June 11, 2025 • 35 mins
In this episode we answer emails from Luc, Craig, Luke and Lucky. We discuss updating the website, my recent roundtable on the Stacking Benjamins podcast, Achilles heels, and the inherent problems with not using proper forecasting techniques applied to CAPE ratios and other things, new funds like AVUQ and FFUT, and gold versus bonds in a portfolio.
Links:
Father McKenna Center Donation Page: Donate - Father McKenna Center
Stacking Benjamins YouTube Live Stream Roundtable: Decumulational Strategies: The Special Retirement Spend Down Strategy Roundtable
Listen Notes Link: Risk Parity Radio (podcast) - Frank Vasquez | Listen Notes
Interview of Bob Elliot on the Compound Podcast: The Blue Chips of Junk | TCAF 175
Morningstar AVUQ: AVUQ – Avantis U.S. Quality ETF – ETF Stock Quote | Morningstar
Breathless Unedited AI-Bot Summary:
What's the real Achilles heel of risk parity investing? It's not what you might expect. While many point to historical data limitations, the true challenge is psychological—accepting lower returns during bull markets in exchange for better protection when everything crashes. This fundamental trade-off defines the strategy's purpose: enabling you to spend more money now rather than maximizing wealth at death.
The forecasting techniques that guide our investment decisions matter tremendously. Drawing from experts like Kahneman, Tetlock, Duke, and Gigerenzer, we explore why base rates (long-term historical averages) consistently outperform crystal ball approaches like CAPE ratios. When investment professionals try predicting market returns based on current valuations, they're often spectacularly wrong—more so than if they'd simply used historical averages. Remember: in forecasting, being less wrong beats being precisely incorrect.
The gold versus bonds debate continues to evolve. Bob Elliott, formerly of Bridgewater, suggests that since abandoning the gold standard in the 1970s, gold has performed as well as or better than bonds as a stock diversifier. While 30% gold allocation might seem excessive to some, it could make sense for those concerned about currency risks. Historical context shows both assets have experienced extended periods of outperformance, making a combined approach more resilient than trying to predict which will shine next.
We've entered a golden era for do-it-yourself investors, with new ETFs constantly emerging to fill specific niches. Avantis recently launched AVUQ for quality growth exposure, while Fidelity introduced FFUT for managed futures—both reflecting growing demand for sophisticated investment options previously unavailable to retail investors.
Don't forget our ongoing campaign supporting the Father McKenna Center for hungry and homeless people in Washington DC. Your donation not only helps those in need but also moves you to the front of our email response line. As we explore these complex investment topics together, we remain committed to freely sharing knowledge rather than hiding it behind paywalls—continuing the spirit of open collaboration that defined the early FIRE movement.
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 investorBroadcasting to you now from the
comfort of his easy chair.
Here is your host, frankVasquez.
Mostly Uncle Frankb (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 Frankb (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 (01:26):
Top drawer, really top drawer.
Mostly Uncle Frankb (01:31):
Along with a host named after a hot dog.
Voices (01:34):
Lighten up Francis.
Mostly Uncle Frankb (01:37):
But now onward to episode 431.
Today on Risk Prairie Radio.
Let's get back to doing what wedo best here, which is attend
to your emails, of course, andI'll go ahead and make sure you
get another copy of that memo.
Voices (01:52):
Okay, and so, without further ado, here I go once
again with the email.
Mostly Uncle Frankb (01:59):
And First off.
First off, we have an emailfrom Luke French-Canadian Luke
and Luke writes Hi Frank, I justlistened to the latest episode.
Mostly Mary (02:15):
I wanted to share that there's a slightly better
way to search the podcastepisodes for a particular topic.
You can go to the followinglink on the Listen Notes site.
The interface is nicer than theRSS feed.
It also searches through thetranscripts in addition to the
titles and descriptions.
The search functionality fromListen Notes can be embedded on
(02:35):
your website.
That might be something I canhelp you with.
If you're still interested inmy offer no rush, of course.
Voices (02:41):
Au contraire.
Mostly Mary (02:43):
I also wanted to mention that I was thrilled to
hear about the deluge ofcontributions to the Father
McKenna Center.
Voices (02:49):
That's gold, Jerry Gold.
Mostly Mary (02:52):
The support you've received is very well deserved.
All the best, Luke.
Mostly Uncle Frankb (02:57):
Well, thank you for the tip, Luke Sackosh.
You're quickly becoming one ofmy top men.
Voices (03:05):
We have top men working on it right now who?
Top men.
Mostly Uncle Frankb (03:16):
I did add the Listen Notes link to the
podcast page on the website, aswell as attempted to clean up a
couple of other things.
Just come up, luke and I aregoing to be chatting in the near
future about how he might helpme with my atrocious website.
Just come up and we'll seewhere that goes.
(03:37):
But regardless of where thatgoes, I wanted to thank you
again for being a donor to theFather McKenna Center.
We are still continuing withour Top of the T-Shirt campaign
for the Father McKenna Center.
We are still continuing with ourTop of the T-Shirt campaign for
the Father McKenna Center,which supports hungry and
homeless people in Washington DC, and if you'd like to give to
that and grow to the front ofthe email line, as Luke has done
(03:57):
here, I will put that link inthe show notes.
You can also give at Patreonthrough our support page, but
either way I will move you tothe front of the email notes.
You can also give at Patreonthrough our support page, but
either way I will move you tothe front of the email line.
We have also been thrilled withthe outpouring of support.
I actually just went to aquarterly board meeting for the
center yesterday and things arelooking really good.
Voices (04:20):
Yes.
Mostly Uncle Frankb (04:21):
And if you follow the Father McKenna Center
on Instagram, which you should,you'll see some nice pictures
that Ben has posted recently ofour interns, who are all people
in college or graduate school,working in social work or
related areas, and they arethrilled too.
So thank you again for yoursupport, luke, and thank you for
(04:47):
your email.
Voices (04:49):
So I don't know about you guys, but the more I look at
it, the more I feel likeQuébécois French is becoming its
own dialect, if not already,maybe even its own language.
Who knows, a hundred years fromnow, what Québécois French will
sound like?
Hein.
Qu'est-ce que t'en penses,Roger?
Je m'en coulisse.
Alright, so there you go.
Second off.
Mostly Uncle Frankb (05:09):
Second off, we have an email from Craig.
Voices (05:12):
Well, la-dee-frickin-da.
Mostly Uncle Frankb (05:17):
And Craig writes.
Mostly Mary (05:19):
Hi Frank and Mary.
I am a donor to the FatherMcKenna Center.
I love the podcast and yourcoaching was a steal.
Let's keep this guy working lol.
Voices (05:28):
Looks like you've been missing a lot of work lately.
I wouldn't say I've been missingit, Bob.
Mostly Mary (05:33):
I just watched you on the Stacking Benjamin's
Decumulation Strategies episodeTry saying that 10 times fast
and was intrigued by a commentJoe put forth.
Whatever strategy you are using, everyone should know what the
Achilles heel is of thatstrategy.
The only answer I could come upwith is risk parity.
Portfolios are based onhistorical data, so our Achilles
(05:56):
heel is the quality of the datawe use, any inherent weaknesses
in the data and, of course, thepossibility that the future
looks nothing like the past,which is the same limitation of
pretty much any publishedstrategy that doesn't involve
Warren Buffett Buy low afterindependently valuing a company
or crystal ball.
Voices (06:15):
A crystal ball can help you, it can guide you.
Mostly Mary (06:19):
I know something you don't.
Voices (06:22):
I admitted you are better than I am, then why are
you?
smiling Because I know somethingyou don't.
Mostly Mary (06:31):
You might also fault risk parity as not being
something suitable for justanyone to do by themselves, but
your work has put this strategywithin the reach of a lot of
people if they are willing tolearn.
Voices (06:43):
And is the straight stuff?
Oh, funk master.
Mostly Mary (06:46):
And when any two doctors give you three opinions,
you know there's only so muchyou can do to help people.
Voices (06:52):
I am a scientist, not a philosopher.
Mostly Mary (06:55):
Do you have any other thoughts on the Achilles
heel of risk parity portfolios?
As a side note, the next timeyou share the stage with Big
Earn?
As a side note, the next timeyou share the stage with Big
Earn, ask him why his idealretirement portfolio he stated
75% stock, 25% intermediatetreasuries doesn't include 10%
gold, when his own publishedresearch concluded that gold
(07:17):
would be an improvement.
I hate it when people don't eattheir own dog food.
I think I've improved on yourmethods a bit too.
You might also want to have thethat's not how any of this work
clip on your phone.
For when he starts saying aCAPE ratio should trigger
adjusting your safe withdrawalrate.
Voices (07:34):
Forget about it.
Mostly Mary (07:36):
Unless you start with, our current CAPE ratio
suggests market conditions todayare unlike anything we have
ever seen before.
Nothing that follows presentsany argument for adjusting the
safe withdrawal rate.
Voices (07:47):
That's the fact, Jack.
That's the fact, Jack.
Mostly Mary (07:52):
Thanks for all you do.
Love you both, craig.
Mostly Uncle Frankb (07:55):
All right, craig is referring to a
roundtable I did for theStacking Benjamins podcast that
I linked to, I think, a coupleepisodes in the show notes, but
I can link to it again.
It was with Joe Salcihai, whois the host, and Karsten Jeska
Big Earn and Dana Anspach, whois a well-respected financial
(08:17):
advisor.
Well, that's kind of aninteresting question.
What is the Achilles heel ofthese portfolios, these risk
parity style portfolios?
Well, a lot of the Achillesheel of these portfolios, these
risk parity style portfoliosWell, a lot of the Achilles
heels are applicable to allportfolios, so you wouldn't say
they're unique to that andanything that is relying on
historical data.
You would say that there'salways a chance that the future
(08:38):
will be so different from thepast that the historical data
will not be informative.
Voices (08:44):
Okay, a simple wrong would have done just fine.
Mostly Uncle Frankb (08:47):
But that applies to every portfolio, so
it's not really unique to a riskparity style portfolio.
There is always an ongoingdebate, though, however, between
whether to rely on historicaldata as your basis for
projecting the future or to relyon some kind of a crystal ball,
because it's basically yourchoices.
Voices (09:08):
My name's Sonia.
I'm going to be showing you thecrystal ball and how to use it,
or how I use it.
Mostly Uncle Frankb (09:15):
And it was interesting.
I was recently thinking aboutthis and looking at the CFP
curriculum and the CFAcurriculum to see whether they
teach anything in those programsor certifications about
forecasting, basic forecasting,whether it's part of financial
forecasting or just forecastingin general, and it appears that
(09:39):
they don't, which makes a lot ofsense to me because a lot of
what I see financial advisorsdoing is just bad forecasting
techniques.
If you want to learn this stuff, it comes from people like
Kahneman and Tversky, fromPhilip Tetlock who wrote the
book Super Forecasters.
Annie Duke is another voice inthis area.
(09:59):
I would include Gerd Gigerenzer, who wrote a book called Risk
Savvy.
That is important forconsidering forecasting and
particularly forecasting whenyou know that the future is
uncertain, so like trying toforecast the weather in your
location a year in advance.
That's impossible to do withany precision, but you can make
(10:20):
a reasonable estimate based onclimate trends and location, and
that's really the same problemyou're facing with financial
forecasting.
But what you learn if you studyforecasting technique is the
most important thing to use orto rely on when you're making a
forecast.
Is called the base rate, andthe base rate is like what?
(10:41):
Do we think the stock market isgoing to return in the future
in general, or any other assetclass.
What you look to for somethinglike that is long-term data or
lots of data if that's whatyou're looking at because that's
what you want to always startwith are base rates, and you
don't vary off base rates foridiosyncratic reasons, unless
(11:04):
those reasons are really good.
Ie, in this case, you wouldhave to have a crystal ball that
actually worked.
Voices (11:10):
Now the crystal ball has been used since ancient times.
It's used for scrying, healingand meditation.
Mostly Uncle Frankb (11:19):
And there aren't any.
Mostly Mary (11:20):
That's not how it works.
That's not how any of thisworks.
Voices (11:23):
That's not how it works.
Mostly Mary (11:23):
That's not how any of this works.
Mostly Uncle Frankb (11:25):
The most recent one that's been tried for
the past 10 or 15 years is CAPEratios and valuation ratios.
But as we've seen from thosepredictions for the past 15 or
20 years, they have not workedout well at all.
In fact, they've been horrible.
Voices (11:39):
Forget about it.
Mostly Uncle Frankb (11:41):
And horribly more wrong than simply
using base rates.
And that's what you're tryingto do here.
You're trying to be less wrongWrong.
So if you look at somethinglike the Vanguard forecast for
the past 10 or 15 years, whichare based on these kind of
crystal balls, they're allterrible.
They all say that the stockmarket's going to underperform
(12:04):
and, as we know, the stockmarket outperformed.
So just picking the base rate,the average, you would have been
better off or closer to themark, rather than trying to use
one of these kind of crystalballs.
Voices (12:19):
This is the one that I tend to use more often.
I have a calcite ball and Ihave a black obsidian one here.
Mostly Uncle Frankb (12:29):
And that's really what we're doing when
we're using historical data andthen putting it through Monte
Carlo simulations is to try tosuss out what are the base rates
for drawdowns, for safewithdrawal rates, for returns in
general?
Because no, are they the mostaccurate thing?
Of course not, but they areprobably going to be less wrong
(12:53):
than some other forecastingmechanism that you are going to
be using.
And that is one of thefundamental lessons about
forecasting, which is why it isimproper forecasting technique
if your financial advisor or youare sticking quote conservative
or aggressive assumptions aboutreturns and inflation and stuff
into a retirement calculatorand compounding it into oblivion
(13:15):
, because that is exactly thekind of bad forecasting that
these experts would tell you youshouldn't be doing.
But at least if you're usinglong series of data historically
about large asset classes,you're going to avoid that
problem.
But anyway, getting back toyour questions about Achilles
heels, I think that probably theAchilles heel of these risk
(13:36):
parity style portfolios is apsychological one, in that they
are designed to perform betterthan other portfolios in bad
markets, so it is a fact thatthey will tend to underperform
other portfolios in good markets, so they will not grow as fast
(13:57):
as some portfolio that says hasan 80% stock allocation in good
times, like we've been havingsince really 2010.
But that's the trade-off.
You are accepting lower overallreturns, particularly in good
times, for the insurance valuethat they provide in down
(14:17):
markets, because that is whereyou actually get your safe
withdrawal rate from.
You get it from the worst casescenarios.
So if you're expecting a riskparity style portfolio to
outperform somebody's 75-25 or80-20 portfolio, it's probably
not going to in most years, butit will in the worst years and
(14:38):
that's why you're holding it andyou need to be mindful of that
and recognize that.
The purpose of this is so youcan spend more money now, not
that you have the most money atdeath, right.
If you want the most money atdeath, then you should have a
heavily stock-weighted portfolioof at least 80%.
(14:59):
But then the trade-off on thatis you have to commit to not
spending much money, and that is, in fact, a lot of what people
do.
Oddly enough, it's generallynot by plan.
(15:20):
If you ask them outright,they'll say no, that's not my
intention to die with the mostmoney.
What it's really related to iswhat Morgan Housel calls
frugality inertia.
She's going to talk about it ina new book coming out in
October called the Art ofSpending Money, and that is the
fact that many people who havebeen good savers for a very long
(15:40):
time have a constitutionalproblem with changing that and
sometimes they say they can'tchange.
It's not that they can't change, they don't want to.
Voices (15:48):
No more flying solo.
Mostly Uncle Frankb (15:50):
Because, as we're going to learn from
Morgangan house's book, the artof spending money is something
to be learned, and frugalityinertia is something to be
overcome, just like not knowinghow to exercise or not knowing
how to eat properly.
These are things that can belearned if you're really
interested in learning them.
The fact is, a lot of peoplejust would rather not.
Voices (16:12):
Was that?
the chance of hope that youmentioned Chicken it was Well,
in that case, never mind, Ithink, I'd rather not.
Mostly Uncle Frankb (16:23):
Now I certainly would not say this is
too complicated, even thoughthat's the strawman argument
that's frequently made about anyportfolio that has more than
three funds in it.
The fact of the matter is, it'snot significantly more
difficult to manage a portfoliowith up to 10 funds in it really
, even though you probably onlyneed five or six than it is to
manage a portfolio with threefunds, Because most of the
(16:46):
difficulties in managing aretirement portfolio have to do
with things like the tax lawsthat apply to your various
accounts and liquidity issuesand matching up your expenses
with enough liquidity to coverthem.
If you're just managing yourportfolio the way we do with the
sample portfolios, that is nota complicated operation at all,
(17:08):
and it's certainly lesscomplicated than managing a
bunch of buckets, ladders,flower pots, pie cakes and other
things.
Voices (17:16):
Okay, everybody, that cake should be ready now.
Why don't you sing a song whileI take it out of the oven?
Stupendous, there's a cake inthe oven.
So sweet and delicious, yummycake in the oven.
We love to eat cake.
Ow, ow, oh, ah, I'm burning.
(17:37):
Kids, help, this sucks.
Whoa, whoa.
Mostly Uncle Frankb (17:46):
Moving on to your next question or comment
about these cape ratio thingies.
Yeah, I mean that hasn't workedfor any period of time.
Prospectively.
It works in retrospect becauseyou know what the data is and
the mean is.
It's not a stable mean and it'sthrough the candle that you will
(18:07):
see the images into the crystaland you could tell it doesn't
work if you just go back andread the Early Retirement Now
blog from the beginning.
Because if you look back in,like April 2016,.
He was saying that based on thequote high CAPE ratio one quote
in that era that the safewithdrawal rate should only be
(18:28):
like 3% or less for the nextdecade.
And here we are, almost adecade later and, if anything,
it's predicted the exactopposite.
There again, if you're tryingto use a crystal ball, there is
a chance that you're going to beeven more wrong than just using
base rates.
Voices (18:47):
Now you can also use the ball to connect to the spirit
world.
Mostly Uncle Frankb (18:51):
And putting a cape around a crystal ball
doesn't make it any smarter.
Mostly Mary (18:55):
I regret to say, sir, Batman and Robin are not at
present available.
Voices (18:59):
What?
Oh, surely you must be jestingAlas, sir, I am not oh.
Catastrophic.
Mostly Uncle Frankb (19:13):
The other problem that Dana mentioned on
this roundtable was simply thatyou would need to calculate a
different PE or CAPE ratio forevery kind of portfolio, because
unless you were only holdingthe S&P 500, the standard market
CAPE ratio is not the relevantone to what you're doing.
So it's kind of a silly thingto be using as a decision-making
(19:33):
process.
Voices (19:35):
Are you crazy or just plain stupid?
Stupid is stupid, does Mrs Blue?
Mostly Uncle Frankb (19:42):
I guess, what you'll learn from Bill
Bengen's book is that the wayyou should actually use it is
when the CAPE ratio is reallylow.
Then you know, your future safewithdrawal rate can be really
high.
But on the other hand, maybeyour portfolio crashed, so the
percentage you can take out ismuch less in dollars than it was
before.
What Bengen's going to say isthat what really matters is the
(20:05):
rate of inflation, and not justfor one year but for over a
series of years, and that wereally haven't seen that kind of
a condition for a really,really long time, because the
spike in 2022 was not meaningfulin his view, since it didn't
last for a period of years.
Now, about the use of gold, orhis non-use of gold, despite his
(20:27):
findings in Safe WithdrawalRate Series number 34.
I did actually ask him aboutthat back in 2022 or 2023 when
we had the conversation that ledto the creation of episode 223
of this podcast, and he didn'treally have an answer.
He said, yeah, I haven't doneit.
Maybe I will do it, buthonestly, it really doesn't
(20:47):
matter.
Given his spending rate, hecould hold just about anything
he wanted.
Like most people in this space,he's just grossly over-saved
and his real strategy is justdon't spend much money.
Voices (21:00):
I love money.
Mostly Uncle Frankb (21:03):
And, finally, you made the fatal
error of mentioning my coachingservices, which I try to keep
under my hat but will mentionwhen somebody else does.
Voices (21:13):
I don't think I'd like another job.
Mostly Uncle Frankb (21:15):
I do do private coaching on a very
limited basis.
I charge $300 an hour for atwo-hour minimum, and that's
mostly what people need or want.
Most of that money ends up atthe Father McKenna Center anyway
.
Voices (21:30):
For me and the Lord.
We've got an understanding.
We're on a mission from God.
Mostly Uncle Frankb (21:38):
But I just want to make sure that I'm not
having too many takers because,as you say, I don't think I'd
like another job.
Voices (21:45):
It's not that I'm lazy, it's that I just don't care.
Mostly Uncle Frankb (21:49):
It is a much better deal, though, than
joining a club where they feedyou pie cakes and charge you
$900 annually, with an automaticrenewal on your card.
Voices (22:00):
Please accept my resignation.
I don't want to belong to anyclub that will accept me as a
member.
Mostly Uncle Frankb (22:08):
I will say that.
Anyway, if you're interested inthat, please send me an email
and we can set that up, but nottoo many of you.
I do place a high value ongiving away as much content for
free.
I get concerned sometimes thatpersonal finance, and
particularly the fire movement,has gone to too much
(22:28):
commercialization of informationand repackaging of it in
various forms and trying to sellit.
Voices (22:35):
A.
Mostly Uncle Frankb (22:36):
B.
Voices (22:36):
C, a, always B, B, c, closing, always be closing,
always be closing.
Mostly Uncle Frankb (22:46):
That was not kind of the zeitgeist that
we had back in the day I'mtalking about the boards of
early retirement extreme around2009 or 2010, when the idea was
simply to share as muchinformation as possible and ask
other smart people what theythought and put it all together
for oneself.
(23:06):
And I've always really likedTyler's site portfolio charts
because it falls in that samekind of tradition that the point
of having the information isnot to hoard it and sell it but
to simply share it freely sothat more and better information
and techniques can be developedfrom it.
It's a very open science kindof idea.
Voices (23:28):
I got this inkling.
I got this idea for a businessmodel.
I just want to run it past you.
Here's how it would work.
I got this idea for a businessmodel.
I just want to run it past you.
Here's how it would work.
You get a bunch of peoplearound the world who are doing
highly skilled work, but they'rewilling to do it for free and
volunteer their time 20,sometimes 30 hours a week.
Oh, but I'm not done.
And then what they create?
(23:49):
They give it away rather thansell it.
It's going to be huge.
Mostly Uncle Frankb (23:56):
Thank you so much for your support, Craig,
and your donations to theFather McKenna Center.
And thank you for your email.
Next off, we have an email fromLuke, a different Luke.
(24:17):
The force is strong in thisworld, and Luke writes US large
growth fans rejoice.
Mostly Mary (24:26):
Avantis very recently released the ETF AVUQ.
Avantis US quality ETF Investsin high quality US growth
companies across all marketcapitalizations designed to
increase expected returns byfocusing on relative
profitability and valuationswithin the eligible universe.
The benchmark is the MSCI USAIMI Growth Index.
(24:50):
So if you're already an Avantisfan and want to follow the half
in US large growth and half inUS small value plan, then you
can do that now and keep it allin the fund family.
Just thought you might want toknow about it.
Keep spreading the good word,Frank.
Voices (25:07):
You have been well trained, my young apprentice.
Mostly Uncle Frankb (25:11):
Well, luke.
Yes, that's very interesting.
It's going along this trend ofimproving technologies and the
fact that we live in a goldenera of investing for
do-it-yourselfers with all ofthese ETFs.
It's unclear to me whether AVUQwill be a great improvement
over something like VUG or IWY.
I think it's harder to improveover basic indexes when you're
(25:35):
talking about large cap stockfunds, because they all
essentially end up holding thesame thing, but it looks to me
like there's just a differentmix going on here with AVUQ than
the standard large cap growthfunds.
I'll be interested to see howit does.
I would not expect this to haveas much of a differential,
though, as Avantis' small-capvalue funds seem to have with
(25:59):
standard indexed small-cap valuefunds.
On an unrelated note about othernew funds out there, I just saw
an announcement from Fidelitythat they're releasing a managed
futures fund as of last week.
I think it's FFUT, and I knowBlackRock introduced one a few
months ago.
These are obviously designed tocompete with things like DBMF,
(26:23):
but you can see there's a bigdemand now for that kind of
asset class amongst registeredinvestment advisors and the
kinds of people who would belikely to be using alternative
asset classes in a diversifiedportfolio.
Fidelity seems to be using anin-house algorithm or
methodology.
I'm not sure exactly how itworks or how it compares with
(26:46):
others, and we probably reallywon't know for a couple of years
now of watching these to seewhether any one of them is
significantly better than theothers.
Dbmf really does seem to havethe inside track on those kinds
of funds these days if you'relooking for something relatively
cheap and as close to being anindexed fund as possible.
(27:06):
Anyway, we'll keep watching allthese things.
I'm glad when you guys bringthem to my attention, because I
can't keep track of all thisstuff.
I'm not a smart man.
Voices (27:20):
And thank you for your email.
Mostly Uncle Frankb (27:23):
Last off.
Last off, we have an email fromJust Lucky.
Lucky and Just Lucky writes.
Mostly Mary (27:32):
I appreciate your podcast very much, just having
found it as referenced by Tyleron portfolio charts.
Thank you, Frank and Mary, forall that you do.
Helping me to stretch my ownunderstanding has been a
wonderful opportunity forpersonal growth.
However, please pretend thishas otherwise been a truly
bothersome email that is barelyworth your time.
To facilitate maximum criticismof the following, as evaluated
(27:55):
on portfolio charts for years adnauseum Gosh, 20%, QQQ, 50%,
VBR, 30%, GLDM or GLD, etc.
I don't like that much goldeither and I lost a ton on bonds
in 2022, so my Igbo I gotburned once and recency bias
(28:17):
gold has made two runs for meare probably hurting my
objectivity.
I love gold made two runs for meare probably hurting my
objectivity.
I love gold.
Otherwise, on behalf of thebeneficiaries of the Father
McKenna Group, thank you forbeing so popular and so far
behind on your emails andmessages.
All the best, just lucky.
Voices (28:37):
You could ask yourself a question Do I feel lucky?
Mostly Uncle Frankb (28:48):
question do I feel lucky?
Yes, I would say.
Your recency bias probably ishurting your objectivity because
, well, there's always a chanceof a year like 2022.
As far as bonds are concerned,that was the worst year in like
a hundred years for that assetclass, and something like that
tends to occur only about threepercent of the time.
So it's like rolling snake eyeswith two dice snake eyes.
Voices (29:19):
Oh no, puff Pumpkinhead, nia Noodle Jokebox, jaw Wolfman
.
Mostly Uncle Frankb (29:31):
You're all under arrest.
At least that's the base rateexpectation.
But this portfolio you've comeup with does perform pretty well
in backtesting and I will tellyou that I've recently listened
to a podcast or video with BobElliott, who's formerly of
Bridgewater it was the compoundappearing with Ben Carlson and
(29:52):
Josh Brown and they were talkingabout golden bonds specifically
in it, instead of bonds, eitherperformed just as well or
outperformed a stock and bondportfolio since 1970.
And he really thinks that thegoing off of the gold standard
(30:13):
in the early 70s did sort ofchange the game for gold in
particular and made it just asviable or more viable than bonds
in many ways as a diversifierfor stocks.
So this little portfolio youcame up with is on the
aggressive side, I would call it, although you only have 20% in
QQQ in it.
(30:33):
That's the worrisome thing interms of volatility because it
has a history of having 80%drawdowns at various points,
whereas something like VBR isgoing to be relatively stable in
comparison, and 30% gold is alot of gold, although there's
something to suggest that if youwere holding international
funds, that that amount of goldwould be closer to the right
(30:56):
amount.
If you're not working in thereserve currency.
That's when bonds becomeparticularly dangerous if you're
holding bonds that are in aweak currency.
That being said, I think thiswould be difficult to hold in
certain periods, and the periodsI'm thinking of particularly
the period from the early 1980sup until about 1998, was a
(31:20):
really bad almosttwo-decade-long segment for gold
, where it was a very goodperiod for bonds because you
were coming down off thoseexceptionally high interest
rates, but gold basicallycrashed after the big run-up.
So it crashed in the early1980s and then just kind of
wallowed along and appeared tobe almost dead by the end of the
(31:42):
1990s, mostly because at thatpoint a lot of central banks
were selling it, including theBank of England, who famously
sold a lot of it right near thebottom before it started to go
up again.
So I think both gold and bondsare really long-term holdings
and that you're probably betteroff holding some of both than
trying to guess as to whichone's going to be the better
(32:03):
holding in the next period.
At least, that's the saferapproach, because you got to
remember both of those arediversifiers.
They are not the main returndrivers in your portfolio, which
are going to be your stocksanyway.
Really, what you put togetherhere I would consider more of as
a conservative accumulationportfolio rather than a full
retirement portfolio.
(32:24):
But you could do a lot worse.
You could do a lot worse.
Voices (32:28):
I'm going to end up eating a steady diet of
government cheese and living ina van down by the river.
Mostly Uncle Frankb (32:37):
Hopefully that helps and thank you for
your email.
Voices (32:43):
I know what you're thinking.
Did he fire six shots or onlyfive?
Well, to tell you the truth, inall this excitement I've kind
of lost track myself.
But, ian, this is a .44 Magnum,the most powerful handgun in
the world and would blow yourhead clean off.
You've got to ask yourself onequestion Do I feel lucky?
Well, do you?
Mostly Uncle Frankb (33:08):
Bunker, but now I see our signal is
beginning to fade.
Just one programming note Iwill be going on hiatus, at
least this weekend, and thereprobably will not be a podcast
in the middle of next weekeither.
So you may not hear from me fora week and a half or so, going
to go to Montana to visit myparents, see some other family.
Voices (33:34):
Fredo, you're my older brother and I love you, but
don't ever take sides withanyone against the family again
Ever.
Mostly Uncle Frankb (33:47):
But in the meantime, if you have comments
or questions for me, please sendthem to frank at
riskparityradarcom.
That email is frank atriskparityradarcom.
Or you can go to the website,wwwriskparityradarcom.
Put your message into thecontact form and I'll get it
that way.
If you haven't had a chance todo it, please go to your
favorite podcast provider andlike subscribe.
(34:08):
Give me some stars, a follow, areview.
Mostly Mary (34:12):
That would be great .
Mostly Uncle Frankb (34:13):
Okay, Thank you once again for tuning in.
This is Frank Vasquez with RiskParty Radio signing off.
Voices (34:24):
Do I really have to do this, dad Stan?
Now more than ever you need tounderstand the importance of
saving money.
But Grandma said I could usethis money to buy whatever I
want.
Okay, next, please Go on,stanley.
Mostly Mary (34:36):
I got a $100 check from my grandma and my dad said
I need to put it in the bank soit can grow over the years.
Voices (34:41):
Well, that's fantastic, a really smart decision, young
man.
We can put that check in amoney market mutual fund.
Then we'll reinvest theearnings into foreign currency
accounts with compoundinginterest and it's gone.
Uh what it's gone, it's allgone.
What's all gone?
The money in your account, itdidn't do too well, it's gone.
(35:01):
What do you mean?
The money in your account, itdidn't do too well, it's gone.
What do you mean?
I have $100.
Not anymore.
You don't.
Mostly Mary (35:07):
Poof.
The Risk Parody Radio Show ishosted by Frank Vasquez.
The content provided is forentertainment and informational
purposes only and does notconstitute financial, investment
, tax or legal advice.
Please consult with your ownadvisors before taking any
actions based on any informationyou have heard here, making
sure to take into account yourown personal circumstances.
A foolish consistency, is the hobgoblin of little minds
, adored by little statesmen andphilosophers and divines.
If a man does not keep 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 investorBroadcasting to you now from the
comfort of his easy chair.
Here is your host, frankVasquez.
Mostly Uncle Frankb (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 Frankb (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 (01:26):
Top drawer, really top drawer.
Mostly Uncle Frankb (01:31):
Along with a host named after a hot dog.
Voices (01:34):
Lighten up Francis.
Mostly Uncle Frankb (01:37):
But now onward to episode 431.
Today on Risk Prairie Radio.
Let's get back to doing what wedo best here, which is attend
to your emails, of course, andI'll go ahead and make sure you
get another copy of that memo.
Voices (01:52):
Okay, and so, without further ado, here I go once
again with the email.
Mostly Uncle Frankb (01:59):
And First off.
First off, we have an emailfrom Luke French-Canadian Luke
and Luke writes Hi Frank, I justlistened to the latest episode.
Mostly Mary (02:15):
I wanted to share that there's a slightly better
way to search the podcastepisodes for a particular topic.
You can go to the followinglink on the Listen Notes site.
The interface is nicer than theRSS feed.
It also searches through thetranscripts in addition to the
titles and descriptions.
The search functionality fromListen Notes can be embedded on
(02:35):
your website.
That might be something I canhelp you with.
If you're still interested inmy offer no rush, of course.
Voices (02:41):
Au contraire.
Mostly Mary (02:43):
I also wanted to mention that I was thrilled to
hear about the deluge ofcontributions to the Father
McKenna Center.
Voices (02:49):
That's gold, Jerry Gold.
Mostly Mary (02:52):
The support you've received is very well deserved.
All the best, Luke.
Mostly Uncle Frankb (02:57):
Well, thank you for the tip, Luke Sackosh.
You're quickly becoming one ofmy top men.
Voices (03:05):
We have top men working on it right now who?
Top men.
Mostly Uncle Frankb (03:16):
I did add the Listen Notes link to the
podcast page on the website, aswell as attempted to clean up a
couple of other things.
Just come up, luke and I aregoing to be chatting in the near
future about how he might helpme with my atrocious website.
Just come up and we'll seewhere that goes.
(03:37):
But regardless of where thatgoes, I wanted to thank you
again for being a donor to theFather McKenna Center.
We are still continuing withour Top of the T-Shirt campaign
for the Father McKenna Center.
We are still continuing with ourTop of the T-Shirt campaign for
the Father McKenna Center,which supports hungry and
homeless people in Washington DC, and if you'd like to give to
that and grow to the front ofthe email line, as Luke has done
(03:57):
here, I will put that link inthe show notes.
You can also give at Patreonthrough our support page, but
either way I will move you tothe front of the email notes.
You can also give at Patreonthrough our support page, but
either way I will move you tothe front of the email line.
We have also been thrilled withthe outpouring of support.
I actually just went to aquarterly board meeting for the
center yesterday and things arelooking really good.
Voices (04:20):
Yes.
Mostly Uncle Frankb (04:21):
And if you follow the Father McKenna Center
on Instagram, which you should,you'll see some nice pictures
that Ben has posted recently ofour interns, who are all people
in college or graduate school,working in social work or
related areas, and they arethrilled too.
So thank you again for yoursupport, luke, and thank you for
(04:47):
your email.
Voices (04:49):
So I don't know about you guys, but the more I look at
it, the more I feel likeQuébécois French is becoming its
own dialect, if not already,maybe even its own language.
Who knows, a hundred years fromnow, what Québécois French will
sound like?
Hein.
Qu'est-ce que t'en penses,Roger?
Je m'en coulisse.
Alright, so there you go.
Second off.
Mostly Uncle Frankb (05:09):
Second off, we have an email from Craig.
Voices (05:12):
Well, la-dee-frickin-da.
Mostly Uncle Frankb (05:17):
And Craig writes.
Mostly Mary (05:19):
Hi Frank and Mary.
I am a donor to the FatherMcKenna Center.
I love the podcast and yourcoaching was a steal.
Let's keep this guy working lol.
Voices (05:28):
Looks like you've been missing a lot of work lately.
I wouldn't say I've been missingit, Bob.
Mostly Mary (05:33):
I just watched you on the Stacking Benjamin's
Decumulation Strategies episodeTry saying that 10 times fast
and was intrigued by a commentJoe put forth.
Whatever strategy you are using, everyone should know what the
Achilles heel is of thatstrategy.
The only answer I could come upwith is risk parity.
Portfolios are based onhistorical data, so our Achilles
(05:56):
heel is the quality of the datawe use, any inherent weaknesses
in the data and, of course, thepossibility that the future
looks nothing like the past,which is the same limitation of
pretty much any publishedstrategy that doesn't involve
Warren Buffett Buy low afterindependently valuing a company
or crystal ball.
Voices (06:15):
A crystal ball can help you, it can guide you.
Mostly Mary (06:19):
I know something you don't.
Voices (06:22):
I admitted you are better than I am, then why are
you?
smiling Because I know somethingyou don't.
Mostly Mary (06:31):
You might also fault risk parity as not being
something suitable for justanyone to do by themselves, but
your work has put this strategywithin the reach of a lot of
people if they are willing tolearn.
Voices (06:43):
And is the straight stuff?
Oh, funk master.
Mostly Mary (06:46):
And when any two doctors give you three opinions,
you know there's only so muchyou can do to help people.
Voices (06:52):
I am a scientist, not a philosopher.
Mostly Mary (06:55):
Do you have any other thoughts on the Achilles
heel of risk parity portfolios?
As a side note, the next timeyou share the stage with Big
Earn?
As a side note, the next timeyou share the stage with Big
Earn, ask him why his idealretirement portfolio he stated
75% stock, 25% intermediatetreasuries doesn't include 10%
gold, when his own publishedresearch concluded that gold
(07:17):
would be an improvement.
I hate it when people don't eattheir own dog food.
I think I've improved on yourmethods a bit too.
You might also want to have thethat's not how any of this work
clip on your phone.
For when he starts saying aCAPE ratio should trigger
adjusting your safe withdrawalrate.
Voices (07:34):
Forget about it.
Mostly Mary (07:36):
Unless you start with, our current CAPE ratio
suggests market conditions todayare unlike anything we have
ever seen before.
Nothing that follows presentsany argument for adjusting the
safe withdrawal rate.
Voices (07:47):
That's the fact, Jack.
That's the fact, Jack.
Mostly Mary (07:52):
Thanks for all you do.
Love you both, craig.
Mostly Uncle Frankb (07:55):
All right, craig is referring to a
roundtable I did for theStacking Benjamins podcast that
I linked to, I think, a coupleepisodes in the show notes, but
I can link to it again.
It was with Joe Salcihai, whois the host, and Karsten Jeska
Big Earn and Dana Anspach, whois a well-respected financial
(08:17):
advisor.
Well, that's kind of aninteresting question.
What is the Achilles heel ofthese portfolios, these risk
parity style portfolios?
Well, a lot of the Achillesheel of these portfolios, these
risk parity style portfoliosWell, a lot of the Achilles
heels are applicable to allportfolios, so you wouldn't say
they're unique to that andanything that is relying on
historical data.
You would say that there'salways a chance that the future
(08:38):
will be so different from thepast that the historical data
will not be informative.
Voices (08:44):
Okay, a simple wrong would have done just fine.
Mostly Uncle Frankb (08:47):
But that applies to every portfolio, so
it's not really unique to a riskparity style portfolio.
There is always an ongoingdebate, though, however, between
whether to rely on historicaldata as your basis for
projecting the future or to relyon some kind of a crystal ball,
because it's basically yourchoices.
Voices (09:08):
My name's Sonia.
I'm going to be showing you thecrystal ball and how to use it,
or how I use it.
Mostly Uncle Frankb (09:15):
And it was interesting.
I was recently thinking aboutthis and looking at the CFP
curriculum and the CFAcurriculum to see whether they
teach anything in those programsor certifications about
forecasting, basic forecasting,whether it's part of financial
forecasting or just forecastingin general, and it appears that
(09:39):
they don't, which makes a lot ofsense to me because a lot of
what I see financial advisorsdoing is just bad forecasting
techniques.
If you want to learn this stuff, it comes from people like
Kahneman and Tversky, fromPhilip Tetlock who wrote the
book Super Forecasters.
Annie Duke is another voice inthis area.
(09:59):
I would include Gerd Gigerenzer, who wrote a book called Risk
Savvy.
That is important forconsidering forecasting and
particularly forecasting whenyou know that the future is
uncertain, so like trying toforecast the weather in your
location a year in advance.
That's impossible to do withany precision, but you can make
(10:20):
a reasonable estimate based onclimate trends and location, and
that's really the same problemyou're facing with financial
forecasting.
But what you learn if you studyforecasting technique is the
most important thing to use orto rely on when you're making a
forecast.
Is called the base rate, andthe base rate is like what?
(10:41):
Do we think the stock market isgoing to return in the future
in general, or any other assetclass.
What you look to for somethinglike that is long-term data or
lots of data if that's whatyou're looking at because that's
what you want to always startwith are base rates, and you
don't vary off base rates foridiosyncratic reasons, unless
(11:04):
those reasons are really good.
Ie, in this case, you wouldhave to have a crystal ball that
actually worked.
Voices (11:10):
Now the crystal ball has been used since ancient times.
It's used for scrying, healingand meditation.
Mostly Uncle Frankb (11:19):
And there aren't any.
Mostly Mary (11:20):
That's not how it works.
That's not how any of thisworks.
Voices (11:23):
That's not how it works.
Mostly Mary (11:23):
That's not how any of this works.
Mostly Uncle Frankb (11:25):
The most recent one that's been tried for
the past 10 or 15 years is CAPEratios and valuation ratios.
But as we've seen from thosepredictions for the past 15 or
20 years, they have not workedout well at all.
In fact, they've been horrible.
Voices (11:39):
Forget about it.
Mostly Uncle Frankb (11:41):
And horribly more wrong than simply
using base rates.
And that's what you're tryingto do here.
You're trying to be less wrongWrong.
So if you look at somethinglike the Vanguard forecast for
the past 10 or 15 years, whichare based on these kind of
crystal balls, they're allterrible.
They all say that the stockmarket's going to underperform
(12:04):
and, as we know, the stockmarket outperformed.
So just picking the base rate,the average, you would have been
better off or closer to themark, rather than trying to use
one of these kind of crystalballs.
Voices (12:19):
This is the one that I tend to use more often.
I have a calcite ball and Ihave a black obsidian one here.
Mostly Uncle Frankb (12:29):
And that's really what we're doing when
we're using historical data andthen putting it through Monte
Carlo simulations is to try tosuss out what are the base rates
for drawdowns, for safewithdrawal rates, for returns in
general?
Because no, are they the mostaccurate thing?
Of course not, but they areprobably going to be less wrong
(12:53):
than some other forecastingmechanism that you are going to
be using.
And that is one of thefundamental lessons about
forecasting, which is why it isimproper forecasting technique
if your financial advisor or youare sticking quote conservative
or aggressive assumptions aboutreturns and inflation and stuff
into a retirement calculatorand compounding it into oblivion
(13:15):
, because that is exactly thekind of bad forecasting that
these experts would tell you youshouldn't be doing.
But at least if you're usinglong series of data historically
about large asset classes,you're going to avoid that
problem.
But anyway, getting back toyour questions about Achilles
heels, I think that probably theAchilles heel of these risk
(13:36):
parity style portfolios is apsychological one, in that they
are designed to perform betterthan other portfolios in bad
markets, so it is a fact thatthey will tend to underperform
other portfolios in good markets, so they will not grow as fast
(13:57):
as some portfolio that says hasan 80% stock allocation in good
times, like we've been havingsince really 2010.
But that's the trade-off.
You are accepting lower overallreturns, particularly in good
times, for the insurance valuethat they provide in down
(14:17):
markets, because that is whereyou actually get your safe
withdrawal rate from.
You get it from the worst casescenarios.
So if you're expecting a riskparity style portfolio to
outperform somebody's 75-25 or80-20 portfolio, it's probably
not going to in most years, butit will in the worst years and
(14:38):
that's why you're holding it andyou need to be mindful of that
and recognize that.
The purpose of this is so youcan spend more money now, not
that you have the most money atdeath, right.
If you want the most money atdeath, then you should have a
heavily stock-weighted portfolioof at least 80%.
(14:59):
But then the trade-off on thatis you have to commit to not
spending much money, and that is, in fact, a lot of what people
do.
Oddly enough, it's generallynot by plan.
(15:20):
If you ask them outright,they'll say no, that's not my
intention to die with the mostmoney.
What it's really related to iswhat Morgan Housel calls
frugality inertia.
She's going to talk about it ina new book coming out in
October called the Art ofSpending Money, and that is the
fact that many people who havebeen good savers for a very long
(15:40):
time have a constitutionalproblem with changing that and
sometimes they say they can'tchange.
It's not that they can't change, they don't want to.
Voices (15:48):
No more flying solo.
Mostly Uncle Frankb (15:50):
Because, as we're going to learn from
Morgangan house's book, the artof spending money is something
to be learned, and frugalityinertia is something to be
overcome, just like not knowinghow to exercise or not knowing
how to eat properly.
These are things that can belearned if you're really
interested in learning them.
The fact is, a lot of peoplejust would rather not.
Voices (16:12):
Was that?
the chance of hope that youmentioned Chicken it was Well,
in that case, never mind, Ithink, I'd rather not.
Mostly Uncle Frankb (16:23):
Now I certainly would not say this is
too complicated, even thoughthat's the strawman argument
that's frequently made about anyportfolio that has more than
three funds in it.
The fact of the matter is, it'snot significantly more
difficult to manage a portfoliowith up to 10 funds in it really
, even though you probably onlyneed five or six than it is to
manage a portfolio with threefunds, Because most of the
(16:46):
difficulties in managing aretirement portfolio have to do
with things like the tax lawsthat apply to your various
accounts and liquidity issuesand matching up your expenses
with enough liquidity to coverthem.
If you're just managing yourportfolio the way we do with the
sample portfolios, that is nota complicated operation at all,
(17:08):
and it's certainly lesscomplicated than managing a
bunch of buckets, ladders,flower pots, pie cakes and other
things.
Voices (17:16):
Okay, everybody, that cake should be ready now.
Why don't you sing a song whileI take it out of the oven?
Stupendous, there's a cake inthe oven.
So sweet and delicious, yummycake in the oven.
We love to eat cake.
Ow, ow, oh, ah, I'm burning.
(17:37):
Kids, help, this sucks.
Whoa, whoa.
Mostly Uncle Frankb (17:46):
Moving on to your next question or comment
about these cape ratio thingies.
Yeah, I mean that hasn't workedfor any period of time.
Prospectively.
It works in retrospect becauseyou know what the data is and
the mean is.
It's not a stable mean and it'sthrough the candle that you will
(18:07):
see the images into the crystaland you could tell it doesn't
work if you just go back andread the Early Retirement Now
blog from the beginning.
Because if you look back in,like April 2016,.
He was saying that based on thequote high CAPE ratio one quote
in that era that the safewithdrawal rate should only be
(18:28):
like 3% or less for the nextdecade.
And here we are, almost adecade later and, if anything,
it's predicted the exactopposite.
There again, if you're tryingto use a crystal ball, there is
a chance that you're going to beeven more wrong than just using
base rates.
Voices (18:47):
Now you can also use the ball to connect to the spirit
world.
Mostly Uncle Frankb (18:51):
And putting a cape around a crystal ball
doesn't make it any smarter.
Mostly Mary (18:55):
I regret to say, sir, Batman and Robin are not at
present available.
Voices (18:59):
What?
Oh, surely you must be jestingAlas, sir, I am not oh.
Catastrophic.
Mostly Uncle Frankb (19:13):
The other problem that Dana mentioned on
this roundtable was simply thatyou would need to calculate a
different PE or CAPE ratio forevery kind of portfolio, because
unless you were only holdingthe S&P 500, the standard market
CAPE ratio is not the relevantone to what you're doing.
So it's kind of a silly thingto be using as a decision-making
(19:33):
process.
Voices (19:35):
Are you crazy or just plain stupid?
Stupid is stupid, does Mrs Blue?
Mostly Uncle Frankb (19:42):
I guess, what you'll learn from Bill
Bengen's book is that the wayyou should actually use it is
when the CAPE ratio is reallylow.
Then you know, your future safewithdrawal rate can be really
high.
But on the other hand, maybeyour portfolio crashed, so the
percentage you can take out ismuch less in dollars than it was
before.
What Bengen's going to say isthat what really matters is the
(20:05):
rate of inflation, and not justfor one year but for over a
series of years, and that wereally haven't seen that kind of
a condition for a really,really long time, because the
spike in 2022 was not meaningfulin his view, since it didn't
last for a period of years.
Now, about the use of gold, orhis non-use of gold, despite his
(20:27):
findings in Safe WithdrawalRate Series number 34.
I did actually ask him aboutthat back in 2022 or 2023 when
we had the conversation that ledto the creation of episode 223
of this podcast, and he didn'treally have an answer.
He said, yeah, I haven't doneit.
Maybe I will do it, buthonestly, it really doesn't
(20:47):
matter.
Given his spending rate, hecould hold just about anything
he wanted.
Like most people in this space,he's just grossly over-saved
and his real strategy is justdon't spend much money.
Voices (21:00):
I love money.
Mostly Uncle Frankb (21:03):
And, finally, you made the fatal
error of mentioning my coachingservices, which I try to keep
under my hat but will mentionwhen somebody else does.
Voices (21:13):
I don't think I'd like another job.
Mostly Uncle Frankb (21:15):
I do do private coaching on a very
limited basis.
I charge $300 an hour for atwo-hour minimum, and that's
mostly what people need or want.
Most of that money ends up atthe Father McKenna Center anyway
.
Voices (21:30):
For me and the Lord.
We've got an understanding.
We're on a mission from God.
Mostly Uncle Frankb (21:38):
But I just want to make sure that I'm not
having too many takers because,as you say, I don't think I'd
like another job.
Voices (21:45):
It's not that I'm lazy, it's that I just don't care.
Mostly Uncle Frankb (21:49):
It is a much better deal, though, than
joining a club where they feedyou pie cakes and charge you
$900 annually, with an automaticrenewal on your card.
Voices (22:00):
Please accept my resignation.
I don't want to belong to anyclub that will accept me as a
member.
Mostly Uncle Frankb (22:08):
I will say that.
Anyway, if you're interested inthat, please send me an email
and we can set that up, but nottoo many of you.
I do place a high value ongiving away as much content for
free.
I get concerned sometimes thatpersonal finance, and
particularly the fire movement,has gone to too much
(22:28):
commercialization of informationand repackaging of it in
various forms and trying to sellit.
Voices (22:35):
A.
Mostly Uncle Frankb (22:36):
B.
Voices (22:36):
C, a, always B, B, c, closing, always be closing,
always be closing.
Mostly Uncle Frankb (22:46):
That was not kind of the zeitgeist that
we had back in the day I'mtalking about the boards of
early retirement extreme around2009 or 2010, when the idea was
simply to share as muchinformation as possible and ask
other smart people what theythought and put it all together
for oneself.
(23:06):
And I've always really likedTyler's site portfolio charts
because it falls in that samekind of tradition that the point
of having the information isnot to hoard it and sell it but
to simply share it freely sothat more and better information
and techniques can be developedfrom it.
It's a very open science kindof idea.
Voices (23:28):
I got this inkling.
I got this idea for a businessmodel.
I just want to run it past you.
Here's how it would work.
I got this idea for a businessmodel.
I just want to run it past you.
Here's how it would work.
You get a bunch of peoplearound the world who are doing
highly skilled work, but they'rewilling to do it for free and
volunteer their time 20,sometimes 30 hours a week.
Oh, but I'm not done.
And then what they create?
(23:49):
They give it away rather thansell it.
It's going to be huge.
Mostly Uncle Frankb (23:56):
Thank you so much for your support, Craig,
and your donations to theFather McKenna Center.
And thank you for your email.
Next off, we have an email fromLuke, a different Luke.
(24:17):
The force is strong in thisworld, and Luke writes US large
growth fans rejoice.
Mostly Mary (24:26):
Avantis very recently released the ETF AVUQ.
Avantis US quality ETF Investsin high quality US growth
companies across all marketcapitalizations designed to
increase expected returns byfocusing on relative
profitability and valuationswithin the eligible universe.
The benchmark is the MSCI USAIMI Growth Index.
(24:50):
So if you're already an Avantisfan and want to follow the half
in US large growth and half inUS small value plan, then you
can do that now and keep it allin the fund family.
Just thought you might want toknow about it.
Keep spreading the good word,Frank.
Voices (25:07):
You have been well trained, my young apprentice.
Mostly Uncle Frankb (25:11):
Well, luke.
Yes, that's very interesting.
It's going along this trend ofimproving technologies and the
fact that we live in a goldenera of investing for
do-it-yourselfers with all ofthese ETFs.
It's unclear to me whether AVUQwill be a great improvement
over something like VUG or IWY.
I think it's harder to improveover basic indexes when you're
(25:35):
talking about large cap stockfunds, because they all
essentially end up holding thesame thing, but it looks to me
like there's just a differentmix going on here with AVUQ than
the standard large cap growthfunds.
I'll be interested to see howit does.
I would not expect this to haveas much of a differential,
though, as Avantis' small-capvalue funds seem to have with
(25:59):
standard indexed small-cap valuefunds.
On an unrelated note about othernew funds out there, I just saw
an announcement from Fidelitythat they're releasing a managed
futures fund as of last week.
I think it's FFUT, and I knowBlackRock introduced one a few
months ago.
These are obviously designed tocompete with things like DBMF,
(26:23):
but you can see there's a bigdemand now for that kind of
asset class amongst registeredinvestment advisors and the
kinds of people who would belikely to be using alternative
asset classes in a diversifiedportfolio.
Fidelity seems to be using anin-house algorithm or
methodology.
I'm not sure exactly how itworks or how it compares with
(26:46):
others, and we probably reallywon't know for a couple of years
now of watching these to seewhether any one of them is
significantly better than theothers.
Dbmf really does seem to havethe inside track on those kinds
of funds these days if you'relooking for something relatively
cheap and as close to being anindexed fund as possible.
(27:06):
Anyway, we'll keep watching allthese things.
I'm glad when you guys bringthem to my attention, because I
can't keep track of all thisstuff.
I'm not a smart man.
Voices (27:20):
And thank you for your email.
Mostly Uncle Frankb (27:23):
Last off.
Last off, we have an email fromJust Lucky.
Lucky and Just Lucky writes.
Mostly Mary (27:32):
I appreciate your podcast very much, just having
found it as referenced by Tyleron portfolio charts.
Thank you, Frank and Mary, forall that you do.
Helping me to stretch my ownunderstanding has been a
wonderful opportunity forpersonal growth.
However, please pretend thishas otherwise been a truly
bothersome email that is barelyworth your time.
To facilitate maximum criticismof the following, as evaluated
(27:55):
on portfolio charts for years adnauseum Gosh, 20%, QQQ, 50%,
VBR, 30%, GLDM or GLD, etc.
I don't like that much goldeither and I lost a ton on bonds
in 2022, so my Igbo I gotburned once and recency bias
(28:17):
gold has made two runs for meare probably hurting my
objectivity.
I love gold made two runs for meare probably hurting my
objectivity.
I love gold.
Otherwise, on behalf of thebeneficiaries of the Father
McKenna Group, thank you forbeing so popular and so far
behind on your emails andmessages.
All the best, just lucky.
Voices (28:37):
You could ask yourself a question Do I feel lucky?
Mostly Uncle Frankb (28:48):
question do I feel lucky?
Yes, I would say.
Your recency bias probably ishurting your objectivity because
, well, there's always a chanceof a year like 2022.
As far as bonds are concerned,that was the worst year in like
a hundred years for that assetclass, and something like that
tends to occur only about threepercent of the time.
So it's like rolling snake eyeswith two dice snake eyes.
Voices (29:19):
Oh no, puff Pumpkinhead, nia Noodle Jokebox, jaw Wolfman
.
Mostly Uncle Frankb (29:31):
You're all under arrest.
At least that's the base rateexpectation.
But this portfolio you've comeup with does perform pretty well
in backtesting and I will tellyou that I've recently listened
to a podcast or video with BobElliott, who's formerly of
Bridgewater it was the compoundappearing with Ben Carlson and
(29:52):
Josh Brown and they were talkingabout golden bonds specifically
in it, instead of bonds, eitherperformed just as well or
outperformed a stock and bondportfolio since 1970.
And he really thinks that thegoing off of the gold standard
(30:13):
in the early 70s did sort ofchange the game for gold in
particular and made it just asviable or more viable than bonds
in many ways as a diversifierfor stocks.
So this little portfolio youcame up with is on the
aggressive side, I would call it, although you only have 20% in
QQQ in it.
(30:33):
That's the worrisome thing interms of volatility because it
has a history of having 80%drawdowns at various points,
whereas something like VBR isgoing to be relatively stable in
comparison, and 30% gold is alot of gold, although there's
something to suggest that if youwere holding international
funds, that that amount of goldwould be closer to the right
(30:56):
amount.
If you're not working in thereserve currency.
That's when bonds becomeparticularly dangerous if you're
holding bonds that are in aweak currency.
That being said, I think thiswould be difficult to hold in
certain periods, and the periodsI'm thinking of particularly
the period from the early 1980sup until about 1998, was a
(31:20):
really bad almosttwo-decade-long segment for gold
, where it was a very goodperiod for bonds because you
were coming down off thoseexceptionally high interest
rates, but gold basicallycrashed after the big run-up.
So it crashed in the early1980s and then just kind of
wallowed along and appeared tobe almost dead by the end of the
(31:42):
1990s, mostly because at thatpoint a lot of central banks
were selling it, including theBank of England, who famously
sold a lot of it right near thebottom before it started to go
up again.
So I think both gold and bondsare really long-term holdings
and that you're probably betteroff holding some of both than
trying to guess as to whichone's going to be the better
(32:03):
holding in the next period.
At least, that's the saferapproach, because you got to
remember both of those arediversifiers.
They are not the main returndrivers in your portfolio, which
are going to be your stocksanyway.
Really, what you put togetherhere I would consider more of as
a conservative accumulationportfolio rather than a full
retirement portfolio.
(32:24):
But you could do a lot worse.
You could do a lot worse.
Voices (32:28):
I'm going to end up eating a steady diet of
government cheese and living ina van down by the river.
Mostly Uncle Frankb (32:37):
Hopefully that helps and thank you for
your email.
Voices (32:43):
I know what you're thinking.
Did he fire six shots or onlyfive?
Well, to tell you the truth, inall this excitement I've kind
of lost track myself.
But, ian, this is a .44 Magnum,the most powerful handgun in
the world and would blow yourhead clean off.
You've got to ask yourself onequestion Do I feel lucky?
Well, do you?
Mostly Uncle Frankb (33:08):
Bunker, but now I see our signal is
beginning to fade.
Just one programming note Iwill be going on hiatus, at
least this weekend, and thereprobably will not be a podcast
in the middle of next weekeither.
So you may not hear from me fora week and a half or so, going
to go to Montana to visit myparents, see some other family.
Voices (33:34):
Fredo, you're my older brother and I love you, but
don't ever take sides withanyone against the family again
Ever.
Mostly Uncle Frankb (33:47):
But in the meantime, if you have comments
or questions for me, please sendthem to frank at
riskparityradarcom.
That email is frank atriskparityradarcom.
Or you can go to the website,wwwriskparityradarcom.
Put your message into thecontact form and I'll get it
that way.
If you haven't had a chance todo it, please go to your
favorite podcast provider andlike subscribe.
(34:08):
Give me some stars, a follow, areview.
Mostly Mary (34:12):
That would be great .
Mostly Uncle Frankb (34:13):
Okay, Thank you once again for tuning in.
This is Frank Vasquez with RiskParty Radio signing off.
Voices (34:24):
Do I really have to do this, dad Stan?
Now more than ever you need tounderstand the importance of
saving money.
But Grandma said I could usethis money to buy whatever I
want.
Okay, next, please Go on,stanley.
Mostly Mary (34:36):
I got a $100 check from my grandma and my dad said
I need to put it in the bank soit can grow over the years.
Voices (34:41):
Well, that's fantastic, a really smart decision, young
man.
We can put that check in amoney market mutual fund.
Then we'll reinvest theearnings into foreign currency
accounts with compoundinginterest and it's gone.
Uh what it's gone, it's allgone.
What's all gone?
The money in your account, itdidn't do too well, it's gone.
(35:01):
What do you mean?
The money in your account, itdidn't do too well, it's gone.
What do you mean?
I have $100.
Not anymore.
You don't.
Mostly Mary (35:07):
Poof.
The Risk Parody Radio Show ishosted 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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