In this episode we answer emails from Marco Esquandolas and Multi-Family Investor. We discuss a long-term diversified Roth portfolio for a 13-year old, modelling Delaware Statutory Trusts in a portfolio, transitioning out of an all S&P 500 allocation in a taxable account, PFIX, Sabine Royalty Trust and individual stocks in retirement portfolios, and M1 Finance.
Note/Correction: Sabine is actually NOT structured like an MLP but as a true trust and therefore issues 1099s, not K-1s like most companies in the oil & gas royalty space.
Links:
Shannon's Demon Article: Unexpected Returns: Shannon's Demon & the Rebalancing Bonus – Portfolio Charts
IDMO vs EFG (and other international growth funds) Analysis: testfol.io/analysis?s=4PEQ1YvTbAM
Breathless Unedited AI-Bot Summary:
Dive into the world of strategic portfolio building with this illuminating episode where Frank tackles questions from two distinct investors at opposite ends of the age spectrum. A father shares his 13-year-old son's Shannon's Demon-inspired portfolio that's being built for an ultra-long 50+ year time horizon, featuring a balanced approach to growth and value across both domestic and international markets. Frank offers targeted advice on fund selection while celebrating this young investor's precocious financial journey.
The conversation shifts dramatically when an engineer earning $250,000-300,000 annually shares his detailed retirement strategy with hopes of financial independence before 50. With $3.4 million spread across multiple investment vehicles including real estate, this listener puzzles over how to transition to a risk parity portfolio without triggering a substantial tax bill. Frank methodically dissects several aspects of this complex situation, questioning the wisdom of backdoor Roth conversions during peak earning years and clarifying misconceptions about Delaware Statutory Trusts as bond substitutes.
What makes this episode particularly valuable is Frank's blend of technical advice and practical wisdom. He cuts through complex tax and investment strategies to offer straightforward solutions - identifying tax-loss harvesting opportunities, rethinking account structures, and focusing on expenses rather than arbitrary portfolio targets. The discussion extends to specialized investments like royalty trusts and interest rate hedges, providing listeners with a masterclass in portfolio construction that balances theoretical ideals with real-world constraints.
Whether you're managing investments for the next generation or planning your own early retirement, this episode delivers actionable insights on building resilient, tax-efficient portfolios tailored to your unique circumstances. The principles shared apply across market conditions and investment goals, making this essential listening for any DIY investor seeking to optimize their financial future.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:01):
A foolish consistency is the hobgoblin of little
minds, adored by littlestatesmen and philosophers and
divines.
If a man does not keep pace,with his companions.
Speaker 2 (00:13):
Perhaps it is because he hears a different drummer.
Speaker 3 (00:17):
A different drummer and now, coming to you from dead
center on your dial, welcome toRisk Parity Radio, where we
explore alternatives and assetallocations for the
do-it-yourself investor,Broadcasting to you now from the
comfort of his easy chair.
Here is your host, FrankVasquez.
Speaker 2 (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.
Speaker 4 (00:50):
Yeah, baby, yeah.
Speaker 2 (00:52):
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.
Speaker 3 (01:26):
Top drawer, really top drawer.
Speaker 2 (01:31):
Along with a host named after a hot dog.
Speaker 1 (01:34):
Lighten up Francis.
Speaker 2 (01:37):
But now onward to episode 417.
Today, on Risk Parity Radio,we're just going to do what we
do best here, which is answeryour emails.
We've got a nice short one anda really long one, and so,
(02:00):
without further ado, here I goonce again with the email.
And First off, without furtherado, here I go once again with
the email.
And first off I have an emailfrom Marco Esquandolas.
Speaker 4 (02:19):
Right, right I go.
Marco Esquandolas, Marco.
Speaker 2 (02:23):
Escondidas and Marco writes.
Speaker 3 (02:32):
Hey, now Mary and Frank.
Speaker 4 (02:34):
You're an all-star.
Get your game on.
Speaker 3 (02:36):
Go play.
Thanks for all that you do.
It is so helpful.
I became a Patreon member todayand that feels good.
Yeah, baby, yeah, I'm writingagain about our now 13-year-old
precocious investor, son.
Speaker 4 (02:51):
Young America.
Yes, sir.
Speaker 3 (02:53):
He has a Roth IRA we're helping him fund.
He does odd jobs around theneighborhood for cash.
We went down the Shannon'sdemon rabbit hole and that has
been amazing.
Speaker 1 (03:03):
We got a scary 140 this week.
Speaker 3 (03:06):
After much discussion , he wants to diversify his Roth
internationally with a 50-plusyear investing time horizon on
mind.
We came up with our ownShannon's Demon portfolio,
together with lots of growth andcowbell Woo, woo, woo, woo, woo
, woo.
25% VUG US growth.
(03:28):
25% AVUV US small cap value.
25% EFG international growth.
25% AVDV international smallcap value.
Thoughts and comments.
The EFG fund seems to be thebest international growth option
, but you would know best.
And remember set the gear shiftfor the high gear of your soul
(03:50):
Smooches.
Marco Esquindolas.
Speaker 4 (03:55):
Set the gear shift for the high gear of your soul.
You've got to run like anantler.
Speaker 2 (04:05):
Out of control.
Well, first off, thank you forbecoming a donor to the Father
McKenna Center.
As most of you know, we do nothave any sponsors on this
podcast, but we do have acharity we support.
It's called the Father McKennaCenter and it supports hungry
and homeless people inWashington DC.
(04:26):
Full disclosure.
I am on the board of the charityand I'm the current treasurer,
and if you give to the charity,I will move you to the front of
the email line.
There are two ways to do that.
You can give directly at thewebsite and I'll link to the
donation page in the show notes.
Or you can do what Marco hasdone and become a monthly
Patreon contributor, and the wayyou do that is you go to the
(04:50):
support page atwwwriskparrywaycom and follow
the links there.
Either way, I'll move you tothe front of the line.
If you're one of the donors,Just make sure you mention it in
your email so I can duly moveit to the front of the line.
So, getting to your question,Well, it looks like you and your
son are having a lot of funwith this, which is what you
(05:11):
should be doing, especially atthat age.
Speaker 4 (05:14):
Why?
What have children ever donefor me?
Speaker 2 (05:18):
In terms of your fun selections, I probably would go
with IDMO I-D-M-O instead ofE-F-G, would go with IDMO
I-D-M-O instead of E-F-G, and wetalked about this in episode
394 and actually compared themthere.
Idmo is actually aninternational momentum fund, but
it's basically in the large capgrowth category and if you
(05:38):
compare IDMO and EFG, they havesimilar holdings, including the
top holding being SAP right now.
And in terms of diversificationexcitement, you might be
interested to know that IDMO isup something like 11.75% this
year so far, whereas EFG is up,I think, 3% or 4% this year.
It also has a lower expenseratio than EFG, so you can give
(06:03):
it credit for that too, and I doactually hold some IDMO in our
personal portfolio.
Speaker 4 (06:09):
That's the fact, Jack .
That's the fact, Jack.
Speaker 2 (06:14):
So maybe we'll just put that gear shift in the
highest gear possible.
Speaker 4 (06:17):
Down the quarter mile of death in their 7,000
horsepower nitro-burning suicidemachines as they shake hands
with the devil when they screamto the burning gates of hell.
We'll sell you the whole seat,but you'll only need the edge.
Be there.
Speaker 2 (06:31):
Hopefully that helps.
I'm glad you're enjoying theshow.
I'm glad you're a Patreonmember too.
The best, jerry, the best, andthank you for your email.
Speaker 4 (07:02):
Last off.
Last off, we have an extremelylong email from Multifamily
Investor.
Speaker 2 (07:18):
Which is why we're only doing two emails today.
Gosh and Multifamily Investorwrites.
Speaker 3 (07:26):
Hello Frank and Mary, multifamily Investor here.
Great podcast.
I listen to most episodes.
Your podcast is probably thenumber one actionable and useful
show for retirement planningand asset allocation out there.
Most podcasts and YouTube showsare produced by either Susie
Armans, jim Kramers or NedRyerson's of the world.
Speaker 4 (07:48):
Watch out for that first step.
It's a doozy.
Speaker 3 (07:52):
I have a few questions.
I currently make about $250,000to $300,000 a year.
I am 47 years old and wouldlike to retire when I hit my
retirement number, hopefullybefore 50.
Being an engineer, I like totinker.
Can we fix it?
Yes, we can.
I have $1.6 million inbrokerage account stocks,
(08:13):
primarily S&P 500, $500,000 incapital gains.
$1 million in traditional 401kbefore-tax retirement accounts,
also all in S&P 500, no goldmanaged futures available in
401k as investment options.
$70,000 in a Roth 401k S&P 500,30,000 Roth IRA S&P 500,
(08:38):
700,000 rental real estateequity.
If I sell and pay off all themortgages, 140,000 of this
amount is in a 1031 DST Delawarestatutory trust.
Overall cash flow is $25,000 ayear, mostly tax-free after
depreciation deductions.
In case you aren't familiar, dstis a passive 1031 instrument
(09:00):
for hands-off investing.
Before I retire, I plan onselling all other rentals and
exchanging to DST investmentsfor truly passive income.
This bucket should have abond-like characteristic.
It will yield 4%, but the hopeis the value of the underlying
assets will keep up withinflation and overcome the large
front-end and back-end expensesbuilt into these products.
(09:22):
If I buy smart, I willdiversify into different DSTs in
$50,000 chunks as much aspossible.
Dsts are not the bestinvestments because they are fee
heavy and limited upside.
But it beats paying the taxbill since my cost basis of
these properties are really low.
I use the BRRRR method to buythem.
(09:43):
I do backdoor Roth IRAconversions and mega backdoor
401k conversions every year.
Since I do backdoor conversions, I can't roll my before tax
401k into an IRA since it willtrigger a pro rata rule, so I
can't get gold or manage futuresin my retirement accounts.
My total net worth is $3.4million.
(10:04):
Now, when I hit 4 million, Iwould like to retire with a 5%
safe withdrawal rate using yourrisk parity principles.
My question is how do Itransition to a risk parity
portfolio from my brokerageaccount without paying a large
tax bill?
In my peak earning years Iwould like to target a slightly
levered 40% stocks, 40% managedfutures, 20 percent gold.
(10:27):
No bonds, since I will be stuckwith the DSTs for a while.
They are pseudo bond realestate allocation with a tax
advantage yield, since you getto take depreciation as a tax
deduction.
So one thought I had was to buySPY puts and buy GLD and KMLM,
slash DBMF calls and managethese options by rolling them
(10:49):
before time decay kicks in.
The size of the optionpositions would be reflective of
the asset allocation I wouldlike to eventually achieve.
I know options lose moneydepending on the market
direction.
I can use these losses tooffset my capital gains from my
stocks and over time the optionbuying should reduce and
eventually I would only beholding ETFs consistent with my
(11:11):
asset allocation.
Example period 1.
S&p 500 is up GLD flat, dbmfflat.
That means all three optionslost value before I rolled them.
I sell some S&P 500 ETF andoffset the gains by the losses
from the options.
I buy the GLDM and DBM ETF withthe proceeds to start filling
(11:32):
up the empty buckets in my assetallocation Example period.
Two S&P 500 is down GLD up,dbmf flat.
So SPY put gain value, gld callgain value, dbmf call loss
value before I rolled them.
So I take the net proceeds fromthe options and add to my
(11:52):
allocations to achieve myeventual allocation.
It might take several years toachieve the right asset
allocation and I would betinkering with the options a lot
.
I would first have to learnabout option Greeks and how to
manage them.
It does not intimidate me toomuch.
It is, however, very differentfrom the buy and hold mentality.
So you would probablydisapprove of me using the
(12:14):
options method due to notmeeting the simplicity principle
.
Did I guess that right?
Let me put it this way have youever heard of Plato, aristotle,
socrates?
If that is the case, what typeof portfolio transition plan
would you recommend?
Maybe work some extra durationto be able to cover the tax bill
?
Would you agree thatdiversified DSTs could be a
(12:35):
halfway decent replacement forgovernment bonds in the
portfolio?
Question two I'm surprised youdidn't completely shut down
folks who asked you about PFIX.
It feels like it is rat poisonto a classic risk parity
portfolio.
It has a really, really goodcorrelation with negative two
times bear treasury ETF TBT.
It cancels out any effect ofZROZ ETF that you recommend.
(13:00):
This would mean being long andshort the same asset class at
the same time, so you end uphaving a cash position with a
very large expense ratioThoughts.
Question three A really goodrisk parity component that
complements your risk parityrecommendations appears to be
SBR stock Sabine Royalty Trust.
(13:21):
It has low correlation withstocks, bonds, managed futures
and gold.
It improves the risk parityportfolio performance.
I wish I knew how to analyze aroyalty trust.
I read the income statementwith pages of oil and gas
reserve it owns.
Don't understand any of it.
I guess you can make manythings work in hindsight,
backtesting, but I can't come upwith a reason why it should
(13:42):
continue to be a good riskparity component going forward.
The reserves it owns weresupposed to be depleted by 1992,
yet still going strong.
It was a fun thought experiment.
Have you looked into usingindividual stocks and bonds to
form a risk parity portfolio oradd it to your recommended risk
parity portfolio?
Question four Lastly, m1Finance gives a 0.5% account
(14:07):
transfer bonus.
Feels like free money to me.
You only have to commit tokeeping your account there for
one year.
If the broker defaults, I stillown the stocks anyway.
The stocks would transfer overto the brokerage firm that takes
over.
I never have uninvested cash.
I always put it in ETFs likeBIL if I want to hold on to
(14:28):
short-term cash.
So the $1.6 million would giveme $8,000 in transfer rewards.
People mentioned you don't getgreat customer service when you
call M1, but I barely ever callmy broker, maybe once a year on
average.
So not a big deal for me.
Can you think of any downside?
Thanks, multifamily investor.
Speaker 2 (14:50):
All right.
Well, now Mary's exhausted.
Before I get into the meat ofthese questions, I had just a
couple observations here.
You say you're currently making$250,000 to $300,000 annually.
(15:14):
I'm assuming that is ordinaryincome or mostly ordinary income
.
But the first thing I would doyourself is look at what are
your actual expenses, because Ican't believe they're more than
$200,000, which seems to be yourtarget spending.
I would think they're going toend up being less than that,
(15:35):
particularly because your taxbill is going to go through the
floor.
Speaker 4 (15:41):
Strikers, lift your nose, straighten your wings.
It's coming in too fast.
Watch your speed.
It's coming right at us.
Speaker 2 (15:54):
But I really think you need to get a handle on what
exactly your expenses are rightnow and then.
How is that going to changewhen you enter retirement,
because you might not need asmuch money as you think you need
and I'd also look at how thoseexpenses break down into
mandatory and discretionarycategories.
Along those lines, I don'tunderstand why you are doing
(16:17):
backdoor Roth IRA conversionswhile you are still working and
having that extremely highsalary On its face.
That does not make any sense atall, simply because you know
that your ordinary income isgoing to drop substantially in a
few years.
You're going to have maybe 20years to do Roth conversions
before you hit 70.
So there's no reason to do themnow while your ordinary income
(16:40):
is so high.
I would be putting all thatmoney into traditional accounts
while your ordinary income isstill that high and then doing
the conversions later.
Just because you can dosomething called a mega backdoor
Roth conversion doesn't meanyou should be doing it.
Speaker 1 (16:56):
That's not how it works.
That's not how any of thisworks.
Speaker 2 (17:01):
It's being too clever by half and probably causing
you to pay more taxes than youhave to, and it's also causing
these issues with not being ableto invest in the things you
want to.
So I would probably scrap thatunless you can convince me.
There's some other facts thatare not on this page that would
suggest it would be a good idea.
Or maybe I'm justmisinterpreting what you're
(17:22):
doing here.
I'm not a smart man.
All right, let's talk aboutDelaware statutory trusts.
Speaker 4 (17:30):
All we need to do is get your confidence back so you
can make me more money.
Speaker 2 (17:35):
Those are not like bonds.
Those are like REITs.
In fact, they invest in thesame things that REITs invest in
, and I would consider them tobe REITs.
If you're going to model themas anything, them to be REITs.
If you're going to model themas anything, you certainly would
not model them as treasurybonds in a risk parity style
portfolio, because the purposeof treasury bonds in a risk
(17:56):
parity style portfolio is not togenerate income or returns.
It's to be there as recessioninsurance, so you would have to
have something that would tendto go up in value in a recession
, and I don't think theseDelaware statutory trusts have
that quality to them, so theywould not be a substitute for
treasury bonds.
Not going to do it Wouldn't beprudent at this juncture.
(18:19):
What I probably would do withthem, though, is model them as
an illiquid income source, solike a pension or something like
that, at least as long as youare not going to be selling them
.
Once you're going to be sellingthem, then they become liquid,
but it's much easier to simplytake the expected income off of
(18:41):
them and off of these realestate holdings, unless and
until you plan on disposing ofthem and just counting that off
against your gross expenses,which is why I want you to add
those up so you know whatpercentage of those are covered
by this income from theseDelaware statutory trusts or
other real estate holdings.
After you do that, then you canmatch the rest of your
(19:04):
portfolio in a risk parity styleportfolio or other retirement
portfolio to the remainingexpenses.
I think that makes a whole lotmore sense than trying to model
this as some kind of allocationin the portfolio, because you
cannot manage them like that.
You can't rebalance in or outof them the way this is
structured right now, but theextent you're going to call them
(19:26):
anything, you would call them aREIT All right now.
Your next question was how doyou transition your portfolio
while minimizing taxes?
Well, first of all, you are nowin the 15% long-term capital
gains tax bracket.
Your income is not high enoughto put you in the 20%, although
(19:48):
I think you do have to pay the3.8% potential add-on, which is
another thing that you need togo calculate.
So your capital gains taxes onselling some of this are not
actually going to be that high.
The best way to get around itis to sell the things that
you've bought the most recentlyand I would guess, given the
(20:09):
current conditions of the market, just about anything you bought
in the last year is actuallyunderwater.
It's going to give you acapital loss, which you can then
harvest against other gains byselling other things.
That would be the easiest wayto transition this while still
minimizing taxes.
You do need to go look atindividual tax lots, but I'm not
(20:32):
sure who your current brokerageis.
They have ways of doing that.
Look it up or ask them on theirwebsite, but I would be looking
to do something like thatbefore fiddling around with any
options strategies.
And then, if you stop doingthese mega backdoor 401k
conversions and Roth IRAconversions for the next few
(20:55):
years, since they're not goingto matter that much you might be
able to then roll your 401kinto an IRA and then invest in
whatever you want.
That would be the ideal way tohandle this.
I don't know whether you can,though, if your current 401k is
at your current employer,because they might not let you
roll it into an IRA.
That's usually something thatonly lets you do when you stop
(21:18):
working there, but it's alsopossible you have other 401ks
that are not associated withyour current employer, in which
case those could be rolled overto IRAs as well.
But since you are coming intothese last few years, I would be
thinking more in terms of thatthat it's more important just to
get this stuff into the properforms that you want it in than
(21:39):
it is to be fiddling around withthese backdoor Roth conversions
, which you can do later anyway,because you're still going to
be quite young and have a lot oftime to do those in the next 20
years.
Because ideally, if you'reholding managed futures, you do
that in a traditional retirementaccount because they pay
ordinary income.
Holding managed futures, you dothat in a traditional
retirement account because theypay ordinary income.
I would also be definitelyconverting the money in the
(22:01):
Roths out of the S&P 500 andinto something that's value
tilted a small cap value fund orother value tilted kind of fund
, because one of the things youneed to do is not have 100% S&P
500 as your stock holding.
Speaker 4 (22:17):
I'm telling you, fellas, you're going to want
that cowbell.
Speaker 2 (22:21):
And if none of that makes sense, yes, you could use
some option strategies to managethis.
I just think the juice isprobably not going to be worth
the squeeze there when you havethese other options and you are
not actually in a high taxbracket when it comes to
long-term capital gains.
Speaker 4 (22:38):
Am I right or am I right, or am I right, right,
right, right.
Speaker 2 (22:43):
But you might live in a state where that is an issue,
in which case I'm not sure Ican help you with that.
But I'm not sure where you live, so we'll leave that one alone,
all right.
Question two You're wonderingwhy I didn't shut people down
who asked me about PFIX.
I think we did that back inepisode 248, at least when I
(23:04):
searched the podcast, that's theone that comes up.
I don't know if I wouldconsider it to be rat poison,
but yeah, I don't have aparticular use for it in the
kind of portfolios that I'mconstructing.
Don't have a particular use forit in the kind of portfolios
that I'm constructing.
That doesn't mean that somebodyelse might not be able to use
that for something.
It is a kind of weird thingthat tends to go up when
(23:25):
interest rates are rising, andyou are correct that it does
seem to be just negativelycorrelated with treasury bond
funds.
It does not have a perfectnegative correlation, though, so
I suppose you could use it forsomething.
Anyway, I think there'sprobably a reason we haven't
discussed this in a couple ofyears, since it hasn't come up
(23:45):
since then.
I do not use it, and I don'tknow how I would actually be
able to use it, given what elseI hold, but that doesn't mean
somebody else might not be ableto figure out how to use it for
something.
I do find those kind of thingsinteresting, since they're
relatively new and I don't knowhow they will ultimately perform
over time.
(24:06):
There's another one called RISRR-I-S-R, that some people might
find interesting.
Well, let's move on to questionthree.
You asked about Sabine RoyaltyTrust.
I believe that is a masterlimited partnership or MLP,
which is how most of these kindsof things that draw income off
(24:29):
of oil and gas and mineralrights are set up.
I haven't looked at this indetail, but typically they are
set up as master limitedpartnerships, which means they
issue a K-1 to you every year.
So at a certain point, maybe 10years ago, I did look into some
of these things, but afterhaving a few investments in them
(24:52):
and getting a stack of K-1s todeal with at tax time, I didn't
feel like it was worth thesqueeze in terms of using these
sorts of things for anything.
In particular, they also tendto spew out a lot of ordinary
taxable income, so they'reundesirable from that point of
view as well.
That being said, you can getsome diversification out of them
(25:13):
, although I would want to beholding a little basket of them,
so you're not beholden to justone of them, although I would
want to be holding a littlebasket of them, so you're not
beholden to just one of them.
So if you're going to hold onething like that, I'd actually
like to hold at least three orfour in whatever allocation that
you were constructing out ofthose, and you can use
individual stocks in a riskparity style portfolio.
But I would classify them as towhat they are in terms of are
(25:37):
they value stocks?
Are they growth stocks?
Where would they fit on a stylebox?
It's typically better, unlessthey are already a conglomerate,
like Berkshire Hathaway, whichyou could use as a large cap
value holding, to have a groupof them.
So, for instance, one of ourallocations is to property and
(25:58):
casualty insurance companies.
Now there is a fund called KBWPwhich invests in these things.
These are like Chubb andTravelers and Allstate and
Progressive, but I would ratherjust hold them as individual
companies in a little basket,and that little basket of
companies ends up being amid-cap value allocation that is
(26:21):
also highly diversified formost of the rest of the market.
So I do have a basket of thoseindividual stocks.
But I treat it as oneallocation, as a mid-cap value
allocation.
I don't really care about themid-cap, I care more about the
value.
Speaker 4 (26:39):
I don't care about the children, I just care about
their parents' money.
Speaker 2 (26:43):
I could see also creating, say, a large cap value
allocation that is composed ofindividual stocks, because there
are a lot of large companiesthat you could just kind of plop
in there.
If you are going to hold suchthings, you do have to come up
with rebalancing rules for thatallocation as well.
It actually does have theadvantage of being like a form
(27:05):
of direct indexing, in thatthere are tax loss harvesting
opportunities that appear inholding a diverse number of
things like that.
I would not add individualbonds to one of these portfolios
.
That would just be a pain inthe neck, unless you are
constructing some kind ofshort-term bond ladder.
But I would not consider thatas really part of the portfolio
(27:26):
because you can't reallyrebalance such a thing.
All right.
Question four Well, I have notresearched M1 Finance and don't
know what kind of accounttransfer bonuses they give.
I do know that at least theyused to be set up to have these
pies that you would form, thatthey would then manage for you,
(27:47):
and I'm not sure whether that'sof interest to you or not.
This is one where I'm not goingto go do your research for you,
so you'll have to do it In theend.
The question is always going tobe.
Is the hassle of this worth anextra $8,000 for however long
you're going to have it?
If I were you, I would really bethinking of moving your taxable
brokerage account tointeractive brokers and opening
(28:10):
up a margin account there, whichwould then give you another
source of ready cash foremergencies or whatever, and
that's going to be moreadvantageous to you long term, I
would think, than fiddlingaround with something like M1.
And especially if you were goingto do anything with a bunch of
options or something like that.
(28:32):
Interactive Brokers is reallyset up for professionals and
traders and so it's kind of theplace you would graduate to if
you want to be implementing alot of these kind of strategies
you're talking about in youremail, because they're really
set up to do those sorts ofthings, and I would not think
that you'd get that kind ofservice at M1 or Fidelity Schwab
(28:53):
or Vanguard service at M1 orFidelity Schwab or Vanguard.
But in terms of downsides, thedownsides would be the hassle
factor and also it may interferewith your ability to actually
implement these other strategiesor reallocate, as you have
discussed.
So I doubt I would do somethinglike that if it were me.
Speaker 4 (29:13):
I'm gonna end up eating a steady diet of
government cheese and living ina van down by the river.
Speaker 2 (29:22):
But that was an interesting set of questions and
you have an interestingfinancial situation.
I hope I responded better thanSusie Orman might have.
Speaker 1 (29:34):
What do?
Speaker 4 (29:34):
you want to buy.
Speaker 1 (29:35):
Hey everybody, susie O here, what do you want to buy?
Hey everybody, suzy, oh here,now can I afford?
It has been gamified, whichmeans you're gonna get to listen
to the caller.
You're gonna say show me themoney to yourself anyway, and
then you're gonna get to approveor deny it.
You.
You think you're going to beright or wrong.
Let's go and try it right now.
Speaker 4 (29:57):
Yeah, that and a nickel will get your hot cup a
jack squat.
Speaker 2 (30:05):
And I'll be interested to learn how this all
shakes out in the next fewyears as you get towards
retirement here.
But I think you're going tofind that A your taxable income
is going to go down a lot whenyou retire and, b you're going
to have a very long time to bedoing things like Roth
conversions or moving your moneyaround or doing any number of
(30:27):
other transactions before youget to something like Social
Security.
So don't think you need to doeverything all at once.
Speaker 4 (30:35):
Restaurants are thriving right now on cheap
gasoline.
Jack in the Box is the best ofthe bunch, but you gotta wait
for a pullback.
It's been straight up.
Denny's goes higher.
I would not sell Denny's.
Call me a Bye, bye, bye of thatchain.
That chain's move is in itsinfancy.
Speaker 2 (30:50):
And thank you for your email.
Speaker 4 (30:53):
And it's gone.
Speaker 2 (31:02):
Poof, and with that I see our signal is beginning to
fade.
If you have comments orquestions for me, please send
them tofrankatriskparityradiocom.
That email isfrankatriskparityradiocom.
Or you can go to the website,wwwriskparityradiocom.
Put your message into thecontact form and I'll get it all
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, areview.
(31:25):
That would be great.
Okay, thank you once again fortuning in.
This is Frank Vasquez with RiskParity Radio signing off.
Speaker 1 (31:36):
Well, the years start coming and they don't stop
coming, with Risk Parity Radiosigning off If you don't glow,
you'll never shine.
If you don't glow, hey, nowyou're an all-star.
Get your game on go play.
Speaker 4 (32:00):
Hey, now you're a rock star, get the show on, get
paid.
And all that glitters is gold.
Only shooting stars break themold, and all that glitters is
gold.
Only shooting stars break themold.
Speaker 3 (32:30):
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 littlestatesmen and philosophers and
divines.
If a man does not keep pace,with his companions.
Speaker 2 (00:13):
Perhaps it is because he hears a different drummer.
Speaker 3 (00:17):
A different drummer and now, coming to you from dead
center on your dial, welcome toRisk Parity Radio, where we
explore alternatives and assetallocations for the
do-it-yourself investor,Broadcasting to you now from the
comfort of his easy chair.
Here is your host, FrankVasquez.
Speaker 2 (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.
Speaker 4 (00:50):
Yeah, baby, yeah.
Speaker 2 (00:52):
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.
Speaker 3 (01:26):
Top drawer, really top drawer.
Speaker 2 (01:31):
Along with a host named after a hot dog.
Speaker 1 (01:34):
Lighten up Francis.
Speaker 2 (01:37):
But now onward to episode 417.
Today, on Risk Parity Radio,we're just going to do what we
do best here, which is answeryour emails.
We've got a nice short one anda really long one, and so,
(02:00):
without further ado, here I goonce again with the email.
And First off, without furtherado, here I go once again with
the email.
And first off I have an emailfrom Marco Esquandolas.
Speaker 4 (02:19):
Right, right I go.
Marco Esquandolas, Marco.
Speaker 2 (02:23):
Escondidas and Marco writes.
Speaker 3 (02:32):
Hey, now Mary and Frank.
Speaker 4 (02:34):
You're an all-star.
Get your game on.
Speaker 3 (02:36):
Go play.
Thanks for all that you do.
It is so helpful.
I became a Patreon member todayand that feels good.
Yeah, baby, yeah, I'm writingagain about our now 13-year-old
precocious investor, son.
Speaker 4 (02:51):
Young America.
Yes, sir.
Speaker 3 (02:53):
He has a Roth IRA we're helping him fund.
He does odd jobs around theneighborhood for cash.
We went down the Shannon'sdemon rabbit hole and that has
been amazing.
Speaker 1 (03:03):
We got a scary 140 this week.
Speaker 3 (03:06):
After much discussion , he wants to diversify his Roth
internationally with a 50-plusyear investing time horizon on
mind.
We came up with our ownShannon's Demon portfolio,
together with lots of growth andcowbell Woo, woo, woo, woo, woo
, woo.
25% VUG US growth.
(03:28):
25% AVUV US small cap value.
25% EFG international growth.
25% AVDV international smallcap value.
Thoughts and comments.
The EFG fund seems to be thebest international growth option
, but you would know best.
And remember set the gear shiftfor the high gear of your soul
(03:50):
Smooches.
Marco Esquindolas.
Speaker 4 (03:55):
Set the gear shift for the high gear of your soul.
You've got to run like anantler.
Speaker 2 (04:05):
Out of control.
Well, first off, thank you forbecoming a donor to the Father
McKenna Center.
As most of you know, we do nothave any sponsors on this
podcast, but we do have acharity we support.
It's called the Father McKennaCenter and it supports hungry
and homeless people inWashington DC.
(04:26):
Full disclosure.
I am on the board of the charityand I'm the current treasurer,
and if you give to the charity,I will move you to the front of
the email line.
There are two ways to do that.
You can give directly at thewebsite and I'll link to the
donation page in the show notes.
Or you can do what Marco hasdone and become a monthly
Patreon contributor, and the wayyou do that is you go to the
(04:50):
support page atwwwriskparrywaycom and follow
the links there.
Either way, I'll move you tothe front of the line.
If you're one of the donors,Just make sure you mention it in
your email so I can duly moveit to the front of the line.
So, getting to your question,Well, it looks like you and your
son are having a lot of funwith this, which is what you
(05:11):
should be doing, especially atthat age.
Speaker 4 (05:14):
Why?
What have children ever donefor me?
Speaker 2 (05:18):
In terms of your fun selections, I probably would go
with IDMO I-D-M-O instead ofE-F-G, would go with IDMO
I-D-M-O instead of E-F-G, and wetalked about this in episode
394 and actually compared themthere.
Idmo is actually aninternational momentum fund, but
it's basically in the large capgrowth category and if you
(05:38):
compare IDMO and EFG, they havesimilar holdings, including the
top holding being SAP right now.
And in terms of diversificationexcitement, you might be
interested to know that IDMO isup something like 11.75% this
year so far, whereas EFG is up,I think, 3% or 4% this year.
It also has a lower expenseratio than EFG, so you can give
(06:03):
it credit for that too, and I doactually hold some IDMO in our
personal portfolio.
Speaker 4 (06:09):
That's the fact, Jack .
That's the fact, Jack.
Speaker 2 (06:14):
So maybe we'll just put that gear shift in the
highest gear possible.
Speaker 4 (06:17):
Down the quarter mile of death in their 7,000
horsepower nitro-burning suicidemachines as they shake hands
with the devil when they screamto the burning gates of hell.
We'll sell you the whole seat,but you'll only need the edge.
Be there.
Speaker 2 (06:31):
Hopefully that helps.
I'm glad you're enjoying theshow.
I'm glad you're a Patreonmember too.
The best, jerry, the best, andthank you for your email.
Speaker 4 (07:02):
Last off.
Last off, we have an extremelylong email from Multifamily
Investor.
Speaker 2 (07:18):
Which is why we're only doing two emails today.
Gosh and Multifamily Investorwrites.
Speaker 3 (07:26):
Hello Frank and Mary, multifamily Investor here.
Great podcast.
I listen to most episodes.
Your podcast is probably thenumber one actionable and useful
show for retirement planningand asset allocation out there.
Most podcasts and YouTube showsare produced by either Susie
Armans, jim Kramers or NedRyerson's of the world.
Speaker 4 (07:48):
Watch out for that first step.
It's a doozy.
Speaker 3 (07:52):
I have a few questions.
I currently make about $250,000to $300,000 a year.
I am 47 years old and wouldlike to retire when I hit my
retirement number, hopefullybefore 50.
Being an engineer, I like totinker.
Can we fix it?
Yes, we can.
I have $1.6 million inbrokerage account stocks,
(08:13):
primarily S&P 500, $500,000 incapital gains.
$1 million in traditional 401kbefore-tax retirement accounts,
also all in S&P 500, no goldmanaged futures available in
401k as investment options.
$70,000 in a Roth 401k S&P 500,30,000 Roth IRA S&P 500,
(08:38):
700,000 rental real estateequity.
If I sell and pay off all themortgages, 140,000 of this
amount is in a 1031 DST Delawarestatutory trust.
Overall cash flow is $25,000 ayear, mostly tax-free after
depreciation deductions.
In case you aren't familiar, dstis a passive 1031 instrument
(09:00):
for hands-off investing.
Before I retire, I plan onselling all other rentals and
exchanging to DST investmentsfor truly passive income.
This bucket should have abond-like characteristic.
It will yield 4%, but the hopeis the value of the underlying
assets will keep up withinflation and overcome the large
front-end and back-end expensesbuilt into these products.
(09:22):
If I buy smart, I willdiversify into different DSTs in
$50,000 chunks as much aspossible.
Dsts are not the bestinvestments because they are fee
heavy and limited upside.
But it beats paying the taxbill since my cost basis of
these properties are really low.
I use the BRRRR method to buythem.
(09:43):
I do backdoor Roth IRAconversions and mega backdoor
401k conversions every year.
Since I do backdoor conversions, I can't roll my before tax
401k into an IRA since it willtrigger a pro rata rule, so I
can't get gold or manage futuresin my retirement accounts.
My total net worth is $3.4million.
(10:04):
Now, when I hit 4 million, Iwould like to retire with a 5%
safe withdrawal rate using yourrisk parity principles.
My question is how do Itransition to a risk parity
portfolio from my brokerageaccount without paying a large
tax bill?
In my peak earning years Iwould like to target a slightly
levered 40% stocks, 40% managedfutures, 20 percent gold.
(10:27):
No bonds, since I will be stuckwith the DSTs for a while.
They are pseudo bond realestate allocation with a tax
advantage yield, since you getto take depreciation as a tax
deduction.
So one thought I had was to buySPY puts and buy GLD and KMLM,
slash DBMF calls and managethese options by rolling them
(10:49):
before time decay kicks in.
The size of the optionpositions would be reflective of
the asset allocation I wouldlike to eventually achieve.
I know options lose moneydepending on the market
direction.
I can use these losses tooffset my capital gains from my
stocks and over time the optionbuying should reduce and
eventually I would only beholding ETFs consistent with my
(11:11):
asset allocation.
Example period 1.
S&p 500 is up GLD flat, dbmfflat.
That means all three optionslost value before I rolled them.
I sell some S&P 500 ETF andoffset the gains by the losses
from the options.
I buy the GLDM and DBM ETF withthe proceeds to start filling
(11:32):
up the empty buckets in my assetallocation Example period.
Two S&P 500 is down GLD up,dbmf flat.
So SPY put gain value, gld callgain value, dbmf call loss
value before I rolled them.
So I take the net proceeds fromthe options and add to my
(11:52):
allocations to achieve myeventual allocation.
It might take several years toachieve the right asset
allocation and I would betinkering with the options a lot
.
I would first have to learnabout option Greeks and how to
manage them.
It does not intimidate me toomuch.
It is, however, very differentfrom the buy and hold mentality.
So you would probablydisapprove of me using the
(12:14):
options method due to notmeeting the simplicity principle
.
Did I guess that right?
Let me put it this way have youever heard of Plato, aristotle,
socrates?
If that is the case, what typeof portfolio transition plan
would you recommend?
Maybe work some extra durationto be able to cover the tax bill
?
Would you agree thatdiversified DSTs could be a
(12:35):
halfway decent replacement forgovernment bonds in the
portfolio?
Question two I'm surprised youdidn't completely shut down
folks who asked you about PFIX.
It feels like it is rat poisonto a classic risk parity
portfolio.
It has a really, really goodcorrelation with negative two
times bear treasury ETF TBT.
It cancels out any effect ofZROZ ETF that you recommend.
(13:00):
This would mean being long andshort the same asset class at
the same time, so you end uphaving a cash position with a
very large expense ratioThoughts.
Question three A really goodrisk parity component that
complements your risk parityrecommendations appears to be
SBR stock Sabine Royalty Trust.
(13:21):
It has low correlation withstocks, bonds, managed futures
and gold.
It improves the risk parityportfolio performance.
I wish I knew how to analyze aroyalty trust.
I read the income statementwith pages of oil and gas
reserve it owns.
Don't understand any of it.
I guess you can make manythings work in hindsight,
backtesting, but I can't come upwith a reason why it should
(13:42):
continue to be a good riskparity component going forward.
The reserves it owns weresupposed to be depleted by 1992,
yet still going strong.
It was a fun thought experiment.
Have you looked into usingindividual stocks and bonds to
form a risk parity portfolio oradd it to your recommended risk
parity portfolio?
Question four Lastly, m1Finance gives a 0.5% account
(14:07):
transfer bonus.
Feels like free money to me.
You only have to commit tokeeping your account there for
one year.
If the broker defaults, I stillown the stocks anyway.
The stocks would transfer overto the brokerage firm that takes
over.
I never have uninvested cash.
I always put it in ETFs likeBIL if I want to hold on to
(14:28):
short-term cash.
So the $1.6 million would giveme $8,000 in transfer rewards.
People mentioned you don't getgreat customer service when you
call M1, but I barely ever callmy broker, maybe once a year on
average.
So not a big deal for me.
Can you think of any downside?
Thanks, multifamily investor.
Speaker 2 (14:50):
All right.
Well, now Mary's exhausted.
Before I get into the meat ofthese questions, I had just a
couple observations here.
You say you're currently making$250,000 to $300,000 annually.
(15:14):
I'm assuming that is ordinaryincome or mostly ordinary income
.
But the first thing I would doyourself is look at what are
your actual expenses, because Ican't believe they're more than
$200,000, which seems to be yourtarget spending.
I would think they're going toend up being less than that,
(15:35):
particularly because your taxbill is going to go through the
floor.
Speaker 4 (15:41):
Strikers, lift your nose, straighten your wings.
It's coming in too fast.
Watch your speed.
It's coming right at us.
Speaker 2 (15:54):
But I really think you need to get a handle on what
exactly your expenses are rightnow and then.
How is that going to changewhen you enter retirement,
because you might not need asmuch money as you think you need
and I'd also look at how thoseexpenses break down into
mandatory and discretionarycategories.
Along those lines, I don'tunderstand why you are doing
(16:17):
backdoor Roth IRA conversionswhile you are still working and
having that extremely highsalary On its face.
That does not make any sense atall, simply because you know
that your ordinary income isgoing to drop substantially in a
few years.
You're going to have maybe 20years to do Roth conversions
before you hit 70.
So there's no reason to do themnow while your ordinary income
(16:40):
is so high.
I would be putting all thatmoney into traditional accounts
while your ordinary income isstill that high and then doing
the conversions later.
Just because you can dosomething called a mega backdoor
Roth conversion doesn't meanyou should be doing it.
Speaker 1 (16:56):
That's not how it works.
That's not how any of thisworks.
Speaker 2 (17:01):
It's being too clever by half and probably causing
you to pay more taxes than youhave to, and it's also causing
these issues with not being ableto invest in the things you
want to.
So I would probably scrap thatunless you can convince me.
There's some other facts thatare not on this page that would
suggest it would be a good idea.
Or maybe I'm justmisinterpreting what you're
(17:22):
doing here.
I'm not a smart man.
All right, let's talk aboutDelaware statutory trusts.
Speaker 4 (17:30):
All we need to do is get your confidence back so you
can make me more money.
Speaker 2 (17:35):
Those are not like bonds.
Those are like REITs.
In fact, they invest in thesame things that REITs invest in
, and I would consider them tobe REITs.
If you're going to model themas anything, them to be REITs.
If you're going to model themas anything, you certainly would
not model them as treasurybonds in a risk parity style
portfolio, because the purposeof treasury bonds in a risk
(17:56):
parity style portfolio is not togenerate income or returns.
It's to be there as recessioninsurance, so you would have to
have something that would tendto go up in value in a recession
, and I don't think theseDelaware statutory trusts have
that quality to them, so theywould not be a substitute for
treasury bonds.
Not going to do it Wouldn't beprudent at this juncture.
(18:19):
What I probably would do withthem, though, is model them as
an illiquid income source, solike a pension or something like
that, at least as long as youare not going to be selling them
.
Once you're going to be sellingthem, then they become liquid,
but it's much easier to simplytake the expected income off of
(18:41):
them and off of these realestate holdings, unless and
until you plan on disposing ofthem and just counting that off
against your gross expenses,which is why I want you to add
those up so you know whatpercentage of those are covered
by this income from theseDelaware statutory trusts or
other real estate holdings.
After you do that, then you canmatch the rest of your
(19:04):
portfolio in a risk parity styleportfolio or other retirement
portfolio to the remainingexpenses.
I think that makes a whole lotmore sense than trying to model
this as some kind of allocationin the portfolio, because you
cannot manage them like that.
You can't rebalance in or outof them the way this is
structured right now, but theextent you're going to call them
(19:26):
anything, you would call them aREIT All right now.
Your next question was how doyou transition your portfolio
while minimizing taxes?
Well, first of all, you are nowin the 15% long-term capital
gains tax bracket.
Your income is not high enoughto put you in the 20%, although
(19:48):
I think you do have to pay the3.8% potential add-on, which is
another thing that you need togo calculate.
So your capital gains taxes onselling some of this are not
actually going to be that high.
The best way to get around itis to sell the things that
you've bought the most recentlyand I would guess, given the
(20:09):
current conditions of the market, just about anything you bought
in the last year is actuallyunderwater.
It's going to give you acapital loss, which you can then
harvest against other gains byselling other things.
That would be the easiest wayto transition this while still
minimizing taxes.
You do need to go look atindividual tax lots, but I'm not
(20:32):
sure who your current brokerageis.
They have ways of doing that.
Look it up or ask them on theirwebsite, but I would be looking
to do something like thatbefore fiddling around with any
options strategies.
And then, if you stop doingthese mega backdoor 401k
conversions and Roth IRAconversions for the next few
(20:55):
years, since they're not goingto matter that much you might be
able to then roll your 401kinto an IRA and then invest in
whatever you want.
That would be the ideal way tohandle this.
I don't know whether you can,though, if your current 401k is
at your current employer,because they might not let you
roll it into an IRA.
That's usually something thatonly lets you do when you stop
(21:18):
working there, but it's alsopossible you have other 401ks
that are not associated withyour current employer, in which
case those could be rolled overto IRAs as well.
But since you are coming intothese last few years, I would be
thinking more in terms of thatthat it's more important just to
get this stuff into the properforms that you want it in than
(21:39):
it is to be fiddling around withthese backdoor Roth conversions
, which you can do later anyway,because you're still going to
be quite young and have a lot oftime to do those in the next 20
years.
Because ideally, if you'reholding managed futures, you do
that in a traditional retirementaccount because they pay
ordinary income.
Holding managed futures, you dothat in a traditional
retirement account because theypay ordinary income.
I would also be definitelyconverting the money in the
(22:01):
Roths out of the S&P 500 andinto something that's value
tilted a small cap value fund orother value tilted kind of fund
, because one of the things youneed to do is not have 100% S&P
500 as your stock holding.
Speaker 4 (22:17):
I'm telling you, fellas, you're going to want
that cowbell.
Speaker 2 (22:21):
And if none of that makes sense, yes, you could use
some option strategies to managethis.
I just think the juice isprobably not going to be worth
the squeeze there when you havethese other options and you are
not actually in a high taxbracket when it comes to
long-term capital gains.
Speaker 4 (22:38):
Am I right or am I right, or am I right, right,
right, right.
Speaker 2 (22:43):
But you might live in a state where that is an issue,
in which case I'm not sure Ican help you with that.
But I'm not sure where you live, so we'll leave that one alone,
all right.
Question two You're wonderingwhy I didn't shut people down
who asked me about PFIX.
I think we did that back inepisode 248, at least when I
(23:04):
searched the podcast, that's theone that comes up.
I don't know if I wouldconsider it to be rat poison,
but yeah, I don't have aparticular use for it in the
kind of portfolios that I'mconstructing.
Don't have a particular use forit in the kind of portfolios
that I'm constructing.
That doesn't mean that somebodyelse might not be able to use
that for something.
It is a kind of weird thingthat tends to go up when
(23:25):
interest rates are rising, andyou are correct that it does
seem to be just negativelycorrelated with treasury bond
funds.
It does not have a perfectnegative correlation, though, so
I suppose you could use it forsomething.
Anyway, I think there'sprobably a reason we haven't
discussed this in a couple ofyears, since it hasn't come up
(23:45):
since then.
I do not use it, and I don'tknow how I would actually be
able to use it, given what elseI hold, but that doesn't mean
somebody else might not be ableto figure out how to use it for
something.
I do find those kind of thingsinteresting, since they're
relatively new and I don't knowhow they will ultimately perform
over time.
(24:06):
There's another one called RISRR-I-S-R, that some people might
find interesting.
Well, let's move on to questionthree.
You asked about Sabine RoyaltyTrust.
I believe that is a masterlimited partnership or MLP,
which is how most of these kindsof things that draw income off
(24:29):
of oil and gas and mineralrights are set up.
I haven't looked at this indetail, but typically they are
set up as master limitedpartnerships, which means they
issue a K-1 to you every year.
So at a certain point, maybe 10years ago, I did look into some
of these things, but afterhaving a few investments in them
(24:52):
and getting a stack of K-1s todeal with at tax time, I didn't
feel like it was worth thesqueeze in terms of using these
sorts of things for anything.
In particular, they also tendto spew out a lot of ordinary
taxable income, so they'reundesirable from that point of
view as well.
That being said, you can getsome diversification out of them
(25:13):
, although I would want to beholding a little basket of them,
so you're not beholden to justone of them, although I would
want to be holding a littlebasket of them, so you're not
beholden to just one of them.
So if you're going to hold onething like that, I'd actually
like to hold at least three orfour in whatever allocation that
you were constructing out ofthose, and you can use
individual stocks in a riskparity style portfolio.
But I would classify them as towhat they are in terms of are
(25:37):
they value stocks?
Are they growth stocks?
Where would they fit on a stylebox?
It's typically better, unlessthey are already a conglomerate,
like Berkshire Hathaway, whichyou could use as a large cap
value holding, to have a groupof them.
So, for instance, one of ourallocations is to property and
(25:58):
casualty insurance companies.
Now there is a fund called KBWPwhich invests in these things.
These are like Chubb andTravelers and Allstate and
Progressive, but I would ratherjust hold them as individual
companies in a little basket,and that little basket of
companies ends up being amid-cap value allocation that is
(26:21):
also highly diversified formost of the rest of the market.
So I do have a basket of thoseindividual stocks.
But I treat it as oneallocation, as a mid-cap value
allocation.
I don't really care about themid-cap, I care more about the
value.
Speaker 4 (26:39):
I don't care about the children, I just care about
their parents' money.
Speaker 2 (26:43):
I could see also creating, say, a large cap value
allocation that is composed ofindividual stocks, because there
are a lot of large companiesthat you could just kind of plop
in there.
If you are going to hold suchthings, you do have to come up
with rebalancing rules for thatallocation as well.
It actually does have theadvantage of being like a form
(27:05):
of direct indexing, in thatthere are tax loss harvesting
opportunities that appear inholding a diverse number of
things like that.
I would not add individualbonds to one of these portfolios
.
That would just be a pain inthe neck, unless you are
constructing some kind ofshort-term bond ladder.
But I would not consider thatas really part of the portfolio
(27:26):
because you can't reallyrebalance such a thing.
All right.
Question four Well, I have notresearched M1 Finance and don't
know what kind of accounttransfer bonuses they give.
I do know that at least theyused to be set up to have these
pies that you would form, thatthey would then manage for you,
(27:47):
and I'm not sure whether that'sof interest to you or not.
This is one where I'm not goingto go do your research for you,
so you'll have to do it In theend.
The question is always going tobe.
Is the hassle of this worth anextra $8,000 for however long
you're going to have it?
If I were you, I would really bethinking of moving your taxable
brokerage account tointeractive brokers and opening
(28:10):
up a margin account there, whichwould then give you another
source of ready cash foremergencies or whatever, and
that's going to be moreadvantageous to you long term, I
would think, than fiddlingaround with something like M1.
And especially if you were goingto do anything with a bunch of
options or something like that.
(28:32):
Interactive Brokers is reallyset up for professionals and
traders and so it's kind of theplace you would graduate to if
you want to be implementing alot of these kind of strategies
you're talking about in youremail, because they're really
set up to do those sorts ofthings, and I would not think
that you'd get that kind ofservice at M1 or Fidelity Schwab
(28:53):
or Vanguard service at M1 orFidelity Schwab or Vanguard.
But in terms of downsides, thedownsides would be the hassle
factor and also it may interferewith your ability to actually
implement these other strategiesor reallocate, as you have
discussed.
So I doubt I would do somethinglike that if it were me.
Speaker 4 (29:13):
I'm gonna end up eating a steady diet of
government cheese and living ina van down by the river.
Speaker 2 (29:22):
But that was an interesting set of questions and
you have an interestingfinancial situation.
I hope I responded better thanSusie Orman might have.
Speaker 1 (29:34):
What do?
Speaker 4 (29:34):
you want to buy.
Speaker 1 (29:35):
Hey everybody, susie O here, what do you want to buy?
Hey everybody, suzy, oh here,now can I afford?
It has been gamified, whichmeans you're gonna get to listen
to the caller.
You're gonna say show me themoney to yourself anyway, and
then you're gonna get to approveor deny it.
You.
You think you're going to beright or wrong.
Let's go and try it right now.
Speaker 4 (29:57):
Yeah, that and a nickel will get your hot cup a
jack squat.
Speaker 2 (30:05):
And I'll be interested to learn how this all
shakes out in the next fewyears as you get towards
retirement here.
But I think you're going tofind that A your taxable income
is going to go down a lot whenyou retire and, b you're going
to have a very long time to bedoing things like Roth
conversions or moving your moneyaround or doing any number of
(30:27):
other transactions before youget to something like Social
Security.
So don't think you need to doeverything all at once.
Speaker 4 (30:35):
Restaurants are thriving right now on cheap
gasoline.
Jack in the Box is the best ofthe bunch, but you gotta wait
for a pullback.
It's been straight up.
Denny's goes higher.
I would not sell Denny's.
Call me a Bye, bye, bye of thatchain.
That chain's move is in itsinfancy.
Speaker 2 (30:50):
And thank you for your email.
Speaker 4 (30:53):
And it's gone.
Speaker 2 (31:02):
Poof, and with that I see our signal is beginning to
fade.
If you have comments orquestions for me, please send
them tofrankatriskparityradiocom.
That email isfrankatriskparityradiocom.
Or you can go to the website,wwwriskparityradiocom.
Put your message into thecontact form and I'll get it all
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, areview.
(31:25):
That would be great.
Okay, thank you once again fortuning in.
This is Frank Vasquez with RiskParity Radio signing off.
Speaker 1 (31:36):
Well, the years start coming and they don't stop
coming, with Risk Parity Radiosigning off If you don't glow,
you'll never shine.
If you don't glow, hey, nowyou're an all-star.
Get your game on go play.
Speaker 4 (32:00):
Hey, now you're a rock star, get the show on, get
paid.
And all that glitters is gold.
Only shooting stars break themold, and all that glitters is
gold.
Only shooting stars break themold.
Speaker 3 (32:30):
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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