In this episode we answer emails from Harry, Sally, Jack and Javon. We discuss recovering from financial set-backs, my life on the Choose FI board, assets that do well in inflationary environments and large cap growth funds like MGK in Merriman-type portfolios.
Links:
Father McKenna Center Donation Page: Donate - Father McKenna Center
Mindset by Carol Dweck: Mindset: The New Psychology of Success by Carol S. Dweck | Goodreads
Bloomberg Presentation On Investments In Inflationary Environments: MH201-SteveHou-Bloomberg.pdf
Shannon's Demon Article from Portfolio Charts: Unexpected Returns: Shannon's Demon & the Rebalancing Bonus – Portfolio Charts
Testfolio Analysis of MGK and other funds: testfol.io/analysis?s=lbssElueG9D
Amusing Unedited AI-Bot Summary:
When financial disaster strikes, where do you turn? In this deeply empathetic episode, Frank Vasquez responds to a listener who's lost nearly everything through leveraged investments caught in market turmoil. His compassionate yet practical response offers a roadmap back from financial devastation, emphasizing that starting from net worth zero with income potential creates a foundation many successful investors have built upon.
The conversation shifts to examining the psychology behind financial social media, where Frank taxonomizes poster behaviors into revealing categories. From genuine question-askers to Dunning-Kruger sufferers repeating harmful advice from financial media marketing materials disguised as guidance, this analysis helps listeners navigate confusing information landscapes. His take on affirmation-seekers posting humble brags or seeking validation for poor decisions provides particular insight into why certain destructive financial ideas persist online.
With inflation concerns mounting due to potential tariffs and immigration restrictions, Frank offers practical portfolio protection strategies beyond traditional TIPS, which merely help investors tread water rather than outperform during inflationary periods. His breakdown of managed futures, commodities, value-tilted stocks in hard assets, and property/casualty insurance companies provides actionable alternatives. The discussion culminates in comparing investment theorist Paul Merriman's value-tilted ETF recommendations with Frank's diversification approach using Shannon's Demon principles, demonstrating how different philosophical frameworks can lead to successful long-term investing.
What distinguishes this episode is Frank's ability to balance technical expertise with emotional intelligence, offering not just investment strategies but wisdom about resilience and perspective during financial hardship. Whether you're recovering from losses or preparing for economic uncertainty, this episode delivers both tactical guidance and reassuring wisdom from someone who's weathered financial storms himself.
Have questions? Connect at frank@riskparityradar.com or through the website contact form. Please like, subscribe, and share with fellow investors seeking thoughtful financial guidance.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Voices (00:01):
A foolish consistency is the hobgoblin of little minds,
adored by little statesmen andphilosophers and divines.
If a man does not keep pace withhis companions, perhaps it is
because he hears a differentdrummer, a different drummer.
Mary and Voices (00:19):
And now, coming to you from dead center on your
dial, welcome to Risk ParityRadio, where we explore
alternatives and assetallocations for the
do-it-yourself investorBroadcasting to you now from the
comfort of his easy chair.
Here is your host, frankVasquez.
Mostly Uncle Frank (00:37):
Thank you, Mary, and welcome to Risk Parity
Radio.
If you are new here and wonderwhat we are talking about, you
may wish to go back and listento some of the foundational
episodes for this program.
Voices (00:49):
Yeah, baby, yeah.
Mostly Uncle Frank (00:51):
And the basic foundational episodes are
episodes 1, 3, 5, 7, and 9.
Some of our listeners,including Karen and Chris, have
identified additional episodesthat you may consider
foundational, and those areepisodes 12, 14, 16, 19, 21, 56,
(01:13):
82, and 184.
Whoa, and you probably shouldcheck those out too, because we
have the finest podcast audienceavailable.
Mary and Voices (01:26):
Top drawer, really top drawer.
Mostly Uncle Frank (01:30):
Along with a host named after a hot dog.
Voices (01:34):
Lighten up Francis.
Mostly Uncle Frank (01:37):
But now onward, episode 413.
Today on Risk Parody Radio,we're just going to get back to
doing what we do best here,which is attend to your emails.
Voices (01:47):
That is the straight stuff.
Oh funk master.
Mostly Uncle Frank (01:50):
And so without further ado.
Voices (01:53):
Here I go once again with the email.
Mostly Uncle Frank (01:56):
And First off.
First off, we have an emailfrom Harry, and Harry writes.
Mary and Voices (02:04):
Hi Frank, I'm writing to you in a state of
extreme distress and desperation.
I have experienced devastatingfinancial losses due to high
leverage investments and I havelost a significant portion of my
retirement portfolio due toTrump's tariffs and market
routes still going on.
My margins were called and Ilost even more.
I understand that reaching outin this manner is unconventional
(02:26):
, but I am truly at a loss anddon't know where else to turn.
I have followed your work forsome time and I deeply respect
your expertise.
I made a series of very poordecisions, in part listening to
your listeners, using leverage,and I tried that as well, with
terrible consequences.
What do I do now?
My Roth is gone, my 401k isquite small and my brokerage is
(02:47):
pretty much gone.
After this Monday, any words ofconsolation?
Thanks, harry.
Mostly Uncle Frank (02:54):
Well, first off, harry, I am very sorry for
your predicament and I have dulyturned off the sound bites for
this question and answer.
I have moved you to the frontof the email line because you
noted that you were a previousdonor to the Father McKenna
Center.
As most of you know, we do nothave any sponsors here, but we
do have a charity that wesupport.
(03:15):
It's called the Father McKennaCenter and it serves hungry and
homeless people in Washington DC.
Full disclosure I am on theboard of the charity and am the
current treasurer.
But if you have given to thecharity, you get to go to the
front of the email line, andthere are two ways of doing that
.
You can give directly at thewebsite, on their donation page,
(03:35):
and we accept cash and otherforms of donations.
I recently donated some sharesof GLD, which I had appreciated.
Or you can go to our supportpage at wwwbriskparityradarcom
and become one of our patrons onPatreon and do it automatically
every month.
Either way, I'm going to moveyou to the front of the line and
(03:56):
although you said you were aprevious donor of the Father
McKenna Center, I view you as aonce and future donor to the
Father McKenna Center becauseyou are going to come through
this and I'm sure things aregoing to get better for you over
time.
And yeah, let's get it out ofthe way, it was a bad decision
to take as much leverage as youdid.
(04:16):
Nobody could have predicted theway these tariff wars are
unfolding.
However, it was predictablethat the market would have a 20%
downturn at some point in time,and I don't know exactly what
you were invested in.
But rest assured, many of us,including myself, have also lost
money in the markets at varioustimes in our lives and have
(04:39):
learned to tell the tale andrecovered.
So you didn't give us much inthe way of personal details To
me.
You haven't mentioned a familyor a spouse, so it sounds like
you're relatively young to me,possibly in your 30s.
But even if you're a littleolder, I think this advice still
applies.
I think you need to recognizethat just being at net worth of
(05:04):
zero and having a job puts youin a position to succeed in the
future.
Mary and I did not reach networth of zero until sometime in
our 30s due to our student loans, and I know people particularly
from the Catching Up to Figroup on Facebook, which
specializes in older people thatsome people are not net worth
(05:26):
zero until their 40s or even 50s, and the truth is, if you can
get to net worth of zero andhave some means of making money,
you can probably becomefinancially independent in 10 or
15 years if you're diligentabout it.
So you can't control what hashappened and you can't control
the markets overall, so I wouldfocus on what you can control,
(05:50):
which is the rest of what'sgoing on in your life, including
where you're earning money andhow you're earning money.
I have found that focusing oncareer or development in times
of financial stress often makesa lot of sense, because it is
something that you can controland work on.
If you've never read the bookMindset by Carol Dweck, which is
(06:12):
about cognitive behavioraltherapy, which is just a modern
interpretation of stoicism, Iwould go and read that book,
because the first thing you doneed to separate is the things
you can control from the thingsthat you can't control.
But rest assured, you'recertainly not the only person
that finds themselves in thisboat or worse boats, actually.
(06:33):
But the answer is to learn fromwhat happened, but not to dwell
on it, going forward and beginto make plans for your future as
to how you're going to makemoney.
If you are still young, youmight think about doing things
like house hacking.
Read the book Set for Life byScott Trench.
But what I can tell you iswealth is not life.
(06:53):
So while some of your wealth isgone, your life is not over and
there's plenty more life to belived and plenty more wealth to
be had in the future.
So take some time lived andplenty more wealth to be had in
the future.
So take some time, talk to somefriends or loved ones who may
be sympathetic and are probablylikely sympathetic.
But I will just play one clip,hopefully cheer you up a little
(07:14):
bit.
At least that's the intent Ihave.
Voices (07:18):
We're all officially kicked out of school.
Wormer just got our grades.
They kicked us out of school.
Huh, that makes sense.
Hey, what's this lying around?
Well, what the hell is supposedto do you?
Moron War is over.
Man Wormer dropped the big one.
What Over, did you say over?
(07:38):
Nothing is over until we decideit is.
Did you say over?
Nothing is over until we decideit is?
Was it over when the Germansbombed Pearl Harbor?
Hell, no.
German Forget it, he's rolling.
And it ain't over now, becausewhen the going gets tough, the
(08:05):
tough get going.
Who's with me?
let's go, come on ludo's rightpsychotic, but absolutely right
now we could fight him withconventional weapons.
That could take years and costmillions of lives.
(08:25):
No, no, no, no.
In this case, I think we haveto go all out.
I think this situationabsolutely requires that a
really futile and stupid gesturebe done on somebody's part.
(08:47):
We're just the guys to do it.
Mary and Voices (08:54):
Let's do it.
Voices (08:56):
Let's do it Go, go Go.
Mostly Uncle Frank (09:01):
Go.
Anyway, I hope this helps alittle bit.
I'm sorry for your predicament.
I do think you'll come throughit and I look forward to you
donating to the Father McKennaCenter again.
Please write in again when youcan and thank you for your email
.
Voices (09:22):
Theodore Roosevelt once said the credit belongs to the
man who is actually in the arena, whose face is marred by dust
and sweat and blood, who knowsthe great enthusiasms, the great
devotions and spends himself ina worthy cause, who, at best,
(09:43):
if he wins, knows the thrills ofhigh achievement and if he
fails, at least fails whiledaring greatly, so that his
place shall never be with thosecold and timid souls who know
neither victory nor defeat.
Mostly Uncle Frank (10:11):
Second off.
Second off we have an emailfrom Sally Mustang.
Sally, guess you better slowyour Mustang down, oh lord.
And Sally writes.
Mary and Voices (10:33):
Appreciate your advice on Choose a Five.
Voices (10:37):
For your information.
There's a lot more to ogresthan people think.
Example Example Okay, um.
Ogres are like onions they stink, yes, no.
Oh.
They make you cry, no, oh.
You leave them out in the sun,they get all brown, start
sprouting little white hairs.
No Layers.
(10:58):
Onions have layers.
Ogres have layers.
Onions have layers.
Ogres have layers.
Onions have layers.
You get it we both have layers.
Oh, you both have layers.
You know, not everybody likeonions.
Mostly Uncle Frank (11:15):
So Sally is referring to the Facebook
ChooseFI group, although theyare now constructing their own
platform which you can join atChooseFIcom, and I've done that
as well.
I don't do much social mediabut I do pick a couple of groups
to basically hang out in, andChooseFI on Facebook is one of
(11:38):
those things.
Newsfi on Facebook is one ofthose things.
I've known Brad Barrett andJonathan Mendonza since they
started the podcast and was oneof the first 100 people in that
group, believe it or not, butI'm glad you like what I have to
say, because it is kind of anoutlet for me and it makes a
much better outlet for me todispense random financial advice
(12:00):
than subjecting my family tosuch things at least unsolicited
advice in their case.
I try to wait until it'ssolicited, but it's
pre-solicited when you join agroup like that, so it gives me
an excuse to speak my mind, asit were.
Voices (12:17):
You are talking about the nonsensical ravings of a
lunatic mind.
Mostly Uncle Frank (12:23):
I've actually been on the Choose Fi
podcast three times Episode 194,episode 313, and episode 508,
if you want to hear me there,Hear me now and believe me later
.
But I've actually been involvedin personal finance groups for
over 15 years.
But I've actually been involvedin personal finance groups for
over 15 years and what isinteresting to me over the years
(12:44):
is I've noticed how the postsend up in just a few different
categories, and often myresponse, the tone of my
response, is based on whatcategory I think the person is
in.
Tell me now and believe melater.
The first is just people whohave honest questions about
something and are looking for aplace to ask them, or who have a
(13:05):
problem, like our last emailer,and are just looking for some
basic advice.
I try to be nice to such people.
Voices (13:12):
And you won't be angry.
I will not be angry.
Mostly Uncle Frank (13:18):
The second are posters that have some kind
of Dunning-Kruger effect goingon in their personal finance
life.
They believe themselves to beexperts in something because
they've read a lot of articlesin the financial media in
particular.
Voices (13:34):
Tell me, have you ever heard of single premium life?
Mostly Uncle Frank (13:37):
Because I think that really could be the
ticket for you and often repeatobsolete or bad advice that
often comes out of financialmedia, because articles about
personal finance and financialmedia, just so you know, are
largely written almost asmarketing materials and are
really designed to funnel peopleinto using services and
(14:00):
products from the financialservices industry.
Voices (14:04):
Because, only one thing counts in this life Get them to
sign on the line which is dotted.
Mostly Uncle Frank (14:11):
And, unfortunately, some people think
that that is actually goodadvice.
Things that fall into thiscategory are recommendations for
robo-advisors or target datefunds A lot of stupid formulas
like you should estimate yourretirement expenses at 80% of
your income, which comes fromnowhere.
(14:33):
Forget about it.
These recommendations that youshould allocate your portfolio
based on your age, or 100 minusyour age, or some other
ridiculous formula like that.
Voices (14:47):
Are you stupid or something?
Mostly Uncle Frank (14:49):
Stupid is what stupid does, sir, fixations
on dividend stocks or otherincome generating things that
are actually more like taxgenerating things?
Do you think anybody wants aroundhouse kick to the face
while I'm wearing these bad boysor the product of the day?
In recent years, that's beenthese covered call funds like
(15:11):
Jepi and things like that.
Voices (15:14):
I drink your milkshake, I drink it up.
Mostly Uncle Frank (15:21):
Anyway, some posters think that by repeating
that information, they'reactually helping their fellow
investors, and they're reallynot.
And sometimes they need to betold that Everyone in this room
is now dumber for havinglistened to it, because a lot of
this stuff is like a bad pennythat just keeps turning up
(15:42):
because it has facial appeal,even though it has limited
application or no application atall I award you no points, and
may god have mercy on your soul,okay.
The third kind of poster are theones that I have the most fun
tweaking are those who areactually just posting to get
(16:04):
strokes or affirmations, andthose tend to fall into two
categories.
One of them is the humble brag.
Look how well I'm doing Now.
I have $10 million and I onlyspend $200,000, but I really
(16:25):
have this dilemma over whetherto buy these CDs or these Megas
or something like that.
Surely you can't be serious.
I am serious and don't call meShirley.
Those people are not lookingfor advice, they're looking for
affirmation, essentially fortheir hoarding behaviors.
Voices (16:42):
What's with?
Mary and Voices (16:42):
you anyway.
Voices (16:43):
I can't help it.
I'm a greedy slob.
It's my hobby.
Mostly Uncle Frank (16:52):
Save me, and I usually respond with.
Well, looks like you're on theway to a golden coffin, so you
probably need to start spendingsome of this money.
And whether you're putting yourexcess cash in CDs, migas,
buckets, ladders, flower pots orany other thing is kind of
irrelevant and you already knowyour answers anyway.
Oh, boy, I'm rich, I'm wealthy,I'm independent, I'm socially
(17:15):
secure.
Voices (17:16):
I'm rich, I'm rich, I'm rich.
Mostly Uncle Frank (17:20):
Another kind of poster that also falls into
this category is somebody who'sactively looking for affirmation
to do something bad orinadvisable, and usually it's
buying too much of a house theycan't afford or some other thing
they want.
Voices (17:36):
Why have you slept with my love?
Why?
Because it's my birthday and Iwant it.
Mostly Uncle Frank (17:53):
Or they're having a fight with somebody in
their family, their spouse orsomebody else, and want somebody
to say something in their favorthat they can show them.
The worst ones are alwaystalking about their in-laws and
what their in-laws are doingwith their money and how it's
going to affect theirinheritances.
These are people are justgreedy as all get out.
Voices (18:15):
Oh no, you don't.
You want my treasure.
Well, it's mine.
Understand All mine Down, downgo go Mine.
Mostly Uncle Frank (18:23):
Anyway, I don't have any compunctions
about taking those folks down apeg when they're making those
kind of affirmation-seekingposts.
Voices (18:32):
I wonder how that crazy duck ever made out with that
genie.
Hey, what do you know?
A poil it's mine.
Understand Mine, mine, all mine, go, go, go, mine.
Do you hear me?
Oh, oh oh Mine, mine, mine, ohbrother, only enough for me, oh
sesame.
I'm rich, I'm a happy miser.
Mostly Uncle Frank (18:51):
And then, finally, there's just active
trolls and spammers, whichactually have caused me to leave
certain other groups thatweren't sufficiently moderated,
simply because you end up withanonymous posters, and then what
are essentially sock puppets,or the same person posting under
a different identification,promoting some idea or some
(19:13):
political point of view orsomething else that actually
probably doesn't even belong ona financial forum.
You need somebody watching yourback at all times.
Or they're just looking forpeople to DM and sell things.
Voices (19:28):
A always BBC closing, always be closing.
Always be closing.
Mostly Uncle Frank (19:37):
So anyway, whenever I'm reading posts on a
group like that, I am alwaysthinking which category does
this poster actually fall into?
Are they asking an honestquestion, or do they have some
other motive for their post?
So I'm glad you enjoy my advicethere and thank you for your
email.
Voices (19:55):
Talk Amada, do not implore him for compassion.
Talk Amada, do not beg him forforgiveness.
Talk Amada, do not ask him forcompassion.
Talk him out of it.
Do not beg him for forgiveness.
Talk him out of it.
Do not ask him for mercy.
Let's face it you can't talkhim out of anything.
Mostly Uncle Frank (20:13):
Next off, there's an email from Jack.
Voices (20:17):
Here's Johnny.
Mary and Voices (20:19):
And Jack writes Hi Frank, I'm extremely
concerned about inflation.
Trump's tariffs are among themost stupid things I've seen.
Voices (20:28):
Almost as stupid as his stupid doors.
Mary and Voices (20:32):
It only brings pain to Americans and does
nothing to solve anything.
Crackdown on immigration isanother huge inflationary policy
.
How do we protect ourportfolios when tips don't work?
Thanks, Jack.
Voices (20:47):
Wendy, I'm home.
Mostly Uncle Frank (20:50):
Well, jack, the short answer is there are a
few things that do tend toperform better or well in
inflationary environments, andwe had a nice presentation from
a Bloomberg researcher that Iposted before.
The last time I posted it wasin episode 382, but I'll try and
dig it out and post it againand post it again.
(21:16):
But anyway, what it tends toshow is that the things that
work best in inflationaryenvironments are things like
managed futures commodities,value-tilted stocks,
particularly those that areinvolved in hard assets or
consumables and another categoryof things that I've personally
found works pretty well isproperty and casualty insurance
companies.
That I've personally foundworks pretty well is property
(21:37):
and casualty insurance companies.
There is a fund called KBWPthat holds those, although you
can just hold the contents ofthat directly.
We're talking about things likeAllstate and Progressive and
Chubb.
Anyway, those things were up10% in a year like 2022.
You are correct that tips do notwork to shield an entire
portfolio from inflation.
Tips only work when you comparethem to nominal bonds or cash
(22:02):
in an inflationary environment,but because they are bonds
themselves, that tends todetract from any big performance
that will actually outperformin some kind of inflationary
environment.
All you'll get out of them istreading water with the amount
that is in them, and it won'thelp you otherwise.
But now the bigger question iswhether we're going to actually
(22:24):
get sustained inflation or not,or whether it's going to come
and go or how it's going to work.
Because, yes, restricting thelabor supply would be
inflationary, but tariffsalthough there's a price shock
involved, unless there arecontinuous more price shocks, as
in the tariffs continuing to goup, you'll only get the one
(22:45):
price shock in terms ofinflation, but what you'll also
get is just lower growth andpotentially a deflationary
environment, which is why theSmoot-Hawley tariffs were
considered to be one of theparts of the Great Depression
that really exacerbated it after1930.
Bueller.
Mary and Voices (23:09):
Bueller, bueller.
Mostly Uncle Frank (23:12):
Bueller.
Bueller, because if you thinkof, say, 100 imported widgets
selling for a dollar and you puta 100% tariff on them and now
they cost $2 each, basiceconomics tells you that there's
going to be a whole lot lesspeople actually buying those
things and it could be only half, in which case you have
(23:35):
basically half the revenue goinginto the economy, the other
half going to the government andyou have basically a lower
growth or deflationary kind ofenvironment when that is spread
over many goods and many othertransactions.
Now the only thing that seemsto have thrived in these kind of
environments that are sort ofglobal chaos caused by
(23:57):
governments is gold.
Voices (24:00):
I love gold.
Mostly Uncle Frank (24:04):
And that was true in the last two years of
the first Trump administrationand it's been true recently,
because tariffs just make theUnited States just an
unattractive place for people towant to do business or to
invest their money.
So, instead of putting it intoUS dollar denominated assets or
US assets themselves, foreignparties and foreign central
(24:25):
banks tend to put it in thingslike gold instead, at least
until they figure out where elseto put it.
Which is this weirdcharacteristic of gold?
That it can do well both inexcessively inflationary
environments like the 1970s ordeflationary environments like
the early 2000s.
And the only really commonfactor is that there's a lot of
(24:46):
uncertainty in the world overall, and so a lot of people in a
lot of countries would ratherhold something like gold than
try to figure out what to investin, basically until the smoke
clears, if you will.
So this is a mess.
Most portfolios are likely todo relatively better compared to
(25:16):
growth stocks and other risk-onkind of assets, but I don't
think this is going to be prettyfor anybody until these
governments get themselves inline and stop messing around
with the free market.
Voices (25:27):
Basically, Are you crazy or just plain stupid?
Stupid is stupid, does Mrs Bluth?
Mostly Uncle Frank (25:35):
I guess, Anyway, that's just where we are
.
Mary and Voices (25:40):
That's not an improvement.
Mostly Uncle Frank (25:43):
And so thank you for your email Last off.
Last off, an email from Javen.
Mary and Voices (25:51):
Fortune favors the brave.
Mostly Uncle Frank (25:53):
And Javen writes.
Mary and Voices (25:58):
Hi, Frank and Mary.
As always, thank you for thegreat work you do in helping us
become smarter investors.
Voices (26:01):
You're that smart.
Mary and Voices (26:03):
I'd love to get your take on Paul Merriman's
best-in-class ETFrecommendations.
His emphasis on tilting towardsmall cap and value in the stock
portion of a portfolio makes alot of sense.
Cue the cowbell clip.
Voices (26:16):
Guess what?
I got a fever and the onlyprescription is more cowbell.
Mary and Voices (26:23):
However, his strong bias against growth is
striking.
Even his large cap blend fundchoice is an advantageous ETF
with a value tilt.
I've heard you suggest a 50-50split between large cap growth
and small cap value probablyprovides the most
diversification benefit.
With that in mind, what do youthink about using a mega cap
(26:45):
growth fund like MGK instead ofAVUS and a Merriman-style stock
allocation to achieve betterdiversification?
Portfolio Visualizer's assetcorrelation screener does show
that MGK is significantly morediversified from the other
components of a Merrimanbest-in-class ETF portfolio than
AVUS.
Mostly Uncle Frank (27:05):
I know we're really splitting hairs here,
but I'd it could work, based onhistorical performances of
various value-tilted andsize-tilted stocks both domestic
(27:39):
and international, and he isreally trying to focus on trying
to outperform the S&P 500 inparticular, both nominally and
on a risk-adjusted basis.
And where his originalrecommendations came from.
In particular, the MerrimanUltimate Portfolio was an
application of essentially whatDFA recommends, which were the
(28:04):
funds that his old financialadvisory service used, and so
that is an 8 to 10 fundportfolio, and this is all
stocks.
We're only talking about stockshere.
We're not talking about bondsor anything else.
After a conversation he hadwith Jack Bogle in like 2017,
bogle said this looks great, butit's just too many things.
(28:25):
Can you simplify it?
And so he came up with a numberof simplifications some four
fund portfolios and then down toa two-fund portfolio, which for
that one, he uses an S&P 500fund and a small-cap value fund.
But again, those are focusedmostly on accumulation.
Now the difference that I haveis I am less focused on trying
(28:47):
to beat the S&P 500 withcombinations of funds and more
focused on just getting betterdiversification with a few funds
, with the idea that I'm goingto assume that these funds are
going to perform overall kind oflike the S&P 500 or overall
market, except if they havehigher beta, they're going to
(29:10):
have more volatility, but byusing diversification principles
, in particular what is known asShannon's Demon.
If you hold at least two verydiversified assets and can
rebalance them, and they havesimilar return profiles over
time, you will get a betterresult by holding both of them
and rebalancing them than youwould out of holding either one
(29:32):
alone.
And so, for that purpose,holding a large cap growth fund
with the small cap value fundgives you more of that
diversification, even if it addsto some overall volatility of
the portfolio.
And this is particularlyvaluable when you're talking
about putting things in adrawdown portfolio, where you
want more of thatdiversification and potential
(29:55):
rebalancing bonus.
Now, as to the fund MGK, yeah,I ran that in test folio for
comparison purposes with VUG,which is kind of the standard
Vanguard large cap growth fund,and IWY, which is a Russell
large cap growth fund, and theyall perform very similarly, so
(30:15):
they would be interchangeable.
For the purpose that I'm usingthem for, I think IWY has the
best characteristics overall ofthe three of them, but you can
check them out Now.
I can't tell you that any one ofthese large cap growth funds is
going to perform better thanAVUS, in particular, because
(30:37):
AVUS has just not been aroundthat long.
I do doubt that AVUS is morediversified from a small cap
value fund than MGK or any ofthe other large cap growth funds
.
But in a certain sense you maybe splitting hairs here, because
I know that they're going tohave overlaps.
I think AVUS is likely toperform more closely to, say, an
(30:58):
S&P 500 fund like VOO.
But yes, your last comment isApp, we are really splitting
hairs here.
So any combination of whatwe've been talking about is
probably going to work just aswell as another one, and the
thing is you can't tell a decadein advance which combination of
these funds is going to performbest in the next decade.
Voices (31:22):
We don't know.
What do we know?
You don't know, I don't know,nobody knows.
Mostly Uncle Frank (31:28):
I will tell you that what I'm seeking to do
is maximize diversification andhopefully that will maximize
performance, whereas I thinkPaul Merriman is seeking to
directly maximize performancethrough value-based selections
or value-tilted selections.
I think either way is going towork overall, so hopefully that
(31:48):
helps and thank you for youremail.
But now I see our signal isbeginning to fade.
I see markets are attempting torally again this Wednesday
morning, but that didn't reallywork well yesterday.
I'm not sure how well it'sgoing to work today, but I would
just remain calm and followyour rebalancing plans.
(32:10):
Hopefully you own some gold andcan be living off of that and
planning to rebalance out of itand into these other things.
In the meantime.
If you have comments orquestions for me, please send
them tofrankatriskparityradarcom.
That email isfrankatriskparityradarcom.
Or you can go to the websitewwwriskparityradiocom.
(32:32):
Put your message into thecontact form and I'll get it
that way.
If you haven't had a chance todo it, please go to your
favorite podcast provider andlike subscribe.
Give me some stars, a follow ora view that would be great Okay
.
Thank you once again for tuningin.
This is Frank Vasquez with RiskParity Radio.
Voices (33:27):
Signing off.
Mary and Voices (33:35):
The Risk Parody Radio Show is hosted by Frank
Vasquez.
The content provided is forentertainment and informational
purposes only and does notconstitute financial, investment
tax or legal advice.
Please consult with your ownadvisors before taking any
actions based on any informationyou have heard here, making
sure to take into account yourown personal circumstances.
A foolish consistency is the hobgoblin of little minds,
adored by little statesmen andphilosophers and divines.
If a man does not keep pace withhis companions, perhaps it is
because he hears a differentdrummer, a different drummer.
Mary and Voices (00:19):
And now, coming to you from dead center on your
dial, welcome to Risk ParityRadio, where we explore
alternatives and assetallocations for the
do-it-yourself investorBroadcasting to you now from the
comfort of his easy chair.
Here is your host, frankVasquez.
Mostly Uncle Frank (00:37):
Thank you, Mary, and welcome to Risk Parity
Radio.
If you are new here and wonderwhat we are talking about, you
may wish to go back and listento some of the foundational
episodes for this program.
Voices (00:49):
Yeah, baby, yeah.
Mostly Uncle Frank (00:51):
And the basic foundational episodes are
episodes 1, 3, 5, 7, and 9.
Some of our listeners,including Karen and Chris, have
identified additional episodesthat you may consider
foundational, and those areepisodes 12, 14, 16, 19, 21, 56,
(01:13):
82, and 184.
Whoa, and you probably shouldcheck those out too, because we
have the finest podcast audienceavailable.
Mary and Voices (01:26):
Top drawer, really top drawer.
Mostly Uncle Frank (01:30):
Along with a host named after a hot dog.
Voices (01:34):
Lighten up Francis.
Mostly Uncle Frank (01:37):
But now onward, episode 413.
Today on Risk Parody Radio,we're just going to get back to
doing what we do best here,which is attend to your emails.
Voices (01:47):
That is the straight stuff.
Oh funk master.
Mostly Uncle Frank (01:50):
And so without further ado.
Voices (01:53):
Here I go once again with the email.
Mostly Uncle Frank (01:56):
And First off.
First off, we have an emailfrom Harry, and Harry writes.
Mary and Voices (02:04):
Hi Frank, I'm writing to you in a state of
extreme distress and desperation.
I have experienced devastatingfinancial losses due to high
leverage investments and I havelost a significant portion of my
retirement portfolio due toTrump's tariffs and market
routes still going on.
My margins were called and Ilost even more.
I understand that reaching outin this manner is unconventional
(02:26):
, but I am truly at a loss anddon't know where else to turn.
I have followed your work forsome time and I deeply respect
your expertise.
I made a series of very poordecisions, in part listening to
your listeners, using leverage,and I tried that as well, with
terrible consequences.
What do I do now?
My Roth is gone, my 401k isquite small and my brokerage is
(02:47):
pretty much gone.
After this Monday, any words ofconsolation?
Thanks, harry.
Mostly Uncle Frank (02:54):
Well, first off, harry, I am very sorry for
your predicament and I have dulyturned off the sound bites for
this question and answer.
I have moved you to the frontof the email line because you
noted that you were a previousdonor to the Father McKenna
Center.
As most of you know, we do nothave any sponsors here, but we
do have a charity that wesupport.
(03:15):
It's called the Father McKennaCenter and it serves hungry and
homeless people in Washington DC.
Full disclosure I am on theboard of the charity and am the
current treasurer.
But if you have given to thecharity, you get to go to the
front of the email line, andthere are two ways of doing that
.
You can give directly at thewebsite, on their donation page,
(03:35):
and we accept cash and otherforms of donations.
I recently donated some sharesof GLD, which I had appreciated.
Or you can go to our supportpage at wwwbriskparityradarcom
and become one of our patrons onPatreon and do it automatically
every month.
Either way, I'm going to moveyou to the front of the line and
(03:56):
although you said you were aprevious donor of the Father
McKenna Center, I view you as aonce and future donor to the
Father McKenna Center becauseyou are going to come through
this and I'm sure things aregoing to get better for you over
time.
And yeah, let's get it out ofthe way, it was a bad decision
to take as much leverage as youdid.
(04:16):
Nobody could have predicted theway these tariff wars are
unfolding.
However, it was predictablethat the market would have a 20%
downturn at some point in time,and I don't know exactly what
you were invested in.
But rest assured, many of us,including myself, have also lost
money in the markets at varioustimes in our lives and have
(04:39):
learned to tell the tale andrecovered.
So you didn't give us much inthe way of personal details To
me.
You haven't mentioned a familyor a spouse, so it sounds like
you're relatively young to me,possibly in your 30s.
But even if you're a littleolder, I think this advice still
applies.
I think you need to recognizethat just being at net worth of
(05:04):
zero and having a job puts youin a position to succeed in the
future.
Mary and I did not reach networth of zero until sometime in
our 30s due to our student loans, and I know people particularly
from the Catching Up to Figroup on Facebook, which
specializes in older people thatsome people are not net worth
(05:26):
zero until their 40s or even 50s, and the truth is, if you can
get to net worth of zero andhave some means of making money,
you can probably becomefinancially independent in 10 or
15 years if you're diligentabout it.
So you can't control what hashappened and you can't control
the markets overall, so I wouldfocus on what you can control,
(05:50):
which is the rest of what'sgoing on in your life, including
where you're earning money andhow you're earning money.
I have found that focusing oncareer or development in times
of financial stress often makesa lot of sense, because it is
something that you can controland work on.
If you've never read the bookMindset by Carol Dweck, which is
(06:12):
about cognitive behavioraltherapy, which is just a modern
interpretation of stoicism, Iwould go and read that book,
because the first thing you doneed to separate is the things
you can control from the thingsthat you can't control.
But rest assured, you'recertainly not the only person
that finds themselves in thisboat or worse boats, actually.
(06:33):
But the answer is to learn fromwhat happened, but not to dwell
on it, going forward and beginto make plans for your future as
to how you're going to makemoney.
If you are still young, youmight think about doing things
like house hacking.
Read the book Set for Life byScott Trench.
But what I can tell you iswealth is not life.
(06:53):
So while some of your wealth isgone, your life is not over and
there's plenty more life to belived and plenty more wealth to
be had in the future.
So take some time lived andplenty more wealth to be had in
the future.
So take some time, talk to somefriends or loved ones who may
be sympathetic and are probablylikely sympathetic.
But I will just play one clip,hopefully cheer you up a little
(07:14):
bit.
At least that's the intent Ihave.
Voices (07:18):
We're all officially kicked out of school.
Wormer just got our grades.
They kicked us out of school.
Huh, that makes sense.
Hey, what's this lying around?
Well, what the hell is supposedto do you?
Moron War is over.
Man Wormer dropped the big one.
What Over, did you say over?
(07:38):
Nothing is over until we decideit is.
Did you say over?
Nothing is over until we decideit is?
Was it over when the Germansbombed Pearl Harbor?
Hell, no.
German Forget it, he's rolling.
And it ain't over now, becausewhen the going gets tough, the
(08:05):
tough get going.
Who's with me?
let's go, come on ludo's rightpsychotic, but absolutely right
now we could fight him withconventional weapons.
That could take years and costmillions of lives.
(08:25):
No, no, no, no.
In this case, I think we haveto go all out.
I think this situationabsolutely requires that a
really futile and stupid gesturebe done on somebody's part.
(08:47):
We're just the guys to do it.
Mary and Voices (08:54):
Let's do it.
Voices (08:56):
Let's do it Go, go Go.
Mostly Uncle Frank (09:01):
Go.
Anyway, I hope this helps alittle bit.
I'm sorry for your predicament.
I do think you'll come throughit and I look forward to you
donating to the Father McKennaCenter again.
Please write in again when youcan and thank you for your email
.
Voices (09:22):
Theodore Roosevelt once said the credit belongs to the
man who is actually in the arena, whose face is marred by dust
and sweat and blood, who knowsthe great enthusiasms, the great
devotions and spends himself ina worthy cause, who, at best,
(09:43):
if he wins, knows the thrills ofhigh achievement and if he
fails, at least fails whiledaring greatly, so that his
place shall never be with thosecold and timid souls who know
neither victory nor defeat.
Mostly Uncle Frank (10:11):
Second off.
Second off we have an emailfrom Sally Mustang.
Sally, guess you better slowyour Mustang down, oh lord.
And Sally writes.
Mary and Voices (10:33):
Appreciate your advice on Choose a Five.
Voices (10:37):
For your information.
There's a lot more to ogresthan people think.
Example Example Okay, um.
Ogres are like onions they stink, yes, no.
Oh.
They make you cry, no, oh.
You leave them out in the sun,they get all brown, start
sprouting little white hairs.
No Layers.
(10:58):
Onions have layers.
Ogres have layers.
Onions have layers.
Ogres have layers.
Onions have layers.
You get it we both have layers.
Oh, you both have layers.
You know, not everybody likeonions.
Mostly Uncle Frank (11:15):
So Sally is referring to the Facebook
ChooseFI group, although theyare now constructing their own
platform which you can join atChooseFIcom, and I've done that
as well.
I don't do much social mediabut I do pick a couple of groups
to basically hang out in, andChooseFI on Facebook is one of
(11:38):
those things.
Newsfi on Facebook is one ofthose things.
I've known Brad Barrett andJonathan Mendonza since they
started the podcast and was oneof the first 100 people in that
group, believe it or not, butI'm glad you like what I have to
say, because it is kind of anoutlet for me and it makes a
much better outlet for me todispense random financial advice
(12:00):
than subjecting my family tosuch things at least unsolicited
advice in their case.
I try to wait until it'ssolicited, but it's
pre-solicited when you join agroup like that, so it gives me
an excuse to speak my mind, asit were.
Voices (12:17):
You are talking about the nonsensical ravings of a
lunatic mind.
Mostly Uncle Frank (12:23):
I've actually been on the Choose Fi
podcast three times Episode 194,episode 313, and episode 508,
if you want to hear me there,Hear me now and believe me later
.
But I've actually been involvedin personal finance groups for
over 15 years.
But I've actually been involvedin personal finance groups for
over 15 years and what isinteresting to me over the years
(12:44):
is I've noticed how the postsend up in just a few different
categories, and often myresponse, the tone of my
response, is based on whatcategory I think the person is
in.
Tell me now and believe melater.
The first is just people whohave honest questions about
something and are looking for aplace to ask them, or who have a
(13:05):
problem, like our last emailer,and are just looking for some
basic advice.
I try to be nice to such people.
Voices (13:12):
And you won't be angry.
I will not be angry.
Mostly Uncle Frank (13:18):
The second are posters that have some kind
of Dunning-Kruger effect goingon in their personal finance
life.
They believe themselves to beexperts in something because
they've read a lot of articlesin the financial media in
particular.
Voices (13:34):
Tell me, have you ever heard of single premium life?
Mostly Uncle Frank (13:37):
Because I think that really could be the
ticket for you and often repeatobsolete or bad advice that
often comes out of financialmedia, because articles about
personal finance and financialmedia, just so you know, are
largely written almost asmarketing materials and are
really designed to funnel peopleinto using services and
(14:00):
products from the financialservices industry.
Voices (14:04):
Because, only one thing counts in this life Get them to
sign on the line which is dotted.
Mostly Uncle Frank (14:11):
And, unfortunately, some people think
that that is actually goodadvice.
Things that fall into thiscategory are recommendations for
robo-advisors or target datefunds A lot of stupid formulas
like you should estimate yourretirement expenses at 80% of
your income, which comes fromnowhere.
(14:33):
Forget about it.
These recommendations that youshould allocate your portfolio
based on your age, or 100 minusyour age, or some other
ridiculous formula like that.
Voices (14:47):
Are you stupid or something?
Mostly Uncle Frank (14:49):
Stupid is what stupid does, sir, fixations
on dividend stocks or otherincome generating things that
are actually more like taxgenerating things?
Do you think anybody wants aroundhouse kick to the face
while I'm wearing these bad boysor the product of the day?
In recent years, that's beenthese covered call funds like
(15:11):
Jepi and things like that.
Voices (15:14):
I drink your milkshake, I drink it up.
Mostly Uncle Frank (15:21):
Anyway, some posters think that by repeating
that information, they'reactually helping their fellow
investors, and they're reallynot.
And sometimes they need to betold that Everyone in this room
is now dumber for havinglistened to it, because a lot of
this stuff is like a bad pennythat just keeps turning up
(15:42):
because it has facial appeal,even though it has limited
application or no application atall I award you no points, and
may god have mercy on your soul,okay.
The third kind of poster are theones that I have the most fun
tweaking are those who areactually just posting to get
(16:04):
strokes or affirmations, andthose tend to fall into two
categories.
One of them is the humble brag.
Look how well I'm doing Now.
I have $10 million and I onlyspend $200,000, but I really
(16:25):
have this dilemma over whetherto buy these CDs or these Megas
or something like that.
Surely you can't be serious.
I am serious and don't call meShirley.
Those people are not lookingfor advice, they're looking for
affirmation, essentially fortheir hoarding behaviors.
Voices (16:42):
What's with?
Mary and Voices (16:42):
you anyway.
Voices (16:43):
I can't help it.
I'm a greedy slob.
It's my hobby.
Mostly Uncle Frank (16:52):
Save me, and I usually respond with.
Well, looks like you're on theway to a golden coffin, so you
probably need to start spendingsome of this money.
And whether you're putting yourexcess cash in CDs, migas,
buckets, ladders, flower pots orany other thing is kind of
irrelevant and you already knowyour answers anyway.
Oh, boy, I'm rich, I'm wealthy,I'm independent, I'm socially
(17:15):
secure.
Voices (17:16):
I'm rich, I'm rich, I'm rich.
Mostly Uncle Frank (17:20):
Another kind of poster that also falls into
this category is somebody who'sactively looking for affirmation
to do something bad orinadvisable, and usually it's
buying too much of a house theycan't afford or some other thing
they want.
Voices (17:36):
Why have you slept with my love?
Why?
Because it's my birthday and Iwant it.
Mostly Uncle Frank (17:53):
Or they're having a fight with somebody in
their family, their spouse orsomebody else, and want somebody
to say something in their favorthat they can show them.
The worst ones are alwaystalking about their in-laws and
what their in-laws are doingwith their money and how it's
going to affect theirinheritances.
These are people are justgreedy as all get out.
Voices (18:15):
Oh no, you don't.
You want my treasure.
Well, it's mine.
Understand All mine Down, downgo go Mine.
Mostly Uncle Frank (18:23):
Anyway, I don't have any compunctions
about taking those folks down apeg when they're making those
kind of affirmation-seekingposts.
Voices (18:32):
I wonder how that crazy duck ever made out with that
genie.
Hey, what do you know?
A poil it's mine.
Understand Mine, mine, all mine, go, go, go, mine.
Do you hear me?
Oh, oh oh Mine, mine, mine, ohbrother, only enough for me, oh
sesame.
I'm rich, I'm a happy miser.
Mostly Uncle Frank (18:51):
And then, finally, there's just active
trolls and spammers, whichactually have caused me to leave
certain other groups thatweren't sufficiently moderated,
simply because you end up withanonymous posters, and then what
are essentially sock puppets,or the same person posting under
a different identification,promoting some idea or some
(19:13):
political point of view orsomething else that actually
probably doesn't even belong ona financial forum.
You need somebody watching yourback at all times.
Or they're just looking forpeople to DM and sell things.
Voices (19:28):
A always BBC closing, always be closing.
Always be closing.
Mostly Uncle Frank (19:37):
So anyway, whenever I'm reading posts on a
group like that, I am alwaysthinking which category does
this poster actually fall into?
Are they asking an honestquestion, or do they have some
other motive for their post?
So I'm glad you enjoy my advicethere and thank you for your
email.
Voices (19:55):
Talk Amada, do not implore him for compassion.
Talk Amada, do not beg him forforgiveness.
Talk Amada, do not ask him forcompassion.
Talk him out of it.
Do not beg him for forgiveness.
Talk him out of it.
Do not ask him for mercy.
Let's face it you can't talkhim out of anything.
Mostly Uncle Frank (20:13):
Next off, there's an email from Jack.
Voices (20:17):
Here's Johnny.
Mary and Voices (20:19):
And Jack writes Hi Frank, I'm extremely
concerned about inflation.
Trump's tariffs are among themost stupid things I've seen.
Voices (20:28):
Almost as stupid as his stupid doors.
Mary and Voices (20:32):
It only brings pain to Americans and does
nothing to solve anything.
Crackdown on immigration isanother huge inflationary policy
.
How do we protect ourportfolios when tips don't work?
Thanks, Jack.
Voices (20:47):
Wendy, I'm home.
Mostly Uncle Frank (20:50):
Well, jack, the short answer is there are a
few things that do tend toperform better or well in
inflationary environments, andwe had a nice presentation from
a Bloomberg researcher that Iposted before.
The last time I posted it wasin episode 382, but I'll try and
dig it out and post it againand post it again.
(21:16):
But anyway, what it tends toshow is that the things that
work best in inflationaryenvironments are things like
managed futures commodities,value-tilted stocks,
particularly those that areinvolved in hard assets or
consumables and another categoryof things that I've personally
found works pretty well isproperty and casualty insurance
companies.
That I've personally foundworks pretty well is property
(21:37):
and casualty insurance companies.
There is a fund called KBWPthat holds those, although you
can just hold the contents ofthat directly.
We're talking about things likeAllstate and Progressive and
Chubb.
Anyway, those things were up10% in a year like 2022.
You are correct that tips do notwork to shield an entire
portfolio from inflation.
Tips only work when you comparethem to nominal bonds or cash
(22:02):
in an inflationary environment,but because they are bonds
themselves, that tends todetract from any big performance
that will actually outperformin some kind of inflationary
environment.
All you'll get out of them istreading water with the amount
that is in them, and it won'thelp you otherwise.
But now the bigger question iswhether we're going to actually
(22:24):
get sustained inflation or not,or whether it's going to come
and go or how it's going to work.
Because, yes, restricting thelabor supply would be
inflationary, but tariffsalthough there's a price shock
involved, unless there arecontinuous more price shocks, as
in the tariffs continuing to goup, you'll only get the one
(22:45):
price shock in terms ofinflation, but what you'll also
get is just lower growth andpotentially a deflationary
environment, which is why theSmoot-Hawley tariffs were
considered to be one of theparts of the Great Depression
that really exacerbated it after1930.
Bueller.
Mary and Voices (23:09):
Bueller, bueller.
Mostly Uncle Frank (23:12):
Bueller.
Bueller, because if you thinkof, say, 100 imported widgets
selling for a dollar and you puta 100% tariff on them and now
they cost $2 each, basiceconomics tells you that there's
going to be a whole lot lesspeople actually buying those
things and it could be only half, in which case you have
(23:35):
basically half the revenue goinginto the economy, the other
half going to the government andyou have basically a lower
growth or deflationary kind ofenvironment when that is spread
over many goods and many othertransactions.
Now the only thing that seemsto have thrived in these kind of
environments that are sort ofglobal chaos caused by
(23:57):
governments is gold.
Voices (24:00):
I love gold.
Mostly Uncle Frank (24:04):
And that was true in the last two years of
the first Trump administrationand it's been true recently,
because tariffs just make theUnited States just an
unattractive place for people towant to do business or to
invest their money.
So, instead of putting it intoUS dollar denominated assets or
US assets themselves, foreignparties and foreign central
(24:25):
banks tend to put it in thingslike gold instead, at least
until they figure out where elseto put it.
Which is this weirdcharacteristic of gold?
That it can do well both inexcessively inflationary
environments like the 1970s ordeflationary environments like
the early 2000s.
And the only really commonfactor is that there's a lot of
(24:46):
uncertainty in the world overall, and so a lot of people in a
lot of countries would ratherhold something like gold than
try to figure out what to investin, basically until the smoke
clears, if you will.
So this is a mess.
Most portfolios are likely todo relatively better compared to
(25:16):
growth stocks and other risk-onkind of assets, but I don't
think this is going to be prettyfor anybody until these
governments get themselves inline and stop messing around
with the free market.
Voices (25:27):
Basically, Are you crazy or just plain stupid?
Stupid is stupid, does Mrs Bluth?
Mostly Uncle Frank (25:35):
I guess, Anyway, that's just where we are
.
Mary and Voices (25:40):
That's not an improvement.
Mostly Uncle Frank (25:43):
And so thank you for your email Last off.
Last off, an email from Javen.
Mary and Voices (25:51):
Fortune favors the brave.
Mostly Uncle Frank (25:53):
And Javen writes.
Mary and Voices (25:58):
Hi, Frank and Mary.
As always, thank you for thegreat work you do in helping us
become smarter investors.
Voices (26:01):
You're that smart.
Mary and Voices (26:03):
I'd love to get your take on Paul Merriman's
best-in-class ETFrecommendations.
His emphasis on tilting towardsmall cap and value in the stock
portion of a portfolio makes alot of sense.
Cue the cowbell clip.
Voices (26:16):
Guess what?
I got a fever and the onlyprescription is more cowbell.
Mary and Voices (26:23):
However, his strong bias against growth is
striking.
Even his large cap blend fundchoice is an advantageous ETF
with a value tilt.
I've heard you suggest a 50-50split between large cap growth
and small cap value probablyprovides the most
diversification benefit.
With that in mind, what do youthink about using a mega cap
(26:45):
growth fund like MGK instead ofAVUS and a Merriman-style stock
allocation to achieve betterdiversification?
Portfolio Visualizer's assetcorrelation screener does show
that MGK is significantly morediversified from the other
components of a Merrimanbest-in-class ETF portfolio than
AVUS.
Mostly Uncle Frank (27:05):
I know we're really splitting hairs here,
but I'd it could work, based onhistorical performances of
various value-tilted andsize-tilted stocks both domestic
(27:39):
and international, and he isreally trying to focus on trying
to outperform the S&P 500 inparticular, both nominally and
on a risk-adjusted basis.
And where his originalrecommendations came from.
In particular, the MerrimanUltimate Portfolio was an
application of essentially whatDFA recommends, which were the
(28:04):
funds that his old financialadvisory service used, and so
that is an 8 to 10 fundportfolio, and this is all
stocks.
We're only talking about stockshere.
We're not talking about bondsor anything else.
After a conversation he hadwith Jack Bogle in like 2017,
bogle said this looks great, butit's just too many things.
(28:25):
Can you simplify it?
And so he came up with a numberof simplifications some four
fund portfolios and then down toa two-fund portfolio, which for
that one, he uses an S&P 500fund and a small-cap value fund.
But again, those are focusedmostly on accumulation.
Now the difference that I haveis I am less focused on trying
(28:47):
to beat the S&P 500 withcombinations of funds and more
focused on just getting betterdiversification with a few funds
, with the idea that I'm goingto assume that these funds are
going to perform overall kind oflike the S&P 500 or overall
market, except if they havehigher beta, they're going to
(29:10):
have more volatility, but byusing diversification principles
, in particular what is known asShannon's Demon.
If you hold at least two verydiversified assets and can
rebalance them, and they havesimilar return profiles over
time, you will get a betterresult by holding both of them
and rebalancing them than youwould out of holding either one
(29:32):
alone.
And so, for that purpose,holding a large cap growth fund
with the small cap value fundgives you more of that
diversification, even if it addsto some overall volatility of
the portfolio.
And this is particularlyvaluable when you're talking
about putting things in adrawdown portfolio, where you
want more of thatdiversification and potential
(29:55):
rebalancing bonus.
Now, as to the fund MGK, yeah,I ran that in test folio for
comparison purposes with VUG,which is kind of the standard
Vanguard large cap growth fund,and IWY, which is a Russell
large cap growth fund, and theyall perform very similarly, so
(30:15):
they would be interchangeable.
For the purpose that I'm usingthem for, I think IWY has the
best characteristics overall ofthe three of them, but you can
check them out Now.
I can't tell you that any one ofthese large cap growth funds is
going to perform better thanAVUS, in particular, because
(30:37):
AVUS has just not been aroundthat long.
I do doubt that AVUS is morediversified from a small cap
value fund than MGK or any ofthe other large cap growth funds
.
But in a certain sense you maybe splitting hairs here, because
I know that they're going tohave overlaps.
I think AVUS is likely toperform more closely to, say, an
(30:58):
S&P 500 fund like VOO.
But yes, your last comment isApp, we are really splitting
hairs here.
So any combination of whatwe've been talking about is
probably going to work just aswell as another one, and the
thing is you can't tell a decadein advance which combination of
these funds is going to performbest in the next decade.
Voices (31:22):
We don't know.
What do we know?
You don't know, I don't know,nobody knows.
Mostly Uncle Frank (31:28):
I will tell you that what I'm seeking to do
is maximize diversification andhopefully that will maximize
performance, whereas I thinkPaul Merriman is seeking to
directly maximize performancethrough value-based selections
or value-tilted selections.
I think either way is going towork overall, so hopefully that
(31:48):
helps and thank you for youremail.
But now I see our signal isbeginning to fade.
I see markets are attempting torally again this Wednesday
morning, but that didn't reallywork well yesterday.
I'm not sure how well it'sgoing to work today, but I would
just remain calm and followyour rebalancing plans.
(32:10):
Hopefully you own some gold andcan be living off of that and
planning to rebalance out of itand into these other things.
In the meantime.
If you have comments orquestions for me, please send
them tofrankatriskparityradarcom.
That email isfrankatriskparityradarcom.
Or you can go to the websitewwwriskparityradiocom.
(32:32):
Put your message into thecontact form and I'll get it
that way.
If you haven't had a chance todo it, please go to your
favorite podcast provider andlike subscribe.
Give me some stars, a follow ora view that would be great Okay
.
Thank you once again for tuningin.
This is Frank Vasquez with RiskParity Radio.
Voices (33:27):
Signing off.
Mary and Voices (33:35):
The Risk Parody Radio Show is hosted by Frank
Vasquez.
The content provided is forentertainment and informational
purposes only and does notconstitute financial, investment
tax or legal advice.
Please consult with your ownadvisors before taking any
actions based on any informationyou have heard here, making
sure to take into account yourown personal circumstances.
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