In this episode we answer a question from Ness. We have fun with The Untouchables, retirement clubs, Portfolio Visualizer and many other things.
And THEN we our go through our weekly portfolio reviews of the eight sample portfolios you can find at Portfolios | Risk Parity Radio.
To donate to the Top of the T-Shirt campaign and double your fun, please visit the Father McKenna Center donation page and note "Risk Parity Radio Match" when making your contribution.
Additional Links:
Father McKenna Center Donation Page: Donate - Father McKenna Center
Portfolio Charts Free Charts: Charts – Portfolio Charts
Portfolio Visualizer Tutorial Video: Tutorial #4: Portfolio Visualizer Monte Carlo Simulator -- Introduction
Retirement Answer Man Case Study Podcast (start at minute six): I Just Lost My Job. Can I Retire Now?
Portfolio Visualizer Simulation #1: https://tinyurl.com/yuev3s59
Portfolio Visualizer Simulation #2: https://tinyurl.com/kjy5ur7n
Portfolio Visualizer Simulation #3: https://tinyurl.com/yc2rstr7
Breathless Unedited AI-Bot Summary:
Tired of retirement planning approaches that feel more like crystal ball gazing than strategic analysis? In this episode, we demystify the often-confusing world of retirement planning tools and techniques, revealing how to achieve better results without expensive software or club memberships.
We dive deep into how free tools like Portfolio Visualizer can perform sophisticated retirement planning when used correctly – specifically by analyzing asset classes rather than ticker symbols. This approach not only provides access to decades of historical data but creates a more robust foundation for retirement decisions than the parameterized returns many paid services rely upon.
Through a detailed case study, we demonstrate how a risk parity-style portfolio improved a retirement plan's success rate from 85% to 96% compared to a traditional 60-40 portfolio. This significant enhancement required no additional savings or lifestyle changes – just smarter portfolio construction based on proven diversification principles that many financial advisors haven't incorporated into their practices.
The episode also examines retirement clubs that charge $600-900 annually, questioning whether their financial planning guidance justifies the cost when their approaches often lag behind current best practices. While these clubs may offer valuable social connections and psychological support for the transition to retirement, their portfolio construction recommendations frequently default to outdated models followed by excessive "padding" rather than optimization.
For DIY investors, we provide practical guidance on using free or low-cost tools like Portfolio Charts' heat map to stress-test portfolios and identify maximum drawdown periods – crucial information that many expensive planning tools don't clearly reveal. This approach helps you build true resilience into your portfolio structure rather than compensating for mediocre construction with excessive cash reserves.
Ready to take control of your retirement planning with sophisticated tools that won't cost you hundreds of dollars? Listen now to discover how to analyze your portfolio like a pro and potentially improve your retirement outcomes without paying for expensive software or memberships.
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.
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 (00:36):
Thank you, Mary, and welcome to Risk Parity
Radio.
If you are new here and wonderwhat we are talking about, you
may wish to go back and listento some of the foundational
episodes for this program.
Voices (00:49):
Yeah, baby, yeah.
Mostly Uncle Frank (00:51):
And the basic foundational episodes are
episodes 1, 3, 5, 7, and 9.
Some of our listeners,including Karen and Chris, have
identified additional episodesthat you may consider
foundational, and those areepisodes 12, 14, 16, 19, 21, 56,
(01:12):
82, and 184.
Whoa, and you probably shouldcheck those out too, because we
have the finest podcast audienceavailable.
Voices (01:26):
Top drawer, really top drawer.
Mostly Uncle Frank (01:30):
Along with a host named after a hot dog.
Voices (01:34):
Lighten up Francis.
Mostly Uncle Frank (01:37):
But now onward, episode 434.
Today on Risk Party Radio.
Voices (01:43):
It's time for the grand unveiling of money.
Mostly Uncle Frank (01:47):
Which means we'll be doing our weekly
portfolio reviews of the eightsample portfolios you can find
at wwwriskpartyradiocom On theportfolios page.
But before we get to that, wedo have at least a couple of
emails here, and so, withoutfurther ado, here I go once
again with the email.
And First off.
(02:08):
First off, we have an emailfrom Ness.
Voices (02:13):
This is Elliot Ness.
Come on out.
We don't want any trouble.
We're the fuckers You're nevergonna get us.
Mostly Uncle Frank (02:30):
And.
Mostly Mary (02:31):
Ness writes.
Brother Frank, it's yourbrother, Ness.
Voices (02:39):
I'm too old to call you uncle, and you can feel free to
insert an Elliot Ness reference.
The Untouchables starringRobert Stack.
Mostly Mary (02:48):
I've been binge listening to you for a few
months and really appreciate theeducation.
I'm always skeptical of peopletrying to separate me from my
money and try to do my duediligence before signing on the
line which is dotted.
Voices (03:00):
Because only one thing counts in this life Get them to
sign on the line which is dotted.
Mostly Mary (03:07):
I'm hoping to gain the confidence to leave my
current financial advisor andtake full control of mine and my
wife's portfolios.
Voices (03:16):
It's all the same to you .
I'll drive that tanker.
Mostly Mary (03:25):
I'll drive that tanker.
Last year I became a member ofa club Rock Retirement Club and
thought you made a reference toit in a previous podcast, though
you may have been referring toanother club.
I've got a good mind to join aclub and beat you over the head
with it.
If you were referring to myclub, I would respectfully ask
you to reconsider your negativejudgment.
The dues for my club $600,.
Get me access to Money GuidePro, which definitely has some
(03:46):
monetary value.
The financial advice is rathergeneric, but that is not the
focus of this club.
The connections andinteractions with others that
are getting ready to retire orhave recently retired are the
main draw and have immense value.
I feel they focus more on thepersonal aspects of retirement,
such as health activities,routines and dealing with the
loss of professionalidentification, more than the
(04:08):
financial aspects.
If you were referring toanother club, please delete this
paragraph.
I've been trying to utilizePortfolio Visualizer but have
found it useless unless I pay$360 a year.
Without that, I can't backtestmore than 10 years.
That is not an improvement.
That's not an improvement.
Am I not understanding thefunction of their website?
Voices (04:30):
No more flying solo.
You need somebody watching yourback at all times.
Mostly Mary (04:36):
I can't imagine you would use the free version of
their website.
What am I missing?
I went to portfolio charts andfound that it has a reasonable
$5 per month fee.
There may be free features, buteverything I try to utilize for
free brings me to a page sayingmembers only.
Once again, what am I missing?
Regardless, I want to thank youfor your podcast.
(04:56):
I have directly donated $100 onJune 25th to the Father McKenna
Center.
Mostly Uncle Frank (05:02):
That's what I'm talking about to the Father
McKenna Center, that's what I'mtalking about.
Mostly Mary (05:04):
I tried to go to Patreon to set up a monthly
pledge, but I can't seem to findit there.
By searching Father McKennaCenter, I couldn't find a link
to their Patreon site on theFather McKenna Center website
either.
They really need to make iteasier for us to part with our
money.
All we need to do is get yourconfidence back so you can make
(05:33):
me more money.
Voices (05:34):
Thank you for many hours of listening to your podcast
while I drive from job site tojob site.
Motor a 440 cubic inch plant.
It's got cop tires, copsuspension, cop shocks.
It's a model made beforecatalytic converters, so it'll
run good on regular gas.
What do you say, Is it?
Mostly Mary (05:51):
the new.
Voices (05:51):
Bluesmobile or what.
Fix the cigarette lighter.
Mostly Mary (05:58):
God bless you and the Father McKenna, center Ness.
Mostly Uncle Frank (06:03):
Hmm, I wonder what it would sound like
if Elliot Ness was my brother.
Voices (06:08):
You didn't have to read the papers, frank.
You've been described a dozendifferent times A man with a
soft touch.
You get around, don't you, fred?
Every place Candy stores,restaurants, hotels, grocery
stores, the same place as you go.
Frank, a little story you toldme a few weeks ago never did
(06:30):
come true, did it?
Mostly Uncle Frank (06:33):
You know there's also a nice amber lager
called Elliot Ness from theGreat Lakes Brewing Company, but
of course my favorite beer fromthat company is in fact the
Edmund Fitzgerald Porter.
Voices (07:02):
The legend lives on from the Chippewa on down At the big
lake they call Gitche-goo-ee.
The lake, it is said, nevergives up her dead when the skies
of November turn gloomy.
Mostly Uncle Frank (07:22):
But I digress, I could have told you
that.
First off, thank you for being adonor to the Father McKenna
Center.
As most of you know, we do nothave any sponsors on this
podcast.
We do have a charity we support.
It's called the Father McKennaCenter and it supports hungry
and homeless people inWashington DC.
We are currently running amatching campaign.
(07:44):
It's called the Top of theT-Shirt Campaign.
You'll have to go back toepisode 426 for a full
explanation of that.
But if you donate to the center, you get to go to the front of
the email line, as Ness has donehere.
Now there are two ways of doingthat.
You can do it on Patreon, andlet me just explain how you do
that on Patreon, because theFather McKenna Center is not
(08:04):
listed as an organization onPatreon.
And let me just explain how youdo that on Patreon, because the
Father McKenna Center is notlisted as an organization on
Patreon, just to challenge you.
You do it through Risk ParityRadio at Patreon, and the
easiest way to get there is togo to the support page at the
Risk Parity Radio site,wwwriskparityradiocom, and you
can link to the Patreon placethere and put your donation
(08:28):
there or put your pledge inthere.
That's a way of contributingmonthly.
Or you can do as you have done,which is go to the Father
McKenna website itself, in whichcase you're not donating
through Patreon, you're justdonating and they have a
donation page.
I will put it in the show notes.
If you donate at the FatherMcKenna website, please put a
little note in the dedicationbox when you donate to note it's
(08:52):
Risk Parity Radio related, sowe can count it for our campaign
.
Anyway, either way you do it,you go to the front of the email
line and I thank you very muchfor your donation.
Voices (09:02):
Top drawer, really top drawer.
Mostly Uncle Frank (09:06):
But now let's get to your questions.
So it sounds like you're havinga little trouble with Portfolio
Visualizer.
Voices (09:14):
It's a piece of crap.
It doesn't work.
Mostly Uncle Frank (09:16):
And may have misinterpreted what's there.
So it's correct that PortfolioVisualizer requires you to pay
if you are going to use theticker symbol.
Analyzer passed 10 years ago,but that's not really what you
want to be using there atPortfolio Visualizer anyway, you
want to set the tools up toanalyze based on asset class and
(09:39):
if you do that, you get all thedata they have, and that's
really the way you want to beanalyzing portfolios anyway,
because you would only pickspecific tickers after you had
constructed a portfolio of assetclasses, and Portfolio
Visualizer is great on thatbecause it has like 30 different
asset classes you can put intothese tools and calculators.
(10:01):
It's a much superior tool tothings like CFIRE, sim or
FIRACalc, where you're onlyanalyzing two or three things.
It is not sufficient to beusing a calculator that analyzes
, for instance, only stocks,bonds and cash or something like
that.
That might have been goodenough 15 years ago.
It's certainly not good enoughtoday, and since we've had
(10:23):
calculators like this one outfor over a decade, you should be
using them for any serious work.
So it's interesting.
I recently did a tutorial at aChooseFI Baltimore group session
about Portfolio Visualizer inparticular and about the
financial goals tool that'sconnected to the Monte Carlo
simulator, then we're going togo through some of that today.
(10:46):
There is actually a video thatI created a long time ago that
is still on YouTube.
I will link to that.
That was a former version ofPortfolio Visualizer, although
the tool is pretty much the same.
Once you get there, I will linkto that in the show notes.
And no, I'm not going to bemaking any more videos.
I did that early on and decidedI didn't really want that job.
(11:07):
It's not that I'm lazy, it'sthat I just don't care, and it's
of the amateurish quality andproduction values that you've
come to know and love from thisprogram.
Just come up.
But I am going to talk throughsome more of that today in
answer to your question in a fewminutes here and provide some
links so you can see that toolin action and make the
(11:29):
modifications that you want todo to analyze your own situation
.
But no, it does not costanything.
In terms of portfolio charts,the best way to use that for
free, if you don't want to pay$5 a month, is to simply use the
charts, because all of the 12main charts or so are there for
free.
You just bring one up and putyour portfolio into it.
(11:51):
It always brings you a 60-40portfolio as a default, but then
it's got all these boxes fordifferent asset classes so you
can put in your portfolio andsee what the results are For
your purpose.
Here, I think a couple of thevaluable tools would be the safe
withdrawal rate tool there andthe retirement spending tool
there.
You definitely want to be usingthose when you're modeling your
(12:14):
own situation.
And again, all this is free.
I will link to the charts pagein the show notes and you can go
there and then start playingwith these charts, which you
should do, and I'll go ahead andmake sure you get another copy
of that memo.
Okay, all right, let's talkabout retirement clubs and Rock
Retirement Club in particular,and what Roger Whitney's doing
(12:36):
over there.
Voices (12:38):
Please accept my resignation.
I don't want to belong to anyclub that will accept me as a
member.
I don't want to belong to anyclub that will accept me as a
member.
Mostly Uncle Frank (12:52):
First, I think it's important that you
understand the context of whatI'm going to say and why this
sounds differently than what youmight get somewhere else Did
you ever have?
Voices (12:57):
a family Frank, a wife, a child.
Maybe that's what it takes tohave a soul.
Or maybe you haven't got a soul, maybe you never had one.
Mostly Uncle Frank (13:09):
I do not view myself as part of the
financial services industry andI do not view myself as part of
the financial media.
I view myself as a consumer ofthese things, bing, and as a
critic of them.
Voices (13:25):
Bing again.
Mostly Uncle Frank (13:27):
And my experience as a lawyer is in
cross-examining financialexperts.
And I think it's more importantto offer critiques of things
rather than just saying howgreat everything is.
(13:48):
There is a tendency infinancial media and in the
financial services industry foreverybody to just say nice, nice
things about each other and pateach other on the back and it
results in cross promotions andpeople being guests on various
podcasts and cross promotionsand people being guests on
various podcasts.
It does work kind of hand inglove very nicely for people in
(14:09):
those two positions.
Voices (14:11):
Am I right or am I right , or am I right, right, right,
right.
Mostly Uncle Frank (14:15):
But I don't think it's necessarily that
helpful for people who areconsuming these things.
Voices (14:21):
A guy.
Don't walk on the lot lest hewants to buy.
They're sitting out therewaiting to give you their money.
Are you gonna take?
Mostly Uncle Frank (14:28):
it.
So I don't have anythingpersonal against anybody who
works in the financial servicesindustry or anybody that's in
financial media, but we do haveto talk frankly about what they
are doing and whether that's ofservice or not to the consumer,
or rather when it is and when itis not.
Because we do apply Bruce Lee'sadage here take what is useful,
(14:49):
discard what is useless and addwhat is uniquely your own.
So now let's talk aboutretirement clubs in general.
Voices (15:01):
The Inquisition.
Let's begin the Inquisition.
Look out, sam, we have amission general.
Mostly Uncle Frank (15:08):
And this is a relatively new phenomenon that
some financial advisors havefound to be useful.
I think it was mostly rolledout to generate interest or
business, which makes a lot ofsense, because it's certainly
better than free steak dinnersAlways be closing, always be
(15:37):
closing.
And so two of the mostprominent ones are the one run
by McLean Asset Management,which is actually a practically
a neighbor of mine, that's WadeFowle's shop, and then this rock
retirement club run by rogerwhitney, but there are other
ones, so you can imagine that,from their perspective,
attracting business this way andproviding some information,
education, social events,whatever makes sense for
(16:00):
generating business.
I also wonder now and I don'tknow the economics of these
things whether they are becomingtheir own profit centers,
because if you scale it up farenough, yeah, you could be
making money off something likethis.
I doubt that was the originalintent, but the way the internet
works now, with the possibilityof Zoom and every other thing
(16:21):
like that, you can imagine thatit is possible to scale such
things up and make themprofitable in their own right.
I do not know if that is what'sgoing on with either one of
these or any other one that'sout there.
I did go to the Rock Retirementweb page to find out how much
it costs this year to join, andit's $899, which automatically
(16:43):
renews, according to theirwebsite.
You mentioned $600.
You must be getting a discount.
Good for you.
I don't know how you got adiscount, but I'm sure there was
a code somewhere or somethinglike that.
Anyway, for the hoi polloi suchas myself, it would be $899 to
join this club.
Voices (17:03):
It is said that the people are revolting.
You said it they stink on ice.
Mostly Uncle Frank (17:12):
And it sounds like you're getting at
least that amount of money'sworth just out of the social
aspects of this, and $600 a yearis not that much money for a
social club actually.
So if it's helping you developrelationships or improve
relationships or anything likethat, I would say it's
definitely worth the money forthat.
And I would say that RogerWhitney and the Retirement
Answer man podcast and series isvery good on these kind of soft
(17:34):
topics of retirement.
I think that's what he actuallylikes to specialize in and
doesn't really like the nuts andbolts that much.
At least that's my impressionfrom listening to the podcast
and I have listened to thatpodcast for years and I do know
some of the people who are inRock Retirement Club and they
seem to get a lot out of it andthat kind of ethos to it.
(17:55):
But now let's talk about thenegative.
Voices (17:59):
There was this sound like a garbage truck dropped off
the Empire State Building.
Mostly Uncle Frank (18:08):
Part of the negative is just the groupthink
of the whole thing.
The people that I know who aremembers of the Rock Retirement
Club are people that tend tohave trouble spending money.
They are natural hoarders, oras Morgan Housel would say, they
have frugality inertia.
Or, as Morgan Housel would say,they have frugality inertia.
And if you spend a lot of timearound such people you may
(18:29):
believe that that is a normalstate.
I would say it is a normalstate for a lot of what goes on
in personal finance world.
It is not a normal state andnot a good state to be in for
most people and, as we learnedfrom Jim Rohn last episode, you
become the five people you spendthe most time with.
Voices (18:49):
You are the average of the five people you spend the
most time with.
Want to know your future.
Look at your friends.
Mostly Uncle Frank (18:58):
So be careful on who you associate
with, or at least make sureyou're keeping at arm's length
those traits that you do notwish to adopt.
And I don't know whether youhave trouble spending money or
not, but I can tell you that alot of the people in that club
have a lot of trouble spendingmoney and they underspend money,
and so one of the reasons theyjoin the club is to get more
(19:23):
confidence in what they're doing, so hopefully they can enjoy
their retirement more and aren'tworried about the money all the
time.
But I think the main problemwith this club, and particularly
the approach that Roger Whitneytakes, is that it's not really
that great, honestly.
I'm talking about the approachto retirement planning, in
particular, how he constructs aretirement portfolio, and I'm
(19:45):
pretty sure that's what heteaches in the club, because
this is what he talks about onhis podcast.
Voices (19:54):
Now let's talk about what that approach is and my
critiques of it.
The Inquisition what a show.
The Inquisition, here we go.
We know you're wishing thatwe'd go away, but the
Inquisition's here and it's himtoo, hey talk about it.
What do you say?
I just got back from the Hordeof the Fae.
Horde of the Fae?
What's an Horde of the Fae?
(20:15):
It's what you ought to do, butyou do anyway.
Mostly Uncle Frank (20:19):
Fortunately, in the most recent week he did
do a kind of mini case study onhis podcast, which I'll refer to
in the show notes and you canlisten to.
It starts at minute six of theaudio and we'll also tie that
into how you would analyze thesame thing using Portfolio
Visualizer.
You can do this work there andyou do not need Money Guide Pro
(20:42):
to do this.
So he goes through his casestudy and we're talking about a
couple that is 59 and 58.
They are both working.
He lost his job.
He's the elder of the two.
She plans on working at leastfor another seven years.
They have, I think, $773,000saved up.
They plan on contributing$140,000 more in the next seven
(21:05):
years.
They will have Social Securityof $61,200 annually, starting in
about seven years, and inaddition to her salary they need
$24,000 until then andapproximately $84,000 annually
total as their spend.
And he had to assume some ofthese numbers.
(21:26):
But that's not the point.
The point is, everything I justgave you can be modeled in
Portfolio Visualizer using thefinancial goals tool, and I've
done that and I linked to it inthe show notes, Because what
that allows you to do is notonly set up a portfolio for
analysis, but also put in thesecash flows and have them
starting and stopping at varioustimes, and you can have an
(21:49):
infinite number of those.
And so I've set that up justbased on some assumptions here.
And you can see that when yougo to that link so that you can
modify it for your own purposesand situation.
And in his description that'sthe same thing he's doing in
MoneyGuide Pro.
Okay.
Then we start getting to theproblem the same thing he's
doing in Money Guide Pro.
Okay.
Then we start getting to theproblem areas with what he's
doing.
The first thing he does isassume that they're going to be
(22:12):
using a 60-40 portfolio in theirretirement, Like a simple 60-40
portfolio.
It's like stock fund bond fund.
I don't know why you wouldassume that or why you would
want that.
That is not really a very goodportfolio to be using.
Voices (22:27):
That's the fact, Jack.
That's the fact, Jack.
Mostly Uncle Frank (22:31):
It might have been 20 years ago, but we
know a whole lot better todayand any advisor of any
sophistication knows that thatis not by itself a great
portfolio to be using inretirement.
You need more diversification.
So it does not make sense to meto assume that you're using a
mediocre portfolio as yourportfolio in retirement.
(22:53):
You want to use exactly whatyou plan on holding and analyze
that, and in my case, I woulduse a risk parity style
portfolio because I know it hasa higher safe withdrawal rate.
But as we go you'll see.
I've done it actually both waysin the portfolio visualizer
(23:13):
analysis that I'm referring to.
Okay, then the next thing hedoes is he assumes a return for
this 60-40 portfolio.
He's not using historical datato get the return.
He's assuming a return for this60-40 portfolio.
He's not using historical datato get the return.
He's assuming a return.
This is what is known as aparameterized return that you're
assuming a return and he's alsoassuming a standard deviation
(23:37):
for that return.
And this is a way you can modelportfolios and you can do this
at Portfolio Visualizer.
It allows you to doparameterized returns or
historical returns.
It's got two other options.
It's actually got fourdifferent options there for
analyzing this.
This is free.
You can do this there.
You don't need MoneyGuide Proto do this.
(23:59):
Forget about it.
So he didn't mention whatstandard deviation he was
applying to this.
I went and monkeyed with thePortfolio Visualizer one to try
and get the same results that hewas getting out of his
calculator.
But the problem with using aparameterized return is that you
are effectively using a crystalball.
That is a crystal ball Becauseyou have some belief that this
(24:24):
will be the return in the future.
What is that belief based on?
Voices (24:29):
Now the crystal ball has been used since ancient times.
It's used for scrying, healingand meditation.
Mostly Uncle Frank (24:38):
In this case , he seems to be taking it
straight out of the calculator.
I don't know what this crystalball is that's inside this
calculator that's throwing outthese returns.
I do know that a lot of thesecalculators will throw you out
returns with no real explanationas to where that comes from or
why they think that's the rightreturn in the future.
Voices (25:00):
As you can see, I've got several here, a really big one
here, which is huge.
This is the one that I tend touse more often.
I have a calcite ball and Ihave a black obsidian one here.
Mostly Uncle Frank (25:19):
Chances are.
It's not Chances are their.
Crystal ball isn't veryaccurate and it's certainly not
more accurate than long timehistorical returns.
Voices (25:29):
Now you can also use the ball to connect to the spirit
world.
Mostly Uncle Frank (25:34):
And to me, that's the way these calculators
get misused.
It's one of the ways they getmisused, because you are
starting with something that'sobviously not real world.
Voices (25:43):
The crystal ball is a conscious energy.
Mostly Uncle Frank (25:46):
So how can you expect to get a good result
out of something that isinvolving guessing to begin with
?
Voices (25:53):
You can actually feel the energy from your ball by
just putting your hands in andout.
Mostly Uncle Frank (25:59):
But anyway, for the purpose of illustration,
I did use the parameterizedreturn function, put it into the
first link to PortfolioVisualizer and you can see that
analysis and it shows you whatthe success rate would, be so on
and so forth.
So he did his over 30 years, Idid mine over 35.
He got an 85% success rate, Igot an 80% success rate.
(26:21):
And you can see all that in thelink with the nice charts and
all this stuff.
Same kind of stuff you'd getout of Money Guide Pro, just
maybe not so fancy looking.
Voices (26:33):
Don't be saucy with me, Bernays.
Mostly Uncle Frank (26:36):
One of the other things that wasn't clear
to me is how MoneyGuide Proaccounts for taxes.
It sounded like it's got someinternal tax generating part of
that program.
I actually don't think that's agood way to be doing taxes
either.
I think you should do that as aseparate calculation or
estimate and simply add it toyour expenses expenses.
(27:02):
That is a more logical way ofdoing things and it keeps things
out of these black boxes whereyou really don't know why it's
assuming what it's assuming.
It's important to know why youare making a tax assumption and
not just accept it out of acalculator.
It's another kind of black boxcrystal ball thing.
Voices (27:16):
It's kind of looking at the aura around the ball, see
the movement of energy aroundthe outside of the ball.
Mostly Uncle Frank (27:22):
So then he looks at the result.
The calculator spits out this85% success rate, which is not
bad for these kinds ofcalculators.
If you know, a Monte Carlosimulation works.
The chances of you gettingthose 0% to 15% results are
minuscule.
So an 85% success rate is goodenough for the purpose of the
(27:43):
tool, because it doesn't reallymean success rate.
It means the chances of havingto alter your plan.
But anyway, he declares that tobe feasible, and that is a word
he uses to say something isworkable.
But it seems to really mean ifthe calculator gives me the
right number, spits out theright number, I declare that
(28:04):
feasible.
Otherwise that word really hasno meaning.
But I know he likes to use thatbuzzword as part of the
marketing, the presentation ofwhat he does.
It's all one big crapshootanywho, but that's all it is.
But then you get to the nextproblem is he actually does not
trust that outcome.
Even though he thinks it'sfeasible or says it's feasible,
(28:27):
he doesn't actually trust it andhe says he wants to make the
thing resilient.
So how does he do that?
Basically, he just comes upwith a bunch of imaginary
scenarios.
One of them he does is a stresstest and he picks 2008 to 2009
to do that.
I'm not sure why he would havepicked that, because that was
(28:49):
the end of a bad period, that,if you really want to do a good
stress test, the first periodyou should pick in our lifetimes
is retiring at the end of 1999,and what would have happened
for the next 10 years.
That is the best modern stresstest you can do.
You would not pick 2008 as yourstress test Now.
(29:10):
You probably don't need to dothat kind of stress test at all
if you were doing an historicalanalysis to begin with, because
the historical analysis wouldhave captured that as part of
its calculation of the safewithdrawal rate.
If you are using thoseparameterized returns, though,
you have no idea whether whatyou came up with is going to
(29:33):
survive particular historicaleras, unless you go back and
specifically test them, and youwould need to test all of the
relevant ones, or at least allthe ones you had data for, which
is another big drawback ofusing this kind of crystal ball
parameterized return analysis tobegin with.
After that, he does a series ofwhat about isms?
(29:55):
What about if somebody has ahealth care scare when they turn
80?
What about if somebody has ahealth care scare when they turn
80?
What about if somebody diesearly?
Some of those things are usefulto use, but you need to assess
a probability of those thingsoccurring.
You can't just be runningaround catastrophizing, saying
what if we get struck bylightning when we turn 78?
(30:17):
Turned 78.
And in this case, one of thethings he said what if there is
long-term care, a three-yearlong-term care event at age 80?
That is actually an extremelylow profitability event, unless
the person dies shortlythereafter, because if you go
into long-term care as an80-year-old, chances are you're
not coming out.
(30:38):
Forget about it.
So what he really should havebeen modeling there is an early
death, which then would changethe income parameters and you
would change that in the tool interms of both the taxes and the
income.
But in most cases dying earlyis not a problem.
Voices (30:56):
Death stalks you at every turn.
Mostly Uncle Frank (31:00):
Because if you plan for a retirement to go
to age 95 or something like thatand you die early, obviously
you didn't run out of money andin fact you had extra money
because you had 10 years ofmoney you didn't even touch.
Dying early is almost never aproblem in this kind of planning
.
Voices (31:25):
If you don't start making more sense, we're going
to have to put you in a home.
You already put me in a home,then we'll put you in the
crooked home.
It's on 60 minutes, I'll begood.
Mostly Uncle Frank (31:33):
Anyway, it's a fundamental forecasting
problem.
To just make up what about ismswithout assessing or assigning
some kind of probability to theevent.
I realize he couldn't really dothat, since this is a limited
exercise, but I thought the wayhe approached it was not correct
, or at least he did not explainwhy you would be interested in
(31:54):
testing some potential outcomesbut not others.
You would certainly not testevery random catastrophe you
could think of.
Okay.
Then after that he says hewants to make the plan resilient
.
That's another marketingbuzzword he likes to use.
What this actually tends toboil down to and I've listened
(32:14):
to him talk about this foreveris essentially just padding the
portfolio.
Just adding a big pile of cashon the front is what he usually
does.
He says, well, you should havefive years of cash on the front
of this thing and that'll makeit resilient.
Well, yeah, it'll make itresilient, it'll be over-saved.
Voices (32:32):
That is the straight stuff.
Oh funk master.
Mostly Uncle Frank (32:35):
If your real plan is don't spend much money,
become over-saved and don'tspend much money, you don't need
to go through all these plansto do that.
That's not value add.
You got to be doing somethingmore as a financial advisor
other than saying, well, youshould just save a whole lot
more money.
What I really would want afinancial advisor to do is see
(32:58):
if they can construct aportfolio or another plan that
will work with the money wealready have, or at least not
deploy it in a grosslyinefficient manner in a giant
pile of cash called a pie cakethat you ram in front of the
thing.
That is really not goodplanning.
It's mediocre and it'scertainly not something I would
(33:21):
be willing to pay anybody for,because you can do that yourself
.
So he basically suggests thatthe guy get another job, which I
actually don't think isnecessary.
In this case it could benecessary.
Voices (33:35):
I don't think I'd like another job.
Mostly Uncle Frank (33:38):
But I do appreciate that.
I think the real issue that he'sdealing with is the one that
he's not talking about is in hisexperience he has a lot of
clients like this who do notaccount for their expenses very
well, and so one way around thatis to simply pad the plan, if
you will, with either more moneyor assuming more expenses even
(34:01):
though they're not accounted for, and I can see that being an
issue with a particular, with aclient like this, where they are
primarily living off SocialSecurity as their primary income
source, their portfolio isrelatively small, paying for
much less than half of theirexpenses, and that is a
different kind of person than,frankly, most of the people that
(34:22):
listen to this podcast who aregoing to be funding their
retirements mostly out of theirportfolios and relying on Social
Security as an extra add-on.
So I do appreciate that.
I believe, from the personalexperience he has, if he's
working mostly with clients thathave less than a million
dollars, that really honing downon these expenses is going to
(34:43):
be really important, and the wayto protect them and to protect
yourself as an advisor is to padthe whole thing.
But that's certainly not a veryefficient approach and we do
know from the research goingback to Bill Bangan that holding
more than 10% in cash or cashequivalents in a portfolio tends
to reduce its safe withdrawalrate.
(35:05):
So the only way that holding abig pile of cash in front in a
pie cake, or whatever you wantto call it works is if you are
over-saved to begin with.
And if you're over-saved, youcan do pretty much whatever you
darn well please, but thatdoesn't require much planning
skill.
And calling something quote,resilient, unquote, when what
(35:25):
you really mean is oversaved isnot really helping clarify what
we're talking about here in realfinancial terms and not
feel-good marketing terms.
Voices (35:38):
Put that coffee down.
Mostly Uncle Frank (35:48):
Coffee's for closers only, okay.
So what if we did this more theway I would approach it in
terms of use of the calculator?
So if you look at the secondportfolio visualizer I link here
instead of doing thisparameterized return thing I
link here instead of doing thisparameterized return thing we
did an analysis of the 60-40portfolio on a historical basis
and this data goes back to 1972.
For this purpose, I alsoincreased the amount being spent
(36:11):
to get some interesting results, just because I think that the
program he was using wasinserting some kind of taxes
that weren't accounted for inthe $84,000.
So I ran it with $93,000 forthis purpose as the amount being
taken out.
And yes, that's inflationadjusted.
So don't get all in a tizzyabout that.
(36:32):
That's the first questionpeople ask when they don't want
to believe what I'm saying.
Is it inflation adjusted?
I think it's adjusted forinflation.
Is inflation adjusted?
Voices (36:48):
Yes, it is.
That's how the tool works.
Mostly Uncle Frank (36:52):
Get over it.
You're too stupid to have agood turn, but you can turn that
on and off in the tool as well.
It's a very robust tool.
I should also clarify that hetalked about a portfolio of
stocks, bonds and cash.
That was essentially a 60-40,so the one I used for modeling
purposes here is 60-35-5, as inUS stock market 10-year treasury
(37:16):
, bond and cash, and it comes upwith a 85% success rate for
what we ran it.
And then we ran it again with abetter portfolio, the kind of
portfolio that it would havestarted out to begin with.
I basically created asimplified risk parity style
portfolio to make sure that thedata would match up the same
(37:37):
data series for both tests.
So it's 26% large cap growth,26% small cap value, 26% 10-year
treasuries, 16% gold and 6% incash, and when I run it with
that portfolio I get a 96%success rate instead of an 85%
(37:58):
success rate.
Voices (38:00):
Winner winner chicken dinner.
Mostly Uncle Frank (38:05):
And so it's better across the board as a
retirement portfolio.
That's the whole point of whatI talk about here in this
podcast is that you should startusing a really good portfolio
for retirement and not amediocre one, and then run your
test based on that retirementand not a mediocre one, and then
run your test based on that.
And if you do that, if you makethe portfolio resilient a
(38:27):
resilient portfolio to beginwith you are going to have
better results and be able tospend more money, and then these
people don't have to go back towork.
Voices (38:38):
No one can stop me, don't have to go back to work
Now.
Mostly Uncle Frank (38:41):
If you were to go to a higher-end financial
advisor, they would do suchthings.
They would show you differentkinds of portfolios and
different outcomes.
They would not be using a 60-40portfolio with a pie cake
attached to it.
And as consumers at least thoseof us who have some significant
money we should expect more orjust do it ourselves if we're so
(39:05):
inclined.
Because a lot of what financialadvisors are doing out there,
particularly for their lower endclients, is at least 10 years
behind in this area, and itmakes sense from a business
point of view to come up withsomething that has worked and
then just continue to use itover the decades, because
(39:28):
changing your approach means youhave to change it for all your
clients, or at least tell allyour clients about it, and
that's not a pleasant prospect.
So I understand the inertiahere of how this actually works,
but if you are the consumer orthe client of this, you should
be careful about what you'reaccepting from the financial
(39:48):
services industry, no matter hownice they are.
Voices (39:53):
If you have a milkshake and I have a milkshake and I
have a straw.
There it is.
That's a straw, you see, watchit and my straw reaches across
the room and starts to drinkyour milkshake.
(40:17):
I drink your milkshake, I drinkit up.
Mostly Uncle Frank (40:25):
Because any financial advisor that's been
doing the same thing for adecade or more is probably not
up to date on best practices.
It's just the reality of thesituation, and if this is what
they're teaching you in whateverclub you belong to, you may
question the value of that andwhether it's going to cause you
(40:45):
more problems than it solves.
Voices (40:48):
That was the equation Existence.
Survival must cancel outprogramming.
Mostly Uncle Frank (40:59):
I think you recognize that in your email.
You said that the financialadvice there was rather generic,
which makes sense Because,believe it or not, it is still
adding up the expenses andforecasting expenses.
That is the most importantthing to do in this kind of
planning.
Interestingly enough, though,there are some shortcuts there.
(41:19):
Interestingly enough, though,there are some shortcuts there,
and I think our experience isrelatively typical for at least
high earners, in that ournominal expenses in the first
five years of retirement haveactually gone down, mostly
because of reduced taxes, and itis likely that your expenses at
least your regular expenses aregoing to peak early in your
(41:43):
retirement.
And if that's the case, itmakes planning the future a
whole lot easier if you alreadyknow that you're not going to be
spending more money on aninflation-adjusted basis, except
in some kind of emergency,because then you don't really
need to even know what you arespending it on, just that it's
less than what you had before.
(42:04):
And that is really the keything that oftentimes people try
to do this from the bottom upon every little thing, like
we're going to buy this car in10 years and replace this HVAC
in 15 or go on this particulartrip in 12.
It's more important to know thebig number.
What is your overall expenses?
What are they likely to be?
Are they going to be higherthan what they are now?
(42:25):
Are they going to be lower?
Is your lifestyle going tochange?
And then the second mostimportant thing to know is how
much of that is mandatory andhow much is discretionary,
because 40% of our expenses arediscretionary and 20% of our
expenses are essentially givingmoney away, either supporting
family, giving it to heirs inadvance or giving it to charity.
(42:48):
Obviously, if you have that kindof buffer on spending, we could
easily reduce that.
If we had to, wouldn't want to.
All I'm saying there is thereis more than one way to skin
this cat on expenses, but yes,they are the most important
(43:09):
thing to get right within aballpark.
Anyway, we talked about a lotof things here, probably too
many things, meaning there won'tbe any more emails in this
podcast, but I hope you gotsomething out of it and I hope
you recognize that you can usethese tools at Portfolio
Visualizer and Portfolio Chartsin particular, and you should be
using them.
As I've told you, there aresome links there to help you.
(43:32):
Now, while I'm sure MoneyGuidePro is very nice.
If you're not using it properlyand you're really generating
crystal ball assumptions out ofit, it's worse.
It's worse to use somethinglike that than Portfolio
Visualizer and Portfolio Charts.
Voices (43:49):
You fell victim to one of the classic blunders.
Mostly Uncle Frank (43:53):
One other thing I forgot to mention on
Portfolio Charts in particularis there is a nice calculator
they're called the heat map thatyou can put in your portfolio
and then see how it performed onan annual basis going back to
1970.
And what that's nice to look atis it gives you a stress test
automatically, because it's gotessentially red for negative
(44:17):
returns over time and blue forpositive, and so you can see
putting in a particularportfolio, how many years is
this down maximum?
And if you put in a portfoliolike a 60-40 portfolio, you'll
see that it has a max downtimeof over a decade, 10 to 13 years
Whereas if you're using a riskparity style portfolio, you'll
(44:38):
see that it has maximumdrawdowns in terms of time of
only three or four years.
But that's a great way just todo a quick stress test all in
one place, at least since 1970.
Finally, if you are looking forticker symbol stuff
particularly, you want toanalyze ticker symbols.
I think you want to use the testfolio tool for that symbols.
(45:02):
I think you want to use thetest folio tool for that, and
that is also another great placeto compare portfolios, to
analyze asset classes andtickers in particular, and that
is being built out more and moreall the time.
So I highly suggest that youcheck that one out as well,
because it has a lot ofsimulated tickers that go all
the way back to the 1960s, oreven the 1920s in some cases.
(45:23):
And if you're going to useparameterized returns in any way
, shape or form, you should dothat as a second test, not the
first one.
That shouldn't be your firstchoice.
Use the historical ones first,use the parameterized ones
second.
Hopefully you'll get similarresults, but the parameterized
(45:43):
ones are going to be moredependent on whatever crystal
ball you are relying on or thecalculator is providing you my
name's sonja.
I'm going to be showing you umthe crystal ball and how to use
it, or how I use it all right,that's far too much for one
episode on this, but it was agood question and good topics,
(46:04):
so hopefully this helps.
Thank you for your questions,thank you for your support of
the Father McKenna Center andthank you for your email.
Voices (46:14):
So Barker's alright Daughter of my foot.
Look how she spelled the lydie.
That doesn't prove the boys arehiding there.
I smell cigar smoke in thedining room.
We better move fast, get overto police headquarters and get
local help.
I'll stay here and keep thehouse covered 1 20 pm, january
(46:36):
16th 1935.
After more than six hours thebattle was over.
They found Ma Barker's body inthe parlor, the debris of the
battle all around her.
They found Fred Barker nearby,and in the sunroom was Lloyd
Barker.
The apron strings she had tiedto them were finally untied.
(47:00):
And the case of Ma Barker andher boys was at an end.
Now we're going to do somethingextremely fun.
Mostly Uncle Frank (47:10):
And the extremely fun thing we get to do
now is our weekly portfolioreviews.
Of the eight sample portfoliosyou can find at
wwwriskpriorityreviewcom on theportfolios page.
Just looking at the markets,last week it was mostly all rosy
.
The S&P 500, represented by thefund VOO, is now up 5.59% for
(47:31):
the year.
The NASDAQ 100, represented byQQQ, is now up 7.49% for the
year.
Small cap value is still thebig loser this year.
Viov representative fund isdown 7.41% for the year.
Gold is still the big winner.
Voices (47:48):
I love gold for the year .
Mostly Uncle Frank (47:56):
Gold is still the big winner.
I love gold.
Representative fund GLDM is up24.58% for the year.
Long-term treasuries,represented by the fund VGLT,
are up 2.29% for the year.
Reits, represented by the fundREET, are up 3.85% for the year.
Commodities, represented by thefund PDBC, have fallen a lot
last week but they are still up0.31% for the year.
Preferred shares, representedby the fund PFFV, are up 0.04%
(48:20):
for the year and managed futuresare managing to recover.
Representative fund DBMF isstill down, though 0.41% now for
the year.
Moving to these sampleportfolios, first one's a
reference portfolio called theAll Seasons.
It is only 30% in stocks and atotal stock market fund, 55% in
(48:42):
intermediate and long-termtreasuries and the remaining 15%
in gold and commodities.
It's up 2.36% for the month ofJune.
In gold and commodities it's up2.36% for the month of June.
It's up 5.2% year-to-date andup 14.2% since inception in July
2020.
Moving to these bread andbutter kind of portfolios, first
one's Golden Butterfly.
This one's 40% in stocksdivided into a total stock
(49:05):
market fund and a small capvalue fund, 40% in treasury
bonds divided into long andshort and 20% in gold GLDM.
It's up 1.96% for the month ofJune.
It's up 5.65% year-to-date andup 41.49% since inception in
July 2020.
(49:25):
Next one's golden ratio.
This one is 42% in stocksdivided into a large cap growth
fund and a small cap value fund,26% in long-term treasury bonds
, 16% in gold, 10% in managedfutures and 6% in cash in a
money market fund.
It's up 2.61% for the month ofJune.
(49:46):
It's up 4.76% year-to-date andup 36.13% since inception in
July 2020.
Next one's the risk parityultimate the kitchen sink of
portfolios.
I'm not going to go through all14 of these funds, but it's up
2.29% for the month of June,4.3% year-to-date and 24.47%
(50:11):
since inception in July 2020.
Now moving to theseexperimental portfolios.
These all involve leveragedfunds, so don't try this at home
.
Voices (50:22):
Tony Stark was able to build this in a cave With a box
of scraps.
Mostly Uncle Frank (50:29):
First one's the accelerated permanent
portfolio.
This one is 27.5% ina leveredbond fund TMF, 25% in a levered
stock fund UPRO, 25% in PFFV, apreferred shares fund, and 22.5%
in GLDM.
In gold, it's up 3.84% month todate.
It it's up 5.57% year-to-dateand up 6.66% since inception in
(50:56):
July 2020.
Next one is the aggressive50-50.
This one is the most leveredand least diversified of all
these portfolios and also theworst performer.
It's one-third in a leveredbond fund TMF, one-third in a
levered stock fund UPRO, and theremaining third divided into
intermediate treasury bonds anda preferred shares fund.
(51:19):
As Ballast, it's up 5.86%month-to-date.
It's up 0.63% year-to-date andstill down 11.37% since
inception in July 2020.
Next one's the levered goldenratio.
This is a year younger than theother ones.
It is 35% in a compositelevered fund called NTSX that's
(51:42):
the S&P 500 and treasury bonds,20% in gold, gldm, 15% in a
international small cap valuefund AVDV, 10% in a managed
futures fund KMLM, 10% in TMF, alevered bond fund, and the
remaining 10% in UDOW and UTSL,which are levered funds that
(52:05):
follow the Dow and a utilitiesindex.
It's up 2.77% month-to-date.
It's up 8.14% year-to-date andup 3.36% since inception in July
2021.
And the last one is our newestone, the Optra portfolio that is
just going to be a year oldnext week.
(52:28):
This one is 16% in a leveredstock fund, upro, 24% in AVGV,
which is a worldwide value fund,24% in GOVZ, a treasury strips
fund, and the remaining 36%divided into gold and managed
futures.
It's up 3.8% month to date.
It's up 6.43% year to date andup 9.8% month-to-date.
(52:51):
It's up 6.43% year-to-date andup 9.53% since inception in July
2024.
And that really concludes ourportfolio reviews.
Boring Things are looking muchnicer now this year than they
had been for most of it,although we've been doing fine
actually for the most part.
Next week we will have ourmonthly distributions, and won't
(53:14):
that be special.
Voices (53:16):
Well, la-dee-freaking-da .
Mostly Uncle Frank (53:20):
But now I see our signal is beginning to
fade.
Just one little programmingnote we're having some visitors
next week, so there may or maynot be a podcast.
Stay tuned, we'll see how thatplays out.
Maybe I'll get a guest readerfor the emails, though We'll see
.
Voices (53:38):
Yeah, hi, it's Bill Lumber.
Yeah.
Mostly Mary (53:43):
Okay, then I'd like to go ahead and welcome a new
member.
Voices (53:49):
This is yeah, uh, yeah, yeah I'm gonna need you to go
ahead and come in tomorrow.
Um we uh and uh, thanks.
Mostly Uncle Frank (54:02):
In the meantime, if you have comments
or questions for me, please sendthem to frank at risk parity
radiocom.
That email is frank at risk,parityityradiocom.
That email is frank atriskparityradiocom.
Or you can go to the websitewwwriskparityradiocom.
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.
(54:22):
Give me some stars, a follow, areview.
That would be great.
You, that would be great.
Okay, thank you once again fortuning in.
This is Frank Vasquez, withRisk Party Radio, signing off.
Voices (54:57):
In a musty old hall.
In Detroit, they prayed in theMaritime Sailor's Cathedral.
The church bell chimed and itrang 29 times For each man on
the Edmund Fitzgerald.
The legend lives on from theChippewa down of the big lake.
(55:21):
They call Gitche Gumee.
Superior, they said, nevergives up or dead when the gales
of November come early.
Mostly Mary (56:05):
The Risk Parody Radio Show is hosted by Frank
Vasquez.
The content provided is forentertainment and informational
purposes only and does notconstitute financial, investment
tax or legal advice.
Please consult with your ownadvisors before taking any
actions based on any informationyou have heard here, making
sure to take into account yourown personal circumstances.
A foolish consistency, is the hobgoblin of little minds
, adored by little statesmen andphilosophers and divines.
If a man does not keep pacewith his companions, perhaps it
is because he hears a differentdrummer.
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 (00:36):
Thank you, Mary, and welcome to Risk Parity
Radio.
If you are new here and wonderwhat we are talking about, you
may wish to go back and listento some of the foundational
episodes for this program.
Voices (00:49):
Yeah, baby, yeah.
Mostly Uncle Frank (00:51):
And the basic foundational episodes are
episodes 1, 3, 5, 7, and 9.
Some of our listeners,including Karen and Chris, have
identified additional episodesthat you may consider
foundational, and those areepisodes 12, 14, 16, 19, 21, 56,
(01:12):
82, and 184.
Whoa, and you probably shouldcheck those out too, because we
have the finest podcast audienceavailable.
Voices (01:26):
Top drawer, really top drawer.
Mostly Uncle Frank (01:30):
Along with a host named after a hot dog.
Voices (01:34):
Lighten up Francis.
Mostly Uncle Frank (01:37):
But now onward, episode 434.
Today on Risk Party Radio.
Voices (01:43):
It's time for the grand unveiling of money.
Mostly Uncle Frank (01:47):
Which means we'll be doing our weekly
portfolio reviews of the eightsample portfolios you can find
at wwwriskpartyradiocom On theportfolios page.
But before we get to that, wedo have at least a couple of
emails here, and so, withoutfurther ado, here I go once
again with the email.
And First off.
(02:08):
First off, we have an emailfrom Ness.
Voices (02:13):
This is Elliot Ness.
Come on out.
We don't want any trouble.
We're the fuckers You're nevergonna get us.
Mostly Uncle Frank (02:30):
And.
Mostly Mary (02:31):
Ness writes.
Brother Frank, it's yourbrother, Ness.
Voices (02:39):
I'm too old to call you uncle, and you can feel free to
insert an Elliot Ness reference.
The Untouchables starringRobert Stack.
Mostly Mary (02:48):
I've been binge listening to you for a few
months and really appreciate theeducation.
I'm always skeptical of peopletrying to separate me from my
money and try to do my duediligence before signing on the
line which is dotted.
Voices (03:00):
Because only one thing counts in this life Get them to
sign on the line which is dotted.
Mostly Mary (03:07):
I'm hoping to gain the confidence to leave my
current financial advisor andtake full control of mine and my
wife's portfolios.
Voices (03:16):
It's all the same to you .
I'll drive that tanker.
Mostly Mary (03:25):
I'll drive that tanker.
Last year I became a member ofa club Rock Retirement Club and
thought you made a reference toit in a previous podcast, though
you may have been referring toanother club.
I've got a good mind to join aclub and beat you over the head
with it.
If you were referring to myclub, I would respectfully ask
you to reconsider your negativejudgment.
The dues for my club $600,.
Get me access to Money GuidePro, which definitely has some
(03:46):
monetary value.
The financial advice is rathergeneric, but that is not the
focus of this club.
The connections andinteractions with others that
are getting ready to retire orhave recently retired are the
main draw and have immense value.
I feel they focus more on thepersonal aspects of retirement,
such as health activities,routines and dealing with the
loss of professionalidentification, more than the
(04:08):
financial aspects.
If you were referring toanother club, please delete this
paragraph.
I've been trying to utilizePortfolio Visualizer but have
found it useless unless I pay$360 a year.
Without that, I can't backtestmore than 10 years.
That is not an improvement.
That's not an improvement.
Am I not understanding thefunction of their website?
Voices (04:30):
No more flying solo.
You need somebody watching yourback at all times.
Mostly Mary (04:36):
I can't imagine you would use the free version of
their website.
What am I missing?
I went to portfolio charts andfound that it has a reasonable
$5 per month fee.
There may be free features, buteverything I try to utilize for
free brings me to a page sayingmembers only.
Once again, what am I missing?
Regardless, I want to thank youfor your podcast.
(04:56):
I have directly donated $100 onJune 25th to the Father McKenna
Center.
Mostly Uncle Frank (05:02):
That's what I'm talking about to the Father
McKenna Center, that's what I'mtalking about.
Mostly Mary (05:04):
I tried to go to Patreon to set up a monthly
pledge, but I can't seem to findit there.
By searching Father McKennaCenter, I couldn't find a link
to their Patreon site on theFather McKenna Center website
either.
They really need to make iteasier for us to part with our
money.
All we need to do is get yourconfidence back so you can make
(05:33):
me more money.
Voices (05:34):
Thank you for many hours of listening to your podcast
while I drive from job site tojob site.
Motor a 440 cubic inch plant.
It's got cop tires, copsuspension, cop shocks.
It's a model made beforecatalytic converters, so it'll
run good on regular gas.
What do you say, Is it?
Mostly Mary (05:51):
the new.
Voices (05:51):
Bluesmobile or what.
Fix the cigarette lighter.
Mostly Mary (05:58):
God bless you and the Father McKenna, center Ness.
Mostly Uncle Frank (06:03):
Hmm, I wonder what it would sound like
if Elliot Ness was my brother.
Voices (06:08):
You didn't have to read the papers, frank.
You've been described a dozendifferent times A man with a
soft touch.
You get around, don't you, fred?
Every place Candy stores,restaurants, hotels, grocery
stores, the same place as you go.
Frank, a little story you toldme a few weeks ago never did
(06:30):
come true, did it?
Mostly Uncle Frank (06:33):
You know there's also a nice amber lager
called Elliot Ness from theGreat Lakes Brewing Company, but
of course my favorite beer fromthat company is in fact the
Edmund Fitzgerald Porter.
Voices (07:02):
The legend lives on from the Chippewa on down At the big
lake they call Gitche-goo-ee.
The lake, it is said, nevergives up her dead when the skies
of November turn gloomy.
Mostly Uncle Frank (07:22):
But I digress, I could have told you
that.
First off, thank you for being adonor to the Father McKenna
Center.
As most of you know, we do nothave any sponsors on this
podcast.
We do have a charity we support.
It's called the Father McKennaCenter and it supports hungry
and homeless people inWashington DC.
We are currently running amatching campaign.
(07:44):
It's called the Top of theT-Shirt Campaign.
You'll have to go back toepisode 426 for a full
explanation of that.
But if you donate to the center, you get to go to the front of
the email line, as Ness has donehere.
Now there are two ways of doingthat.
You can do it on Patreon, andlet me just explain how you do
that on Patreon, because theFather McKenna Center is not
(08:04):
listed as an organization onPatreon.
And let me just explain how youdo that on Patreon, because the
Father McKenna Center is notlisted as an organization on
Patreon, just to challenge you.
You do it through Risk ParityRadio at Patreon, and the
easiest way to get there is togo to the support page at the
Risk Parity Radio site,wwwriskparityradiocom, and you
can link to the Patreon placethere and put your donation
(08:28):
there or put your pledge inthere.
That's a way of contributingmonthly.
Or you can do as you have done,which is go to the Father
McKenna website itself, in whichcase you're not donating
through Patreon, you're justdonating and they have a
donation page.
I will put it in the show notes.
If you donate at the FatherMcKenna website, please put a
little note in the dedicationbox when you donate to note it's
(08:52):
Risk Parity Radio related, sowe can count it for our campaign
.
Anyway, either way you do it,you go to the front of the email
line and I thank you very muchfor your donation.
Voices (09:02):
Top drawer, really top drawer.
Mostly Uncle Frank (09:06):
But now let's get to your questions.
So it sounds like you're havinga little trouble with Portfolio
Visualizer.
Voices (09:14):
It's a piece of crap.
It doesn't work.
Mostly Uncle Frank (09:16):
And may have misinterpreted what's there.
So it's correct that PortfolioVisualizer requires you to pay
if you are going to use theticker symbol.
Analyzer passed 10 years ago,but that's not really what you
want to be using there atPortfolio Visualizer anyway, you
want to set the tools up toanalyze based on asset class and
(09:39):
if you do that, you get all thedata they have, and that's
really the way you want to beanalyzing portfolios anyway,
because you would only pickspecific tickers after you had
constructed a portfolio of assetclasses, and Portfolio
Visualizer is great on thatbecause it has like 30 different
asset classes you can put intothese tools and calculators.
(10:01):
It's a much superior tool tothings like CFIRE, sim or
FIRACalc, where you're onlyanalyzing two or three things.
It is not sufficient to beusing a calculator that analyzes
, for instance, only stocks,bonds and cash or something like
that.
That might have been goodenough 15 years ago.
It's certainly not good enoughtoday, and since we've had
(10:23):
calculators like this one outfor over a decade, you should be
using them for any serious work.
So it's interesting.
I recently did a tutorial at aChooseFI Baltimore group session
about Portfolio Visualizer inparticular and about the
financial goals tool that'sconnected to the Monte Carlo
simulator, then we're going togo through some of that today.
(10:46):
There is actually a video thatI created a long time ago that
is still on YouTube.
I will link to that.
That was a former version ofPortfolio Visualizer, although
the tool is pretty much the same.
Once you get there, I will linkto that in the show notes.
And no, I'm not going to bemaking any more videos.
I did that early on and decidedI didn't really want that job.
(11:07):
It's not that I'm lazy, it'sthat I just don't care, and it's
of the amateurish quality andproduction values that you've
come to know and love from thisprogram.
Just come up.
But I am going to talk throughsome more of that today in
answer to your question in a fewminutes here and provide some
links so you can see that toolin action and make the
(11:29):
modifications that you want todo to analyze your own situation
.
But no, it does not costanything.
In terms of portfolio charts,the best way to use that for
free, if you don't want to pay$5 a month, is to simply use the
charts, because all of the 12main charts or so are there for
free.
You just bring one up and putyour portfolio into it.
(11:51):
It always brings you a 60-40portfolio as a default, but then
it's got all these boxes fordifferent asset classes so you
can put in your portfolio andsee what the results are For
your purpose.
Here, I think a couple of thevaluable tools would be the safe
withdrawal rate tool there andthe retirement spending tool
there.
You definitely want to be usingthose when you're modeling your
(12:14):
own situation.
And again, all this is free.
I will link to the charts pagein the show notes and you can go
there and then start playingwith these charts, which you
should do, and I'll go ahead andmake sure you get another copy
of that memo.
Okay, all right, let's talkabout retirement clubs and Rock
Retirement Club in particular,and what Roger Whitney's doing
(12:36):
over there.
Voices (12:38):
Please accept my resignation.
I don't want to belong to anyclub that will accept me as a
member.
I don't want to belong to anyclub that will accept me as a
member.
Mostly Uncle Frank (12:52):
First, I think it's important that you
understand the context of whatI'm going to say and why this
sounds differently than what youmight get somewhere else Did
you ever have?
Voices (12:57):
a family Frank, a wife, a child.
Maybe that's what it takes tohave a soul.
Or maybe you haven't got a soul, maybe you never had one.
Mostly Uncle Frank (13:09):
I do not view myself as part of the
financial services industry andI do not view myself as part of
the financial media.
I view myself as a consumer ofthese things, bing, and as a
critic of them.
Voices (13:25):
Bing again.
Mostly Uncle Frank (13:27):
And my experience as a lawyer is in
cross-examining financialexperts.
And I think it's more importantto offer critiques of things
rather than just saying howgreat everything is.
(13:48):
There is a tendency infinancial media and in the
financial services industry foreverybody to just say nice, nice
things about each other and pateach other on the back and it
results in cross promotions andpeople being guests on various
podcasts and cross promotionsand people being guests on
various podcasts.
It does work kind of hand inglove very nicely for people in
(14:09):
those two positions.
Voices (14:11):
Am I right or am I right , or am I right, right, right,
right.
Mostly Uncle Frank (14:15):
But I don't think it's necessarily that
helpful for people who areconsuming these things.
Voices (14:21):
A guy.
Don't walk on the lot lest hewants to buy.
They're sitting out therewaiting to give you their money.
Are you gonna take?
Mostly Uncle Frank (14:28):
it.
So I don't have anythingpersonal against anybody who
works in the financial servicesindustry or anybody that's in
financial media, but we do haveto talk frankly about what they
are doing and whether that's ofservice or not to the consumer,
or rather when it is and when itis not.
Because we do apply Bruce Lee'sadage here take what is useful,
(14:49):
discard what is useless and addwhat is uniquely your own.
So now let's talk aboutretirement clubs in general.
Voices (15:01):
The Inquisition.
Let's begin the Inquisition.
Look out, sam, we have amission general.
Mostly Uncle Frank (15:08):
And this is a relatively new phenomenon that
some financial advisors havefound to be useful.
I think it was mostly rolledout to generate interest or
business, which makes a lot ofsense, because it's certainly
better than free steak dinnersAlways be closing, always be
(15:37):
closing.
And so two of the mostprominent ones are the one run
by McLean Asset Management,which is actually a practically
a neighbor of mine, that's WadeFowle's shop, and then this rock
retirement club run by rogerwhitney, but there are other
ones, so you can imagine that,from their perspective,
attracting business this way andproviding some information,
education, social events,whatever makes sense for
(16:00):
generating business.
I also wonder now and I don'tknow the economics of these
things whether they are becomingtheir own profit centers,
because if you scale it up farenough, yeah, you could be
making money off something likethis.
I doubt that was the originalintent, but the way the internet
works now, with the possibilityof Zoom and every other thing
(16:21):
like that, you can imagine thatit is possible to scale such
things up and make themprofitable in their own right.
I do not know if that is what'sgoing on with either one of
these or any other one that'sout there.
I did go to the Rock Retirementweb page to find out how much
it costs this year to join, andit's $899, which automatically
(16:43):
renews, according to theirwebsite.
You mentioned $600.
You must be getting a discount.
Good for you.
I don't know how you got adiscount, but I'm sure there was
a code somewhere or somethinglike that.
Anyway, for the hoi polloi suchas myself, it would be $899 to
join this club.
Voices (17:03):
It is said that the people are revolting.
You said it they stink on ice.
Mostly Uncle Frank (17:12):
And it sounds like you're getting at
least that amount of money'sworth just out of the social
aspects of this, and $600 a yearis not that much money for a
social club actually.
So if it's helping you developrelationships or improve
relationships or anything likethat, I would say it's
definitely worth the money forthat.
And I would say that RogerWhitney and the Retirement
Answer man podcast and series isvery good on these kind of soft
(17:34):
topics of retirement.
I think that's what he actuallylikes to specialize in and
doesn't really like the nuts andbolts that much.
At least that's my impressionfrom listening to the podcast
and I have listened to thatpodcast for years and I do know
some of the people who are inRock Retirement Club and they
seem to get a lot out of it andthat kind of ethos to it.
(17:55):
But now let's talk about thenegative.
Voices (17:59):
There was this sound like a garbage truck dropped off
the Empire State Building.
Mostly Uncle Frank (18:08):
Part of the negative is just the groupthink
of the whole thing.
The people that I know who aremembers of the Rock Retirement
Club are people that tend tohave trouble spending money.
They are natural hoarders, oras Morgan Housel would say, they
have frugality inertia.
Or, as Morgan Housel would say,they have frugality inertia.
And if you spend a lot of timearound such people you may
(18:29):
believe that that is a normalstate.
I would say it is a normalstate for a lot of what goes on
in personal finance world.
It is not a normal state andnot a good state to be in for
most people and, as we learnedfrom Jim Rohn last episode, you
become the five people you spendthe most time with.
Voices (18:49):
You are the average of the five people you spend the
most time with.
Want to know your future.
Look at your friends.
Mostly Uncle Frank (18:58):
So be careful on who you associate
with, or at least make sureyou're keeping at arm's length
those traits that you do notwish to adopt.
And I don't know whether youhave trouble spending money or
not, but I can tell you that alot of the people in that club
have a lot of trouble spendingmoney and they underspend money,
and so one of the reasons theyjoin the club is to get more
(19:23):
confidence in what they're doing, so hopefully they can enjoy
their retirement more and aren'tworried about the money all the
time.
But I think the main problemwith this club, and particularly
the approach that Roger Whitneytakes, is that it's not really
that great, honestly.
I'm talking about the approachto retirement planning, in
particular, how he constructs aretirement portfolio, and I'm
(19:45):
pretty sure that's what heteaches in the club, because
this is what he talks about onhis podcast.
Voices (19:54):
Now let's talk about what that approach is and my
critiques of it.
The Inquisition what a show.
The Inquisition, here we go.
We know you're wishing thatwe'd go away, but the
Inquisition's here and it's himtoo, hey talk about it.
What do you say?
I just got back from the Hordeof the Fae.
Horde of the Fae?
What's an Horde of the Fae?
(20:15):
It's what you ought to do, butyou do anyway.
Mostly Uncle Frank (20:19):
Fortunately, in the most recent week he did
do a kind of mini case study onhis podcast, which I'll refer to
in the show notes and you canlisten to.
It starts at minute six of theaudio and we'll also tie that
into how you would analyze thesame thing using Portfolio
Visualizer.
You can do this work there andyou do not need Money Guide Pro
(20:42):
to do this.
So he goes through his casestudy and we're talking about a
couple that is 59 and 58.
They are both working.
He lost his job.
He's the elder of the two.
She plans on working at leastfor another seven years.
They have, I think, $773,000saved up.
They plan on contributing$140,000 more in the next seven
(21:05):
years.
They will have Social Securityof $61,200 annually, starting in
about seven years, and inaddition to her salary they need
$24,000 until then andapproximately $84,000 annually
total as their spend.
And he had to assume some ofthese numbers.
(21:26):
But that's not the point.
The point is, everything I justgave you can be modeled in
Portfolio Visualizer using thefinancial goals tool, and I've
done that and I linked to it inthe show notes, Because what
that allows you to do is notonly set up a portfolio for
analysis, but also put in thesecash flows and have them
starting and stopping at varioustimes, and you can have an
(21:49):
infinite number of those.
And so I've set that up justbased on some assumptions here.
And you can see that when yougo to that link so that you can
modify it for your own purposesand situation.
And in his description that'sthe same thing he's doing in
MoneyGuide Pro.
Okay.
Then we start getting to theproblem the same thing he's
doing in Money Guide Pro.
Okay.
Then we start getting to theproblem areas with what he's
doing.
The first thing he does isassume that they're going to be
(22:12):
using a 60-40 portfolio in theirretirement, Like a simple 60-40
portfolio.
It's like stock fund bond fund.
I don't know why you wouldassume that or why you would
want that.
That is not really a very goodportfolio to be using.
Voices (22:27):
That's the fact, Jack.
That's the fact, Jack.
Mostly Uncle Frank (22:31):
It might have been 20 years ago, but we
know a whole lot better todayand any advisor of any
sophistication knows that thatis not by itself a great
portfolio to be using inretirement.
You need more diversification.
So it does not make sense to meto assume that you're using a
mediocre portfolio as yourportfolio in retirement.
(22:53):
You want to use exactly whatyou plan on holding and analyze
that, and in my case, I woulduse a risk parity style
portfolio because I know it hasa higher safe withdrawal rate.
But as we go you'll see.
I've done it actually both waysin the portfolio visualizer
(23:13):
analysis that I'm referring to.
Okay, then the next thing hedoes is he assumes a return for
this 60-40 portfolio.
He's not using historical datato get the return.
He's assuming a return for this60-40 portfolio.
He's not using historical datato get the return.
He's assuming a return.
This is what is known as aparameterized return that you're
assuming a return and he's alsoassuming a standard deviation
(23:37):
for that return.
And this is a way you can modelportfolios and you can do this
at Portfolio Visualizer.
It allows you to doparameterized returns or
historical returns.
It's got two other options.
It's actually got fourdifferent options there for
analyzing this.
This is free.
You can do this there.
You don't need MoneyGuide Proto do this.
(23:59):
Forget about it.
So he didn't mention whatstandard deviation he was
applying to this.
I went and monkeyed with thePortfolio Visualizer one to try
and get the same results that hewas getting out of his
calculator.
But the problem with using aparameterized return is that you
are effectively using a crystalball.
That is a crystal ball Becauseyou have some belief that this
(24:24):
will be the return in the future.
What is that belief based on?
Voices (24:29):
Now the crystal ball has been used since ancient times.
It's used for scrying, healingand meditation.
Mostly Uncle Frank (24:38):
In this case , he seems to be taking it
straight out of the calculator.
I don't know what this crystalball is that's inside this
calculator that's throwing outthese returns.
I do know that a lot of thesecalculators will throw you out
returns with no real explanationas to where that comes from or
why they think that's the rightreturn in the future.
Voices (25:00):
As you can see, I've got several here, a really big one
here, which is huge.
This is the one that I tend touse more often.
I have a calcite ball and Ihave a black obsidian one here.
Mostly Uncle Frank (25:19):
Chances are.
It's not Chances are their.
Crystal ball isn't veryaccurate and it's certainly not
more accurate than long timehistorical returns.
Voices (25:29):
Now you can also use the ball to connect to the spirit
world.
Mostly Uncle Frank (25:34):
And to me, that's the way these calculators
get misused.
It's one of the ways they getmisused, because you are
starting with something that'sobviously not real world.
Voices (25:43):
The crystal ball is a conscious energy.
Mostly Uncle Frank (25:46):
So how can you expect to get a good result
out of something that isinvolving guessing to begin with
?
Voices (25:53):
You can actually feel the energy from your ball by
just putting your hands in andout.
Mostly Uncle Frank (25:59):
But anyway, for the purpose of illustration,
I did use the parameterizedreturn function, put it into the
first link to PortfolioVisualizer and you can see that
analysis and it shows you whatthe success rate would, be so on
and so forth.
So he did his over 30 years, Idid mine over 35.
He got an 85% success rate, Igot an 80% success rate.
(26:21):
And you can see all that in thelink with the nice charts and
all this stuff.
Same kind of stuff you'd getout of Money Guide Pro, just
maybe not so fancy looking.
Voices (26:33):
Don't be saucy with me, Bernays.
Mostly Uncle Frank (26:36):
One of the other things that wasn't clear
to me is how MoneyGuide Proaccounts for taxes.
It sounded like it's got someinternal tax generating part of
that program.
I actually don't think that's agood way to be doing taxes
either.
I think you should do that as aseparate calculation or
estimate and simply add it toyour expenses expenses.
(27:02):
That is a more logical way ofdoing things and it keeps things
out of these black boxes whereyou really don't know why it's
assuming what it's assuming.
It's important to know why youare making a tax assumption and
not just accept it out of acalculator.
It's another kind of black boxcrystal ball thing.
Voices (27:16):
It's kind of looking at the aura around the ball, see
the movement of energy aroundthe outside of the ball.
Mostly Uncle Frank (27:22):
So then he looks at the result.
The calculator spits out this85% success rate, which is not
bad for these kinds ofcalculators.
If you know, a Monte Carlosimulation works.
The chances of you gettingthose 0% to 15% results are
minuscule.
So an 85% success rate is goodenough for the purpose of the
(27:43):
tool, because it doesn't reallymean success rate.
It means the chances of havingto alter your plan.
But anyway, he declares that tobe feasible, and that is a word
he uses to say something isworkable.
But it seems to really mean ifthe calculator gives me the
right number, spits out theright number, I declare that
(28:04):
feasible.
Otherwise that word really hasno meaning.
But I know he likes to use thatbuzzword as part of the
marketing, the presentation ofwhat he does.
It's all one big crapshootanywho, but that's all it is.
But then you get to the nextproblem is he actually does not
trust that outcome.
Even though he thinks it'sfeasible or says it's feasible,
(28:27):
he doesn't actually trust it andhe says he wants to make the
thing resilient.
So how does he do that?
Basically, he just comes upwith a bunch of imaginary
scenarios.
One of them he does is a stresstest and he picks 2008 to 2009
to do that.
I'm not sure why he would havepicked that, because that was
(28:49):
the end of a bad period, that,if you really want to do a good
stress test, the first periodyou should pick in our lifetimes
is retiring at the end of 1999,and what would have happened
for the next 10 years.
That is the best modern stresstest you can do.
You would not pick 2008 as yourstress test Now.
(29:10):
You probably don't need to dothat kind of stress test at all
if you were doing an historicalanalysis to begin with, because
the historical analysis wouldhave captured that as part of
its calculation of the safewithdrawal rate.
If you are using thoseparameterized returns, though,
you have no idea whether whatyou came up with is going to
(29:33):
survive particular historicaleras, unless you go back and
specifically test them, and youwould need to test all of the
relevant ones, or at least allthe ones you had data for, which
is another big drawback ofusing this kind of crystal ball
parameterized return analysis tobegin with.
After that, he does a series ofwhat about isms?
(29:55):
What about if somebody has ahealth care scare when they turn
80?
What about if somebody has ahealth care scare when they turn
80?
What about if somebody diesearly?
Some of those things are usefulto use, but you need to assess
a probability of those thingsoccurring.
You can't just be runningaround catastrophizing, saying
what if we get struck bylightning when we turn 78?
(30:17):
Turned 78.
And in this case, one of thethings he said what if there is
long-term care, a three-yearlong-term care event at age 80?
That is actually an extremelylow profitability event, unless
the person dies shortlythereafter, because if you go
into long-term care as an80-year-old, chances are you're
not coming out.
(30:38):
Forget about it.
So what he really should havebeen modeling there is an early
death, which then would changethe income parameters and you
would change that in the tool interms of both the taxes and the
income.
But in most cases dying earlyis not a problem.
Voices (30:56):
Death stalks you at every turn.
Mostly Uncle Frank (31:00):
Because if you plan for a retirement to go
to age 95 or something like thatand you die early, obviously
you didn't run out of money andin fact you had extra money
because you had 10 years ofmoney you didn't even touch.
Dying early is almost never aproblem in this kind of planning
.
Voices (31:25):
If you don't start making more sense, we're going
to have to put you in a home.
You already put me in a home,then we'll put you in the
crooked home.
It's on 60 minutes, I'll begood.
Mostly Uncle Frank (31:33):
Anyway, it's a fundamental forecasting
problem.
To just make up what about ismswithout assessing or assigning
some kind of probability to theevent.
I realize he couldn't really dothat, since this is a limited
exercise, but I thought the wayhe approached it was not correct
, or at least he did not explainwhy you would be interested in
(31:54):
testing some potential outcomesbut not others.
You would certainly not testevery random catastrophe you
could think of.
Okay.
Then after that he says hewants to make the plan resilient
.
That's another marketingbuzzword he likes to use.
What this actually tends toboil down to and I've listened
(32:14):
to him talk about this foreveris essentially just padding the
portfolio.
Just adding a big pile of cashon the front is what he usually
does.
He says, well, you should havefive years of cash on the front
of this thing and that'll makeit resilient.
Well, yeah, it'll make itresilient, it'll be over-saved.
Voices (32:32):
That is the straight stuff.
Oh funk master.
Mostly Uncle Frank (32:35):
If your real plan is don't spend much money,
become over-saved and don'tspend much money, you don't need
to go through all these plansto do that.
That's not value add.
You got to be doing somethingmore as a financial advisor
other than saying, well, youshould just save a whole lot
more money.
What I really would want afinancial advisor to do is see
(32:58):
if they can construct aportfolio or another plan that
will work with the money wealready have, or at least not
deploy it in a grosslyinefficient manner in a giant
pile of cash called a pie cakethat you ram in front of the
thing.
That is really not goodplanning.
It's mediocre and it'scertainly not something I would
(33:21):
be willing to pay anybody for,because you can do that yourself
.
So he basically suggests thatthe guy get another job, which I
actually don't think isnecessary.
In this case it could benecessary.
Voices (33:35):
I don't think I'd like another job.
Mostly Uncle Frank (33:38):
But I do appreciate that.
I think the real issue that he'sdealing with is the one that
he's not talking about is in hisexperience he has a lot of
clients like this who do notaccount for their expenses very
well, and so one way around thatis to simply pad the plan, if
you will, with either more moneyor assuming more expenses even
(34:01):
though they're not accounted for, and I can see that being an
issue with a particular, with aclient like this, where they are
primarily living off SocialSecurity as their primary income
source, their portfolio isrelatively small, paying for
much less than half of theirexpenses, and that is a
different kind of person than,frankly, most of the people that
(34:22):
listen to this podcast who aregoing to be funding their
retirements mostly out of theirportfolios and relying on Social
Security as an extra add-on.
So I do appreciate that.
I believe, from the personalexperience he has, if he's
working mostly with clients thathave less than a million
dollars, that really honing downon these expenses is going to
(34:43):
be really important, and the wayto protect them and to protect
yourself as an advisor is to padthe whole thing.
But that's certainly not a veryefficient approach and we do
know from the research goingback to Bill Bangan that holding
more than 10% in cash or cashequivalents in a portfolio tends
to reduce its safe withdrawalrate.
(35:05):
So the only way that holding abig pile of cash in front in a
pie cake, or whatever you wantto call it works is if you are
over-saved to begin with.
And if you're over-saved, youcan do pretty much whatever you
darn well please, but thatdoesn't require much planning
skill.
And calling something quote,resilient, unquote, when what
(35:25):
you really mean is oversaved isnot really helping clarify what
we're talking about here in realfinancial terms and not
feel-good marketing terms.
Voices (35:38):
Put that coffee down.
Mostly Uncle Frank (35:48):
Coffee's for closers only, okay.
So what if we did this more theway I would approach it in
terms of use of the calculator?
So if you look at the secondportfolio visualizer I link here
instead of doing thisparameterized return thing I
link here instead of doing thisparameterized return thing we
did an analysis of the 60-40portfolio on a historical basis
and this data goes back to 1972.
For this purpose, I alsoincreased the amount being spent
(36:11):
to get some interesting results, just because I think that the
program he was using wasinserting some kind of taxes
that weren't accounted for inthe $84,000.
So I ran it with $93,000 forthis purpose as the amount being
taken out.
And yes, that's inflationadjusted.
So don't get all in a tizzyabout that.
(36:32):
That's the first questionpeople ask when they don't want
to believe what I'm saying.
Is it inflation adjusted?
I think it's adjusted forinflation.
Is inflation adjusted?
Voices (36:48):
Yes, it is.
That's how the tool works.
Mostly Uncle Frank (36:52):
Get over it.
You're too stupid to have agood turn, but you can turn that
on and off in the tool as well.
It's a very robust tool.
I should also clarify that hetalked about a portfolio of
stocks, bonds and cash.
That was essentially a 60-40,so the one I used for modeling
purposes here is 60-35-5, as inUS stock market 10-year treasury
(37:16):
, bond and cash, and it comes upwith a 85% success rate for
what we ran it.
And then we ran it again with abetter portfolio, the kind of
portfolio that it would havestarted out to begin with.
I basically created asimplified risk parity style
portfolio to make sure that thedata would match up the same
(37:37):
data series for both tests.
So it's 26% large cap growth,26% small cap value, 26% 10-year
treasuries, 16% gold and 6% incash, and when I run it with
that portfolio I get a 96%success rate instead of an 85%
(37:58):
success rate.
Voices (38:00):
Winner winner chicken dinner.
Mostly Uncle Frank (38:05):
And so it's better across the board as a
retirement portfolio.
That's the whole point of whatI talk about here in this
podcast is that you should startusing a really good portfolio
for retirement and not amediocre one, and then run your
test based on that retirementand not a mediocre one, and then
run your test based on that.
And if you do that, if you makethe portfolio resilient a
(38:27):
resilient portfolio to beginwith you are going to have
better results and be able tospend more money, and then these
people don't have to go back towork.
Voices (38:38):
No one can stop me, don't have to go back to work
Now.
Mostly Uncle Frank (38:41):
If you were to go to a higher-end financial
advisor, they would do suchthings.
They would show you differentkinds of portfolios and
different outcomes.
They would not be using a 60-40portfolio with a pie cake
attached to it.
And as consumers at least thoseof us who have some significant
money we should expect more orjust do it ourselves if we're so
(39:05):
inclined.
Because a lot of what financialadvisors are doing out there,
particularly for their lower endclients, is at least 10 years
behind in this area, and itmakes sense from a business
point of view to come up withsomething that has worked and
then just continue to use itover the decades, because
(39:28):
changing your approach means youhave to change it for all your
clients, or at least tell allyour clients about it, and
that's not a pleasant prospect.
So I understand the inertiahere of how this actually works,
but if you are the consumer orthe client of this, you should
be careful about what you'reaccepting from the financial
(39:48):
services industry, no matter hownice they are.
Voices (39:53):
If you have a milkshake and I have a milkshake and I
have a straw.
There it is.
That's a straw, you see, watchit and my straw reaches across
the room and starts to drinkyour milkshake.
(40:17):
I drink your milkshake, I drinkit up.
Mostly Uncle Frank (40:25):
Because any financial advisor that's been
doing the same thing for adecade or more is probably not
up to date on best practices.
It's just the reality of thesituation, and if this is what
they're teaching you in whateverclub you belong to, you may
question the value of that andwhether it's going to cause you
(40:45):
more problems than it solves.
Voices (40:48):
That was the equation Existence.
Survival must cancel outprogramming.
Mostly Uncle Frank (40:59):
I think you recognize that in your email.
You said that the financialadvice there was rather generic,
which makes sense Because,believe it or not, it is still
adding up the expenses andforecasting expenses.
That is the most importantthing to do in this kind of
planning.
Interestingly enough, though,there are some shortcuts there.
(41:19):
Interestingly enough, though,there are some shortcuts there,
and I think our experience isrelatively typical for at least
high earners, in that ournominal expenses in the first
five years of retirement haveactually gone down, mostly
because of reduced taxes, and itis likely that your expenses at
least your regular expenses aregoing to peak early in your
(41:43):
retirement.
And if that's the case, itmakes planning the future a
whole lot easier if you alreadyknow that you're not going to be
spending more money on aninflation-adjusted basis, except
in some kind of emergency,because then you don't really
need to even know what you arespending it on, just that it's
less than what you had before.
(42:04):
And that is really the keything that oftentimes people try
to do this from the bottom upon every little thing, like
we're going to buy this car in10 years and replace this HVAC
in 15 or go on this particulartrip in 12.
It's more important to know thebig number.
What is your overall expenses?
What are they likely to be?
Are they going to be higherthan what they are now?
(42:25):
Are they going to be lower?
Is your lifestyle going tochange?
And then the second mostimportant thing to know is how
much of that is mandatory andhow much is discretionary,
because 40% of our expenses arediscretionary and 20% of our
expenses are essentially givingmoney away, either supporting
family, giving it to heirs inadvance or giving it to charity.
(42:48):
Obviously, if you have that kindof buffer on spending, we could
easily reduce that.
If we had to, wouldn't want to.
All I'm saying there is thereis more than one way to skin
this cat on expenses, but yes,they are the most important
(43:09):
thing to get right within aballpark.
Anyway, we talked about a lotof things here, probably too
many things, meaning there won'tbe any more emails in this
podcast, but I hope you gotsomething out of it and I hope
you recognize that you can usethese tools at Portfolio
Visualizer and Portfolio Chartsin particular, and you should be
using them.
As I've told you, there aresome links there to help you.
(43:32):
Now, while I'm sure MoneyGuidePro is very nice.
If you're not using it properlyand you're really generating
crystal ball assumptions out ofit, it's worse.
It's worse to use somethinglike that than Portfolio
Visualizer and Portfolio Charts.
Voices (43:49):
You fell victim to one of the classic blunders.
Mostly Uncle Frank (43:53):
One other thing I forgot to mention on
Portfolio Charts in particularis there is a nice calculator
they're called the heat map thatyou can put in your portfolio
and then see how it performed onan annual basis going back to
1970.
And what that's nice to look atis it gives you a stress test
automatically, because it's gotessentially red for negative
(44:17):
returns over time and blue forpositive, and so you can see
putting in a particularportfolio, how many years is
this down maximum?
And if you put in a portfoliolike a 60-40 portfolio, you'll
see that it has a max downtimeof over a decade, 10 to 13 years
Whereas if you're using a riskparity style portfolio, you'll
(44:38):
see that it has maximumdrawdowns in terms of time of
only three or four years.
But that's a great way just todo a quick stress test all in
one place, at least since 1970.
Finally, if you are looking forticker symbol stuff
particularly, you want toanalyze ticker symbols.
I think you want to use the testfolio tool for that symbols.
(45:02):
I think you want to use thetest folio tool for that, and
that is also another great placeto compare portfolios, to
analyze asset classes andtickers in particular, and that
is being built out more and moreall the time.
So I highly suggest that youcheck that one out as well,
because it has a lot ofsimulated tickers that go all
the way back to the 1960s, oreven the 1920s in some cases.
(45:23):
And if you're going to useparameterized returns in any way
, shape or form, you should dothat as a second test, not the
first one.
That shouldn't be your firstchoice.
Use the historical ones first,use the parameterized ones
second.
Hopefully you'll get similarresults, but the parameterized
(45:43):
ones are going to be moredependent on whatever crystal
ball you are relying on or thecalculator is providing you my
name's sonja.
I'm going to be showing you umthe crystal ball and how to use
it, or how I use it all right,that's far too much for one
episode on this, but it was agood question and good topics,
(46:04):
so hopefully this helps.
Thank you for your questions,thank you for your support of
the Father McKenna Center andthank you for your email.
Voices (46:14):
So Barker's alright Daughter of my foot.
Look how she spelled the lydie.
That doesn't prove the boys arehiding there.
I smell cigar smoke in thedining room.
We better move fast, get overto police headquarters and get
local help.
I'll stay here and keep thehouse covered 1 20 pm, january
(46:36):
16th 1935.
After more than six hours thebattle was over.
They found Ma Barker's body inthe parlor, the debris of the
battle all around her.
They found Fred Barker nearby,and in the sunroom was Lloyd
Barker.
The apron strings she had tiedto them were finally untied.
(47:00):
And the case of Ma Barker andher boys was at an end.
Now we're going to do somethingextremely fun.
Mostly Uncle Frank (47:10):
And the extremely fun thing we get to do
now is our weekly portfolioreviews.
Of the eight sample portfoliosyou can find at
wwwriskpriorityreviewcom on theportfolios page.
Just looking at the markets,last week it was mostly all rosy
.
The S&P 500, represented by thefund VOO, is now up 5.59% for
(47:31):
the year.
The NASDAQ 100, represented byQQQ, is now up 7.49% for the
year.
Small cap value is still thebig loser this year.
Viov representative fund isdown 7.41% for the year.
Gold is still the big winner.
Voices (47:48):
I love gold for the year .
Mostly Uncle Frank (47:56):
Gold is still the big winner.
I love gold.
Representative fund GLDM is up24.58% for the year.
Long-term treasuries,represented by the fund VGLT,
are up 2.29% for the year.
Reits, represented by the fundREET, are up 3.85% for the year.
Commodities, represented by thefund PDBC, have fallen a lot
last week but they are still up0.31% for the year.
Preferred shares, representedby the fund PFFV, are up 0.04%
(48:20):
for the year and managed futuresare managing to recover.
Representative fund DBMF isstill down, though 0.41% now for
the year.
Moving to these sampleportfolios, first one's a
reference portfolio called theAll Seasons.
It is only 30% in stocks and atotal stock market fund, 55% in
(48:42):
intermediate and long-termtreasuries and the remaining 15%
in gold and commodities.
It's up 2.36% for the month ofJune.
In gold and commodities it's up2.36% for the month of June.
It's up 5.2% year-to-date andup 14.2% since inception in July
2020.
Moving to these bread andbutter kind of portfolios, first
one's Golden Butterfly.
This one's 40% in stocksdivided into a total stock
(49:05):
market fund and a small capvalue fund, 40% in treasury
bonds divided into long andshort and 20% in gold GLDM.
It's up 1.96% for the month ofJune.
It's up 5.65% year-to-date andup 41.49% since inception in
July 2020.
(49:25):
Next one's golden ratio.
This one is 42% in stocksdivided into a large cap growth
fund and a small cap value fund,26% in long-term treasury bonds
, 16% in gold, 10% in managedfutures and 6% in cash in a
money market fund.
It's up 2.61% for the month ofJune.
(49:46):
It's up 4.76% year-to-date andup 36.13% since inception in
July 2020.
Next one's the risk parityultimate the kitchen sink of
portfolios.
I'm not going to go through all14 of these funds, but it's up
2.29% for the month of June,4.3% year-to-date and 24.47%
(50:11):
since inception in July 2020.
Now moving to theseexperimental portfolios.
These all involve leveragedfunds, so don't try this at home
.
Voices (50:22):
Tony Stark was able to build this in a cave With a box
of scraps.
Mostly Uncle Frank (50:29):
First one's the accelerated permanent
portfolio.
This one is 27.5% ina leveredbond fund TMF, 25% in a levered
stock fund UPRO, 25% in PFFV, apreferred shares fund, and 22.5%
in GLDM.
In gold, it's up 3.84% month todate.
It it's up 5.57% year-to-dateand up 6.66% since inception in
(50:56):
July 2020.
Next one is the aggressive50-50.
This one is the most leveredand least diversified of all
these portfolios and also theworst performer.
It's one-third in a leveredbond fund TMF, one-third in a
levered stock fund UPRO, and theremaining third divided into
intermediate treasury bonds anda preferred shares fund.
(51:19):
As Ballast, it's up 5.86%month-to-date.
It's up 0.63% year-to-date andstill down 11.37% since
inception in July 2020.
Next one's the levered goldenratio.
This is a year younger than theother ones.
It is 35% in a compositelevered fund called NTSX that's
(51:42):
the S&P 500 and treasury bonds,20% in gold, gldm, 15% in a
international small cap valuefund AVDV, 10% in a managed
futures fund KMLM, 10% in TMF, alevered bond fund, and the
remaining 10% in UDOW and UTSL,which are levered funds that
(52:05):
follow the Dow and a utilitiesindex.
It's up 2.77% month-to-date.
It's up 8.14% year-to-date andup 3.36% since inception in July
2021.
And the last one is our newestone, the Optra portfolio that is
just going to be a year oldnext week.
(52:28):
This one is 16% in a leveredstock fund, upro, 24% in AVGV,
which is a worldwide value fund,24% in GOVZ, a treasury strips
fund, and the remaining 36%divided into gold and managed
futures.
It's up 3.8% month to date.
It's up 6.43% year to date andup 9.8% month-to-date.
(52:51):
It's up 6.43% year-to-date andup 9.53% since inception in July
2024.
And that really concludes ourportfolio reviews.
Boring Things are looking muchnicer now this year than they
had been for most of it,although we've been doing fine
actually for the most part.
Next week we will have ourmonthly distributions, and won't
(53:14):
that be special.
Voices (53:16):
Well, la-dee-freaking-da .
Mostly Uncle Frank (53:20):
But now I see our signal is beginning to
fade.
Just one little programmingnote we're having some visitors
next week, so there may or maynot be a podcast.
Stay tuned, we'll see how thatplays out.
Maybe I'll get a guest readerfor the emails, though We'll see
.
Voices (53:38):
Yeah, hi, it's Bill Lumber.
Yeah.
Mostly Mary (53:43):
Okay, then I'd like to go ahead and welcome a new
member.
Voices (53:49):
This is yeah, uh, yeah, yeah I'm gonna need you to go
ahead and come in tomorrow.
Um we uh and uh, thanks.
Mostly Uncle Frank (54:02):
In the meantime, if you have comments
or questions for me, please sendthem to frank at risk parity
radiocom.
That email is frank at risk,parityityradiocom.
That email is frank atriskparityradiocom.
Or you can go to the websitewwwriskparityradiocom.
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.
(54:22):
Give me some stars, a follow, areview.
That would be great.
You, that would be great.
Okay, thank you once again fortuning in.
This is Frank Vasquez, withRisk Party Radio, signing off.
Voices (54:57):
In a musty old hall.
In Detroit, they prayed in theMaritime Sailor's Cathedral.
The church bell chimed and itrang 29 times For each man on
the Edmund Fitzgerald.
The legend lives on from theChippewa down of the big lake.
(55:21):
They call Gitche Gumee.
Superior, they said, nevergives up or dead when the gales
of November come early.
Mostly Mary (56:05):
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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