In this episode we answer emails from Andy, El Yama and Paulo. We discuss a follow up to the question on margin accounts at Interactive Brokers in Episode 424, the use of SCHD fund as a large cap value fund in a risk parity style portfolio, the meaning of "safe" in "safe withdrawal rates" and the current popular obsession with international funds, as well as diversification considerations for using them. And an upcoming appearance on the "Afford Anything" podcast. And the famous SCTV parody "The Queen Haters."
Links:
Father McKenna Center Donation Page: Donate - Father McKenna Center
SCHD Analysis on Morningstar: SCHD Stock - Schwab US Dividend Equity ETF | Morningstar
Breathless Unedited AI-Bot Summary:
Dive into the murky waters of investment strategy as Frank tackles listener questions with his signature blend of expertise and irreverent humor. This episode peels back the layers on three critical investing topics that frequently trip up even experienced investors.
Frank first dissects the mechanics of margin accounts at Interactive Brokers, clarifying how leverage percentages work differently when withdrawing cash versus purchasing additional assets. With characteristic frankness, he explains why brokers might offer leverage limits up to five times an account's value while emphasizing that such levels represent "way more margin than anyone really needs or would want, unless they truly have a gambling problem."
The conversation shifts to dividend ETFs, specifically SCHD, which Frank analyzes not by its label but by its actual characteristics. He reveals how this fund functions effectively as a conservative value play that "sits right on the border between mid-cap and large-cap" with "an even lower average PE ratio than most value funds." This practical approach to fund classification—looking beyond marketing labels to actual investment behavior—exemplifies the podcast's commitment to clear-eyed analysis.
Perhaps most valuable is Frank's demolition of several sacred cows in retirement planning. He explains how safe withdrawal rates already incorporate worst-case scenarios, making additional conservative assumptions not just unnecessary but potentially harmful. "When people are talking about 3% or less withdrawal rates, they are really just doing bad forecasting," he argues, characterizing such excessive conservatism as "essentially leaving life on the table by not spending the money when you're alive."
The episode culminates in a masterful takedown of the current "fervor" for international stocks. Frank explains how currency fluctuations—not magical mean reversion—drive performance differences between markets, and why holding total market US and international funds provides minimal true diversification. "That is pretty much the least diversified way of using international funds against US funds," he notes, before offering practical alternatives for constructing a genuinely diversified portfolio across meaningful factors.
Want to support the show? Consider donating to the Father McKenna Center, which helps homeless people in Washington DC. Email your questions to frank@riskparityradio.com or visit riskparityradio.com.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Voices (00:01):
A foolish consistency, is the hobgoblin of little minds
, adored by little statesmen andphilosophers and divines.
Mostly Uncle Frank (00:10):
If a man does not keep pace with his
companions, perhaps it isbecause he hears a different
drummer.
Mostly Mary (00:17):
A different drummer and now, coming to you from
dead center on your dial,welcome to Risk Parity Radio,
where we explore alternativesand asset allocations 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 (00:37):
Thank you, Mary, and welcome to Risk Parity
Radio.
If you are new here and wonderwhat we are talking about, you
may wish to go back and listento some of the foundational
episodes for this program.
Voices (00:50):
Yeah, baby, yeah.
Mostly Uncle Frank (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.
Mostly Mary (01:27):
Top drawer, really top drawer.
Mostly Uncle Frank (01:31):
Along with a host named after a hot dog.
Voices (01:34):
Lighten up Francis.
Mostly Uncle Frank (01:37):
But now onward, episode 425.
Today, on Risk Priority Radio,we're just going to do what we
do best here, which is tend toyour emails.
Voices (01:47):
I could have told you that.
Mostly Uncle Frank (01:50):
Before we get to that, a little
programming note.
My ears were burning thismorning as I was listening to
the Afford Anything podcastbecause it involved a question
from one of our listeners here,eva, to Paula and Joe and they
proceeded to talk a lot aboutRisk Parody and Risk Parody
Radio.
So they have invited me on thatpodcast as a follow-up and
(02:14):
we'll be recording that, I guessin the next few weeks and
hopefully it'll be out in amonth or so.
Voices (02:19):
Fasten your seatbelts.
It's going to be a bumpy night.
Mostly Uncle Frank (02:24):
I will link to that current episode in the
show notes, but if you arescoring at home, here is some of
the material I sent to Paula'scrack team to review for that
interview and podcast.
I suggested they listen toepisodes 1, 3, 5, 7, and 9 of
this podcast, along withepisodes 209, 223, 294, and 401.
(02:48):
, and I threw in episode 276,just for fun.
That's a history of the firemovement and if you have just
shown up here based on thatepisode and have never listened
to this podcast before, I wouldsuggest you go listen to those
as well as background material,and also that you just be
apprised that this podcast is alittle bit quirky and unusual.
Voices (03:10):
Don't be saucy with me, Bernays.
Mostly Uncle Frank (03:13):
It's my retirement hobby and it's
non-commercial.
Voices (03:17):
Bits and doozy.
Mostly Uncle Frank (03:19):
I don't follow commercial norms or best
practices in podcasting.
This is pretty much the worstvideo ever made.
Voices (03:26):
Napoleon, like anyone can even know that.
Mostly Uncle Frank (03:29):
It's very much amateur hour on that score,
along with my website.
It's a running joke here, ha,ha, and I have a sense of humor.
That's kind of like a crossbetween Mel Brooks and Robin
Williams.
Voices (03:42):
Is that me or does that sound like an Elvis Presley
movie?
Viva Da Nang oh, viva Da Nang,oh, viva Da Nang, da Nang me, da
Nang me.
Why don't they get a robe andhang me?
Hey, is this a little too earlyfor being that loud?
Hey, too late.
Mostly Uncle Frank (03:55):
So you'll just have to get used to that or
suffer through it or decidethis isn't for you.
You know what, napoleon, youcan leave.
So I'd rather have a smaller,very engaged audience than worry
about how many downloads I have, since I'm not going to be
profiting from that anyway.
Voices (04:16):
That is the straight stuff oh, funk master.
Mostly Uncle Frank (04:18):
But enough on those kind of introductory
remarks for now, let's get tothe listener questions.
Here I go once again with theemail, and First off.
First off, we have an emailfrom Andy and Andy writes hey,
(04:43):
frank, I just listened to theepisode and Andy writes hey
Frank, I just listened to theepisode 424.
Mostly Mary (04:49):
I think margin loans work differently if you
are withdrawing money versusbuying more assets.
Yangon mentioned that he waswithdrawing cash for a real
estate transaction and you seemto suggest he could withdraw
several times the nominal valueof the account.
I don't think this is right Q.
I do not think it means whatyou think it means.
Voices (05:08):
I don't think it means what you think it means.
Mostly Mary (05:10):
I don't remember the exact rules, but I believe
if they slash the SEC, consideryou an inexperienced investor,
you can withdraw cash up to 50%of the portfolio value, and if
you are considered anexperienced investor, you can
withdraw 75%, assuming theassets are the standard fare and
can be margined, etc.
Maybe a simple example wouldhelp in terms of the broker's
(05:32):
risk profile versus my riskprofile.
Cue bow to your sensei.
Voices (05:36):
Bow to your sensei.
Bow to your sensei.
Mostly Mary (05:40):
If I were to have a $200,000 portfolio and use it
as leverage to buy, say,$200,000 in extra asset value,
then the broker would hold$400,000 in assets as collateral
on a $200,000 loan.
This would be 100% leverage onmy original assets, but the
portfolio could drop 50% invalue before the asset value was
(06:01):
unable to cover the liability,before the asset value was
unable to cover the liability.
On the other hand, if I were tohave a $200,000 portfolio and
were permitted to take a$200,000 cash loan against it,
the broker would have only$200,000 in assets as collateral
on a $200,000 loan.
It would also be 100% leveragefrom my perspective, but in this
(06:22):
case any drop in value wouldmean the liability was no longer
fully collateralized.
Clearly, the second case ismuch more risky for the broker,
which is why they permit it.
My guess in Yangon's case isthat he is considered an
experienced investor and couldtherefore borrow 75% cash
against his $200,000 portfolio.
I think I've improved on yourmethods a bit too.
(06:43):
Praying for a you are correct,sir versus an everyone is dumber
soundbite.
Cheers, andy.
Voices (06:51):
Okay, a simple wrong would have done just fine.
Mostly Uncle Frank (06:54):
Well, first off, andy has gone to the front
of the line because he's one ofour patrons on Patreon who
donates to the Father McKennaCenter.
As most of you know, we do nothave any sponsors here.
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 am the boardof the charity and am the
(07:15):
current treasurer.
But if you give to the charity,you get to go to the front of my
email line, and actually thefirst two emailers are at the
front of the line this time.
There are a couple ways you cando that.
You can go directly to theFather McKenna website their
donation page, which I'll put inthe show notes, and donate
there directly.
Or you can do it through oursupport page at
(07:37):
wwwriskpriorityradiocom and joinour patrons on Patreon who give
monthly.
Either way, just note that youare a donor in your email to me
and join our patrons on Patreonwho give monthly.
Either way, just note that youare a donor in your email to me
and I will put my crack team onit to move you to the front of
the line.
Voices (07:58):
We have top men working on it right now.
Who?
Mostly Uncle Frank (08:05):
Top men and hopefully they won't screw that
up too much, like they do acouple times a month.
Now, getting to your email, youwere wondering which soundbite
you were going to get.
Voices (08:19):
Well, here it is.
You are correct, sir, yes.
Mostly Uncle Frank (08:28):
I won't repeat everything I said in
episode 424 about this.
This was about margin accountsat interactive brokers in
particular.
I think part of the confusionhere is what is the denominator
we're using for the percentage?
Because obviously, if you have$200,000 in the account and you
are just buying more things toadd to that thousand dollars in
the account, and you are justbuying more things to add to
that, taking the leverage bybuying more assets in the
account, the value of theaccount is two hundred thousand
(08:50):
dollars, so that's thedenominator.
However, if you take out ahundred thousand dollars out of
an account that is valued at twohundred thousand dollars, then
all of a sudden your denominatorgoes down by half and it
becomes a hundred,000.
And so at that point you aretaking 100% leverage on your
account value, which is then$100,000, because you still have
(09:13):
$200,000 of assets in aportfolio in an account that is
only worth $100,000, with$100,000 of margin.
And that probably sounds evenmore confusing because it's
difficult to explain this orallyuntil you sit down and actually
look at the numerator anddenominator in the fraction or
(09:35):
percentage that you'recalculating.
Voices (09:38):
Do you think anybody wants a roundhouse kick to the
face while I'm wearing these badboys?
Forget about it.
Mostly Uncle Frank (09:45):
I think you are correct that interactive
brokers does have some mechanismof distinguishing between less
experienced investors and moreexperienced investors.
They do give you a survey whenyou sign up for a margin account
and ask you these questionsstraight up.
But I think it also has to dowith how much money has been in
your account and how long you'vebeen there For our accounts.
(10:07):
I can tell you that our marginlimit is like five times the
value of our account.
Surely you can't be serious.
I am serious and don't call meShirley.
So for every $100,000 in ouraccount.
Interactive Brokers will let usbuy like $ hundred thousand
(10:28):
dollars worth of assets, andleon's getting larger yes, it's
ridiculous and no, we don't dothat forget about it but this
does appear as a figure that'scalled the buying power in your
account when you're looking atyour account online or on your
app on the phone, and it's aridiculously large number
(10:49):
compared to the value of theaccount A really big one here,
which is huge.
As I also said in the pastepisode, it also does depend on
what kind of assets are in theaccount.
The past episode.
It also does depend on whatkind of assets are in the
account, because if you areholding, in particular, a bunch
of options or futures or otherkind of things that already have
(11:11):
leverage built into them, theyare not going to let you take as
much margin on those kinds ofassets as compared with stocks
and well-diversified ETFs, indexfunds.
So where I come out on it isit's way more margin than anyone
really needs or would want,unless they truly have a
(11:33):
gambling problem.
Voices (11:35):
You know, marge, for the first time in our marriage, I
can finally look down my nose atyou.
You have a gambling problem,that's true.
Will you forgive me?
Oh sure, remember when I gotcaught stealing all those
watches from Sears?
Well, that's nothing, becauseyou have a gambling problem.
Mostly Uncle Frank (11:55):
So hopefully that does not confuse things
any more than they are confused.
If you do find this confusingand I do when it's presented
orally and not on paper.
But thank you for bringing itto our attention and thank you
for your email.
Voices (12:12):
No more flying solo.
You need somebody watching yourback at all times.
Second off.
Mostly Uncle Frank (12:21):
Second off, we have an email from El Yama.
Happy Llama Sad.
Voices (12:27):
Llama Mentally Disturbed , llama Super.
Llama Drama Llama Big Fat MamaLlama.
Mostly Uncle Frank (12:35):
And El Yama writes.
Mostly Mary (12:37):
Hey Uncle Frank and Aunt Mary.
While waiting for my turn, I'vemanaged to listen to more
podcast episodes and have gottenanswers to my original
first-off and last-off questions.
Instead, can I add these two 1.
What do you think of the verypopular ETF SCHD?
I know you aren't a big fan ofdividends ETFs, but I use it as
(13:00):
the value half of my US largecap assets.
It tends to zig when SCHG zags.
I looked at Avantis ETF, avlvas a replacement, but some of
its top holdings don't seem veryvalue-y.
Maybe SCHD could warrant a 10.
Questions Two let's assume I amplanning on using a safe
(13:21):
withdrawal rate that increasesless than inflation every year
and that my SWR is less than thehistorical nominal CAGR of my
portfolio, assuming futurereturns pretty closely match
historical returns, shouldn'tthe nominal account balance be
about the same, if not increase,after, say, 30 years?
Thanks, as always, for yourinsight and wisdom.
Voices (13:46):
El Yama.
I don't think it's nice youlaughing.
You see my mule don't likepeople laughing.
It's the crazy idea you'relaughing at him.
Mostly Uncle Frank (13:58):
So this is following up on episode 416,
where we answered Eliyama'sfirst email, but now we have
some other questions.
So SCHD SCHD is a Schwab HighDividend Fund is how it's
labeled.
I do categorize it as a verygood value fund and it sits
(14:23):
right on the border betweenmid-cap and large-cap in that
category, but it is way off tothe left.
It has an even lower average PEratio than most value funds,
and so if you look at theMorningstar analysis, which you
should have a look at, you cansee how far it is off to the
value side of things.
(14:44):
So this does represent the kindof stocks that you would
typically hold in a retirementportfolio if you were
constructing one out ofindividual stocks back in the
day I'm talking about in the20th century.
And if you look at things likethe Vanguard Wellington or
Wellesley Fund, you will see alot of stocks that are similar
(15:06):
to these in those kind of fundsbecause they are designed
specifically to be conservativeand for retirement, and so what
you are using it for makes awhole lot of sense because, as
we say here repeatedly, the bestway to carve up your stock
portion of your risk paritystyle portfolio is to separate
it into growth and value, andthis can be part of the value
(15:29):
section of your portfolio, andit will serve to dampen the
overall volatility of theportfolio and also give you some
good rebalancing opportunitiesover time.
So, for example, in the year2022, when growth stocks were
down over 30% and up to 40 or50%, a fund like this was only
(15:51):
down 3.23%, and so it made for agood opportunity to rebalance,
sell some of this and buy somemore of the growth funds at that
point in time.
The main drawback to this fundis that you should not expect
this fund to keep up with theoverall market over time, that
it's going to have likely alower expected overall return,
(16:16):
especially when you compare itto either the overall stock
market or with small cap valueor some other choices in the
value category.
So you would characterize thisas a conservative choice in the
value slot, and you can see thatfrom its returns over the past
couple of years.
It returned 4.57% in 2024 and11.67% in 2025.
(16:42):
Whoops, that should be 2023 and2024, which are much less than
the overall market, for sure,and much less than anything else
in the value category.
As for the dividends, they'rejust kind of a nuisance to be
managed, because in a taxableaccount, you're going to be
forced to pay taxes on themevery year when they are issued.
(17:03):
It's not going to be bad, though, because they're mostly
qualified dividends, so Iwouldn't let that scare you away
from holding this just becauseit doesn't have value in the
name.
What is more important is toactually go and look at it at
one of these charts, like atMorningstar, and see where it
lines up in these sorts ofthings.
So you end up with things thatare labeled as dividend funds,
(17:25):
oftentimes being value funds orcan be characterized as value
funds, oftentimes being valuefunds or can be characterized as
value funds, and then you endup with other things that are
labeled momentum.
For example, the fund IDMO,which we've talked about
recently, really functions as aninternational large cap growth
fund in these kind of portfolios, but that is just a best
practice when assessing what afund is and what it might do for
(17:48):
you is putting it into thesevalue and growth categories,
regardless of whatever the nameis on the cover, and so this is
a good choice in the large capvalue category, and I should
also mention that it's prettycheap too, which makes it
efficient that way as well.
Voices (18:06):
Yes.
Mostly Uncle Frank (18:09):
All right.
Your second question, aboutwhether you would expect to have
the same or more money in theaccount after 30 years of
following some kind of safewithdrawal rate on some kind of
risk parity or other kind ofportfolio, and the answer is yes
, of course.
Voices (18:27):
Yeah, baby, yeah.
Mostly Uncle Frank (18:29):
That you may be able to increase your
spending over time, because,recall that the safe withdrawal
rate already is a worst casescenario.
So when we are talking aboutsafe withdrawal rates of 5% or
6%, that's the worst casescenario.
And if you are adhering to theworst case scenario in terms of
spending, chances are, if youjust let it run that way, you're
(18:52):
going to end up with much moremoney than you started with,
sometimes multiples of what youstarted with.
And this was one of the centralfindings that Bill Bengen made
in the first place, which istrue of any kind of safe
withdrawal rate analysis thatthe average you could take out
of a portfolio, even if it was asafe withdrawal rate of 4%, the
(19:13):
average is probably 5.5% to 6%.
But this is also why it's amistake in forecasting to take
this safe withdrawal ratecalculation and then jam in a
number of other conservativeassumptions to make it even more
conservative, because it'salready as conservative as it
needs to be for whateverportfolio.
That is.
(19:33):
That is the point of thecalculation, because, recall,
the other assumption that istypically made in these
calculations, at least forcomparison purposes, is that you
are taking out this startingamount and then increasing it by
inflation, which nobodyactually does.
And in fact, if you saw yourportfolio going down, you would
(19:57):
probably reduce your spending,not just continue to blindly
increase it.
And that gives you yet anotherfail safe in this kind of
calculation.
And this is also why, whenpeople are talking about 3% or
less withdrawal rates, they arereally just doing bad
forecasting, making usuallyfear-based assumptions about the
(20:17):
future, multiplyingconservative assumptions on top
of each other and compoundingthem.
Voices (20:23):
Are you crazy or just plain stupid?
Mostly Uncle Frank (20:28):
And when you do that, you are essentially
just saying that you wouldprefer to die with as much money
as possible.
Voices (20:35):
What's with?
you anyway.
I can't help it.
I'm a greedy slob, it's myhobby.
Save me.
Mostly Uncle Frank (20:42):
Because that is the highly likely result of
that kind of forecasting andthat kind of behavior.
But you're correspondinglyessentially leaving life on the
table by not spending the moneywhen you're alive.
Voices (20:55):
Dead is dead.
Mostly Uncle Frank (20:58):
It's basically a hoarder strategy.
Voices (21:00):
Hey, what do you know?
A poil, it's mine, understand,mine, mine, all mine, go, go, go
Mine.
Do you hear me?
Oh, oh, oh, mine, mine, mine,oh, brother, oh, sesame, I'm
rich.
Mostly Uncle Frank (21:14):
I, and it is the default strategy of most
personal finance gurus, which iswhy their portfolios can be all
over the map and it doesn'tmatter, because they're never
going to be spending the moneyanyway.
And you can go back and listento episode 401 to hear more
about that.
And you can go back and listento episode 401 to hear more
(21:35):
about that.
Voices (21:37):
Hopefully that helps and thank you for your email.
Oh boy.
I'm rich, I'm wealthy, I'mindependent, I'm socially secure
.
I'm rich, I'm rich, I'm rich.
Mostly Uncle Frank (21:50):
Last off.
Last off is an email from Paolo.
Voices (21:55):
Paulie hated phones.
He wouldn't have one in hishouse.
Mostly Uncle Frank (22:00):
And Paolo writes.
Mostly Mary (22:02):
Hi Uncle Frank and Queen Mary.
God save our.
Voices (22:09):
Gracious Queen, the Queen, the Queen.
Mostly Mary (22:10):
Long may the gracious King long may the noble
King the Savior be.
Would you care to opine rant onthe current fervor for
international stocks?
Best Abbey Normal, aka Paolo,late of Tampa, now of NorCal.
Voices (22:33):
Abbey Normal.
I'm almost sure that was thename.
Mostly Mary (22:42):
And now my favorite podcast listener, since he
called me Queen Mary.
Mostly Uncle Frank (22:47):
Queen Mary.
Eh Well, I think we're going tohave a lot of fun with that on
this podcast, including as aspecial added bonus I'm going to
play for you at the end of thepodcast One of my favorite
(23:10):
parody sketches of all time fromSecond City, which involves a
parody punk band called theQueen Haters.
But we'll get to that later.
In the meantime, attending toyour actual question here, like
most fervors in amateur financeland, it is largely driven by
(23:31):
financial media, and whatfinancial media does is glom on
to whatever is performing well,which creates this kind of FOMO,
saying shouldn't we go changeour allocations?
(23:54):
They're always talking aboutwhat moves should we make today,
which makes no sense at all.
If the financial media wasreally trying to help you, they
would tell you not to be makingmoves based on current economic
environments and the news.
Voices (24:09):
Are you stupid or something?
I'm as stupid as a stupid does.
Mostly Uncle Frank (24:16):
So the whole idea is misguided, but the
fervor is caused by the factthat international stocks are
currently outperforming USstocks, and that hasn't happened
in a while Now.
What this leads to whether it'sinternational stocks or
something else is a lot oferroneous thinking.
Voices (24:34):
Ha ha, you fool.
You fell victim to one of theclassic blunders.
Mostly Uncle Frank (24:39):
And a lot of speculations about whether this
is the new paradigm.
And now, since US stocksoutperformed international
stocks for, say, 15 years, thatmeans the magic hand of mean
reversion is going to make surethat international stocks
outperform US stocks for thenext 15 years.
Isn't that the way it works?
Mostly Mary (25:01):
That's not how it works.
That's not how any of thisworks.
That's not how it works.
That's not how any of thisworks.
Mostly Uncle Frank (25:06):
And the answer is no.
There is no magic hand of meanreversion that says that the
next period is going to somehowmirror image the last period.
For whatever assets you'retalking about, whether it's
(25:27):
international stocks or gold ortreasury bonds Just because
something went some way in thepast and it looks like it's
changed does not mean it isgoing to mirror image whatever
it was in the past.
That's not how anything works.
What you just said is one ofthe most insanely idiotic things
I have ever heard, but that isthe stock and trade of people
who are enamored with crystalballs.
Mostly Mary (25:49):
A crystal ball can help you, it can guide you.
Mostly Uncle Frank (25:54):
So why are international stocks
outperforming US stocks rightnow?
Well, as I said before and youshould go back to episode 393
for an explication of this,along with some citations to
materials you'll want to review.
The main reason that US stocksoutperform international, or
international outperforms US,has to do with relative currency
(26:17):
valuations.
If you know whether the dollaris increasing or declining
against another foreign currency, it's almost a surety that
whichever currency is doingbetter, that stock market will
be performing relatively betterto the other one, because there
is an embedded currencyvaluation in that, and in this
(26:39):
year the US dollar has droppedabout 10% versus a lot of other
foreign currencies.
So it is no wonder thatinternational stocks are
outperforming US stocks at themoment.
Now, what are the other reasons?
Well, there are too many otherreasons Real wrath of God type
stuff Having to do with tariffsand what various countries are
(27:01):
doing with their central banksand their interest rates, and
all sorts of other things.
In fact, there are so manyother things that nobody can
really say what is the reasonother than currency that
international stocks areoutperforming US stocks or vice
versa, because there are toomany other factors involved.
Voices (27:23):
Fire and brimstone coming down from the skies,
rivers and seas, boiling 40years of darkness.
Earthquakes volcanoesstonecoming down from the skies,
rivers and seas boiling 40 yearsof darkness, earthquakes,
volcanoes, the dead rising fromthe grave.
Human sacrifice Dogs and catsliving together Mass hysteria.
Mostly Uncle Frank (27:35):
And a lot of them involve the idiosyncratic
monetary policies of the variouscountries involved.
Because when a governmentinvokes a expansionary policy,
their stock market tends to dobetter to.
When people are saying well,the German government is now
going to spend more money, thereaction of the stock market
there is it's going to go up,Whereas if the government were
(27:55):
to say we're going to put on anAusteria program, then it's
likely the stock market's goingto go down in that country.
It's just that simple.
With respect to that oneelement Problem is there's too
many of these elements orfactors for anybody to really
say or make predictions justbased on news like that.
Mostly Mary (28:14):
Now the crystal ball has been used since ancient
times.
It's used for scrying, healingand meditation.
Mostly Uncle Frank (28:23):
But let's be clear I'm not against holding
international stocks in aportfolio, and if you are
outside the US, you certainlyneed to hold US stocks in your
portfolio, simply because that'swhere all of these big, large
cap growth tech funds are.
So if you want an exposure tothat sector and those kind of
businesses, you're almost forcedto buy into the US market
(28:45):
sector and those kind ofbusinesses, you're almost forced
to buy into the US market.
What I'm against, if anything,is to be fooling yourself that
international versus US shouldbe your primary form of
diversification between thefunds you hold, because, as I
said, most of that is a currencyissue, and so there are other
diversifying elements or factorsthat are much more important
(29:06):
than that, one being valueversus growth.
One way to think about thisthat we haven't talked about
before is to invert thisquestion, which is to say, if
you're going to pick a group ofUS stocks and a group of
international stocks, how wouldyou pick them to be the least
diversified, not the mostdiversified?
How would you pick them to bethe least diversified, not the
(29:27):
most diversified?
How would you pick a group ofinternational stocks that were
the least diversified from theirUS counterparts?
And if you think about that forany length of time, you'll say I
would buy large capmultinationals in both
jurisdictions.
I would buy Ford and Toyota, Iwould buy Unilever and Procter
and Gamble.
I would be buying the samekinds of businesses, selling to
(29:50):
the same kinds of markets andessentially doing the same kinds
of things, with their primarydifferentiation being where
their headquarters is located.
All right, translate that intoreal funds and what would that
look like?
It would look like holding atotal US stock market fund like
VTI or VOO and a totalinternational stock fund like
VXUS, because they're all largecaps, they're all multinationals
(30:14):
.
That's what's in these things.
So that is pretty much theleast diversified way of using
international funds against USfunds the least diversified way,
the least diversified choiceyou could make Now.
Do you want to make the leastdiversified choice you could
make Now?
Do you want to make the leastdiversified choice you could
make?
By default?
I'm not a smart man.
I don't think you do.
Voices (30:35):
You don't even know what a write-off is.
Mostly Uncle Frank (30:39):
Do you?
No, I don't, but they do andthey're the ones writing it off.
Don't, but they do, and they'rethe ones writing it off.
The good news is you don't haveto and it's very easy to get
around this.
Just hop on over to DFA fundsor Avantis funds and you can
look at your US total marketfund and see that it is very
(31:02):
much large, cap and tech tiltedand say, all right, well, I'll
make my international fund lesslarge, cap and growth and tech
tilted and buy something likeAVDV.
Voices (31:17):
Yeah, that's smart.
Mostly Uncle Frank (31:19):
Or any number of value.
Tilted funds if you're tryingto balance those two things out.
Tilted funds if you're tryingto balance those two things out.
And then, if you decided youreally do want an exposure to
international growth inparticular, you look at funds
like we've talked about before,like IDMO and EFG.
There are funds out there thatare large cap growth on the
(31:41):
international side.
But that's the way you want todo diversification with your
international funds, the sameway you're doing it with the US
funds Divide them into growthand value to begin with, and
then small and large, and thenyou can go country by country if
you want to, or sector bysector if you really wanted to.
But the point of this all is isthat you are constructing one
(32:03):
big portfolio.
So whenever you pick on your USside of things, when you are
picking your international stuff, that's not like a separate
portfolio, that's part of thesame portfolio.
So you need to diversify fromyour total US market fund.
You need to diversify away fromgrowth, diversify away from
(32:24):
tech and just use internationalto do that in part.
If that's what you're trying todo, and then plan on holding it
forever.
You don't jump in and out ofinternational stocks any more
than you jump in and out ofanything else Just because
there's a quote.
New paradigm on the horizon,crystal balls and magic hands of
mean reversion.
Mostly Mary (32:45):
Now you can also use the ball to connect to the
spirit world.
Mostly Uncle Frank (32:50):
And don't you dare try to compare CAPE
ratios or P ratios between onecountry and another, because
every country's markets are in adifferent system, different
capital system, different legalsystem and there are different
sectors involved, kinds ofcompanies that dominate each
country's market, meaning thatCAPE ratios or PE ratios from
(33:14):
country to country are notcomparable in the slightest
unless you adjust for all ofthose factors I just gave you,
and nobody does that, so nobodyshould be comparing those things
and making decisions based onthat.
That's a bad process and badinvesting.
Voices (33:30):
You're going to end up eating a steady diet of
government cheese and living ina van down by the river.
Mostly Uncle Frank (33:39):
But hopefully that opinion rant
whatever you want to call it wassufficient for your edification
or entertainment.
I award you no points and mayGod have mercy on your soul.
And thank you for your email,but now I see our signal is
beginning to fade.
If you have comments orquestions for me, please send
(34:01):
them to frank atriskparityradarcom.
That email is frank atriskparityradarcom.
Or you can go to the website atwwwatriskparodyradarcom.
That email isfrankatriskparodyradarcom.
Or you can go to the website atwwwriskparodyradarcom.
Leave me a message there andI'll get it that way Eventually.
If you haven't had a chance todo it, please go to your
favorite podcast provider andlike subscribe.
(34:21):
Give me some stars, a follow, areview.
That would be great.
Okay, thank you once again fortuning in.
This is Frank Vasquez with RiskParty Radio Signing off.
Mostly Mary (34:36):
Okay, we've got a group for you and they're coming
up right now and they invitedeverybody to follow the bouncing
ball and sing along.
Ladies and gentlemen, the QueenHaters.
Voices (34:49):
I love the fire in the kitchen.
I love the feel of it, I lovethe kick in the face and I'll
(35:10):
take a picture of it and love mea hackneyed clam and I'll give
it to the prince.
I hate the bloody family.
She's never gonna stop.
I hate the bloody queen.
She doesn't gotta screw.
Everybody quit.
Oh, bloody rule.
(35:59):
I left the ground and went Onthe road to my city On the
battleship With a positive Warmachine.
I'm the chosen one.
You see, I'm off the balanceship With a positive BROADER
SHIFT.
With that humility I can'tafford to dance.
I'd like to get a high.
You know I won't be long.
(36:21):
I hate the running too.
You're never gonna stop.
I hate the bloody twins.
I hate the bloody twins and allthe bloody rules and all the
bloody rules and all the bloodyrules.
I hate the bloody twins.
I hate the bloody twins.
I hate the bloody twins.
(36:42):
I hate the bloody twins.
I hate the bloody twins.
I hate the planet.
Queen, I'm the top leader inthe whole world.
Mostly Mary (36:51):
Wasn't that great.
Voices (36:55):
Oh, come on.
Well, I guess it's time for theslam dance contest.
Mostly Mary (37:02):
The Risk Parody Radio Show is hosted by Frank
Vasquez.
The content provided is forentertainment and informational
purposes only and does notconstitute financial, investment
tax or legal advice.
Please consult with your ownadvisors before taking any
actions based on any informationyou have heard here, making
sure to take into account yourown personal circumstances.
A foolish consistency, is the hobgoblin of little minds
, adored by little statesmen andphilosophers and divines.
Mostly Uncle Frank (00:10):
If a man does not keep pace with his
companions, perhaps it isbecause he hears a different
drummer.
Mostly Mary (00:17):
A different drummer and now, coming to you from
dead center on your dial,welcome to Risk Parity Radio,
where we explore alternativesand asset allocations 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 (00:37):
Thank you, Mary, and welcome to Risk Parity
Radio.
If you are new here and wonderwhat we are talking about, you
may wish to go back and listento some of the foundational
episodes for this program.
Voices (00:50):
Yeah, baby, yeah.
Mostly Uncle Frank (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.
Mostly Mary (01:27):
Top drawer, really top drawer.
Mostly Uncle Frank (01:31):
Along with a host named after a hot dog.
Voices (01:34):
Lighten up Francis.
Mostly Uncle Frank (01:37):
But now onward, episode 425.
Today, on Risk Priority Radio,we're just going to do what we
do best here, which is tend toyour emails.
Voices (01:47):
I could have told you that.
Mostly Uncle Frank (01:50):
Before we get to that, a little
programming note.
My ears were burning thismorning as I was listening to
the Afford Anything podcastbecause it involved a question
from one of our listeners here,eva, to Paula and Joe and they
proceeded to talk a lot aboutRisk Parody and Risk Parody
Radio.
So they have invited me on thatpodcast as a follow-up and
(02:14):
we'll be recording that, I guessin the next few weeks and
hopefully it'll be out in amonth or so.
Voices (02:19):
Fasten your seatbelts.
It's going to be a bumpy night.
Mostly Uncle Frank (02:24):
I will link to that current episode in the
show notes, but if you arescoring at home, here is some of
the material I sent to Paula'scrack team to review for that
interview and podcast.
I suggested they listen toepisodes 1, 3, 5, 7, and 9 of
this podcast, along withepisodes 209, 223, 294, and 401.
(02:48):
, and I threw in episode 276,just for fun.
That's a history of the firemovement and if you have just
shown up here based on thatepisode and have never listened
to this podcast before, I wouldsuggest you go listen to those
as well as background material,and also that you just be
apprised that this podcast is alittle bit quirky and unusual.
Voices (03:10):
Don't be saucy with me, Bernays.
Mostly Uncle Frank (03:13):
It's my retirement hobby and it's
non-commercial.
Voices (03:17):
Bits and doozy.
Mostly Uncle Frank (03:19):
I don't follow commercial norms or best
practices in podcasting.
This is pretty much the worstvideo ever made.
Voices (03:26):
Napoleon, like anyone can even know that.
Mostly Uncle Frank (03:29):
It's very much amateur hour on that score,
along with my website.
It's a running joke here, ha,ha, and I have a sense of humor.
That's kind of like a crossbetween Mel Brooks and Robin
Williams.
Voices (03:42):
Is that me or does that sound like an Elvis Presley
movie?
Viva Da Nang oh, viva Da Nang,oh, viva Da Nang, da Nang me, da
Nang me.
Why don't they get a robe andhang me?
Hey, is this a little too earlyfor being that loud?
Hey, too late.
Mostly Uncle Frank (03:55):
So you'll just have to get used to that or
suffer through it or decidethis isn't for you.
You know what, napoleon, youcan leave.
So I'd rather have a smaller,very engaged audience than worry
about how many downloads I have, since I'm not going to be
profiting from that anyway.
Voices (04:16):
That is the straight stuff oh, funk master.
Mostly Uncle Frank (04:18):
But enough on those kind of introductory
remarks for now, let's get tothe listener questions.
Here I go once again with theemail, and First off.
First off, we have an emailfrom Andy and Andy writes hey,
(04:43):
frank, I just listened to theepisode and Andy writes hey
Frank, I just listened to theepisode 424.
Mostly Mary (04:49):
I think margin loans work differently if you
are withdrawing money versusbuying more assets.
Yangon mentioned that he waswithdrawing cash for a real
estate transaction and you seemto suggest he could withdraw
several times the nominal valueof the account.
I don't think this is right Q.
I do not think it means whatyou think it means.
Voices (05:08):
I don't think it means what you think it means.
Mostly Mary (05:10):
I don't remember the exact rules, but I believe
if they slash the SEC, consideryou an inexperienced investor,
you can withdraw cash up to 50%of the portfolio value, and if
you are considered anexperienced investor, you can
withdraw 75%, assuming theassets are the standard fare and
can be margined, etc.
Maybe a simple example wouldhelp in terms of the broker's
(05:32):
risk profile versus my riskprofile.
Cue bow to your sensei.
Voices (05:36):
Bow to your sensei.
Bow to your sensei.
Mostly Mary (05:40):
If I were to have a $200,000 portfolio and use it
as leverage to buy, say,$200,000 in extra asset value,
then the broker would hold$400,000 in assets as collateral
on a $200,000 loan.
This would be 100% leverage onmy original assets, but the
portfolio could drop 50% invalue before the asset value was
(06:01):
unable to cover the liability,before the asset value was
unable to cover the liability.
On the other hand, if I were tohave a $200,000 portfolio and
were permitted to take a$200,000 cash loan against it,
the broker would have only$200,000 in assets as collateral
on a $200,000 loan.
It would also be 100% leveragefrom my perspective, but in this
(06:22):
case any drop in value wouldmean the liability was no longer
fully collateralized.
Clearly, the second case ismuch more risky for the broker,
which is why they permit it.
My guess in Yangon's case isthat he is considered an
experienced investor and couldtherefore borrow 75% cash
against his $200,000 portfolio.
I think I've improved on yourmethods a bit too.
(06:43):
Praying for a you are correct,sir versus an everyone is dumber
soundbite.
Cheers, andy.
Voices (06:51):
Okay, a simple wrong would have done just fine.
Mostly Uncle Frank (06:54):
Well, first off, andy has gone to the front
of the line because he's one ofour patrons on Patreon who
donates to the Father McKennaCenter.
As most of you know, we do nothave any sponsors here.
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 am the boardof the charity and am the
(07:15):
current treasurer.
But if you give to the charity,you get to go to the front of my
email line, and actually thefirst two emailers are at the
front of the line this time.
There are a couple ways you cando that.
You can go directly to theFather McKenna website their
donation page, which I'll put inthe show notes, and donate
there directly.
Or you can do it through oursupport page at
(07:37):
wwwriskpriorityradiocom and joinour patrons on Patreon who give
monthly.
Either way, just note that youare a donor in your email to me
and join our patrons on Patreonwho give monthly.
Either way, just note that youare a donor in your email to me
and I will put my crack team onit to move you to the front of
the line.
Voices (07:58):
We have top men working on it right now.
Who?
Mostly Uncle Frank (08:05):
Top men and hopefully they won't screw that
up too much, like they do acouple times a month.
Now, getting to your email, youwere wondering which soundbite
you were going to get.
Voices (08:19):
Well, here it is.
You are correct, sir, yes.
Mostly Uncle Frank (08:28):
I won't repeat everything I said in
episode 424 about this.
This was about margin accountsat interactive brokers in
particular.
I think part of the confusionhere is what is the denominator
we're using for the percentage?
Because obviously, if you have$200,000 in the account and you
are just buying more things toadd to that thousand dollars in
the account, and you are justbuying more things to add to
that, taking the leverage bybuying more assets in the
account, the value of theaccount is two hundred thousand
(08:50):
dollars, so that's thedenominator.
However, if you take out ahundred thousand dollars out of
an account that is valued at twohundred thousand dollars, then
all of a sudden your denominatorgoes down by half and it
becomes a hundred,000.
And so at that point you aretaking 100% leverage on your
account value, which is then$100,000, because you still have
(09:13):
$200,000 of assets in aportfolio in an account that is
only worth $100,000, with$100,000 of margin.
And that probably sounds evenmore confusing because it's
difficult to explain this orallyuntil you sit down and actually
look at the numerator anddenominator in the fraction or
(09:35):
percentage that you'recalculating.
Voices (09:38):
Do you think anybody wants a roundhouse kick to the
face while I'm wearing these badboys?
Forget about it.
Mostly Uncle Frank (09:45):
I think you are correct that interactive
brokers does have some mechanismof distinguishing between less
experienced investors and moreexperienced investors.
They do give you a survey whenyou sign up for a margin account
and ask you these questionsstraight up.
But I think it also has to dowith how much money has been in
your account and how long you'vebeen there For our accounts.
(10:07):
I can tell you that our marginlimit is like five times the
value of our account.
Surely you can't be serious.
I am serious and don't call meShirley.
So for every $100,000 in ouraccount.
Interactive Brokers will let usbuy like $ hundred thousand
(10:28):
dollars worth of assets, andleon's getting larger yes, it's
ridiculous and no, we don't dothat forget about it but this
does appear as a figure that'scalled the buying power in your
account when you're looking atyour account online or on your
app on the phone, and it's aridiculously large number
(10:49):
compared to the value of theaccount A really big one here,
which is huge.
As I also said in the pastepisode, it also does depend on
what kind of assets are in theaccount.
The past episode.
It also does depend on whatkind of assets are in the
account, because if you areholding, in particular, a bunch
of options or futures or otherkind of things that already have
(11:11):
leverage built into them, theyare not going to let you take as
much margin on those kinds ofassets as compared with stocks
and well-diversified ETFs, indexfunds.
So where I come out on it isit's way more margin than anyone
really needs or would want,unless they truly have a
(11:33):
gambling problem.
Voices (11:35):
You know, marge, for the first time in our marriage, I
can finally look down my nose atyou.
You have a gambling problem,that's true.
Will you forgive me?
Oh sure, remember when I gotcaught stealing all those
watches from Sears?
Well, that's nothing, becauseyou have a gambling problem.
Mostly Uncle Frank (11:55):
So hopefully that does not confuse things
any more than they are confused.
If you do find this confusingand I do when it's presented
orally and not on paper.
But thank you for bringing itto our attention and thank you
for your email.
Voices (12:12):
No more flying solo.
You need somebody watching yourback at all times.
Second off.
Mostly Uncle Frank (12:21):
Second off, we have an email from El Yama.
Happy Llama Sad.
Voices (12:27):
Llama Mentally Disturbed , llama Super.
Llama Drama Llama Big Fat MamaLlama.
Mostly Uncle Frank (12:35):
And El Yama writes.
Mostly Mary (12:37):
Hey Uncle Frank and Aunt Mary.
While waiting for my turn, I'vemanaged to listen to more
podcast episodes and have gottenanswers to my original
first-off and last-off questions.
Instead, can I add these two 1.
What do you think of the verypopular ETF SCHD?
I know you aren't a big fan ofdividends ETFs, but I use it as
(13:00):
the value half of my US largecap assets.
It tends to zig when SCHG zags.
I looked at Avantis ETF, avlvas a replacement, but some of
its top holdings don't seem veryvalue-y.
Maybe SCHD could warrant a 10.
Questions Two let's assume I amplanning on using a safe
(13:21):
withdrawal rate that increasesless than inflation every year
and that my SWR is less than thehistorical nominal CAGR of my
portfolio, assuming futurereturns pretty closely match
historical returns, shouldn'tthe nominal account balance be
about the same, if not increase,after, say, 30 years?
Thanks, as always, for yourinsight and wisdom.
Voices (13:46):
El Yama.
I don't think it's nice youlaughing.
You see my mule don't likepeople laughing.
It's the crazy idea you'relaughing at him.
Mostly Uncle Frank (13:58):
So this is following up on episode 416,
where we answered Eliyama'sfirst email, but now we have
some other questions.
So SCHD SCHD is a Schwab HighDividend Fund is how it's
labeled.
I do categorize it as a verygood value fund and it sits
(14:23):
right on the border betweenmid-cap and large-cap in that
category, but it is way off tothe left.
It has an even lower average PEratio than most value funds,
and so if you look at theMorningstar analysis, which you
should have a look at, you cansee how far it is off to the
value side of things.
(14:44):
So this does represent the kindof stocks that you would
typically hold in a retirementportfolio if you were
constructing one out ofindividual stocks back in the
day I'm talking about in the20th century.
And if you look at things likethe Vanguard Wellington or
Wellesley Fund, you will see alot of stocks that are similar
(15:06):
to these in those kind of fundsbecause they are designed
specifically to be conservativeand for retirement, and so what
you are using it for makes awhole lot of sense because, as
we say here repeatedly, the bestway to carve up your stock
portion of your risk paritystyle portfolio is to separate
it into growth and value, andthis can be part of the value
(15:29):
section of your portfolio, andit will serve to dampen the
overall volatility of theportfolio and also give you some
good rebalancing opportunitiesover time.
So, for example, in the year2022, when growth stocks were
down over 30% and up to 40 or50%, a fund like this was only
(15:51):
down 3.23%, and so it made for agood opportunity to rebalance,
sell some of this and buy somemore of the growth funds at that
point in time.
The main drawback to this fundis that you should not expect
this fund to keep up with theoverall market over time, that
it's going to have likely alower expected overall return,
(16:16):
especially when you compare itto either the overall stock
market or with small cap valueor some other choices in the
value category.
So you would characterize thisas a conservative choice in the
value slot, and you can see thatfrom its returns over the past
couple of years.
It returned 4.57% in 2024 and11.67% in 2025.
(16:42):
Whoops, that should be 2023 and2024, which are much less than
the overall market, for sure,and much less than anything else
in the value category.
As for the dividends, they'rejust kind of a nuisance to be
managed, because in a taxableaccount, you're going to be
forced to pay taxes on themevery year when they are issued.
(17:03):
It's not going to be bad, though, because they're mostly
qualified dividends, so Iwouldn't let that scare you away
from holding this just becauseit doesn't have value in the
name.
What is more important is toactually go and look at it at
one of these charts, like atMorningstar, and see where it
lines up in these sorts ofthings.
So you end up with things thatare labeled as dividend funds,
(17:25):
oftentimes being value funds orcan be characterized as value
funds, oftentimes being valuefunds or can be characterized as
value funds, and then you endup with other things that are
labeled momentum.
For example, the fund IDMO,which we've talked about
recently, really functions as aninternational large cap growth
fund in these kind of portfolios, but that is just a best
practice when assessing what afund is and what it might do for
(17:48):
you is putting it into thesevalue and growth categories,
regardless of whatever the nameis on the cover, and so this is
a good choice in the large capvalue category, and I should
also mention that it's prettycheap too, which makes it
efficient that way as well.
Voices (18:06):
Yes.
Mostly Uncle Frank (18:09):
All right.
Your second question, aboutwhether you would expect to have
the same or more money in theaccount after 30 years of
following some kind of safewithdrawal rate on some kind of
risk parity or other kind ofportfolio, and the answer is yes
, of course.
Voices (18:27):
Yeah, baby, yeah.
Mostly Uncle Frank (18:29):
That you may be able to increase your
spending over time, because,recall that the safe withdrawal
rate already is a worst casescenario.
So when we are talking aboutsafe withdrawal rates of 5% or
6%, that's the worst casescenario.
And if you are adhering to theworst case scenario in terms of
spending, chances are, if youjust let it run that way, you're
(18:52):
going to end up with much moremoney than you started with,
sometimes multiples of what youstarted with.
And this was one of the centralfindings that Bill Bengen made
in the first place, which istrue of any kind of safe
withdrawal rate analysis thatthe average you could take out
of a portfolio, even if it was asafe withdrawal rate of 4%, the
(19:13):
average is probably 5.5% to 6%.
But this is also why it's amistake in forecasting to take
this safe withdrawal ratecalculation and then jam in a
number of other conservativeassumptions to make it even more
conservative, because it'salready as conservative as it
needs to be for whateverportfolio.
That is.
(19:33):
That is the point of thecalculation, because, recall,
the other assumption that istypically made in these
calculations, at least forcomparison purposes, is that you
are taking out this startingamount and then increasing it by
inflation, which nobodyactually does.
And in fact, if you saw yourportfolio going down, you would
(19:57):
probably reduce your spending,not just continue to blindly
increase it.
And that gives you yet anotherfail safe in this kind of
calculation.
And this is also why, whenpeople are talking about 3% or
less withdrawal rates, they arereally just doing bad
forecasting, making usuallyfear-based assumptions about the
(20:17):
future, multiplyingconservative assumptions on top
of each other and compoundingthem.
Voices (20:23):
Are you crazy or just plain stupid?
Mostly Uncle Frank (20:28):
And when you do that, you are essentially
just saying that you wouldprefer to die with as much money
as possible.
Voices (20:35):
What's with?
you anyway.
I can't help it.
I'm a greedy slob, it's myhobby.
Save me.
Mostly Uncle Frank (20:42):
Because that is the highly likely result of
that kind of forecasting andthat kind of behavior.
But you're correspondinglyessentially leaving life on the
table by not spending the moneywhen you're alive.
Voices (20:55):
Dead is dead.
Mostly Uncle Frank (20:58):
It's basically a hoarder strategy.
Voices (21:00):
Hey, what do you know?
A poil, it's mine, understand,mine, mine, all mine, go, go, go
Mine.
Do you hear me?
Oh, oh, oh, mine, mine, mine,oh, brother, oh, sesame, I'm
rich.
Mostly Uncle Frank (21:14):
I, and it is the default strategy of most
personal finance gurus, which iswhy their portfolios can be all
over the map and it doesn'tmatter, because they're never
going to be spending the moneyanyway.
And you can go back and listento episode 401 to hear more
about that.
And you can go back and listento episode 401 to hear more
(21:35):
about that.
Voices (21:37):
Hopefully that helps and thank you for your email.
Oh boy.
I'm rich, I'm wealthy, I'mindependent, I'm socially secure
.
I'm rich, I'm rich, I'm rich.
Mostly Uncle Frank (21:50):
Last off.
Last off is an email from Paolo.
Voices (21:55):
Paulie hated phones.
He wouldn't have one in hishouse.
Mostly Uncle Frank (22:00):
And Paolo writes.
Mostly Mary (22:02):
Hi Uncle Frank and Queen Mary.
God save our.
Voices (22:09):
Gracious Queen, the Queen, the Queen.
Mostly Mary (22:10):
Long may the gracious King long may the noble
King the Savior be.
Would you care to opine rant onthe current fervor for
international stocks?
Best Abbey Normal, aka Paolo,late of Tampa, now of NorCal.
Voices (22:33):
Abbey Normal.
I'm almost sure that was thename.
Mostly Mary (22:42):
And now my favorite podcast listener, since he
called me Queen Mary.
Mostly Uncle Frank (22:47):
Queen Mary.
Eh Well, I think we're going tohave a lot of fun with that on
this podcast, including as aspecial added bonus I'm going to
play for you at the end of thepodcast One of my favorite
(23:10):
parody sketches of all time fromSecond City, which involves a
parody punk band called theQueen Haters.
But we'll get to that later.
In the meantime, attending toyour actual question here, like
most fervors in amateur financeland, it is largely driven by
(23:31):
financial media, and whatfinancial media does is glom on
to whatever is performing well,which creates this kind of FOMO,
saying shouldn't we go changeour allocations?
(23:54):
They're always talking aboutwhat moves should we make today,
which makes no sense at all.
If the financial media wasreally trying to help you, they
would tell you not to be makingmoves based on current economic
environments and the news.
Voices (24:09):
Are you stupid or something?
I'm as stupid as a stupid does.
Mostly Uncle Frank (24:16):
So the whole idea is misguided, but the
fervor is caused by the factthat international stocks are
currently outperforming USstocks, and that hasn't happened
in a while Now.
What this leads to whether it'sinternational stocks or
something else is a lot oferroneous thinking.
Voices (24:34):
Ha ha, you fool.
You fell victim to one of theclassic blunders.
Mostly Uncle Frank (24:39):
And a lot of speculations about whether this
is the new paradigm.
And now, since US stocksoutperformed international
stocks for, say, 15 years, thatmeans the magic hand of mean
reversion is going to make surethat international stocks
outperform US stocks for thenext 15 years.
Isn't that the way it works?
Mostly Mary (25:01):
That's not how it works.
That's not how any of thisworks.
That's not how it works.
That's not how any of thisworks.
Mostly Uncle Frank (25:06):
And the answer is no.
There is no magic hand of meanreversion that says that the
next period is going to somehowmirror image the last period.
For whatever assets you'retalking about, whether it's
(25:27):
international stocks or gold ortreasury bonds Just because
something went some way in thepast and it looks like it's
changed does not mean it isgoing to mirror image whatever
it was in the past.
That's not how anything works.
What you just said is one ofthe most insanely idiotic things
I have ever heard, but that isthe stock and trade of people
who are enamored with crystalballs.
Mostly Mary (25:49):
A crystal ball can help you, it can guide you.
Mostly Uncle Frank (25:54):
So why are international stocks
outperforming US stocks rightnow?
Well, as I said before and youshould go back to episode 393
for an explication of this,along with some citations to
materials you'll want to review.
The main reason that US stocksoutperform international, or
international outperforms US,has to do with relative currency
(26:17):
valuations.
If you know whether the dollaris increasing or declining
against another foreign currency, it's almost a surety that
whichever currency is doingbetter, that stock market will
be performing relatively betterto the other one, because there
is an embedded currencyvaluation in that, and in this
(26:39):
year the US dollar has droppedabout 10% versus a lot of other
foreign currencies.
So it is no wonder thatinternational stocks are
outperforming US stocks at themoment.
Now, what are the other reasons?
Well, there are too many otherreasons Real wrath of God type
stuff Having to do with tariffsand what various countries are
(27:01):
doing with their central banksand their interest rates, and
all sorts of other things.
In fact, there are so manyother things that nobody can
really say what is the reasonother than currency that
international stocks areoutperforming US stocks or vice
versa, because there are toomany other factors involved.
Voices (27:23):
Fire and brimstone coming down from the skies,
rivers and seas, boiling 40years of darkness.
Earthquakes volcanoesstonecoming down from the skies,
rivers and seas boiling 40 yearsof darkness, earthquakes,
volcanoes, the dead rising fromthe grave.
Human sacrifice Dogs and catsliving together Mass hysteria.
Mostly Uncle Frank (27:35):
And a lot of them involve the idiosyncratic
monetary policies of the variouscountries involved.
Because when a governmentinvokes a expansionary policy,
their stock market tends to dobetter to.
When people are saying well,the German government is now
going to spend more money, thereaction of the stock market
there is it's going to go up,Whereas if the government were
(27:55):
to say we're going to put on anAusteria program, then it's
likely the stock market's goingto go down in that country.
It's just that simple.
With respect to that oneelement Problem is there's too
many of these elements orfactors for anybody to really
say or make predictions justbased on news like that.
Mostly Mary (28:14):
Now the crystal ball has been used since ancient
times.
It's used for scrying, healingand meditation.
Mostly Uncle Frank (28:23):
But let's be clear I'm not against holding
international stocks in aportfolio, and if you are
outside the US, you certainlyneed to hold US stocks in your
portfolio, simply because that'swhere all of these big, large
cap growth tech funds are.
So if you want an exposure tothat sector and those kind of
businesses, you're almost forcedto buy into the US market
(28:45):
sector and those kind ofbusinesses, you're almost forced
to buy into the US market.
What I'm against, if anything,is to be fooling yourself that
international versus US shouldbe your primary form of
diversification between thefunds you hold, because, as I
said, most of that is a currencyissue, and so there are other
diversifying elements or factorsthat are much more important
(29:06):
than that, one being valueversus growth.
One way to think about thisthat we haven't talked about
before is to invert thisquestion, which is to say, if
you're going to pick a group ofUS stocks and a group of
international stocks, how wouldyou pick them to be the least
diversified, not the mostdiversified?
How would you pick them to bethe least diversified, not the
(29:27):
most diversified?
How would you pick a group ofinternational stocks that were
the least diversified from theirUS counterparts?
And if you think about that forany length of time, you'll say I
would buy large capmultinationals in both
jurisdictions.
I would buy Ford and Toyota, Iwould buy Unilever and Procter
and Gamble.
I would be buying the samekinds of businesses, selling to
(29:50):
the same kinds of markets andessentially doing the same kinds
of things, with their primarydifferentiation being where
their headquarters is located.
All right, translate that intoreal funds and what would that
look like?
It would look like holding atotal US stock market fund like
VTI or VOO and a totalinternational stock fund like
VXUS, because they're all largecaps, they're all multinationals
(30:14):
.
That's what's in these things.
So that is pretty much theleast diversified way of using
international funds against USfunds the least diversified way,
the least diversified choiceyou could make Now.
Do you want to make the leastdiversified choice you could
make Now?
Do you want to make the leastdiversified choice you could
make?
By default?
I'm not a smart man.
I don't think you do.
Voices (30:35):
You don't even know what a write-off is.
Mostly Uncle Frank (30:39):
Do you?
No, I don't, but they do andthey're the ones writing it off.
Don't, but they do, and they'rethe ones writing it off.
The good news is you don't haveto and it's very easy to get
around this.
Just hop on over to DFA fundsor Avantis funds and you can
look at your US total marketfund and see that it is very
(31:02):
much large, cap and tech tiltedand say, all right, well, I'll
make my international fund lesslarge, cap and growth and tech
tilted and buy something likeAVDV.
Voices (31:17):
Yeah, that's smart.
Mostly Uncle Frank (31:19):
Or any number of value.
Tilted funds if you're tryingto balance those two things out.
Tilted funds if you're tryingto balance those two things out.
And then, if you decided youreally do want an exposure to
international growth inparticular, you look at funds
like we've talked about before,like IDMO and EFG.
There are funds out there thatare large cap growth on the
(31:41):
international side.
But that's the way you want todo diversification with your
international funds, the sameway you're doing it with the US
funds Divide them into growthand value to begin with, and
then small and large, and thenyou can go country by country if
you want to, or sector bysector if you really wanted to.
But the point of this all is isthat you are constructing one
(32:03):
big portfolio.
So whenever you pick on your USside of things, when you are
picking your international stuff, that's not like a separate
portfolio, that's part of thesame portfolio.
So you need to diversify fromyour total US market fund.
You need to diversify away fromgrowth, diversify away from
(32:24):
tech and just use internationalto do that in part.
If that's what you're trying todo, and then plan on holding it
forever.
You don't jump in and out ofinternational stocks any more
than you jump in and out ofanything else Just because
there's a quote.
New paradigm on the horizon,crystal balls and magic hands of
mean reversion.
Mostly Mary (32:45):
Now you can also use the ball to connect to the
spirit world.
Mostly Uncle Frank (32:50):
And don't you dare try to compare CAPE
ratios or P ratios between onecountry and another, because
every country's markets are in adifferent system, different
capital system, different legalsystem and there are different
sectors involved, kinds ofcompanies that dominate each
country's market, meaning thatCAPE ratios or PE ratios from
(33:14):
country to country are notcomparable in the slightest
unless you adjust for all ofthose factors I just gave you,
and nobody does that, so nobodyshould be comparing those things
and making decisions based onthat.
That's a bad process and badinvesting.
Voices (33:30):
You're going to end up eating a steady diet of
government cheese and living ina van down by the river.
Mostly Uncle Frank (33:39):
But hopefully that opinion rant
whatever you want to call it wassufficient for your edification
or entertainment.
I award you no points and mayGod have mercy on your soul.
And thank you for your email,but now I see our signal is
beginning to fade.
If you have comments orquestions for me, please send
(34:01):
them to frank atriskparityradarcom.
That email is frank atriskparityradarcom.
Or you can go to the website atwwwatriskparodyradarcom.
That email isfrankatriskparodyradarcom.
Or you can go to the website atwwwriskparodyradarcom.
Leave me a message there andI'll get it that way Eventually.
If you haven't had a chance todo it, please go to your
favorite podcast provider andlike subscribe.
(34:21):
Give me some stars, a follow, areview.
That would be great.
Okay, thank you once again fortuning in.
This is Frank Vasquez with RiskParty Radio Signing off.
Mostly Mary (34:36):
Okay, we've got a group for you and they're coming
up right now and they invitedeverybody to follow the bouncing
ball and sing along.
Ladies and gentlemen, the QueenHaters.
Voices (34:49):
I love the fire in the kitchen.
I love the feel of it, I lovethe kick in the face and I'll
(35:10):
take a picture of it and love mea hackneyed clam and I'll give
it to the prince.
I hate the bloody family.
She's never gonna stop.
I hate the bloody queen.
She doesn't gotta screw.
Everybody quit.
Oh, bloody rule.
(35:59):
I left the ground and went Onthe road to my city On the
battleship With a positive Warmachine.
I'm the chosen one.
You see, I'm off the balanceship With a positive BROADER
SHIFT.
With that humility I can'tafford to dance.
I'd like to get a high.
You know I won't be long.
(36:21):
I hate the running too.
You're never gonna stop.
I hate the bloody twins.
I hate the bloody twins and allthe bloody rules and all the
bloody rules and all the bloodyrules.
I hate the bloody twins.
I hate the bloody twins.
I hate the bloody twins.
(36:42):
I hate the bloody twins.
I hate the bloody twins.
I hate the planet.
Queen, I'm the top leader inthe whole world.
Mostly Mary (36:51):
Wasn't that great.
Voices (36:55):
Oh, come on.
Well, I guess it's time for theslam dance contest.
Mostly Mary (37:02):
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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