Wed. Oct 27th, 2021

Today’s post looks at the lazy portfolios on the risk parity radio website.

Risk parity radio

My guilty pleasure during the Covid closures has been the podcasts.

  • I don’t consume them on the move like many people (in the car or without running), but I let them play in the background while I work, in the same way that factories used to use Radio 1.

I feel guilty because they are so much easier to hear than to read reports.

  • Like everything else, you’ve heard most of them before, but you’ll find a few nuggets every week, which makes the process worthwhile.

The podcasts at the moment remind me of Twitter in the early days: immediate access to active professionals, without intermediaries from the mainstream media.

  • Hopefully they don’t follow in the footsteps of Twitter.

I follow a few dozen podcasts, but one I’ve only recently found is Risk Parity Radio (RPR).

  • At the time of writing this article, it’s episode 107 and I’m working on the pending path.

The purpose of the RPR podcast is to explore risk parity-inspired portfolios made up of uncorrelated or negatively correlated asset classes: stocks, selected bonds, gold, REITs, preferreds, commodities, and other easily accessible fund options. DIY inverter.

The goal is to build portfolios that are robust and usable in perpetuity, and maximize projected safe withdrawal rates regardless of projected overall returns.

It is, therefore, an approach to the lazy portfolio of Risk Parity, aimed at investors who are already in accumulation.

  • Frank favors simplicity and low maintenance above the usual activity and maximum performance possible.

Frank Vasquez

The podcast is hosted by (and based on the 80 episodes I’ve listened to, hosted exclusively by) Frank Vasquez.

[Frank] is a mostly retired lawyer with over 30 years of investment experience for his own accounts.

RPR portfolios

Although it is primarily a podcast rather than a website, RPR reports on a number of portfolio models.

  • The main drawback is that the podcast is fairly new (it started in 2020) and therefore the portfolios don’t have much trajectory.

We have seven samples of real-time risk parity-inspired portfolios at Fidelity that we monitor and track each week. Each was funded with $ 10,000 on July 13, 2020, with the exception of All-Weather, which was funded on July 21, 2020, and the Levered Golden Ratio, which was funded on July 1. of 2021.

We save them monthly at [varying] rates. Withdrawal rates are intentionally aggressive in demonstrating that such portfolios can support higher safe withdrawal rates than normal stock / bond combinations.

Frank also reports on his own dynamic portfolio of risk parity style dating back to 2016.

  • This is based on the Golden Ratio and Risk Parity Ultimate portfolios, which we will see in a moment.

He also uses leverage and has some options for trading around basic positions.

  • Frank uses Jack Schwager’s Fund Seeder monitoring platform to report.
All stations

Correlations of all stations

This is based on the bastardized version of Ray Dalio’s All-Weather portfolio, as described by motivational speaker Tony Robbins in one of his books:

  • 30% US stocks (VTI)
  • 40% long-term cash (TLT)
  • 15% intermediate treasury (VGIT)
  • 7.5% gold (GLDM)
  • 7.5% of commodities (PDBC)

The expected SWR is 3.8% and the CAGR since 1970 is 5.6% real.

  • Frank distributes 4% annually of this portfolio.
Golden Butterfly

Golden butterfly correlations

This comes from Tyler at (the site Frank uses for later testing):

  • 20% US shares
  • 20% US Minimum Value (VIOV)
  • 20% long-term treasury
  • 20% short-term cash
  • 20% gold

The expected SWR is 5.3% and the CAGR since 1970 is 6.4% real.

  • Frank distributes 5% annually of this portfolio.
Gold ratio

Correlations of the golden ratio

This portfolio is based on the mathematical golden ratio of 1: 1,618: each successive asset class weighs 1.6 times less than the previous one:

  • 42% of shares, divided into three ways:
    • 14% growth in large capitalization (VUG)
    • 14% small capitalization value
    • 14% low volatility (USMV)
  • 26% long-term treasury
  • 16% golf
  • 10% REITS
  • 6% money market funds

The expected SWR is 5.0% and the CAGR since 1970 is 7.0% real.

  • Frank distributes 5% annually of this portfolio.
Risk Parity Ultimate

Final correlations of risk parity

It is a more complex portfolio with 12 funds:

  • 40% of shares, divided into five ways
    • 12.5% ​​VUG
    • 12.5% ​​VIOV
    • 6.25% USMV
    • 6.25% SPLV (lowest vol.)
    • 2.5% UPRO (leverage)
  • 25% of long-term treasures are divided into three ways:
    • 15% TLT
    • 5% EDV (extended duration)
    • 5% TMF (leveraged bonds for another 20 years)
  • 12.5% ​​of preferred funds (PFF)
  • 10% gold
  • 10% REIT
  • 2.5% stock volatility (VXX)

Frank does not declare a historical return on this portfolio (presumably because many of the funds are relatively new), but distributes 6% annually.

Permanently accelerated

Accelerated permanent correlations

This is one of Frank’s experimental portfolios, which uses some leveraged funds to take a look at Harry Browne’s permanent portfolio:

  • 25% UPRO: leveraged shares
  • 27.5% TMF: leverage bonds
  • 25% PFF: preferred shares
  • 22.5% gold

Frank expects this portfolio to return 10% annually and distributes 7.5% annually.

I have my own experiments planned with risk parity portfolios leveraged.

  • I’m not very interested in ETFs leveraged by their daily rebalancing

I intend to use normal leverage (using spreads betting or CFDs), perhaps also with a trend approach.

Aggressive Fifty Fifty

Aggressive correlations from 50 to 50

This is another leveraged portfolio, based on a 50/50 stock / bond portfolio:

  • 33% share leverage (UPRO)
  • 17% Preferred Shares (PFF)
  • 33% of leveraged bonds (TMF)
  • 17% intermediate treasury (VGIT)

Frank expects this portfolio to return 10% annually and distributes 8% annually.

Levered gold ratio

Correlations of the golden lever ratio

This is another leveraged portfolio:

  • 55% in leveraged funds, divided in three ways:
    • 35% NSTX (stocks)
    • 10% TNA (small cap)
    • 10% TMF (cash)
  • 25% GLDM (or)
  • 15% O (Realty Income Corp., REIT)
  • 3% VIXM (volatility)
  • 1% BITQ (cryptography)
  • 1% BITW (cryptography)

Realty Income Corporation is a real estate investment trust that invests in single-tenant independent commercial properties in the United States.

I can’t say I really understand it.

  • Frank expects it to match the S&P 500 with lower volatility and distributes 7% annually.

I don’t really like lazy wallets, though I think they can work well for smaller wallets.

  • But it’s refreshing to see in it a risk parity approach, which focuses on decomulation.

Aside from the concept of leverage (which I plan to address differently and which I will address in a later article), the element that stood out most to me was the use of preferred stock, which I need to investigate further.

  • The use of cryptography is also interesting, but I don’t think I can access these funds from the UK.

We have already met the other asset classes.

The podcast itself is great and I recommend it to anyone who likes this format.

Mike Rawson

Mike is the owner of 7 Circles and a private investor living in London. He has been managing his own money for 35 years, with some success.

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