Episode 348: Portfolios For 11-Year Olds, Basic Return Stacking, And A Fama-French Kerfuffle

Summary

In this episode of Risk Parity Radio, host Frank Vasquez addresses various investment strategies and questions from listeners. He discusses portfolio allocations for a young investor, including a 50/50 split between small-cap value US and international funds, and offers alternatives for long-term growth. Frank also explores intermediate accumulation portfolios, suggesting risk parity style allocations for a 5-year goal. Additionally, he touches on the Fama-French data controversy, emphasizing the importance of diversification in portfolio construction, and concludes with a personal note about upcoming travel and family visits.

Takeaways

• 📢 The podcast 'Risk Parity Radio' hosted by Frank Vasquez focuses on alternative asset allocations for DIY investors.
• 🎓 Frank recommends foundational episodes 1, 3, 5, 7, and 9 for new listeners, with additional episodes 12, 14, 16, 19, 21, 56, 82, and 184 suggested by the audience.
• 👦 An 11-year-old's interest in saving and investing is highlighted, with a discussion about setting up a custodial Roth account and an investment strategy.
• 💼 Frank suggests a diversified portfolio allocation for the 11-year-old's long-term investment, advising against an all-small-cap value portfolio.
• 🚗 The same 11-year-old is also saving for a car, and Frank recommends a 5-year risk parity style allocation for this short-term goal.
• 💡 The importance of teaching children the difference between long-term investments and short-term savings is emphasized.
• 🤔 Frank critiques the 'vanilla stacked portfolio' for its lack of diversification on the stock side and suggests adding small-cap value for better balance.
• 📊 The discussion touches on the debate around factor investing, the importance of growth and value diversification, and the ongoing debate about factor effectiveness.
• 📚 Frank mentions the Fama-French data debate and the impact of database updates on factor analysis, suggesting that the core conclusions remain unchanged.
• 👨‍👧‍👦 He encourages young adults to learn investment skills early, using platforms like Fidelity that offer no-fee trading and fractional shares.
• 🎉 The podcast ends with Frank announcing a hiatus, hinting at a special surprise for listeners in the coming weeks.

Q & A

What is the main theme of the 'Risk Parity Radio' podcast?

The main theme of the 'Risk Parity Radio' podcast is to explore alternatives and asset allocations for the do-it-yourself investor, hosted by Frank Vasquez.

What are the foundational episodes of 'Risk Parity Radio' that new listeners might want to start with?

The foundational episodes of 'Risk Parity Radio' for new listeners are episodes 1, 3, 5, 7, and 9. Additionally, episodes 12, 14, 16, 19, 21, 56, 82, and 184 are considered important by some listeners.

How does Frank Vasquez describe the portfolio allocation suggested by Paul Marman for long-term investment?

Frank Vasquez describes Paul Marman's suggested portfolio allocation as half S&P 500 and half small-cap value, which is different from the all small-cap value portfolio mentioned by Marco.

What is Marco's 11-year-old's investment strategy according to the email?

Marco's 11-year-old is investing in a custodial Roth account at Fidelity with a 50% allocation to AVUV (small-cap value US) and 50% to AVDV (small-cap value developed world), with a $100 monthly contribution.

What is the 5-year horizon portfolio allocation that Frank Vasquez recommends for Marco's 11-year-old's short-term savings goal?

Frank Vasquez suggests a risk parity style allocation for the 5-year horizon, which could include 25% large-cap growth, 25% small-cap value, 25% long-term treasuries, 12.5% gold, and 12.5% managed futures.

What is the 'Golden Butterfly' portfolio mentioned by Frank Vasquez?

The 'Golden Butterfly' is a simple and conservative portfolio solution that includes a mix of asset classes, with 20% in a short-term bond fund, designed for shorter-term goals with shorter and shallower drawdowns.

What is the main principle behind the 'Vanilla Stacked Portfolio' proposed by Adrien?

The 'Vanilla Stacked Portfolio' proposed by Adrien is based on the principle of stacking leveraged ETFs to create a 60/40 stock/bond portfolio with managed futures for diversification and trend following.

What is the criticism regarding the Fama-French data and how does it relate to the podcast?

The criticism is about the cleaning and updating of the Fama-French database that calculates their factors. It relates to the podcast as it discusses the impact of such changes on factor investing and portfolio construction.

What does Frank Vasquez suggest as the most important factor in a diversified portfolio?

Frank Vasquez suggests that diversification between growth and value is the most important factor in a well-diversified portfolio.

What are the principles of portfolio construction that Frank Vasquez emphasizes in the podcast?

Frank Vasquez emphasizes the principles of simplicity, the Holy Grail (diversification), and macroallocation in portfolio construction.

What is the 'Court Jester' role that Frank Vasquez refers to in the podcast?

The 'Court Jester' role that Frank Vasquez refers to is his self-deprecating way of describing his position in the podcast, providing humor and a light-hearted approach to the serious topic of investing.