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

In this episode we answer emails from Michael, Brian and Ed.  We discuss Michael's situation and options as a 34-year old with growing portfolios and a growing family, Brian's questions about the infernal Cederburg paper that won't go away and Ed's questions about accumulation portfolios.Links:Father McKenna Center Donation Page:  Donate - Father McKenna CenterTestfolio Comparison between Total Market and Large Cap Growth:  testfol.io/analysis?s=0GbmPE8D9GKMerriman Best In Class ETFs:  Best-in-Class ETF Recommendations | Merriman Financial Education FoundationShannon's Demon Article:  Unexpected Returns: Shannon's Demon & the Rebalancing Bonus – Portfolio ChartsRational Reminder Podcast #350:  Episode 350 - Scott Cederburg: A Critical Assessment of Lifecycle Investment Advice — Rational ReminderAn Actually Useful Analysis of Global Portfolios:  What Global Withdrawal Rates Teach Us About Ideal Retirement Portfolios – Portfolio ChartsBrian's Golden Butterfly Monte Carlo:  Monte Carlo SimulationBrian's All Equity 50/50 Monte Carlo:  Monte Carlo SimulationBrian's All Equity 34/66 Monte Carlo:  Monte Carlo SimulationAmusing Unedited AI-Bot Summary:Frank Vasquez tackles the complex world of portfolio construction across different life stages, offering practical wisdom mixed with his trademark humor for investors at all levels. This episode dives deep into a $1 million portfolio review, addressing how to balance real estate investments with securities, manage excess cash, and prepare for eventual retirement.A key highlight is Frank's thorough debunking of a frequently misunderstood academic study suggesting all-equity portfolios are optimal for retirement. With mathematical clarity, he explains why the study's unusual methodology comparing non-reserve currency bonds to U.S. equities across disconnected historical periods doesn't translate to practical investment advice. His Monte Carlo simulation comparisons confirm that diversified portfolios consistently outperform all-equity approaches during drawdown scenarios.The episode offers particularly valuable insights on pairing large-cap growth with small-cap value investments – not because either category is predicted to outperform, but because they create effective rebalancing pairs operating on different cycles while delivering similar long-term returns. This mathematical principle, known as Shannon's demon, shows how two assets with comparable returns but different timing can outperform either investment held alone.For younger investors still accumulating wealth, Frank recommends focusing on equity exposure while avoiding unnecessary complexity. His practical advice extends to managing investments across different account types, structuring 401(k) investments with limited options, and maintaining psychological fortitude through market cycles. Whether you're managing a complex portfolio or just starting youSupport the show

In this episode we answer emails from Deeps, David, James, Steven and Jordan.  We discuss the PHYS vs other gold ETFs, the podcast feed link, using AVGE in a risk parity style portfolio, why we do this and tail risk hedging.  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:PHYS vs. GLDM:  testfol.io/analysis?s=1lK9VB9xqaMRPR Main Feed Link (all the podcasts -- open in browser):  Risk Parity Radio RSS FeedAVGE Composition And Other Info:  AVGE – Portfolio – Avantis All Equity Markets ETF | MorningstarPortfolio Matrix:  Portfolio Matrix – Portfolio ChartsCAOS Fund:  CAOS – Alpha Architect Tail Risk ETF – ETF Stock Quote | MorningstarAmusing Unedited AI-Bot Summary:  Gold continues to shine while stocks falter in 2024's challenging market environment. This episode demonstrates the power of diversification during turbulent times, with precious metals up over 17% year-to-date as the S&P 500 struggles down nearly 5%. We explore why truly diversified portfolios are proving their worth yet again.Responding to a listener question about gold ETFs, I break down why PHYS's potential tax advantages rarely outweigh its higher expense ratio compared to traditional options like GLD. The physical gold redemption feature sounds appealing but offers little practical benefit for most investors. The entire physical gold storage industry largely profits from fear rather than delivering substantive advantages to everyday investors.The highlight of this episode comes from a fascinating listener discovery – combining the comprehensive Avantis AVGE fund with treasuries and gold creates a remarkably simple yet effective portfolio. This approach addresses a critical concern: ensuring surviving spouses can easily manage investments without sacrificing performance. Our analysis using Portfolio Charts shows this simplified approach delivers comparable results to more complex allocations while dramatically reducing management complexity.We also tackle tail risk hedging strategies, explaining why these insurance-like approaches rarely justify their ongoing costs, especially for investors in the accumulation phase. True diversification provides more reliable protection than specialized instruments designed to profit from market crashes.The portfolio performance review tells the real story – while traditional stock allocations struggle, our diversified sample portfolios are mostly holding steady or positive for the year. Historical patterns suggest diversified portfolios experience down years only about 20% of the time versus 30% for traditional approaches – a meaningful difference that compounds over retirement timeframes.Have questions about navigating today's challenging markets? Send them to [email protected] – I'd love to answer them in an upcoming episode!Support the show

In this episode we reflect on our recent meet-up and answer emails from Chris, Gigi and Mark.  We discuss preferred shares funds and PFFA in particular, considerations about allocations in a TSP based on goals and current progress in your financial life, and them thar new-fangled return stacked funds.Links:PFFA Summary:  PFFA – Virtus InfraCap US Preferred Stock ETF – ETF Stock Quote | MorningstarReturn Stacked Funds Page:  Home - Return Stacked® ETFsAmusing Unedited AI-Bot Summary:Welcome to the dive bar of personal finance and do-it-yourself investing, where Frank Vasquez serves up straight talk with a splash of humor. This episode tackles core investment principles that cut through the noise of complex financial products and contradictory advice.Frank begins by exploring preferred shares funds, specifically PFFA, explaining why its 20% leverage delivers higher returns but also brings greater volatility and a concerning 2%+ expense ratio. This leads into a deeper discussion about when specialized investment vehicles make sense for different investors and why tax implications matter when considering preferred shares positions.The heart of the episode focuses on a listener's TSP allocation question, which Frank uses to illustrate a fundamental investment truth: many investors start at the wrong end of the planning process. Rather than beginning with fund selection, Frank outlines the proper sequence: first determine your overall financial needs, then establish appropriate asset allocations, and only then select specific funds. He draws an important distinction between accumulation portfolios (where growth is paramount) and retirement portfolios (where volatility management becomes critical).Throughout the conversation, Frank emphasizes that diversification primarily reduces volatility rather than enhances returns. This insight proves particularly valuable when evaluating new investment products like return-stacked ETFs that combine traditional assets with alternatives like managed futures and merger arbitrage. While intriguing, Frank suggests most investors would benefit more from simpler approaches with established track records.Whether you're nearing retirement or still in accumulation mode, this episode delivers clear frameworks for making better investment decisions, reminding us that successful investing stems from understanding your unique financial situation rather than chasing complicated strategies. Want more straight talk on building effective portfolios? Subscribe, leave a review, or reach out to [email protected] with your questions.Support the show

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 CenterGolden Ratio Portfolio at Portfolio Charts:  Golden Ratio Portfolio – Portfolio ChartsGolden Ratio Portfolio Write-Up:  Beautiful Constants and the Golden Ratio Portfolio – Portfolio ChartsKitces Article re Rebalancing:  Optimal Rebalancing – Time Horizons Vs Tolerance BandsDiscussion of Changes to Morningstar's Style Boxes:  Morningstar redefines growth/value style box criteria - Bogleheads.orgRisk Parity Radio All Episodes Feed Page:  Risk Parity Radio RSS FeedAmusing 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 [email protected] for details and to join the community of thoughtful DIY investors exploring alternatives to traditional asset allocation.Support the show

In this episode we answer emails from Dustin, MyContactInfo, and Mark.  We discuss the ETF GDE and combo return stacked funds generally, why you probably don't want to use economists' "life cycle model" for personal finance planning due to its unrealistic underlying assumptions, and whether we could use historical high interest rates to create market timing and allocation signals between stocks and bonds.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:Article About BTGD:  New ETF Offers Dual Exposure to Bitcoin, Gold | etf.comOptimized Portfolios Site:  Optimized Portfolio - Investing and Personal FinanceRational Reminder Podcast Re Lifecycle Model:  Ben Mathew: The Lifecycle Model vs. Safe Withdrawal Rates (SWR) | Rational Reminder 340Debunking Economics:  Debunking Economics - Revised and Expanded Edition: The Naked Emperor Dethroned?: Keen, Steve: 8601406370678: Amazon.com: BooksAmusing Unedited AI-Bot Summary:When market turbulence strikes, diversification proves its worth. This week, as the S&P 500 tumbles nearly 4% year-to-date and the NASDAQ falls over 6%, gold emerges as the standout performer—surging past $3,000 an ounce with returns exceeding 13%. These dramatic market movements create a perfect real-world demonstration of why uncorrelated assets matter in portfolio construction.We dive deep into the limitations of economic models for personal financial planning, examining why the Life Cycle Model—while logically sound in theory—falls apart when confronted with life's inherent unpredictability. The assumption that we can accurately forecast our lifespans, relationships, and changing preferences decades in advance reveals a fundamental disconnect between theoretical economics and practical personal finance.A thought-provoking listener question explores whether allocation strategies should shift dramatically if interest rates ever reach levels where risk-free returns match or exceed historical stock returns. Drawing on lessons from the early 1980s when Treasury yields exceeded 15%, we consider why developing investment rules based on rare historical anomalies rarely serves investors well.The weekly portfolio review shows mixed performance across our eight sample portfolios, with those holding significant gold allocations weathering the current volatility far better than stock-heavy alternatives. We also examine rebalancing decisions for the Levered Golden Ratio portfolio, making thoughtful adjustments to improve its value tilt and diversification characteristics.Whether you're curious about combining assets in hybrid funds, wondering how managed futures perform during market corrections, or simply wanting to see how different portfolio strategies are navigating current conditions, this episode delivers practical insights for the thoughtful, independent investor. Join us for this exploration of asset allocation in uncertain times.Support the show

In this episode, we answer emails from Spencer, Ko and Steve.  We discuss REITs as a portfolio allocation, why vacant land is probably not a good investment for most people, "talking your book" with bitcoin for fun and profit and how it looks today in a portfolio, law school education and that infamous Cederburg paper (again but only briefly).  Links:Father McKenna Center Donation Page:  Donate - Father McKenna CenterNAREIT -- Types of REITs:  Learn about Investing and Market REIT Sectors TodayWeird Portfolio:  Weird Portfolio – Portfolio ChartsKo's Michael Saylor Video:  Michael Saylor’s Big Bitcoin Prediction | Relai Bitcoin Podcast #90Amusing Unedited AI-Bot Summary:Ever caught yourself obsessing over a particular asset class? In this engaging episode of Risk Parity Radio, Frank Vasquez tackles three fascinating investment topics that challenge conventional wisdom while providing practical guidance for DIY investors.We begin with an exploration of REIT allocations beyond the standard 10% recommendation. Frank breaks down why correlation with broader markets matters more than yield history, why individual REITs often outperform REIT index funds for diversification purposes, and why these investments belong in retirement accounts rather than taxable brokerage accounts. A listener's cautionary tale about vacant land investing serves as a powerful reminder that illiquid, non-income-producing assets can become financial quicksand rather than solid foundations for retirement.The conversation shifts to Bitcoin's evolving role in investment portfolios. Frank cuts through the promotional noise from crypto evangelists, explaining how Bitcoin's behavior has transformed from a true diversifier to essentially "a three times leveraged QQQ fund" highly correlated with tech stocks. This critical insight helps investors properly categorize crypto within their asset allocation rather than viewing it as a separate diversifying asset class.Finally, we examine the controversial academic paper promoting 100% equity portfolios for retirees. Frank exposes the significant limitations of this research, demonstrating why seemingly groundbreaking financial theories often collapse under real-world scrutiny. Throughout the episode, Frank's pragmatic approach reminds us that successful investing requires looking beyond popular headlines and understanding the fundamental characteristics of what we own.Whether you're rethinking your REIT strategy, curious about crypto's place in your portfolio, or questioning conventional retirement wisdom, this episode offers clarity amidst the noise of financial media. Share your own investment questions at [email protected] and join our growing community of thoughtful DIY investors.Support the show

In this episode we answer emails from Eli, Garrison and Van.  We discuss usig treasury strips ETFs like GOVZ and ZROZ and how they relate to long-term treasury bond funds like TLT and VGLT, a "returned-stacked" portfolio similar to O.P.T.R.A. for accumulation and early retirement and why the Golden Ratio portfolio performs very well on many metrics.  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:Father McKenna Center Donation Page:  Donate - Father McKenna CenterPortfolio Charts Portfolio Matrix Tool:  Portfolio Matrix – Portfolio Charts(Note to compare the discussed Golden Ratio portfolio to other portfolios, input 21% LCG, 21% SCV, 26% LT bonds, 16% gold, 10% REITs and 6% t-bills as "My Portfolio")Amusing Unedited AI-Bot Summary:Dive into the nuanced world of portfolio construction with insights that challenge conventional wisdom about retirement planning and asset allocation. We kick off with an exploration of treasury bond strategies, examining whether STRIPS funds like ZROZ or GOVZ offer "free" 1.5x leverage compared to standard long-term treasury funds. This seemingly technical distinction opens fascinating possibilities for freeing up portfolio space while maintaining effective recession hedging.The heart of the episode tackles a young investor's audacious plan for early retirement using a leveraged portfolio containing 11% UPRO (3x leveraged S&P 500) alongside small-cap value, treasuries, gold, and managed futures. We dissect the Monte Carlo simulations suggesting sustainable withdrawal rates above 6% and consider whether such "return stacked" portfolios represent the future for younger investors seeking growth with manageable volatility.Most surprising is our deep dive into the Golden Ratio portfolio, which a listener discovered ranks #1 overall on Portfolio Charts despite containing just 42% stocks. We unpack the five fundamental rules that drive this portfolio's exceptional performance: strategic stock allocation between 40-70%, balanced growth and value exposure, precise treasury bond positioning, thoughtful alternative asset integration, and minimal cash holdings. The revelation that this construction is essentially an expanded 60/40 portfolio demonstrates how traditional wisdom can be enhanced rather than abandoned.Our weekly portfolio review reveals gold's dominant performance in 2023 (up 10.89%) while small-cap value struggles (down 6.47%), reinforcing the value of thoughtful diversification in navigating today's market landscape. Whether you're planning for early retirement, optimizing your current portfolio, or simply seeking investment wisdom beyond mainstream advice, this episode delivers practical insights for the serious do-it-yourself investor.Support the show

In this episode we answer emails from Caleb, Visitor #4565, Paul, Michael (from Scotland) and Jamie.  We discuss tax location (or asset location for tax purposes), the zeitgeist of this podcast, an old book by Don Coxe about gold and other things, a good website for finding ETFs in the UK and otherwise outside the US, and how to best incorporate and prioritize (not) international vs. US funds.Links:Asset Swaps Video:  How to Do an Asset SwapSean Mullaney On 72(t):  475 | How to Access Your Retirement Accounts Before 59.5 | Sean MullaneyMad Fientist on Accessing Retirement Funds Early:  How to Access Retirement Funds EarlyMerriman ETF Recommendations:  Best-in-Class ETF Recommendations | Merriman Financial Education FoundationJustETF website and Sample Small Cap Value Fund:  SPDR MSCI USA Small Cap Value Weighted UCITS ETF | A12HU5 | IE00BSPLC413Amusing Unedited AI-Bot Summary:Get ready for an enlightening episode of Risk Parity Radio, where we unravel complex investing strategies designed for the do-it-yourself investor! In this episode, we dive deep into key topics like the critical distinction between asset allocation and tax location, helping you understand how to manage your investments more efficiently. With listener emails sparking insightful discussions, we shed light on the often-misunderstood role of gold in your portfolio and why it might be a savvy addition during economic uncertainties.We explore how misconceptions in diversification can derail potential growth and offer tactical advice on choosing between growth and value investments. Listeners will gain a holistic view of their assets, empowering them to make informed decisions that align with their long-term financial goals.Whether you’re a seasoned investor looking to refine your strategies or a beginner eager to learn, this episode provides valuable insights to enhance your portfolio's performance. Join us for an engaging conversation that invites you to reflect on your approach to investing. Don't miss your chance to redefine your financial strategy today! Subscribe, share, and review—we’d love your thoughts!Support the show

In this episode we answer emails from Andy, Mark and Graham.  We discuss what may do well under the current US administration and related concerns, what a weak dollar means for risk assets and allocating to volatility, and how inflation should realistically be accounted for in withdrawals.  And THEN we our go through our weekly and monthly portfolio reviews of the eight sample portfolios you can find at Portfolios | Risk Parity Radio.Additional links:Father McKenna Center Donation Page:  Donate - Father McKenna CenterNew Catching Up to FI Podcast with Yours Truly:  “The Risk Parity Paradox” an Exercise in Simple Complexity? | Frank Vasquez | 124US vs International Stocks In Strong And Weak Dollar Markets (link from Episode 393:  us-dollar-strength-has-correlated-with-performance-03312023.pdfSpending Trajectories After Age 65 Research Paper and  Summary (link from Episode 336):  Spending Trajectories After Age 65: Variation by Initial Wealth | RANDAmusing Unedited AI Bot Summary:Unlock the secrets of resilient investing with our latest episode of Risk Parity Radio! Join us as we explore the dynamic relationship between risk and reward in today's unpredictable market landscape. With insights from Frank Vasquez, we discuss how various asset classes, including gold and bonds, are performing amid rising economic uncertainty.We feature an in-depth analysis of eight sample portfolios, shedding light on their performances and the lessons they offer for individual investors. Our host encourages listeners to reflect on their investment strategies and promotes the importance of diversification as a safeguard against market fluctuations.Listeners are invited to engage with us through insightful emails, tackling current economic concerns such as inflation and its implications for retirees. Wrap up the episode with practical advice, encouraging self-education and proactive engagement in personal financial management.Don’t miss this opportunity to refine your financial strategies! Subscribe, share your thoughts, or leave a review to join our growing community of informed investors.Support the show

In this episode we answer emails from Philip, David and Keith.  We discuss an aggressive risk-parity style portfolio (without leverage), review QREARX, which we analyzed in Episode 81, and how the value factor is determined by various funds and indexes.Links:Father McKenna Center Donation Page:  Donate - Father McKenna CenterPortfolio Matrix Tool at Portfolio Charts:  Portfolio Matrix – Portfolio ChartsThe Weird Portfolio:  Weird Portfolio – Portfolio ChartsMorningstar Page for QREARX:  QREARX – TIAA Real Estate Account Fund Stock Price | MorningstarAmusing Unedited AI-Bot Summary:Ready to rethink your investment strategies? Discover how pushing the boundaries with aggressive risk parity portfolios can transform your financial growth. Inspired by listener Philip's question, we unravel the potential of a 70% equity allocation, showing you why it might be your ticket to a prosperous retirement with a longer horizon or increased growth needs. Learn how to artfully allocate the remaining 30% across assets like large-cap growth, small-cap value, long-term treasuries, gold, and managed futures for optimal diversification. Plus, get the scoop on our informal meetup at the Economy Conference—it's where finance meets fun.In this episode, we're not just about strategies but interactions. As we sift through listener emails, we spotlight financial strategies and fund analysis, tackling topics from the intriguing weird portfolio to critiques of funds like QREARX. Unearth the complexities of value stock categorization and challenge the purported benefits of illiquidity premiums in outdated financial structures. As travel plans call for a brief hiatus, we invite you to keep the conversation alive through emails and our website. Tune in for insights, engagement, and a touch of humor designed to entertain and inform our valued listeners.Support the show