In this episode we answer emails from Dave, Jeff and Peter. We discuss a new risk parity ETF, ALLW, a social security claiming question and considerations, and how a listener has been misled regarding so-called dividend investing by misinterpreting a misleading source.
Links:
Father McKenna Center Donation Page: Donate - Father McKenna Center
ALLW Fund Main Page: ALLW: SPDR® Bridgewater® All Weather® ETF
Open Social Security: Open Social Security: Free, Open-Source Social Security Calculator
Hartford Funds Dividend Fund Page: The Power of Dividends: Past, Present, and Future
Ben Felix Dividend Video: The Irrelevance of Dividends
Ben Felix Dividend Video #2: The Relevance of Dividend Irrelevance
Breathless Unedited AI-Bot summary
Financial misconceptions can cost you dearly. This eye-opening episode tackles three critical investment topics that challenge conventional wisdom and may transform how you approach your portfolio.
When State Street and Bridgewater Associates launched their All Weather ETF (ALLW), it promised the stability of risk parity with the pedigree of Ray Dalio himself. We dissect this new offering—examining its 175% leverage, complex asset allocation, and 0.85% expense ratio—to determine whether it delivers on its promises or falls into the same traps as similar products like RPAR and UPAR. For investors approaching retirement, understanding these nuances could be the difference between confidence and confusion in the decumulation phase.
Delaying Social Security benefits remains one of retirement planning's most debated decisions. We cut through the noise of oversimplified break-even calculators to explore what truly matters: appropriate risk-free rate calculations, the value of guaranteed income streams, and perhaps most importantly, how your family's longevity history should influence your claiming strategy. For married couples, the analysis becomes even more critical as spousal benefits create powerful optimization opportunities that generic calculators often miss.
The episode concludes by dispelling one of investing's most persistent myths: the magical power of dividends. When Hartford Research noted that "85% of the S&P 500's return came from reinvested dividends and compounding," many investors misinterpreted this to mean dividends themselves were responsible for these returns. We reveal how this fundamental misunderstanding leads investors astray, explain why dividend payments offer no advantage in today's zero-commission environment, and demonstrate why creating your own "dividend" through strategic selling provides superior tax control.
Whether you're building wealth or planning your withdrawal strategy, these insights will help you see beyond marketing claims to make decisions based on financial reality rather than comforting illusions. Listen now to align your investment approach with actual market mechanics instead of persistent financial folklore.
Have a question about risk parity investing or portfolio construction? Email frank@riskparityradio.com or visit riskparityradio.
Mark as Played
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 pacewith his companions, perhaps it
is because he hears a differentdrummer, a different drummer.
Mostly Mary (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 investor,Broadcasting to you now from the
comfort of his easy chair.
Here is your host, FrankVasquez.
Mostly Uncle Frank (00:36):
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,
(01:12):
82, and 184.
Whoa, and you probably shouldcheck those out too, because we
have the finest podcast audienceavailable.
Mostly Mary (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 to episode 423.
Today, on Risk Parody Radio,we're just going to do what we
do best here, which is attend toyour emails.
Voices (01:50):
And we have the tools, we have the talent.
Mostly Uncle Frank (01:54):
And so without further ado.
Voices (01:56):
Here I go once again with the email.
Mostly Uncle Frank (01:59):
And First off.
First off, we have an emailfrom Dave.
Voices (02:05):
First off, we have an email from Dave.
Mostly Mary (02:12):
And Dave writes Hello, frank and Mary, many
thanks for all the work you do.
I am about five years fromretirement and I'm starting to
transition my portfolio fromaccumulation to decumulation.
Oh, behave.
Yeah am starting to transitionmy portfolio from accumulation
to decumulation.
I've become a loyal listener toRisk Parity Radio as I
(02:33):
discovered your podcast severalyears ago as I was exploring the
risk parity approach andstudying the offerings and
teachers of Ray Dalio andBridgewater Associates.
Recently, bridgewater Associateshas partnered with State Street
and introduced an all-weatherETF, allw.
It follows risk parityinvesting principles and has the
(02:54):
pedigree of Dalio andBridgewater, along with a
capable ETF firm in State Street.
The ETF does not have a longtrack record, as it was
introduced in 2025.
Some details of the ETF theportfolio holds equities,
(03:14):
nominal government bonds,inflation-linked bonds,
commodities and gold acrossmajor developed and emerging
economies.
From the existing portfoliopositions and the marketing
materials, I believe theportfolio is comprised of
equities of 42% with less thanhalf US exposure.
Nominal government bonds ofapproximately 76% with less than
half US exposure.
Commodities of 39%, with about14% in gold.
(03:39):
Inflation-linked bonds of about30%, all US.
The portfolio is levered toabout 175% using futures and
swaps.
Voices (03:49):
You have a gambling problem.
Mostly Mary (03:52):
The expense ratio is 0.85%.
All in a single ETF with theassociated tax benefits when
utilized in an after-taxbrokerage account and you have
professionals managing theleverage for you.
I am surprised at the level ofinternational exposure,
especially in that nominalgovernment bonds where less than
one half are in US treasuries.
(04:12):
Also a heavy dose of tips andmore broad commodities than gold
.
I'd love to get your impressionof this new ETF, dave.
Voices (04:22):
Then we'll reinvest the earnings into foreign currency
accounts with compoundinginterest, and it's gone.
Mostly Uncle Frank (04:28):
Well, first off, dave, let me thank you for
being a donor to the FatherMcKenna Center, and a
substantial donor, I should say.
Mostly Mary (04:36):
Top drawer, really top drawer.
Mostly Uncle Frank (04:40):
For those of you who do not know, we do not
have any sponsors on thispodcast.
We do have a charity we support.
It's called the Father McKennaCenter and it supports hungry
and homeless people inWashington DC.
Full disclosure I'm on theboard of the charity and I'm the
current treasurer, but if yougive to the charity, you get to
go to the front of the emailline, as Dave has done here.
Voices (05:02):
That is the straight stuff.
Oh funk master.
Mostly Uncle Frank (05:06):
There are two ways to do that.
You can go directly to thedonation page at the Father
McKenna website and I will linkto that in the show notes.
Or you can go to our supportpage at wwwriskparityradarcom
and go through Patreon and givethat way.
Either way, you get to go tothe front of the line.
But please do mention that inyour email when you send it, so
(05:28):
I can have my crack team moveyou to the front of the line.
Voices (05:33):
We have top men working on it right now.
Who Top?
Mostly Uncle Frank (05:42):
men.
But now let's get to your email.
Okay, this new ETF that is apartnership between State Street
and Bridgewater.
It's called the All Weather ETF, ticker symbol ALLW.
I will give a couple of linksin the show notes so you can
check this out.
But, dave, you did describe itquite accurately and my
(06:05):
impression of it is that it'sinteresting, but I don't think
that many people will find itthat useful, for a couple of
reasons.
First, it does follow the sortof classic dimensions for a risk
parity style portfolio, whichare similar to the sample
portfolio, the all seasonsportfolio portfolio, which are
(06:26):
similar to the sample portfolio,the all seasons portfolio, but
in the tradition of theseportfolios it is also levered up
.
As you mentioned, it's 1.75 to1.
Voices (06:34):
Ramming speed.
Ramming speed.
Mostly Uncle Frank (06:44):
There are a number of other funds out there
of recent vintage that are alsotrying to do this.
One is called RPAR, one iscalled UPAR, and they are also
leverage risk parity styleportfolios who are run by people
that used to be at Bridgewater.
Voices (07:02):
Inconceivable.
Mostly Uncle Frank (07:04):
And we have talked about RPAR in particular
all the way back in episode 31and then had discussions of it
in episode 62, 113, 142, 155,246, and 260, which you may want
to check out, because a lot ofthings I'm going to say right
now are similar to the ones Isaid about that fund in the past
(07:27):
.
Fidelity has also gotten onboard with the risk parity
concept and has their own riskparity fund.
It's called FAPSX.
It's a mutual fund.
I do not believe that that fundhas any leverage in it, though.
What I've said about RPAR inthe past and I think it also
applies to this is it seems tobe trying to be too clever by
(07:49):
half, in that it is a managedfund.
It's going to be jumping in andout of a whole bunch of
different things, and it's notclear what the exact exposures
are going to be at any one time.
It also has this unfortunatereliance on tips which, as I
have pointed out in the past,has been detrimental to funds
(08:12):
like RPAR and UPAR.
Voices (08:14):
That's the fact, Jack.
That's the fact, Jack.
Mostly Uncle Frank (08:19):
And it's also why we do not use them in
our portfolios, forget about it.
And, frankly, it's quiteexpensive, although it's not as
expensive as a hedge fund.
It is attempting to bring thatkind of idea to an ETF form, but
, since it's also leveraged, itreally is more akin to the
(08:40):
experimental portfolios we havein the sample section,
particularly the levered goldenratio and the Optra portfolios,
although this has even moreleverage than those.
So what it's really trying todo is provide a return that is
similar to the total stockmarket, but at a lower level of
(09:03):
risk or volatility.
I think that's going to bedifficult to do for it,
particularly given the fees andthe complications that are
involved in this, and, honestly,I'm going to hold something
like this.
I'm probably going to holdsomething that looks more like a
return-stacked portfolio, likethat sample Optra portfolio.
I think the problem with theseall-in-ones, though, for this
(09:24):
kind of strategy is that it'sunclear what they're really
trying to do and how they wouldfit into somebody's portfolio,
Because it's doubtful anybody'sgoingification inside of it, so
(09:45):
you wouldn't need anything else,and they're just going to
manage this thing for you likethey're managing your entire
portfolio.
I don't think adding it toanother portfolio really makes a
whole lot of sense, and theother problem I see with it.
It's not structured for being aretirement portfolio vehicle.
Particularly, it's notstructured for drawing down on.
(10:07):
It is structured for generatinga higher return with leverage
and that's the key feature of itis the fact that it's leveraged
.
Voices (10:17):
Well, you have a gambling problem.
Mostly Uncle Frank (10:20):
So I can't see us trying to use this as a
retirement portfolio vehicleeither.
Voices (10:25):
Not going to do it Wouldn't be prudent at this
juncture.
Mostly Uncle Frank (10:29):
Which does get at the difference between a
classic risk parity styleportfolio, like the all-season
sample portfolio, which we keepas a reference portfolio because
it's based on Bridgewater'soriginal formulation, and then
something like the sampleportfolios, the golden butterfly
and golden ratio portfolios,which actually are designed more
(10:50):
for drawing down on and so havea higher exposure to stocks,
but they don't have leverage inthem, so they give you that
something that's more stable.
And then also the problem withthis is the problem with all of
these composite funds is thatyou can't rebalance them.
You're just stuck with whateverthe fund provider is doing
inside of them and whateverrebalancing plan they have.
(11:13):
But it's much better forportfolio management and being
able to draw down upon if youcan manage it in connection with
your drawdowns.
So you're basically selling thehigh things and buying the low
things, which you can't do withsomething like this.
So I will be interested to seehow this performs over time and
(11:37):
compare it with those funds RPARand UPAR which have not
performed very well in the pastfew years due to these problems
with complications and the useof tips in them.
But maybe this one will do alittle better.
We can also compare this byessentially subtracting the
leverage to the referenceportfolio, the all seasons
(11:58):
portfolio that we have, and so Iwill probably use this, like I
use RPAR and UPAR, which is tolook at these on an annual basis
and compare it to theportfolios that we've
constructed, because they doprovide decent references for
what we're trying to do andbasically have shown that what
we're trying to do makes a wholelot more sense, is cheaper and
(12:21):
is probably a lot better thanwhat you're getting out of these
more complicated products.
I can't say that I'd everactually use one of these,
simply because I don't see howit really fits together with
what I'm trying to do,especially in retirement.
Mostly Mary (12:37):
That's not an improvement.
Mostly Uncle Frank (12:39):
But we will watch it with great interest.
Voices (12:41):
going forward, and you young, Skywalker, we will watch
your career with great interest.
Mostly Uncle Frank (12:50):
Thank you for bringing it to our attention
and thank you for your email.
Voices (12:55):
Oh, mr Marsh, don't worry, we can just transfer
money from your account into aportfolio with your son and it's
gone.
Second off.
Mostly Uncle Frank (13:06):
Second off, we have an email from Jeff.
Voices (13:11):
Mr Spicoli, that's an end again, man.
Mostly Mary (13:15):
And Jeff writes Hi, frank and Mary.
Thank you both for all that youdo to make this such an
enjoyable podcast.
My question relates tocalculating the break-even point
for delaying social security.
When doing the calculation, Isee that many online tools just
do a simple math breakdown ofwhen the crossover point is for
how much money and actualpayments are being made.
(13:36):
To get a more accurate look,wouldn't they also have to
calculate the interest lost byweighting accurate look?
Wouldn't they also have tocalculate the interest loss by
weighting?
For example, if I were to take a$2,800 benefit at age 62, that
is $2,800 per month.
I don't need to take out of myportfolio and that money is
therefore growing with interestAt a 6% annual return rate that
(13:57):
money would grow to nearly$350,000 by the time I reach 70.
At age 70, I may receive $5,000per month, which is a big
improvement over the $2,800, butI would theoretically also have
nearly $350,000 less in my networth.
Am I understanding thatcorrectly or is my math way off?
It would seem the break-evenpoint is much later than what
(14:20):
online calculators show, whichis somewhere in the 77 to 81
range.
My calculations show abreak-even point closer to 90,
or even higher, depending on theinterest rate of return.
Thanks for any guidance you canprovide.
Best regards Jeff.
Voices (14:38):
Oh, gnarly.
Mostly Uncle Frank (14:41):
Well, I think the results are usually
embedded in the assumptions inthese kind of calculations,
because there are a variety ofcalculators and some of them
make good assumptions and someof them make bad assumptions or
unrealistic assumptions.
The main assumption that isproblematic here is always what
kind of return would you assignto the money that you would
(15:03):
receive from social security,assuming that you would be able
to invest it?
And it's actually notappropriate to assign it six
percent or some higher return.
In fact, if you're going toassign it a return, you would
have to assign it the t-billreturn, the risk-free rate of
return, because this isessentially money that is being
(15:24):
received without risk other thanthe US government going away or
whatever they're going to dowith Social Security.
But I'm not including that forthe moment because I don't have
any way of calculating that.
What you should really becomparing this to is what would
it cost me to buy a simpleannuity that has similar
characteristics?
(15:44):
So you could imagine a simpleannuity with an inflation
adjustment which is hard to findor almost impossible to find
these days in the market thatstarts at age 62.
Or somebody could buy adeferred annuity that pays out
what you're going to get paidout at age 62, or somebody could
buy a deferred annuity thatpays out what you're going to
get paid out at age 70 or 67 orsome other later age and then
(16:09):
basically compare which onewould cost more.
Because you want to pick theone that would cost more because
that means it has more value,and you can do these kind of
approximations atimmediateannuitiescom, although
I'm not sure anybody does that.
That would be actually the morelegitimate way to compare these
(16:29):
things than looking at somekind of break-even test, because
the annuity calculationsalready have calculated in the
actuarial assumptions that youneed in order to do these kind
of break-even tests.
The problem with the break-eventests is that those assumptions
change depending on what ageyou are.
(16:50):
So your actuarial date of deathat age 62 is going to be less
than the one projected for a70-year-old, simply because the
70-year-old has survived longeralready.
This makes these things verydifficult to actually calculate
in practice if you're trying todo it the way you're doing it
with looking at these ages, butif you're going to do it, you
(17:14):
have to assume a T-bill rate ofreturn.
You can't be assuming a 6%annual return rate, unless
you're willing to take the risk,of course, but then you're not
comparing apples to applesanymore, you're comparing apples
to oranges.
The other thing that you shouldconsider as an individual that's
never in any of thesecalculators because it can't be
(17:34):
is what is your personal risk ofsurvival or of dying, or of
longevity, I should say, becausethat is the ultimate factor.
If you knew that you were goingto live to age 95, you delay
the whole thing all the time andyou might have some of that
kind of information depending onyour family's genetics.
I would use that more as adeciding point than any kind of
(17:58):
calculator, simply because if Iknew that everybody in my family
died by age 75, I certainlywould be taking it at age 62.
But since, in my case, myparents are 96 and 91 and still
alive, it doesn't make sense forme to take it sooner than age
70.
And that's certainly notincorporated in any of these
(18:18):
calculators.
The other question is are youmarried or not?
Because that is generally thefactor that tells most couples
that the higher earning oneshould take social security
later because of the spousalbenefit.
And the spousal benefit is huge, a really big one here, which
(18:40):
is huge Because your spousedidn't earn that.
That is basically like freemoney.
Now there's a nice calculatorat the website Open Social
Security that I'll link to inthe show notes that's run by
(19:04):
Mike Piper, that you can put intwo different people with their
Social Security information thatyou should get from Social
Security and put it in there ifyou're talking about a couple,
and it'll tell you what's youroptimal claiming strategy.
And he's got his assumptionslisted there so you can check
those out as well.
But I know every time I runsomething like that for us it
basically says mary should takeearlier and I should wait until
age 70, and I would actually beusing a calculator like that.
I would not be using any ofthese simplistic break-even
(19:26):
calculators because in myexperience they have all kinds
of deficiencies to them.
Voices (19:32):
It's a trap.
Mostly Uncle Frank (19:34):
And again, your answer is dictated largely
by your assumptions, with thekey assumption being how long do
you think you're actually goingto live?
Voices (19:43):
What would you say?
Mostly Uncle Frank (19:45):
you do here.
Hopefully that helps Check outthat website and thank you for
your email.
Voices (19:54):
You see that sign no shirt, no shoes, no dice no
shoes no dice.
Right.
Mostly Uncle Frank (20:11):
Learn it, know it, live it.
Voices (20:12):
Last off Last off we have an email from Peter.
Mostly Uncle Frank (20:19):
Hello, peter , what's happening?
Mostly Mary (20:21):
And Peter writes Hi Frank happening.
And Peter writes Hi Frank.
Since 1960, dividends alonehave contributed to 85% of the
S&P 500's total return,according to Hartford Research.
I don't think it means what youthink it means.
Given this, why do so manyretail investors dismiss
dividend investing?
I understand that it's not themost tax efficient strategy, but
(20:42):
for someone relying on a nestegg, doesn't the peace of mind
of having cash flow depositedinto your account each month
outweigh tax optimization,especially when it means
avoiding selling in a downturn?
Convince me otherwise, please.
Thanks, peter.
We have sort of a problem here.
Yeah, hmm, yeah, did you seethe memo about this?
Mostly Uncle Frank (21:07):
Well, peter, when I read your email, I said
well, this does not soundcorrect and I better go look at
Hartford Research.
Voices (21:15):
No more flying solo.
Mostly Uncle Frank (21:17):
And in fact, what you wrote is not correct.
You wrote since 1960, dividendsalone have contributed to 85%
of the S&P 500's total return,according to Hartford Research.
Mostly Mary (21:30):
That's not how it works.
Mostly Uncle Frank (21:31):
That's not how any of this works is that,
going back to 60, 85% of thecumulative total return of the
S&P 500 index can be attributedto reinvested dividends, not
dividends, reinvested dividendsand the power of compounding.
Voices (21:55):
That's the fact, Jack.
That's the fact, Jack.
Mostly Uncle Frank (21:59):
So what does that mean?
So what does that mean?
If you are reinvestingdividends, you are essentially
using the total return, whichincludes the appreciation and
the dividends.
You're putting them both backinto the stocks, and that is how
you are compounding yourreturns.
So it's not the dividendsthemselves at all.
(22:22):
Forget about it.
It is the total returns thatare driving the growth of the
index, and that would be truewhether the dividends were
actually paid out or not.
If the dividends were retained,you would have exactly the same
outcome, because you areassuming the dividends are
(22:46):
reinvested.
That's what that means.
If you don't include the wordreinvested, your statement is
false, fat drunk and stupid isno way to go through life, son.
But I can understand why you'dbe confused by this, because I
believe Hartford Research isintentionally publishing
something like this to confuseyou.
(23:06):
That is what people thatpromote dividend funds like this
, which are managed funds, highfees that's what they want you
to believe.
They want you to believe whatyou wrote, which is wrong, as
opposed to what they wrote,which is clever, cleverly
different.
Voices (23:24):
Because only one thing counts in this life get them to
sign on the line which is dotted.
Mostly Uncle Frank (23:31):
So you've been completely deceived, I'm
afraid, by Hartford research.
Voices (23:35):
You fell victim to one of the classic blunders.
Mostly Uncle Frank (23:39):
And if you look at figure one of that
presentation, you'll also seeanother highly misleading
misrepresentation going on therein the form of the graph,
because they are comparing ainvestor who invested in the S&P
500 and reinvested all theirdividends with somebody who
received no dividends at all,which is impossible if you're
(24:01):
investing in the S&P 500.
You're going to get dividends,so the lower amount is
completely contrived and makesthe higher amount look like it's
more.
This is the same kind ofmisleading presentation you will
see at annuity presentations,where they use the S&P index
without dividends included tomislead people into thinking
(24:23):
that their choice is better, andthis is the same kind of
nonsense, to put it politely.
Voices (24:30):
A, B, C, A, always B, B, C.
Mostly Uncle Frank (24:34):
Closing, Always be closing closing,
always be closing, always beclosing.
Voices (24:44):
That means, you should not be trusting this
presentation at all.
Mostly Uncle Frank (24:46):
Forget about it, Because you would have had
a similar line that was evenlower if you took away the
capital appreciation and onlyconsidered the dividends from
the S&P 500, which would be theequivalent of what they've done.
But you can see what kind of astupid idea that would be.
Stupid is what stupid does.
Sir.
The kicker is in the notethat's underneath figure one,
(25:11):
where they say to coverthemselves for their
misrepresentation with thestatement dividend-paying stocks
are not guaranteed tooutperform non-dividend-paying
stocks in declining, flat orrising market.
For illustrative purposes only,Probably, should say for
misrepresentations andmisconceptions only.
Voices (25:33):
Am I right or am I right , or am I right, right, right,
right.
Mostly Uncle Frank (25:37):
But that language will cover them enough
for legal purposes.
In fact, if you read the restof what's on that page and I
will link to this in the shownotes you'll see that the
component of returns thatdividends have formed of the S&P
500 is about 34%, and I thinkthat's between 1940 and 2024.
(25:59):
What's more interesting is thathistogram there where they show
you what proportion thatdividends represent of the total
returns of the stock market andyou'll basically see that in
decades like we've had recently,they are an abysmal part of the
returns, maybe like 12%, andit's only in bad decades, like
(26:21):
the 1970s, the early 2000s oreven going back to the 1940s,
that dividends represent a largepart of the returns.
But you should learn somethingmuch different from that.
You won't learn it just byreading that, but what you
should know these days is theprinciples of factor investing.
Voices (26:43):
Bow to your sensei.
Bow to your sensei.
Mostly Uncle Frank (26:46):
That most dividend stocks are value tilted
stocks, and that is what isimportant about them, not that
they pay dividends.
What's important about it isthey're value-tilted stocks
because if you look in decadeslike the 1970s or the early
2000s value outperformed growthit wasn't the dividends, it was
(27:10):
the fact they are value-tiltedstocks.
So, knowing that what youshould be focused on is not
dividend paying, but are thesevalue-tilted stocks we're
talking about, and somevalue-tilted stocks don't pay
dividends.
Berkshire Hathaway is the primeexample of that.
What you'll also find, and morerecently, is that companies have
(27:32):
gone away from paying dividendsand gone to share buybacks,
which is another way ofreinvesting in a company.
Instead of paying a dividend,the company buys their own
shares back, which iseffectively a reinvestment of a
dividend.
But that's the fundamentalerror you're making.
The question here is whetherthe earnings are being
(27:54):
reinvested in the company, andwhether you do that by retaining
them in the company, by notpaying them out, whether you do
that by buying back the shares,or whether you do that by paying
a dividend but then forcing thereceiver of the dividend to
reinvest the dividend.
You have the same result,because it's the reinvestment
that matters, that leads to thecompounding, not the fact that a
(28:17):
dividend is being paid.
Voices (28:19):
These things you say we will have we already have.
That's true.
Mostly Uncle Frank (28:25):
I ain't promising you nothing extra,
which also leads me to questionyour statement.
Doesn't the peace of mind ofhaving cash flow deposited in
your account each month outweightax optimization?
Absolutely not, absolutely not.
Voices (28:42):
Are you crazy or just plain?
stupid.
Mostly Uncle Frank (28:46):
We live in an era of no fee trading and
fractional shares.
If you want to create adividend, it costs you nothing.
You simply sell a piece of theshares of whatever it is and
call that your dividend and walkaway with it.
The payment of dividends onlyreally mattered and was only
(29:24):
advantageous back in the 80s or90s, when it cost money to sell
your stocks through transactionfees and so you did want to be
getting income out of them thatwas paid directly that you
didn't have to pay transactionfees to get at.
That is not true anymore.
We do not live in that eraanymore.
We also do not use fax machines, and what you're talking about
(29:45):
is essentially having the peaceof mind of having a fax machine
where you could plug it into thephone and get it that way, and
it wasn't flying around throughwireless things and satellites
and going into a computer andbeing called email that you had
to print in order to get it onpaper, whereas the fax would
(30:06):
give it to you on paper to beginwith.
And wouldn't that give youpeace of mind?
Voices (30:12):
I'm just a caveman.
I wonder did little demons getinside and type it?
I don't know.
Mostly Uncle Frank (30:22):
My primitive mind can't grasp these concepts
.
So no, the payment of dividendsshould not be giving you peace
of mind.
In fact, that's a highlymisplaced peace that you're
feeling.
Voices (30:33):
Secondary latent personality displacement.
Oh great, yes, sir.
Mostly Uncle Frank (30:37):
Secondary latent personality displacement
oh great.
Yes, sir, the only way that cangive you peace of mind is, if
you're just spending so littleout of your portfolio aka living
off the dividends only that youdon't have any issues with safe
withdrawal rate anyway, Becauseif you're spending less than 3%
of your portfolio, you don'thave a safe withdrawal rate
(30:58):
problem.
In most cases, you do have ahoarding problem and you're
going to die with the most moneypossible, but you don't have a
problem with worrying aboutrunning out of money unless you
are relying on individual stocksare there no prisons?
Voices (31:12):
plenty of prisons.
And the union workhouses arethey still in operation?
They are, I wish I could saythey were not.
And the treadmill and the poor?
Are they still in operation?
They are, I wish I could saythey were not.
And the trade mill and the poorlaw?
They're still in full vigor, Ipresume Both very busy, sir.
Oh, from what you said at firstI was afraid that something had
happened to stop them in theiruseful course.
What can I put you down for?
Mostly Uncle Frank (31:32):
Nothing.
The better way to get peace ofmind is to have a properly
diversified portfolio andactually understand where these
returns come from, becausedividends aren't magical and
you're not getting anything outof that and you certainly
shouldn't be getting this falsesense of security out of them.
Voices (31:51):
That and a nickel will get your hot cup a jack squat.
Mostly Uncle Frank (31:56):
The better approach would simply be to
allocate whatever you wereallocating to dividend paying
stocks to value tilted stocks,because there's a huge overlap
there.
But the value tilted stocks arealso going to capture those
returns that you would receivefrom stocks that don't pay as
high of dividends or don't paydividends at all, from stocks
that don't pay as high ofdividends or don't pay dividends
(32:17):
at all and you're reallymissing out on those returns if
you are only focusing ondividends.
So the reason many retailinvestors do dismiss dividend
investing and most professionalsalso do, except for the ones
that are selling funds that dosuch things is that they do not
(32:41):
actually improve your portfoliosituation and provide only false
security, in addition to beinga headache to have to deal with
with taxes, because the firstword after income is taxes.
Voices (32:50):
What guy in a suit.
No, it's a tax collector.
Hide us SpongeBob.
Mostly Uncle Frank (32:57):
And what you want to be able to do is manage
the taxes out of your portfolioby selling things and incurring
capital gains on your scheduleand not on the schedule that
somebody is choosing to paydividends.
I'll link to a nice video aboutthe irrelevance of dividends
(33:17):
that I've linked to before.
It's from Ben Felix, who givesyou the academic background as
to why dividends are not magicaland do not improve your
situation.
Voices (33:26):
Pay no attention to that man behind the curtain.
The great and lost has spoken.
Mostly Uncle Frank (33:34):
And please do reread the Hartford research
thing again, even though it'sslanted propaganda-ish.
Voices (33:42):
It's a doozy.
Mostly Uncle Frank (33:44):
It still supports what I'm telling you
and does not support what youthink it supports.
I award you no points, and mayGod have mercy on your soul.
And it's very dangerousbelieving in things that you
don't understand, especially ininvesting.
Hopefully that helps, and thankyou for your email, and I'll go
(34:22):
ahead and make sure you getanother copy of that memo.
Okay, but now I see our signalis beginning to fade.
If you have comments orquestions for me, please send
them to frank atriskparityradiocom.
That email is frank atriskparityradiocom.
Or you can go to the website,wwwriskparityradiocom, put your
message into the contact formand I'll get it that way.
(34:44):
If you have an energy chance todo it, please go to your
favorite podcast provider andlike, subscribe and give me some
stars, a follow, a review.
That would be great, okay,thank you once again for tuning
in.
This is Frank Vasquez with RiskParty Radio.
Voices (35:06):
Signing off.
They got the money.
Hey, you know, they got a way.
They're headed down south andthey're still running today.
So yeah, go on, take the moneyand run.
Go on, take the money and run.
Go on, take the money and run.
Go on, take the money and run.
(35:31):
Go on, take the money and run.
(35:55):
Yeah, yeah, come on, take themoney and run.
Mostly Mary (36:04):
Oh no, 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
(36:26):
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 pacewith his companions, perhaps it
is because he hears a differentdrummer, a different drummer.
Mostly Mary (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 investor,Broadcasting to you now from the
comfort of his easy chair.
Here is your host, FrankVasquez.
Mostly Uncle Frank (00:36):
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,
(01:12):
82, and 184.
Whoa, and you probably shouldcheck those out too, because we
have the finest podcast audienceavailable.
Mostly Mary (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 to episode 423.
Today, on Risk Parody Radio,we're just going to do what we
do best here, which is attend toyour emails.
Voices (01:50):
And we have the tools, we have the talent.
Mostly Uncle Frank (01:54):
And so without further ado.
Voices (01:56):
Here I go once again with the email.
Mostly Uncle Frank (01:59):
And First off.
First off, we have an emailfrom Dave.
Voices (02:05):
First off, we have an email from Dave.
Mostly Mary (02:12):
And Dave writes Hello, frank and Mary, many
thanks for all the work you do.
I am about five years fromretirement and I'm starting to
transition my portfolio fromaccumulation to decumulation.
Oh, behave.
Yeah am starting to transitionmy portfolio from accumulation
to decumulation.
I've become a loyal listener toRisk Parity Radio as I
(02:33):
discovered your podcast severalyears ago as I was exploring the
risk parity approach andstudying the offerings and
teachers of Ray Dalio andBridgewater Associates.
Recently, bridgewater Associateshas partnered with State Street
and introduced an all-weatherETF, allw.
It follows risk parityinvesting principles and has the
(02:54):
pedigree of Dalio andBridgewater, along with a
capable ETF firm in State Street.
The ETF does not have a longtrack record, as it was
introduced in 2025.
Some details of the ETF theportfolio holds equities,
(03:14):
nominal government bonds,inflation-linked bonds,
commodities and gold acrossmajor developed and emerging
economies.
From the existing portfoliopositions and the marketing
materials, I believe theportfolio is comprised of
equities of 42% with less thanhalf US exposure.
Nominal government bonds ofapproximately 76% with less than
half US exposure.
Commodities of 39%, with about14% in gold.
(03:39):
Inflation-linked bonds of about30%, all US.
The portfolio is levered toabout 175% using futures and
swaps.
Voices (03:49):
You have a gambling problem.
Mostly Mary (03:52):
The expense ratio is 0.85%.
All in a single ETF with theassociated tax benefits when
utilized in an after-taxbrokerage account and you have
professionals managing theleverage for you.
I am surprised at the level ofinternational exposure,
especially in that nominalgovernment bonds where less than
one half are in US treasuries.
(04:12):
Also a heavy dose of tips andmore broad commodities than gold
.
I'd love to get your impressionof this new ETF, dave.
Voices (04:22):
Then we'll reinvest the earnings into foreign currency
accounts with compoundinginterest, and it's gone.
Mostly Uncle Frank (04:28):
Well, first off, dave, let me thank you for
being a donor to the FatherMcKenna Center, and a
substantial donor, I should say.
Mostly Mary (04:36):
Top drawer, really top drawer.
Mostly Uncle Frank (04:40):
For those of you who do not know, we do not
have any sponsors on thispodcast.
We do have a charity we support.
It's called the Father McKennaCenter and it supports hungry
and homeless people inWashington DC.
Full disclosure I'm on theboard of the charity and I'm the
current treasurer, but if yougive to the charity, you get to
go to the front of the emailline, as Dave has done here.
Voices (05:02):
That is the straight stuff.
Oh funk master.
Mostly Uncle Frank (05:06):
There are two ways to do that.
You can go directly to thedonation page at the Father
McKenna website and I will linkto that in the show notes.
Or you can go to our supportpage at wwwriskparityradarcom
and go through Patreon and givethat way.
Either way, you get to go tothe front of the line.
But please do mention that inyour email when you send it, so
(05:28):
I can have my crack team moveyou to the front of the line.
Voices (05:33):
We have top men working on it right now.
Who Top?
Mostly Uncle Frank (05:42):
men.
But now let's get to your email.
Okay, this new ETF that is apartnership between State Street
and Bridgewater.
It's called the All Weather ETF, ticker symbol ALLW.
I will give a couple of linksin the show notes so you can
check this out.
But, dave, you did describe itquite accurately and my
(06:05):
impression of it is that it'sinteresting, but I don't think
that many people will find itthat useful, for a couple of
reasons.
First, it does follow the sortof classic dimensions for a risk
parity style portfolio, whichare similar to the sample
portfolio, the all seasonsportfolio portfolio, which are
(06:26):
similar to the sample portfolio,the all seasons portfolio, but
in the tradition of theseportfolios it is also levered up
.
As you mentioned, it's 1.75 to1.
Voices (06:34):
Ramming speed.
Ramming speed.
Mostly Uncle Frank (06:44):
There are a number of other funds out there
of recent vintage that are alsotrying to do this.
One is called RPAR, one iscalled UPAR, and they are also
leverage risk parity styleportfolios who are run by people
that used to be at Bridgewater.
Voices (07:02):
Inconceivable.
Mostly Uncle Frank (07:04):
And we have talked about RPAR in particular
all the way back in episode 31and then had discussions of it
in episode 62, 113, 142, 155,246, and 260, which you may want
to check out, because a lot ofthings I'm going to say right
now are similar to the ones Isaid about that fund in the past
(07:27):
.
Fidelity has also gotten onboard with the risk parity
concept and has their own riskparity fund.
It's called FAPSX.
It's a mutual fund.
I do not believe that that fundhas any leverage in it, though.
What I've said about RPAR inthe past and I think it also
applies to this is it seems tobe trying to be too clever by
(07:49):
half, in that it is a managedfund.
It's going to be jumping in andout of a whole bunch of
different things, and it's notclear what the exact exposures
are going to be at any one time.
It also has this unfortunatereliance on tips which, as I
have pointed out in the past,has been detrimental to funds
(08:12):
like RPAR and UPAR.
Voices (08:14):
That's the fact, Jack.
That's the fact, Jack.
Mostly Uncle Frank (08:19):
And it's also why we do not use them in
our portfolios, forget about it.
And, frankly, it's quiteexpensive, although it's not as
expensive as a hedge fund.
It is attempting to bring thatkind of idea to an ETF form, but
, since it's also leveraged, itreally is more akin to the
(08:40):
experimental portfolios we havein the sample section,
particularly the levered goldenratio and the Optra portfolios,
although this has even moreleverage than those.
So what it's really trying todo is provide a return that is
similar to the total stockmarket, but at a lower level of
(09:03):
risk or volatility.
I think that's going to bedifficult to do for it,
particularly given the fees andthe complications that are
involved in this, and, honestly,I'm going to hold something
like this.
I'm probably going to holdsomething that looks more like a
return-stacked portfolio, likethat sample Optra portfolio.
I think the problem with theseall-in-ones, though, for this
(09:24):
kind of strategy is that it'sunclear what they're really
trying to do and how they wouldfit into somebody's portfolio,
Because it's doubtful anybody'sgoingification inside of it, so
(09:45):
you wouldn't need anything else,and they're just going to
manage this thing for you likethey're managing your entire
portfolio.
I don't think adding it toanother portfolio really makes a
whole lot of sense, and theother problem I see with it.
It's not structured for being aretirement portfolio vehicle.
Particularly, it's notstructured for drawing down on.
(10:07):
It is structured for generatinga higher return with leverage
and that's the key feature of itis the fact that it's leveraged
.
Voices (10:17):
Well, you have a gambling problem.
Mostly Uncle Frank (10:20):
So I can't see us trying to use this as a
retirement portfolio vehicleeither.
Voices (10:25):
Not going to do it Wouldn't be prudent at this
juncture.
Mostly Uncle Frank (10:29):
Which does get at the difference between a
classic risk parity styleportfolio, like the all-season
sample portfolio, which we keepas a reference portfolio because
it's based on Bridgewater'soriginal formulation, and then
something like the sampleportfolios, the golden butterfly
and golden ratio portfolios,which actually are designed more
(10:50):
for drawing down on and so havea higher exposure to stocks,
but they don't have leverage inthem, so they give you that
something that's more stable.
And then also the problem withthis is the problem with all of
these composite funds is thatyou can't rebalance them.
You're just stuck with whateverthe fund provider is doing
inside of them and whateverrebalancing plan they have.
(11:13):
But it's much better forportfolio management and being
able to draw down upon if youcan manage it in connection with
your drawdowns.
So you're basically selling thehigh things and buying the low
things, which you can't do withsomething like this.
So I will be interested to seehow this performs over time and
(11:37):
compare it with those funds RPARand UPAR which have not
performed very well in the pastfew years due to these problems
with complications and the useof tips in them.
But maybe this one will do alittle better.
We can also compare this byessentially subtracting the
leverage to the referenceportfolio, the all seasons
(11:58):
portfolio that we have, and so Iwill probably use this, like I
use RPAR and UPAR, which is tolook at these on an annual basis
and compare it to theportfolios that we've
constructed, because they doprovide decent references for
what we're trying to do andbasically have shown that what
we're trying to do makes a wholelot more sense, is cheaper and
(12:21):
is probably a lot better thanwhat you're getting out of these
more complicated products.
I can't say that I'd everactually use one of these,
simply because I don't see howit really fits together with
what I'm trying to do,especially in retirement.
Mostly Mary (12:37):
That's not an improvement.
Mostly Uncle Frank (12:39):
But we will watch it with great interest.
Voices (12:41):
going forward, and you young, Skywalker, we will watch
your career with great interest.
Mostly Uncle Frank (12:50):
Thank you for bringing it to our attention
and thank you for your email.
Voices (12:55):
Oh, mr Marsh, don't worry, we can just transfer
money from your account into aportfolio with your son and it's
gone.
Second off.
Mostly Uncle Frank (13:06):
Second off, we have an email from Jeff.
Voices (13:11):
Mr Spicoli, that's an end again, man.
Mostly Mary (13:15):
And Jeff writes Hi, frank and Mary.
Thank you both for all that youdo to make this such an
enjoyable podcast.
My question relates tocalculating the break-even point
for delaying social security.
When doing the calculation, Isee that many online tools just
do a simple math breakdown ofwhen the crossover point is for
how much money and actualpayments are being made.
(13:36):
To get a more accurate look,wouldn't they also have to
calculate the interest lost byweighting accurate look?
Wouldn't they also have tocalculate the interest loss by
weighting?
For example, if I were to take a$2,800 benefit at age 62, that
is $2,800 per month.
I don't need to take out of myportfolio and that money is
therefore growing with interestAt a 6% annual return rate that
(13:57):
money would grow to nearly$350,000 by the time I reach 70.
At age 70, I may receive $5,000per month, which is a big
improvement over the $2,800, butI would theoretically also have
nearly $350,000 less in my networth.
Am I understanding thatcorrectly or is my math way off?
It would seem the break-evenpoint is much later than what
(14:20):
online calculators show, whichis somewhere in the 77 to 81
range.
My calculations show abreak-even point closer to 90,
or even higher, depending on theinterest rate of return.
Thanks for any guidance you canprovide.
Best regards Jeff.
Voices (14:38):
Oh, gnarly.
Mostly Uncle Frank (14:41):
Well, I think the results are usually
embedded in the assumptions inthese kind of calculations,
because there are a variety ofcalculators and some of them
make good assumptions and someof them make bad assumptions or
unrealistic assumptions.
The main assumption that isproblematic here is always what
kind of return would you assignto the money that you would
(15:03):
receive from social security,assuming that you would be able
to invest it?
And it's actually notappropriate to assign it six
percent or some higher return.
In fact, if you're going toassign it a return, you would
have to assign it the t-billreturn, the risk-free rate of
return, because this isessentially money that is being
(15:24):
received without risk other thanthe US government going away or
whatever they're going to dowith Social Security.
But I'm not including that forthe moment because I don't have
any way of calculating that.
What you should really becomparing this to is what would
it cost me to buy a simpleannuity that has similar
characteristics?
(15:44):
So you could imagine a simpleannuity with an inflation
adjustment which is hard to findor almost impossible to find
these days in the market thatstarts at age 62.
Or somebody could buy adeferred annuity that pays out
what you're going to get paidout at age 62, or somebody could
buy a deferred annuity thatpays out what you're going to
get paid out at age 70 or 67 orsome other later age and then
(16:09):
basically compare which onewould cost more.
Because you want to pick theone that would cost more because
that means it has more value,and you can do these kind of
approximations atimmediateannuitiescom, although
I'm not sure anybody does that.
That would be actually the morelegitimate way to compare these
(16:29):
things than looking at somekind of break-even test, because
the annuity calculationsalready have calculated in the
actuarial assumptions that youneed in order to do these kind
of break-even tests.
The problem with the break-eventests is that those assumptions
change depending on what ageyou are.
(16:50):
So your actuarial date of deathat age 62 is going to be less
than the one projected for a70-year-old, simply because the
70-year-old has survived longeralready.
This makes these things verydifficult to actually calculate
in practice if you're trying todo it the way you're doing it
with looking at these ages, butif you're going to do it, you
(17:14):
have to assume a T-bill rate ofreturn.
You can't be assuming a 6%annual return rate, unless
you're willing to take the risk,of course, but then you're not
comparing apples to applesanymore, you're comparing apples
to oranges.
The other thing that you shouldconsider as an individual that's
never in any of thesecalculators because it can't be
(17:34):
is what is your personal risk ofsurvival or of dying, or of
longevity, I should say, becausethat is the ultimate factor.
If you knew that you were goingto live to age 95, you delay
the whole thing all the time andyou might have some of that
kind of information depending onyour family's genetics.
I would use that more as adeciding point than any kind of
(17:58):
calculator, simply because if Iknew that everybody in my family
died by age 75, I certainlywould be taking it at age 62.
But since, in my case, myparents are 96 and 91 and still
alive, it doesn't make sense forme to take it sooner than age
70.
And that's certainly notincorporated in any of these
(18:18):
calculators.
The other question is are youmarried or not?
Because that is generally thefactor that tells most couples
that the higher earning oneshould take social security
later because of the spousalbenefit.
And the spousal benefit is huge, a really big one here, which
(18:40):
is huge Because your spousedidn't earn that.
That is basically like freemoney.
Now there's a nice calculatorat the website Open Social
Security that I'll link to inthe show notes that's run by
(19:04):
Mike Piper, that you can put intwo different people with their
Social Security information thatyou should get from Social
Security and put it in there ifyou're talking about a couple,
and it'll tell you what's youroptimal claiming strategy.
And he's got his assumptionslisted there so you can check
those out as well.
But I know every time I runsomething like that for us it
basically says mary should takeearlier and I should wait until
age 70, and I would actually beusing a calculator like that.
I would not be using any ofthese simplistic break-even
(19:26):
calculators because in myexperience they have all kinds
of deficiencies to them.
Voices (19:32):
It's a trap.
Mostly Uncle Frank (19:34):
And again, your answer is dictated largely
by your assumptions, with thekey assumption being how long do
you think you're actually goingto live?
Voices (19:43):
What would you say?
Mostly Uncle Frank (19:45):
you do here.
Hopefully that helps Check outthat website and thank you for
your email.
Voices (19:54):
You see that sign no shirt, no shoes, no dice no
shoes no dice.
Right.
Mostly Uncle Frank (20:11):
Learn it, know it, live it.
Voices (20:12):
Last off Last off we have an email from Peter.
Mostly Uncle Frank (20:19):
Hello, peter , what's happening?
Mostly Mary (20:21):
And Peter writes Hi Frank happening.
And Peter writes Hi Frank.
Since 1960, dividends alonehave contributed to 85% of the
S&P 500's total return,according to Hartford Research.
I don't think it means what youthink it means.
Given this, why do so manyretail investors dismiss
dividend investing?
I understand that it's not themost tax efficient strategy, but
(20:42):
for someone relying on a nestegg, doesn't the peace of mind
of having cash flow depositedinto your account each month
outweigh tax optimization,especially when it means
avoiding selling in a downturn?
Convince me otherwise, please.
Thanks, peter.
We have sort of a problem here.
Yeah, hmm, yeah, did you seethe memo about this?
Mostly Uncle Frank (21:07):
Well, peter, when I read your email, I said
well, this does not soundcorrect and I better go look at
Hartford Research.
Voices (21:15):
No more flying solo.
Mostly Uncle Frank (21:17):
And in fact, what you wrote is not correct.
You wrote since 1960, dividendsalone have contributed to 85%
of the S&P 500's total return,according to Hartford Research.
Mostly Mary (21:30):
That's not how it works.
Mostly Uncle Frank (21:31):
That's not how any of this works is that,
going back to 60, 85% of thecumulative total return of the
S&P 500 index can be attributedto reinvested dividends, not
dividends, reinvested dividendsand the power of compounding.
Voices (21:55):
That's the fact, Jack.
That's the fact, Jack.
Mostly Uncle Frank (21:59):
So what does that mean?
So what does that mean?
If you are reinvestingdividends, you are essentially
using the total return, whichincludes the appreciation and
the dividends.
You're putting them both backinto the stocks, and that is how
you are compounding yourreturns.
So it's not the dividendsthemselves at all.
(22:22):
Forget about it.
It is the total returns thatare driving the growth of the
index, and that would be truewhether the dividends were
actually paid out or not.
If the dividends were retained,you would have exactly the same
outcome, because you areassuming the dividends are
(22:46):
reinvested.
That's what that means.
If you don't include the wordreinvested, your statement is
false, fat drunk and stupid isno way to go through life, son.
But I can understand why you'dbe confused by this, because I
believe Hartford Research isintentionally publishing
something like this to confuseyou.
(23:06):
That is what people thatpromote dividend funds like this
, which are managed funds, highfees that's what they want you
to believe.
They want you to believe whatyou wrote, which is wrong, as
opposed to what they wrote,which is clever, cleverly
different.
Voices (23:24):
Because only one thing counts in this life get them to
sign on the line which is dotted.
Mostly Uncle Frank (23:31):
So you've been completely deceived, I'm
afraid, by Hartford research.
Voices (23:35):
You fell victim to one of the classic blunders.
Mostly Uncle Frank (23:39):
And if you look at figure one of that
presentation, you'll also seeanother highly misleading
misrepresentation going on therein the form of the graph,
because they are comparing ainvestor who invested in the S&P
500 and reinvested all theirdividends with somebody who
received no dividends at all,which is impossible if you're
(24:01):
investing in the S&P 500.
You're going to get dividends,so the lower amount is
completely contrived and makesthe higher amount look like it's
more.
This is the same kind ofmisleading presentation you will
see at annuity presentations,where they use the S&P index
without dividends included tomislead people into thinking
(24:23):
that their choice is better, andthis is the same kind of
nonsense, to put it politely.
Voices (24:30):
A, B, C, A, always B, B, C.
Mostly Uncle Frank (24:34):
Closing, Always be closing closing,
always be closing, always beclosing.
Voices (24:44):
That means, you should not be trusting this
presentation at all.
Mostly Uncle Frank (24:46):
Forget about it, Because you would have had
a similar line that was evenlower if you took away the
capital appreciation and onlyconsidered the dividends from
the S&P 500, which would be theequivalent of what they've done.
But you can see what kind of astupid idea that would be.
Stupid is what stupid does.
Sir.
The kicker is in the notethat's underneath figure one,
(25:11):
where they say to coverthemselves for their
misrepresentation with thestatement dividend-paying stocks
are not guaranteed tooutperform non-dividend-paying
stocks in declining, flat orrising market.
For illustrative purposes only,Probably, should say for
misrepresentations andmisconceptions only.
Voices (25:33):
Am I right or am I right , or am I right, right, right,
right.
Mostly Uncle Frank (25:37):
But that language will cover them enough
for legal purposes.
In fact, if you read the restof what's on that page and I
will link to this in the shownotes you'll see that the
component of returns thatdividends have formed of the S&P
500 is about 34%, and I thinkthat's between 1940 and 2024.
(25:59):
What's more interesting is thathistogram there where they show
you what proportion thatdividends represent of the total
returns of the stock market andyou'll basically see that in
decades like we've had recently,they are an abysmal part of the
returns, maybe like 12%, andit's only in bad decades, like
(26:21):
the 1970s, the early 2000s oreven going back to the 1940s,
that dividends represent a largepart of the returns.
But you should learn somethingmuch different from that.
You won't learn it just byreading that, but what you
should know these days is theprinciples of factor investing.
Voices (26:43):
Bow to your sensei.
Bow to your sensei.
Mostly Uncle Frank (26:46):
That most dividend stocks are value tilted
stocks, and that is what isimportant about them, not that
they pay dividends.
What's important about it isthey're value-tilted stocks
because if you look in decadeslike the 1970s or the early
2000s value outperformed growthit wasn't the dividends, it was
(27:10):
the fact they are value-tiltedstocks.
So, knowing that what youshould be focused on is not
dividend paying, but are thesevalue-tilted stocks we're
talking about, and somevalue-tilted stocks don't pay
dividends.
Berkshire Hathaway is the primeexample of that.
What you'll also find, and morerecently, is that companies have
(27:32):
gone away from paying dividendsand gone to share buybacks,
which is another way ofreinvesting in a company.
Instead of paying a dividend,the company buys their own
shares back, which iseffectively a reinvestment of a
dividend.
But that's the fundamentalerror you're making.
The question here is whetherthe earnings are being
(27:54):
reinvested in the company, andwhether you do that by retaining
them in the company, by notpaying them out, whether you do
that by buying back the shares,or whether you do that by paying
a dividend but then forcing thereceiver of the dividend to
reinvest the dividend.
You have the same result,because it's the reinvestment
that matters, that leads to thecompounding, not the fact that a
(28:17):
dividend is being paid.
Voices (28:19):
These things you say we will have we already have.
That's true.
Mostly Uncle Frank (28:25):
I ain't promising you nothing extra,
which also leads me to questionyour statement.
Doesn't the peace of mind ofhaving cash flow deposited in
your account each month outweightax optimization?
Absolutely not, absolutely not.
Voices (28:42):
Are you crazy or just plain?
stupid.
Mostly Uncle Frank (28:46):
We live in an era of no fee trading and
fractional shares.
If you want to create adividend, it costs you nothing.
You simply sell a piece of theshares of whatever it is and
call that your dividend and walkaway with it.
The payment of dividends onlyreally mattered and was only
(29:24):
advantageous back in the 80s or90s, when it cost money to sell
your stocks through transactionfees and so you did want to be
getting income out of them thatwas paid directly that you
didn't have to pay transactionfees to get at.
That is not true anymore.
We do not live in that eraanymore.
We also do not use fax machines, and what you're talking about
(29:45):
is essentially having the peaceof mind of having a fax machine
where you could plug it into thephone and get it that way, and
it wasn't flying around throughwireless things and satellites
and going into a computer andbeing called email that you had
to print in order to get it onpaper, whereas the fax would
(30:06):
give it to you on paper to beginwith.
And wouldn't that give youpeace of mind?
Voices (30:12):
I'm just a caveman.
I wonder did little demons getinside and type it?
I don't know.
Mostly Uncle Frank (30:22):
My primitive mind can't grasp these concepts
.
So no, the payment of dividendsshould not be giving you peace
of mind.
In fact, that's a highlymisplaced peace that you're
feeling.
Voices (30:33):
Secondary latent personality displacement.
Oh great, yes, sir.
Mostly Uncle Frank (30:37):
Secondary latent personality displacement
oh great.
Yes, sir, the only way that cangive you peace of mind is, if
you're just spending so littleout of your portfolio aka living
off the dividends only that youdon't have any issues with safe
withdrawal rate anyway, Becauseif you're spending less than 3%
of your portfolio, you don'thave a safe withdrawal rate
(30:58):
problem.
In most cases, you do have ahoarding problem and you're
going to die with the most moneypossible, but you don't have a
problem with worrying aboutrunning out of money unless you
are relying on individual stocksare there no prisons?
Voices (31:12):
plenty of prisons.
And the union workhouses arethey still in operation?
They are, I wish I could saythey were not.
And the treadmill and the poor?
Are they still in operation?
They are, I wish I could saythey were not.
And the trade mill and the poorlaw?
They're still in full vigor, Ipresume Both very busy, sir.
Oh, from what you said at firstI was afraid that something had
happened to stop them in theiruseful course.
What can I put you down for?
Mostly Uncle Frank (31:32):
Nothing.
The better way to get peace ofmind is to have a properly
diversified portfolio andactually understand where these
returns come from, becausedividends aren't magical and
you're not getting anything outof that and you certainly
shouldn't be getting this falsesense of security out of them.
Voices (31:51):
That and a nickel will get your hot cup a jack squat.
Mostly Uncle Frank (31:56):
The better approach would simply be to
allocate whatever you wereallocating to dividend paying
stocks to value tilted stocks,because there's a huge overlap
there.
But the value tilted stocks arealso going to capture those
returns that you would receivefrom stocks that don't pay as
high of dividends or don't paydividends at all, from stocks
that don't pay as high ofdividends or don't pay dividends
(32:17):
at all and you're reallymissing out on those returns if
you are only focusing ondividends.
So the reason many retailinvestors do dismiss dividend
investing and most professionalsalso do, except for the ones
that are selling funds that dosuch things is that they do not
(32:41):
actually improve your portfoliosituation and provide only false
security, in addition to beinga headache to have to deal with
with taxes, because the firstword after income is taxes.
Voices (32:50):
What guy in a suit.
No, it's a tax collector.
Hide us SpongeBob.
Mostly Uncle Frank (32:57):
And what you want to be able to do is manage
the taxes out of your portfolioby selling things and incurring
capital gains on your scheduleand not on the schedule that
somebody is choosing to paydividends.
I'll link to a nice video aboutthe irrelevance of dividends
(33:17):
that I've linked to before.
It's from Ben Felix, who givesyou the academic background as
to why dividends are not magicaland do not improve your
situation.
Voices (33:26):
Pay no attention to that man behind the curtain.
The great and lost has spoken.
Mostly Uncle Frank (33:34):
And please do reread the Hartford research
thing again, even though it'sslanted propaganda-ish.
Voices (33:42):
It's a doozy.
Mostly Uncle Frank (33:44):
It still supports what I'm telling you
and does not support what youthink it supports.
I award you no points, and mayGod have mercy on your soul.
And it's very dangerousbelieving in things that you
don't understand, especially ininvesting.
Hopefully that helps, and thankyou for your email, and I'll go
(34:22):
ahead and make sure you getanother copy of that memo.
Okay, but now I see our signalis beginning to fade.
If you have comments orquestions for me, please send
them to frank atriskparityradiocom.
That email is frank atriskparityradiocom.
Or you can go to the website,wwwriskparityradiocom, put your
message into the contact formand I'll get it that way.
(34:44):
If you have an energy chance todo it, please go to your
favorite podcast provider andlike, subscribe and give me some
stars, a follow, a review.
That would be great, okay,thank you once again for tuning
in.
This is Frank Vasquez with RiskParty Radio.
Voices (35:06):
Signing off.
They got the money.
Hey, you know, they got a way.
They're headed down south andthey're still running today.
So yeah, go on, take the moneyand run.
Go on, take the money and run.
Go on, take the money and run.
Go on, take the money and run.
(35:31):
Go on, take the money and run.
(35:55):
Yeah, yeah, come on, take themoney and run.
Mostly Mary (36:04):
Oh no, 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
(36:26):
actions based on any informationyou have heard here, making
sure to take into account yourown personal circumstances.
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