing different things, among other problems. But I just go with what Oswald de Moteren says about trying to use valuation metrics to make market predictions, which is he's found the same thing that it does not work for really decision-making and investing. It only really works in hindsight and for academic purposes.
Mostly Uncle Frank:I think the better approach to this is to think about well, why does the stock market have a higher CAPE ratio at one time versus another?
Mostly Uncle Frank:And it basically has to do with how well the growth stocks in the overall market are doing.
Mostly Uncle Frank:Because when the market is going up significantly, the growth stocks are outperforming the value stocks, and then, when the market crashes, the value stocks outperform the growth stocks, and so the easiest way to take advantage of that without having to predict anything is to separate your stocks into growth and value, and then you rebalance them, and so you take advantage of the rebalancing bonus you can get, and that way you don't have to predict anything.
Mostly Uncle Frank:Wow, it's very nice, but that also tells you that why holding just a cap-weighted market portfolio is probably not in your best interest, at least if you're talking about retirement, because you're not going to be able to take advantage of this rebalancing bonus if all of your stocks are in cap-weighted funds like that, because they're going to become larded with growth stocks as the stock market goes up, and then there'll be nothing to rebalance it with, like a value fund, when the market crashes.
Mostly Uncle Frank:The last time we saw this was in 2022, when growth stocks were down 30 to 40 percent in most cases, whereas value stocks were anywhere from minus 10 to plus 10 in terms of their performance, and that huge disparity in performance gave a great rebalancing opportunity that you could then sell the value stocks at some point during that year hopefully at the end of the year if you were lucky enough to schedule that buy more of the growth stocks, and then, when the market turned around and the growth stocks outperformed the value stocks, you got a rebalancing bonus out of it, and so I think that's the best way to use valuation metrics is to segregate your portfolio and take advantage of this natural occurrence, as opposed to trying to guess whether the stock market's going to go up or down based on how valuations are looking today.
Mary and Voices:Now you can also use the ball to connect to the spirit world.
Mostly Uncle Frank:Because that methodology has just been a failure, a really big one here, which is huge. So thank you for the link. I'll make sure it's in the show notes and thank you for your email.
Voices:Now we're going to do something extremely fun.
Mostly Uncle Frank:And the extremely fun thing we get to do now Is our weekly portfolio reviews. Of the eight sample portfolios you can find at wwwriskpartyweavercom. On the portfolios page. As I mentioned at the beginning of the show, the basic stock market indexes were down this past week. On the portfolios page as I mentioned at the beginning of the show, the basic stock market indexes were down this past week. Gold was up again and just about everything else was actually a little bit better off than it had been earlier in the month. Going through the rundown, the S&P 500, represented by VOO, is down 9.88% for the year. Right now. The NASDAQ, represented by the fund QQQ, is down 13% for the year. Small cap value, represented by the fund VIOV, is down 18.77% for the year, but was actually up a little bit last week. Gold set a new record. Representative fund GLDM is up 26.52% for the year.
Voices:I love gold.
Mostly Uncle Frank:Long-term treasury bonds, represented by the fund VGLT, are up 1.55% for the year. So, despite all of the sturm and drang about bonds this year, they're kind of just sitting there gaining a little bit about bonds. This year they're kind of just sitting there gaining a little bit. Reits, represented by the fund REET, are down 0.65% for the year and that's an interesting allocation because obviously you can see how much different that performance is compared to the overall stock market. So if you have an allocation to that, you're going to end up getting a rebalancing bonus out of that if that continues to your rebalancing date. Commodities, represented by the fund PDBC, are down 0.77% for the year. Preferred shares, represented by the fund PFFV, are down 1.34% for the year and managed futures, represented by the fund DBMF, are down 3.26% for the year, and all those actually improved a little bit last week. Now moving to our sample portfolios. First one's a reference portfolio called the All Seasons. It's only 30% in stocks in a total stock market fund VTI, 55% in intermediate and long-term treasury bonds and the remaining 15% in gold and commodities. It is down 2.70% month to date. It's down 0.13% year to date and up 8.42% since inception in July 2020.
Mostly Uncle Frank:Moving to these kind of bread and butter portfolios. First one's gold and butterfly. This one's 40% in stocks divided into a total stock market fund and a small cap value fund, 40% in treasury bonds divided into long and short, and 20% in gold. It's down 1.94% month to date. It's up 0.19% year to date and up 34.17% since inception in July 2020. In case you're scoring at home, the gold allocation has actually risen over 25% of this portfolio, even though we've been taking some distributions out of gold along the way. So there'll be some significant rebalancing when it gets time to do that in July.
Mostly Uncle Frank:Next one's golden ratio this one's 42% in stocks divided into a large cap growth fund and a small cap value fund, 26% in bonds long-term treasury bonds 16% in gold, 10% in a managed futures fund and 6% in a money market fund or cash. It is down 2.53% month-to-date. It's down 2.56% year-to-date. So it's all been this month and up 26.63% since inception in July 2020. Next one's the risk parity ultimate. I won't go through all 14 of these funds, but it's down 3.43% month-to-date. It's down 2.78% year-to-date, but up 17.77% since inception in July 2020. Now moving to these experimental portfolios. These all involved levered funds and they're highly volatile, so don't try this at home. Well, you have a gambling problem. Well, you have a gambling problem.
Mostly Uncle Frank:First one's the Accelerated Permanent Portfolio. This one is 27.5% in a levered bond fund TMF. It is 25% in a levered stock fund UPRO, 25% in PFFV, a preferred shares fund, and 22.5% in gold GLDM. It is down 6.63% month to date and down 2.91% year to date and down 1.91% since inception in July 2020. It's interesting it just missed a rebalancing last week. We check it on the 15th and the stock fund was not down quite enough to trigger a rebalancing. It actually is down enough to trigger a rebalancing now. It's only 16.8% of the fund, but we only check it once a month, on the 15th, so we'll be checking it again next month to see where it is. Next one's the aggressive 50-50. This is the least diversified and most levered of these funds and also the worst performer due to that lack of diversification. So it's one-third in a levered stock fund UPRO year-to-date and down 22.44% since inception in July 2020. It is also close to a rebalancing due to the lagging stock fund there.
Mostly Uncle Frank:Next one's the levered golden ratio. This one's a year younger than the other ones. This one is 35% in a composite fund called NTSX that's the S&P 500, and treasury bonds levered up 1.5 to 1. 20% in gold GLDM 15% in a international small cap value fund, avdv, 10% in KMLM, a managed futures fund, 10% in TMF, a levered treasury bond fund, and the remaining 10% divided into UDOW and UTSL, which are levered Dow fund and levered utilities fund. It is down 3.38% month-to-date. It's down 1.04% year-to-date, so almost flat and down 5.42% since inception in July 2021. It had a very inauspicious start date, given what happened in 2022.
Mostly Uncle Frank:And the last one is our return-stacked portfolio, the Optra portfolio. This one is 16% in UPRO, a levered stock fund, 24% in AVGV, which is a worldwide value fund, 24% in GOVZ, which is a treasury strips fund, and the remaining 36% divided into gold and managed futures. It is down 4.36% month to date. It's down 3.38-to-date and down 0.56% since inception in July 2024. Now this portfolio is intended to have the same kind of risk profile as the total stock market VOO or QQQ. Voo is down about 2.56% since last July and QQQ is down 7.44% since last July. So since this one's only down 0.56%, I'd have to call it a success for the past nine months at least, and that is truly just noise, but fun to look at anyway.
Voices:I'm funny how I mean funny, like I'm a clown, I amuse you at least, and that is truly just noise, but fun to look at anyway.
Mostly Uncle Frank:I'm funny how I mean funny like I'm a clown. I amuse you, but now I see our signal is beginning to fade. Happy Easter. If you celebrate Easter, we're going to be having some cousins and their children over, so we intend to have a happy Easter Going to be out there grilling the meats. Looks like Dad is bringing home the barbecue. But in the meantime, if you have comments or questions for me, please send them to frank at riskparityradarcom and email us, 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, follow or review. That would be great, okay, thank you once again for tuning in. This is Frank Vasquez with Risk Parity Radio.
Voices:Signing off. La, la, la, la, la la.
Mary and Voices:The Risk Parody Radio Show is hosted by Frank Vasquez. The content provided is for entertainment and informational purposes only and does not constitute financial, investment tax or legal advice. Please consult with your own advisors before taking any actions based on any information you have heard here, making sure to take into account your own personal circumstances.
