Risk Parity Radio

We begin with a monthly rant about the misguided idea of picking funds that have "great fund managers" and a few other topics.

Relevant links:

Recent interview of Burton Malkiel:  https://animalspiritspod.libsyn.com/a-random-talk-with-burton-malkiel

Risk Parity Radio Bond Episodes:

https://www.riskparityradio.com/podcast/episode/4965a5d2/episode-14-which-bonds-are-right-for-your-risk-parity-style-portfolio-a-comprehensive-analysis-part-i

https://www.riskparityradio.com/podcast/episode/4c25df5c/episode-16-which-bonds-are-right-for-your-risk-parity-style-portfolio-a-comprehensive-analysis-part-2

Following the rant is our weekly portfolio review of the portfolios you can find at https://www.riskparityradio.com/portfolios

We also compare the Accelerated Permanent Portfolio with two Dave Ramsey-Style Portfolios using the tools at Portfolio Visualizer.  Relevant links:

White Coat Investor article about a Ramsey-style portfolio:  https://www.whitecoatinvestor.com/dave-ramsey-asset-allocation/

Portfolio Visualizer analysis:
https://www.portfoliovisualizer.com/backtest-portfolio?s=y&timePeriod=4&startYear=1985&firstMonth=1&endYear=2020&lastMonth=12&calendarAligned=true&includeYTD=false&initialAmount=10000&annualOperation=0&annualAdjustment=0&inflationAdjusted=true&annualPercentage=0.0&frequency=4&rebalanceType=1&absoluteDeviation=7.5&relativeDeviation=0.0&showYield=true&reinvestDividends=true&portfolioNames=false&portfolioName1=Portfolio+1&portfolioName2=Portfolio+2&portfolioName3=Portfolio+3&symbol1=PFF&allocation1_1=25&symbol2=TMF&allocation2_1=27.5&symbol3=GLD&allocation3_1=22.5&symbol4=UPRO&allocation4_1=25&symbol5=VIVIX&allocation5_2=25&symbol6=VMGRX&allocation6_2=25&allocation6_3=25&symbol7=VSCIX&allocation7_2=25&symbol8=VGTSX&allocation8_2=25&symbol9=VGIAX&allocation9_3=25&symbol10=VSGIX&allocation10_3=25&symbol11=VWIGX&allocation11_3=25

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In this episode, which is Part One of Two, we begin our analysis of REITS as an investment using David Stein's 10 Questions to Master Investing, which are:

1.  What is it?
2.  Is it an investment, a speculation, or a gamble?
3.  What is the upside?
4.  What is the downside?
5.  Who is on the other side of the trade?
6.  What is the investment vehicle?
7.  What does it take to be successful?
8.  Who is getting a cut?
9.  How does it impact your portfolio?
10.  Should you invest?

We cover the first five questions in this episode.

Helpful links:

Investopedia Article on REITs:  https://www.investopedia.com/terms/r/reit.asp

Directory of REITs by sector:  https://www.reit.com/investing/reit-directory?title=nly&field_rtc_listing_status_tid_selective[]=524&field_address_country_selective[]=US&sort_by=title

The Section 199A Tax Benefits of REITs:  https://www.kitces.com/blog/reit-real-estate-investments-section-199a-qbi-deduction/#:~:text=Because%20under%20IRC%20Section%20199A,Qualified%20Business%20Income%20or%20QBI)

Correlation Matrix of Most of the REITs and funds mentioned:  https://www.portfoliovisualizer.com/asset-correlations?s=y&symbols=VTI%2C+VNQ%2C+VNQI%2C+REET%2C+BXP%2C+PLD%2C+O%2C+SPG%2C+AVB%2C+WY%2C+VTR%2C+WELL%2C+PSA%2C+AMT%2C+CCI%2C+DLR%2C+WPC%2C+VNO%2C+LAMR%2C+GLPI%2C+LAND%2C+IRM&timePeriod=2&tradingDays=60&months=36

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This is our weekly portfolio review of the portfolios you can find at https://www.riskparityradio.com/portfolios

We also compare the Risk Parity Ultimate Portfolio with a Boglehead's Three-Fund Portfolio using the tools at Portfolio Visualizer.  Here is a link to that analysis:

https://www.portfoliovisualizer.com/backtest-portfolio?s=y&timePeriod=4&startYear=1985&firstMonth=1&endYear=2020&lastMonth=12&calendarAligned=true&includeYTD=true&initialAmount=10000&annualOperation=0&annualAdjustment=0&inflationAdjusted=true&annualPercentage=0.0&frequency=4&rebalanceType=1&absoluteDeviation=2.5&relativeDeviation=0.0&showYield=true&reinvestDividends=true&portfolioNames=false&portfolioName1=Portfolio+1&portfolioName2=Portfolio+2&portfolioName3=Portfolio+3&allocation1_1=0&allocation1_3=0&symbol2=VUG&allocation2_1=12.5&allocation2_3=0&symbol3=VIOV&allocation3_1=12.5&allocation3_3=0&symbol4=VOO&allocation4_1=12.5&allocation4_3=0&symbol5=EDV&allocation5_1=5&symbol6=TLT&allocation6_1=15&allocation6_3=0&symbol7=GLD&allocation7_1=10&symbol8=VNQ&allocation8_1=10&allocation8_3=0&symbol9=VNQI&allocation9_1=0&allocation9_3=0&symbol10=VIXY&allocation10_1=2.5&symbol11=PFF&allocation11_1=12.5&symbol12=UPRO&allocation12_1=2.5&allocation13_1=0&symbol14=TMF&allocation14_1=5&symbol15=VTI&allocation15_2=40&symbol16=BND&allocation16_2=40&symbol17=VXUS&allocation17_2=20

The Risk Parity Ultimate is a conservative portfolio that is designed for medium and long-term needs.  It is comprised of 12 different funds in six different asset classes:  40% stock funds (split into 12.5% VUG, 12.5% VIOV, 6.25% USMV, 6.25% SPLV and 2.5% UPRO), 25% long-term treasury bond funds (split into 15% TLT, 5% EDV and 5% TMF), 12.5% preferred stock funds (PFF), 10% gold (GLDM), 10% REITs (REET) and 2.5% in a stock market volatility tracking fund (VXX). 

Here is the link to Episode 9, where we discuss investing in preferred stock shares and the PFF fund in particular:

https://www.riskparityradio.com/podcast/episode/48e031bb/episode-9-how-to-choose-investments-using-a-process-and-an-application-to-a-preferred-stock-fund

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This is our weekly portfolio review of the portfolios you can find at https://www.riskparityradio.com/portfolios

We also compare the Golden Butterfly Portfolio with a Boglehead's Three-Fund Portfolio using the tools at Portfolio Visualizer.  Here is a link to that analysis:

https://www.portfoliovisualizer.com/backtest-asset-class-allocation?s=y&mode=1&timePeriod=4&startYear=1972&firstMonth=1&endYear=2020&lastMonth=12&calendarAligned=true&includeYTD=false&initialAmount=10000&annualOperation=0&annualAdjustment=0&inflationAdjusted=true&annualPercentage=0.0&frequency=4&rebalanceType=1&absoluteDeviation=5.0&relativeDeviation=25.0&portfolioNames=false&portfolioName1=Portfolio+1&portfolioName2=Portfolio+2&portfolioName3=Portfolio+3&asset1=Gold&allocation1_1=16&asset2=LargeCapGrowth&allocation2_1=14&asset3=SmallCapValue&allocation3_1=14&asset4=LargeCapBlend&asset5=LongTreasury&allocation5_1=26&asset6=TotalBond&asset7=TreasuryBills&allocation7_1=6&asset8=TotalStockMarket&allocation8_2=40&asset9=Commodities&asset10=TotalBond&allocation10_2=40&asset11=ShortTreasury&asset12=IntlStockMarket&allocation12_1=14&allocation12_2=20&asset13=IntermediateTreasury&asset14=REIT&allocation14_1=10

The Golden Ratio is a conservative portfolio that is designed for medium to long-term needs.  It is based on the mathematical golden ratio known to the ancients, which is approximately 1.618 and is represented by the Greek letter phi.  It is comprised of five asset classes in seven funds that are weighted by successive applications of the golden ratio:  42% stocks (split into 14% large cap growth (VUG), 14% small cap value (VIOV) and 14% low volatility (USMV)), 26% long-term treasury bonds (TLT), 16% gold (GLDM), 10% REITs (REET) and 6% money market (SPAXX),  Since 1970, it has a compounded annual growth rate (after inflation) of 7.0%, and an expected permanent safe withdrawal rate of 5.0%.

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In this episode, which is Part Two of Two, we continue our discussion from Episode 14 (Part 1), and conclude our analysis bonds as an investment using David Stein's 10 Questions to Master Investing, which are:

1.  What is it?
2.  Is it an investment, a speculation, or a gamble?
3.  What is the upside?
4.  What is the downside?
5.  Who is on the other side of the trade?
6.  What is the investment vehicle?
7.  What does it take to be successful?
8.  Who is getting a cut?
9.  How does it impact your portfolio?
10.  Should you invest?

We cover the last five questions in this episode.

Here are the links referenced in the episode

The correlation matrix of bond funds:  https://tinyurl.com/y4x3jynu

Dan Huffman's Ultimate KI$$ portfolio with treasury bonds:  https://keepinvestingsimplestupid.com/the-ultimate-ki-portfolio-with-bonds/?fbclid=IwAR3UAmCo9zLVFc5LuIjQd3pjX9MtsMbVGlu9OiNQbK7jFS8le7GzXOlLyTM

The Swanson portfolio:  https://keepinvestingsimplestupid.com/the-swanson-portfolio/?fbclid=IwAR17CTGmCrrxsMfyI3mt0wuFBmMJunpiivyBlom62bO2_9C0m5O61aL8C8I

The prospectus for TLT:  https://www.ishares.com/us/library/stream-document?stream=reg&product=ISHT20&shareClass=NA&documentId=925887%7E925803%7E926213%7E925554%7E925655&iframeUrlOverride=%2Fus%2Fliterature%2Fprospectus%2Fp-ishares-20-plus-year-treasury-bond-etf-2-28.pdf

The fact sheet for TLT:  https://www.ishares.com/us/literature/fact-sheet/tlt-ishares-20-year-treasury-bond-etf-fund-fact-sheet-en-us.pdf

A chocolate vinegar cake recipe:  https://www.bonappetit.com/test-kitchen/inside-our-kitchen/article/chocolate-vinegar-cake-recipe

Risk parity sample portfolios page:  https://www.riskparityradio.com/portfolios

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This is our weekly portfolio review of the portfolios you can find at https://www.riskparityradio.com/portfolios

We also compare the Golden Butterfly Portfolio with a Boglehead's Three-Fund Portfolio using the tools at Portfolio Visualizer.  Here is a link to that analysis:  

https://www.portfoliovisualizer.com/backtest-asset-class-allocation?s=y&mode=1&timePeriod=4&startYear=1972&firstMonth=1&endYear=2020&lastMonth=12&calendarAligned=true&includeYTD=false&initialAmount=10000&annualOperation=0&annualAdjustment=0&inflationAdjusted=true&annualPercentage=0.0&frequency=4&rebalanceType=1&absoluteDeviation=5.0&relativeDeviation=25.0&portfolioNames=false&portfolioName1=Portfolio+1&portfolioName2=Portfolio+2&portfolioName3=Portfolio+3&asset1=Gold&allocation1_1=20&asset2=LargeCapGrowth&asset3=SmallCapValue&allocation3_1=20&asset4=LargeCapBlend&asset5=LongTreasury&allocation5_1=20&asset6=TotalBond&asset7=TreasuryBills&asset8=TotalStockMarket&allocation8_1=20&allocation8_2=40&asset9=Commodities&asset10=TotalBond&allocation10_2=40&asset11=ShortTreasury&allocation11_1=20&asset12=IntlStockMarket&allocation12_2=20&asset13=IntermediateTreasury

For reference, the Golden Butterfly Portfolio is the brainchild of Tyler, the founder and operator of the website www.portfoliocharts.com.  It is a conservative portfolio and is comprised of four asset classes in five funds that are equally weighted:  20% total U.S. stock market (VTI), 20% small cap value stocks (VIOV), 20% long-term treasury bonds (TLT), 20% short term treasury bonds (SHY) and 20% gold (GLDM).  Since 1970, it has a compounded annual growth rate (after inflation) of 6.4%, and an expected permanent safe withdrawal rate of 5.3%.

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In this episode, which is Part One of Two, we begin our analysis of bonds as an investment using David Stein's 10 Questions to Master Investing, which are:

1.  What is it?
2.  Is it an investment, a speculation, or a gamble?
3.  What is the upside?
4.  What is the downside?
5.  Who is on the other side of the trade?
6.  What is the investment vehicle?
7.  What does it take to be successful?
8.  Who is getting a cut?
9.  How does it impact your portfolio?
10.  Should you invest?

We cover the first five questions in this episode.

Here is the link to the correlation matrix referenced in the episode:

https://tinyurl.com/y4x3jynu

Risk parity sample portfolios page:  https://www.riskparityradio.com/portfolios

Support the show

This is our weekly portfolio review of the portfolios you can find at https://www.riskparityradio.com/portfolios

We also discuss the All Seasons Portfolio in a little more depth, including why it may not be the best representative of a risk-parity style portfolio and what it is missing.

The All Seasons portfolio is a reference portfolio that is modeled after Ray Dalio's All Weather portfolio and is described in "Money:  Master the Game" by Tony Robbins.  It is a very conservative portfolio that is comprised of four asset classes in five funds, allocated as follows:  30% total U.S. stock market (VTI), 40% long-term treasury bonds (TLT), 15% intermediate-term treasury bonds (VGIT) 7.5% gold (GLDM) and 7.5% commodities (PDBC).  Since 1970, it has a compounded annual growth rate (after inflation) of 5.6%, and an expected permanent safe withdrawal rate of 3.8%. 

Here are the links I mentioned to theoretical risk-parity portfolios from the literature:

Risk Parity Portfolios:  Efficient Portfolios Through True Diversification:  https://www.panagora.com/assets/PanAgora-Risk-Parity-Portfolios-Efficient-Portfolios-Through-True-Diversification.pdf

Risk Parity:  Silver Bullet Or A Bridge Too Far (CFA Multi-Asset Strategies Manual Chapter 4):  CFA Manual Risk Parity Chapter-2018.pdf - Google Drive

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In this episode we analyze gold as an investment using David Stein's 10 Questions to Master Investing, which are:

1.  What is it?
2.  Is it an investment, a speculation, or a gamble?
3.  What is the upside?
4.  What is the downside?
5.  Who is on the other side of the trade?
6.  What is the investment vehicle?
7.  What does it take to be successful?
8.  Who is getting a cut?
9.  How does it impact your portfolio?
10.  Should you invest?

We also discuss several bits of financial misinformation I heard on podcasts last month about small-cap value stocks and options for improving traditional 60/40 portfolios.

Links referenced in the episode:

Correlation analysis of small cap value funds versus the total stock market and large cap growth:  https://www.portfoliovisualizer.com/asset-correlations?s=y&symbols=VTSMX%2C+VIGRX%2C+SLYV&timePeriod=2&tradingDays=60&months=36

Analysis of gold versus the total stock market since 2005:  https://www.portfoliovisualizer.com/backtest-portfolio?s=y&timePeriod=4&startYear=1985&firstMonth=1&endYear=2020&lastMonth=12&calendarAligned=true&includeYTD=false&initialAmount=10000&annualOperation=0&annualAdjustment=0&inflationAdjusted=true&annualPercentage=0.0&frequency=4&rebalanceType=1&absoluteDeviation=6.0&relativeDeviation=0.0&showYield=false&reinvestDividends=true&portfolioNames=false&portfolioName1=Portfolio+1&portfolioName2=Portfolio+2&portfolioName3=Portfolio+3&symbol1=UPRO&symbol2=TMF&symbol3=PFF&symbol4=VGIT&symbol5=VTI&allocation5_2=100&symbol6=BND&symbol7=REET&symbol8=TLT&symbol9=GLD&allocation9_1=100

Portfoliocharts porfolio analyzer (input 100% gold yourself):  https://portfoliocharts.com/portfolio/my-portfolio/

Recent Portfolio Charts article about gold, gold miners, drivers and taxes:  https://portfoliocharts.com/2020/08/21/metal-money-and-the-measurable-value-of-gold/

Risk parity sample portfolios page:  https://www.riskparityradio.com/portfolios

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This is our weekly portfolio review of the portfolios you can find at: https://www.riskparityradio.com/portfolios

We also discuss the Risk Parity Ultimate Portfolio in depth, including how it was constructed and how it compares with a classic 60/40 retirement portfolio comprised of VTI (60%) and BND (40%).

The Risk Parity Ultimate is a conservative portfolio that is designed for medium and long-term needs.  It is comprised of 12 different funds in six different asset classes:  40% stock funds (split into 12.5% VUG, 12.5% VIOV, 6.25% USMV, 6.25% SPLV and 2.5% UPRO), 25% long-term treasury bond funds (split into 15% TLT, 5% EDV and 5% TMF), 12.5% preferred stock funds (PFF), 10% gold (GLDM), 10% REITs (REET) and 2.5% in a stock market volatility tracking fund (VXX).    Here is a link to the analyzer we used to compare the Risk Parity Ultimate Portfolio with a classic 60/40 retirement portfolio:  https://www.portfoliovisualizer.com/backtest-portfolio

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