In this episode we celebrate Ozzy Osbourne and answer emails from Iron Tony, Ben and Robbin. We discuss some of the charts at Portfolio Charts and some related research, the unexpected problems of complex trusts and the value of simplifying estate planning by giving money away while you are alive and balancing treasury bonds, gold, and equity allocations to create resilient portfolios.
If you'd like to move to the front of the email line, please consider donating to the Father McKenna Center at fathermckennacenter.org or through the support page at riskparityradio.com.
Links:
Portfolio Charts Page O' Charts: Charts – Portfolio Charts
Portfolio Charts Golden Ratio Article: Beautiful Constants and the Golden Ratio Portfolio – Portfolio Charts
Jim Sandidge Chaos Paper: RMJ081-ChaosAndRetirementSecurity.pdf
Dana Anspach Presentation (watch minutes 17 - 59): How to Turn Investments into a Retirement Paycheck in 2023
Testfolio Comparison of TLT and VGLT: https://testfol.io/analysis?s=dGUGRbj009N
Breathless Unedited AI-Bot Summary:
Season 6 kicks off with a deep dive into the powerful analytical tools at Portfolio Charts that can transform how you evaluate investment strategies. Frank unpacks essential charts like Withdrawal Rates and Drawdowns, revealing why understanding a portfolio's behavior during market stress matters more than chasing maximum returns. Through clear explanations and vivid analogies, he demonstrates how risk parity approaches function as the Toyota 4Runners of investment strategies—reliable, versatile, and designed for challenging conditions.
The conversation shifts to a listener's complex trust situation, sparking a thoughtful examination of estate planning pitfalls. Frank offers a compelling perspective on legacy planning: rather than creating elaborate structures meant to preserve wealth indefinitely, consider simpler approaches that benefit heirs during your lifetime and avoid unintended family conflicts. His personal approach of allocating roughly 1% of his annual portfolio withdrawals to giving provides a practical model for balancing financial security with meaningful impact.
Finally, Frank addresses portfolio construction fundamentals, explaining why Treasury bonds serve as essential "recession insurance" and how to balance them with other assets like gold and equities. He emphasizes that even historically strong performers like gold can experience decade-long drawdowns, reinforcing the need for true diversification across asset classes that respond differently to varying economic conditions.
Whether you're new to risk parity investing or refining your existing strategy, this episode delivers valuable insights for creating a resilient portfolio designed to weather market uncertainty while supporting your long-term financial goals. Have questions about your own investment approach? Send them to frank@riskparityradio.com or use the contact form at riskparityradio.com.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Voices (00:01):
A foolish consistency, is the hobgoblin of little minds
, adored by little statesmen andphilosophers and divines.
Mostly Mary (00:10):
If a man does not keep pace with his companions.
Perhaps it is because he hearsa different drummer.
A different drummer and nowcoming to you from dead center
on your dial.
Welcome to Risk Parity Radio,where we explore alternatives
and asset allocations for thedo-it-yourself investor,
broadcasting to you now from thecomfort of his easy chair.
(00:33):
Here is your host, frankVasquez.
Mostly Uncle Frank (00:37):
Thank you, Mary, and welcome to Risk Parity
Radio.
If you are new here and wonderwhat we are talking about, you
may wish to go back and listento some of the foundational
episodes for this program.
Voices (00:50):
Yeah, baby, yeah.
Mostly Uncle Frank (00:52):
And the basic foundational episodes are
episodes 1, 3, 5, 7, and 9.
Some of our listeners,including Karen and Chris, have
identified additional episodesthat you may consider
foundational, and those areepisodes 12, 14, 16, 19, 21, 56,
(01:13):
82, and 184.
Whoa, and you probably shouldcheck those out too, because we
have the finest podcast audienceavailable.
Voices (01:26):
Top drawer, really top drawer.
Mostly Uncle Frank (01:31):
Along with a host named after a hot dog.
Voices (01:34):
Lighten up Francis.
Mostly Uncle Frank (01:37):
But now onward to episode 440.
Today on Risk Parity Radio.
Yes, it is our first episode ofSeason 6.
(02:01):
And also, on a sad note, it isthe passing of Ozzy Osbourne, a
non-conformist who captures alot of the spirit of what we do
around here.
So you say it's sad, it'ssomething that I enjoy, and what
(02:31):
we'll be doing around heretoday is attending to your
emails All aboard.
Voices (02:36):
I, I, I, I, I, I, I, I, I, I, I, I, I, I, I, I, I, I, I,
I, I, I, I, I, I, I, I, I, I, I, I, I, I, I, I, I, I, I, I, I,
I, I, I, I.
Mostly Uncle Frank (02:42):
I.
But before we get to that, gotsome nice comments from many of
you about the state of ouralternative website.
We are in rebuilding mode.
Voices (02:54):
Can we fix it?
Yes, we can.
Mostly Uncle Frank (02:59):
If you'd like to take a look at that, go
to the website atwwwriskparitybroadcastcom, and
if you click on the alt site atthe top of the page on the right
, it'll take you to our demo ofthe site we are working on.
Well, my top man, luke, isworking on it.
Voices (03:16):
It has to be researched and it will be, I assure you, dr
Brody, dr Jones we have top menworking on it right now.
Who Top?
Mostly Uncle Frank (03:32):
men and I want to thank you all who have
already made some comments.
If you've got some othercomments, please get them in
here by the end of the month andthen Luke and I will sit down
and look at them and implementthe alternative website as the
new spanking new website.
Voices (03:49):
Let's go, Jerry go.
Mostly Uncle Frank (03:51):
But now without further ado.
Voices (03:53):
Here I go once again with the email.
Mostly Uncle Frank (03:57):
And first off.
First off, we have an emailfrom Iron Tony.
Off, we have an email from IronTony, and Iron Tony writes Hi
(04:21):
Uncle Frank and Aunt Mary.
Mostly Mary (04:23):
I'm a huge fan of your work to educate us DIYers
Over these many years.
I always look forward tolistening to every podcast and
all those great sound clips.
Voices (04:33):
Shirley, you can't be serious.
I am serious, and don't call meShirley.
Mostly Mary (04:37):
I also appreciate Mary's silky smooth voice as she
reads through the sometimesvery lengthy emails.
Voices (04:47):
She's a real professional and very kind to
help us all out no-transcript.
Mostly Uncle Frank (05:03):
That's what I'm talking about.
Mostly Mary (05:05):
I noticed there are a lot of charts and plots for
each of the portfoliosdescribing the historic and
anticipated behaviors, like theequalizer target, accuracy, heat
map and others.
Would you kindly provide abrief rundown of the different
charts describing what they show, why they may or may not be
useful and their importance?
I want to be sure I'm notmissing something as I build my
(05:28):
own unique portfolio.
I like the golden ratio, soI'll likely use this as a
jumping off point to create myown unique mix of assets using
the tools, talent, monte Carlosimulations and a box of scraps
in my cave.
It's impossible.
Voices (05:43):
Tony Stark was able to build this in a cave with a box
of scraps.
Mostly Mary (05:52):
My wife and I are two years from launching into
full retirement mode and havemostly transitioned our
portfolio into something betterthan 100% equities.
Time to ease up on the gaspedal.
Voices (06:04):
Down the quarter mile of death in their 7,000 horsepower
nitro burning suicide machines.
Mostly Mary (06:09):
as they shake hands with the devil, Having worked
for the civilian government formany decades and also retired
from the US Navy Reserves, Iwill have pensions that cover
our minimum dignity floor, soour portfolio assets will help
fund our bright and beautifulfuture, making distribution
amounts very flexible based onneed and market volatility.
(06:30):
When I visit family inWashington DC, I gladly tell
them that I donate to the FatherMcKenna Center and listen to
Uncle Frank and Aunt Mary onRisk Parity Radio, as they
should do too.
Thank you again, Iron Tony.
Voices (06:51):
Is he blind?
Can he walk at all?
Or if he moves, will he fall.
Mostly Uncle Frank (07:12):
Well, first off, I did not pick this email
out due to Ozzy Osbourne'spassing.
It had been picked out before Iknew that, so maybe it was
meant to be Aye, aye, aye, aye,aye, aye, aye, aye, aye, aye,
aye, aye, aye, aye, aye, aye,aye, aye, aye, aye, aye, aye,
aye, aye, aye, aye, aye, aye,aye, aye, aye.
The reason I picked it out isbecause Iron Tony is a donor to
(07:35):
the Father McKenna Center, andif you donate to the Father
McKenna Center, you get to go tothe front of the email line.
As most of you know, we do nothave any sponsors on this
program.
We do have a charity we support.
It's called the Father McKennaCenter and it supports hungry
and homeless people inWashington DC.
Full disclosure I am the boardof the charity and I'm the
current treasurer.
(07:56):
We are in the midst of amatching campaign called the Top
of the T-Shirt Campaign that werolled out in episode 426, and
we'll be continuing with thatuntil the end of the month.
So get your donations in showme the money.
Voices (08:11):
I need to feel you, jerry.
Show me the money.
Jerry, you better yell.
Mostly Uncle Frank (08:15):
Show me the money you can do that by going
to the father mckenna websiteitself in the donation page, or
if you go to the support page atwwwriskparityradiocom.
There are links there to becomea patron on Patreon of the show
, and all that money does go tothe Father McKenna Center.
(08:36):
Either way, make sure you notein your email when you send it
that you are a donor and I willduly move you to the front of
the line.
Now, getting to your email, youwant to talk about the charts
at Portfolio Charts.
Well, there's a lot of goodcharts there.
Voices (08:51):
The best, Jerry the best .
Mostly Uncle Frank (08:53):
I'll just rattle them off.
They are annual returnsdrawdowns, the equalizer chart,
financial independence, globalwithdrawal rates, the heat map,
long-term returns, the optimizer, portfolio growth, retirement
spending, rolling returns,savings rates, start date,
sensitivity, target accuracy andwithdrawal rates.
(09:17):
I'll link to the charts page inthe show notes, but no, I'm not
going to talk about all ofthese charts.
Voices (09:24):
I don't think I'd like another job.
Mostly Uncle Frank (09:26):
That would take too long.
These charts, I don't think I'dlike another job.
That would take too long.
I will talk about a few of themthat I find most interesting
for what we are trying to dohere, which is to have
portfolios that have high safewithdrawal rates and would be
good in retirement.
First, if you want to see allthe charts in one place, just go
to one of the portfolios, likeGolden Butterfly or Golden Ratio
(09:46):
from their portfolios page andthey will show you all the
charts for that particularportfolio and then you can go to
each chart individually afterthat and put in your own
portfolio and get the resultsout of it.
So two of the charts I like themost are the withdrawal rates
chart and the drawdowns chart.
Now, the withdrawal rates chartis just showing you safe
(10:08):
withdrawal rates for a portfolio, but it's got them lined out so
you can see it from a zero-yeartime frame out to a 45-year
time frame, and it gives youthree alternative measurements,
one being a safe withdrawal rateyou're not going to run out of
money.
One being a perpetualwithdrawal rate that you at
least end up with the sameamount of money and not have
(10:30):
your portfolio go below that.
And then what is called along-term withdrawal rate, and
all three of these things aredescribed in the notes for it.
But it does give you a goodsense of not only what a 30-year
withdrawal rate would look likefor a particular portfolio, but
basically going out to forever,because you can see how it
becomes asymptotic as you go outthere.
And this is a really good toolfor comparing portfolios because
(10:54):
it really shows you that if youhave just a simple traditional
portfolio like a 60-40 orsomething like that, it's going
to have a mediocre performance.
If you have something that'slike 100% stocks, it's going to
have a bad safe withdrawal rateI mean less than 4%.
But then if you add the assetsthat we usually add into this,
you're going to get 30-yearwithdrawal rates of 6%.
(11:17):
Now, mind you, the data is onlyback to 1970.
So you would still reduce it alittle bit for that.
But the point of it is to showyou which portfolios are better
than other ones on thisparticular metric.
Now, very much related to safewithdrawal rates is this
drawdowns chart, and this is areally interesting chart.
(11:39):
What it shows is, for anyportfolio you put in there, how
far has this been down in termsof maximum drawdowns and then
how long has it been down interms of maximum years
underwater, and you can reallysee a very strong correlation
between portfolios with lowermaximum drawdowns and shorter
(12:01):
maximum drawdowns and portfolioswith high safe withdrawal rates
.
And so when you're looking atportfolios like the Golden
Butterfly or Golden Ratio,you're seeing portfolios that
are only down a max of 20% orless and have drawdowns that
only last three or four years,whereas if you took some either
all-stock portfolio or somesimple stock bond portfolio,
(12:24):
that's going to have a drawdownof up to 13 years and up to 40%.
So what this gives you a reallygood feel for is well, how bad
could this get?
If I adopted this and this isalso how I recognize that using
a risk parity style portfoliowas also a good way for you to
save for intermediate goals interms of saving for a house or a
(12:47):
car in five years or somethingthat was kind of amorphous that
this kind of portfolio, sinceit's not going to be down for
more than three or four yearsever, essentially it makes a
great intermediate termportfolio, in addition to being
good retirement portfolio thatis the straight stuff, oh master
.
This also gets to some veryinteresting theoretical
(13:09):
parameters as to what you aretrying to actually maximize when
you're trying to construct aportfolio with a higher safe
withdrawal rate.
And there is a paper by JimSandage that I will link to
again in the show notes Ihaven't linked to this for a
while and also a presentation byDana Anspach, who's a
well-known financial advisor,about this very issue that
(13:32):
really, in retirement, what youare trying to maximize in terms
of a portfolio is not thehighest Sharpe ratio or the
highest overall returns, butwhat is called a mini-max.
Basically, what does the bestin the worst environments, what
is the best of the worst.
And that kind of portfolio isthe kind of portfolio that has a
(13:55):
higher safe withdrawal rate andworks as a better retirement
portfolio.
She also analogizes this kindof portfolio to being the SUV or
Jeep of the portfolios.
Whereas your all-stockportfolio is more like a race
car, something like a simple60-40 portfolio might be like a
minivan or something, but whatyou really want to take into
(14:16):
retirement in my mind is aToyota 4Runner.
It's all the same to you, I'lldrive that tanker that has
things like four-wheel drive andfog lights.
But you're not going to havethat unless you have some
alternative assets in yourportfolio.
Voices (14:35):
I love gold.
Mostly Uncle Frank (14:39):
Anyway, check out the Sandage paper.
It is applying chaos theory tothis whole concept of retirement
portfolios and it's very astute.
It brings together a lot ofmeta thoughts, if you will, and
really goes well with thisdrawdown chart in terms of
thinking about what are the bestkind of portfolios to hold in
retirement.
All right, getting to anothercouple interesting charts here.
(15:01):
One is the annual returns chart, which is nice.
It gives you a histogram oflittle bar graphs showing how
often the portfolio is negativein terms of annual returns and
then what the spread is in termsof the annual returns, and
you'll see that good portfoliosfor retirement tend to have
(15:23):
negative returns only about 20%of the time.
Mind you, this is inflationadjusted.
Ordinary portfolios that arejust highly total stock market
or S&P 500 based tend to havepositive years 70% of the time
after you account for inflation,and it's that one year out of
10.
That makes all the difference,in addition to not having a huge
(15:45):
variance on the distribution ofreturns over time that these
risk parity style portfoliostend to have a pretty tight
distribution in the middle anddon't vary too much from their
overall return profiles, whereasother portfolios are all over
the place.
Another nice chart to look atis the heat map, and this also
(16:07):
shows you a nice illustration ofhow long a particular portfolio
has been down if you startedretirement any particular year
since 1970.
And so the positive years areall blue, the neutral years are
white and the bad years are pinkor red.
And you will see lots of pinkor red for traditional
(16:28):
portfolios but hardly any forrisk parity style portfolios,
which again goes with this idea.
Sure, they can be down, butthey're not going to be down for
very long or very many years ina row.
Another calculator I really likeplaying around with is the
retirement spending calculator,and what is unique about this
calculator in this set ofcalculators is that it allows
(16:51):
you to effectively modelvariable spending plans, like
the Geithner-Klinger or theKitsis-Ratchett or many other
ones, and it tells you in thewrite-up what those look like.
But you can model portfoliosthat are reducing spending at a
certain point, if the marketgoes down, or the portfolio goes
down, or increasing spending ata certain point and seeing what
(17:13):
that looks like.
And I don't really know of anyother provider that provides a
calculator like this that iseasy to use.
And the other calculators arevery good for various things, so
I would check them out too forvarious things.
So I would check them out too.
The only other calculator I'mgoing to mention specifically is
called the Portfolio MatrixCalculator, which allows you to
(17:33):
compare a whole slew ofportfolios all of the sample
portfolios against one that youput in yourself.
The drawback to this is youhave to be a member of the site
to get access to it, but it'scheap.
It's only five bucks a month.
If you're interested in it, ifyou want to see what it looks
like, I'll link to an articleabout the Golden Ratio portfolio
(17:53):
, where the portfolio matrix isdisplayed, showing the
comparison with the other sampleportfolios, and it goes through
a variety of metrics, includingsafe withdrawal rates and total
returns and standard deviationsand things like that, and so
you can see in one place acomparison of all kinds of
different kind of portfoliosthat you might hold or not hold.
(18:16):
But that's probably my favoriteone actually.
Wow, it's very nice, and thereare a number of other benefits
to becoming a member, as listedon the site.
There are a number of otherbenefits to becoming a member,
as listed on the site, includinggetting all the calculators on
one page for your portfolio, oreven modifying the data or
uploading your own data to doanalyses with these calculators.
(18:38):
Anyway, I'm hoping you'reenjoying your life in a cave
with a box of scraps.
Voices (18:43):
You need somebody watching your back at all times.
Mostly Uncle Frank (18:47):
Seems to be suiting you pretty well.
Thank you for your donation tothe Father McKenna Center and
thank you for your veryinteresting email.
Voices (18:57):
Has he lost his mind?
Can he see or is he blind?
Can he walk at all?
Or if he moves, will he fall.
Mostly Uncle Frank (19:17):
Second off.
Second off we have an emailfrom Ben and ben writes frank,
(19:41):
thank you for your excellentshow.
Mostly Mary (19:43):
I made a donation to the father mckenna center.
It's very impressive how muchgood you've done via your hobby.
I'm 42, want to retire in 10 to15 years and I'm about halfway
to my target portfolio value.
When I realized I need just a5% return from here on, I
transitioned from VTSAX andCHILL to a levered golden ratio
(20:07):
portfolio.
Transition from VTSAX and CHILLto a levered golden ratio
portfolio it has a similarvolatility too, and a lower best
case return than VTSAX, inexchange for a higher worst case
return estimated via portfoliocharts, thus minimizing the
probability I'll miss my target.
My question my grandfathercreated a trust where my father
receives the dividends andinterest and when he passes away
(20:28):
, probably in 20 years, Ireceive the principal Lucky Mini
rant.
It is a blessing to receive anyinheritance, but the structure
is a minor nightmare.
It was created in the mid-80sexploiting all the fashionable
tax loopholes.
Voices (20:44):
What a guy in a suit.
No, it's a tax collector Hide usSpongeBob.
Mostly Mary (20:51):
But changes to the tax code mean a significant
portion has in fact been taxedaway.
Plus 40 years of legal andinvestment fees have taken a
compounding toll.
That's not an improvement.
Further thinking of dividendsand interest separately from
principal misaligns theincentives of my father and me.
He wants corporate bonds tocollect a yield.
(21:11):
I want equities for capitalgains.
Welcome to another edition ofThunderdome.
The worst part we are requiredto employ a wealth manager as
co-trustee to drink ourmilkshake.
Voices (21:25):
I drink your milkshake, I drink it up.
Mostly Mary (21:33):
This probably made sense in the 80s, but paying any
management fee today kills me.
My great-grandfather said hedidn't want us to forget him.
Voices (21:41):
Death stalks you at every turn.
Mostly Mary (21:45):
But I also can't forget how much he squandered
through this scheme.
The point is again I am verythankful for my resources.
However, I urge everyone tokeep their estates as simple as
possible to avoid taxes, feesand family problems.
Voices (22:01):
You fell victim to one of the classic blunders.
Mostly Mary (22:04):
You cannot anticipate how the investing
environment will change or whatwill be best for your
beneficiaries after you die.
For example, if I had receivedthe money when I was buying my
first home, it would have beenlife-changing.
Instead, when I receive it inmy 60s, I'll probably just hoard
it.
Voices (22:21):
What's with you?
Anyway, I can't help it.
I'm a greedy slob, it's myhobby Save me.
Mostly Mary (22:29):
Alternately, your plan to spend or give away your
money before you die avoids someof these problems.
Voices (22:35):
You are correct, sir.
Yes.
Mostly Mary (22:38):
All that said, the trust holds 50% blue chip stocks
, 30% corporate bonds and 20percent cash.
My question how would you thinkabout managing this with the
rest of a levered goldenportfolio, given I have minimal
control over rebalancing orother changes and the dividends
and interest are extracted?
The current value is about aquarter of my portfolio, so it's
(23:01):
a meaningful chunk, but not themain event.
Voices (23:18):
Thanks again, Ben.
Mostly Uncle Frank (23:21):
Well, Ben also gets to go to the front of
the email line because he's alsoa donor to the Father McKenna
Center.
I wouldn't say it's veryimpressive how much good I've
done with my hobby.
What's more impressive is howmuch good you all have done with
my hobby.
Voices (23:36):
That's the fact, Jack.
That's the fact, Jack.
Mostly Uncle Frank (23:40):
Because I certainly did not set out to
create or ever imagine that thiscould be such a great
fundraising vehicle for theFather McKenna Center.
And it is really all due to youand your inspiration and
generosity.
Voices (23:59):
And I want to thank you again for it.
Mostly Uncle Frank (24:10):
Today, I consider myself the luckiest man
on the face of the earth.
Now, getting to your questionyeah, this is kind of a crazy
situation.
Voices (24:24):
I'm going off the rails on a crazy train.
I'm going off the rails on acrazy train I'm going up.
Mostly Uncle Frank (24:32):
the rail got a crazy train, but it is kind
of a law of unintendedconsequences, if you will, and a
philosophical, financial andlegal problem of trying to leave
funds that essentially lastforever or a very long time
after you pass.
I'm not sure you can reallycount this as anything right now
(24:54):
.
It's a very odd asset.
What I might look at is thehistory of the fund itself to
see how much growth it has had,because it is likely to keep
growing at the same long-termrates, and then you might be
able to project what thoseresults would be over a long
period of time.
It's going to take some workwith either a spreadsheet or a
(25:17):
calculator, because you have tosubtract out whatever's being
paid to your father, in additionto dealing with the growth
prospects of it and all the feesand everything else bits and
doozy so that would, in theoryat least, give you a curve of
potential outcomes in apotential future, now, of course
.
Then the other issue is and thisis the morbid one you don't
(25:40):
know when your father's gonnapass if you don't start making
more sense, we're gonna have toput you in a home.
Voices (25:48):
You already put me in a home, then we'll put you in the
crooked home.
Mostly Uncle Frank (25:52):
It's on 60 minutes, I'll be good and if
it's not anytime soon, all of asudden this doesn't look like
much of anything you can counton because, believe it or not,
as both get older, there is achance that you would
pre-decease him, among otherthings.
And then I wonder what wouldhappen there under the will or
(26:12):
the terms of the trust, whetherit's supposed to go to your
surviving family or how it works.
But I'm sure there's a lawyerthere that could answer that
question.
So, even though you can dothose calculations, I'm not sure
I would really count it asanything in particular at this
point.
You didn't mention whether youhad children or not or how old
they were.
(26:32):
But it might be a good ideajust to earmark that money for
somebody else's tuitions orweddings or some other big thing
that you might want to do inthe future.
But you don't know exactly howyou're going to pay for it, and
I am wondering what the taxationis going to be like on it,
(26:53):
although I'm sure you can asksome lawyers and tax accountants
about what the status is andwhat it's going to be like when
you actually inherit it, becausethat could be some kind of a
tax bomb, depending on how it'sconstructed.
But I'm really glad you broughtthis to our attention, because
I really think this is somethingto learn from that.
A couple things.
I think there is a desire in alot of men in particular to try
(27:18):
to essentially live forever withthese structures that are going
to be created or they havecreated, before you pass on.
But recognize that unless thatis really simple, you may be
causing more problems thanyou're solving, and particularly
when something's supposed to goon for generation after
generation, that probablyactually is not a good idea.
(27:41):
It's likely to get squanderedeventually, like the Vanderbilt
money it's the most famous oneof those.
These tend to work best if theyare the start of some
foundation or actual charity,because that is much easier for
someone to manage, and thenmaybe the charity issues grants
or has some other structure.
That's more of a familiar wayof doing things and the idea
(28:05):
there would be.
Instead of putting all thismoney in this thing that's
supposed to preserve your memorywhen you're dead, why don't you
just give the money to thepeople while you're alive, at
least the ones that are going tobe your heirs, and try to give
most of that to them, or asignificant amount of that to
them, and then the rest of thiscan be that charity money.
(28:26):
One thing I've realized overthe past five years of
retirement is that we do tend togive away about 1% every year.
Out of the approximately 5%we're spending, about 1% of it
gets spent on advances to ourchildren as advances on their
inheritances, supporting familymembers and giving it to
(28:49):
charities such as the FatherMcKenna Center, and I honestly
think that's a pretty good goalfor a lot of people that when
you retire, if you are givingaway 1% and living on the 4% you
(29:12):
have a lot of flexibility, that, yes, if we had horrible years
we could not give away moneythat year or not give away as
much that year.
But having a goal like that doesgive us some urgency and some
purpose for the money.
So it's just not stacking upfor some weird trust that our
great-grandchildren are going toinherit someday.
(29:34):
Not going to do it Wouldn't beprudent at this juncture.
If you really want to leavesome kind of a legacy, I would
think more about just doingthings like that.
Or if you want somethingcreative write a book or paint
or create something, a monumentsomewhere perhaps.
But this not dispersing moneywhile you're alive so you can
(29:55):
have this giant thing whenyou're dead does not seem to me
to be a desirable or efficientway of approaching this.
Voices (30:03):
But what about your grandfather's work, sir?
My grandfather's work wasdoo-doo.
I am not interested in death.
Mostly Uncle Frank (30:12):
The only thing that concerns me is the
preservation of life thatconcerns me is the preservation
of life, and it may actuallycause a lot of unwanted family
drama and bad feelings,depending on how various people
are treated in this trustarrangement, because it's almost
like the more you leave to agroup of people, the more
there's going to be fightingabout it.
(30:32):
I can tell you that.
Voices (30:34):
Listen on.
This is the truth of it.
Fighting leads to killing andkilling gets to warring, and
that was damn near the death ofus all.
Look at us now busted up andeveryone talking about hard rain
.
But we've learned by the dustof them.
All barter towns learned.
Mostly Uncle Frank (30:57):
Now, when men get to fighting, it happens
here and it finishes here twomen enter, one man leaves so I'm
really glad you're thinkingabout these things and have
brought them to our attention,because it is something that we
should all be thinking about ifwe've accumulated some
(31:17):
significant amount of wealth.
Voices (31:20):
I wonder how that crazy duck ever made out with that
genie.
Hey, what do you know?
A poil.
It's mine, understand Mine, mine, all mine, go, go, go, mine.
Do you hear me?
Oh, oh, oh Mine mine, mine, ohbrother, only enough for me.
Oh sesame, I'm rich, I'm ahappy miser.
(31:44):
So thank you for being a donorand thank you for your email.
Baby, it's not too late Tolearn how to love and forget how
to hate.
Mostly Uncle Frank (32:00):
Last off, last off, an email from Robin.
Right now you care.
Right now you care.
Right now you care, right nowyou care, and Robin writes your
(32:24):
alternative website is about10,000 times better.
Mostly Mary (32:27):
I believe I emailed you twice before because I
couldn't figure out how to workthe website.
I thought that was the only wayto get it to do anything.
Of course it did not doanything, but now it is very
user-friendly.
Plus, I have donated to theFather McKenna Center.
Voices (32:42):
Groovy baby.
Mostly Mary (32:44):
I love all the crazy, funny sound effects Do
not ask him for mercy.
Voices (32:49):
Let's face it you can't talk him out of anything.
Mostly Mary (32:53):
In fact, one time I saw that the market had had a
very bad day, so I checked mybrokerage website and, lo and
behold, I was up due to my gold.
I immediately heard I love gold.
Yes, I am a nut too, but in agood way.
Voices (33:07):
You're insane gold member and that's the way I like
it.
Okay, see you in the sunshinebud.
Mostly Mary (33:16):
I cannot begin to tell you how much I have learned
from listening to your podcast.
It has been about three or fourmonths since I started
listening, but I really, reallylove it and always look forward
to your new episodes.
I'm still working my waythrough older episodes.
The cheat sheet podcast topiclist that's now available on the
website is wonderful.
I was using a golden butterflyportfolio but have switched to
(33:38):
my own risk parity portfolio 25%TSM, 25% SCV, 25% GLDM, 15% BIL
and 10% long-term treasury, tltand VGLT.
I have run this portfoliothrough portfolio charts and
sometimes it beats both thegolden ratio and golden
(34:00):
butterfly in certain categories.
As you can tell from myallocations, I am not keen on
long-term treasury bonds, but Ihave come to realize that they
are the only thing that isnegatively correlated and they
act as insurance.
I have two questions.
Question one please convince meor give me reasons for
including long-term treasuries,and question two I previously
(34:22):
only have TLT based on the bookrecommended on portfolio chart
for doing Golden Butterfly.
The title of the book is thePermanent Portfolio Harry Brown
Long-Term Investment Strategy byCraig Rowland and JM Lawson.
I'm sure you're familiar with itand I noticed on your website
you recommend VGLT and on paperit seems that VGLT pays a
(34:43):
similar or higher interest rate,but also has a lower expense
ratio.
So my question is what's thecatch as in?
When was the last time 30-yeartreasury bonds acted as
insurance, and did VGLT performas well as TLT?
Thanks again for all you do.
I really appreciate it.
(35:03):
Say hi to Mary Sincerely, robin.
Voices (35:28):
Well, I'm glad you're enjoying the podcast and are
learning some things and are atthe links that I put attached to
the episodes.
Mostly Uncle Frank (35:43):
Of course, a lot of the older ones probably
don't work anymore and no, I'mnot going to fix them.
Voices (35:50):
It's not that I'm lazy, it's that I just don't care.
Mostly Uncle Frank (35:54):
But I think things like that sandage paper I
just mentioned today are reallyenlightening and whenever I've
linked to a Michael Kitsisarticle in the past, it's
definitely worth reading.
Now you mentioned the PermanentPortfolio and Harry Brown and
then the book by Craig Rowland.
Yes, I have read those,including the one from about
(36:16):
1980-something by Harry Brownwhich I have in hardback.
It's interesting all themachinations you had to do to
invest in gold in those days,because you were literally
talking about buying Krugerrandsand gold in physical form.
There were no ETFs and it'sdifficult to do things just by
futures contracts.
Those early stabs at a reallywell-diversified portfolio are
(36:43):
part of the history of thiswhole topic and I believe that's
in episode three or five, socheck those out if you haven't.
I know the golden butterflyportfolio is largely based on
that original idea.
Harry Brown was also a famouslibertarian and wrote a book
that is more famous.
It's called how I Found Freedomin an Unfree World.
(37:06):
I believe it was written in the1960s and is kind of a
follow-up on some ideas fromEmerson and Thoreau and is good
in some ways and not so good inothers, but that is one of the
threads or roots that led to themodern FI movement, although
it's not nearly as prominent orpopular as it was, say, around
(37:28):
2009.
But a lot of people pursuefinancial independence just so
they can be left alone, andthere's certainly a lot of merit
to that in many circumstances.
All right, getting to yourportfolio.
Yes, the reason you puttreasury bonds in these kind of
portfolios intermediate orlong-term treasury bonds is
essentially as recessioninsurance, so that when you have
(37:52):
your 2020 or 2008 or 2001 to2003, your experience is not
nearly as bad as if you didn'thave them.
And this would be a good thingto run through that drawdowns
calculator to see how thatvaries depending on what you put
in the portfolio or don't putin the portfolio.
So I can tell you that in termsof what you got, it should work
(38:16):
fine.
If you just want to tweak it alittle bit, I would move 5% of
what you have in T-bills over tothe long-term treasuries,
because typically you do notwant more than 10% in short-term
instruments like that in anyportfolio if you want to have a
higher safe withdrawal rate.
We've known that since theoriginal Bill Bengen research in
(38:37):
the 1990s and it's never reallybeen contradicted.
If you're talking about thingsthat are less than one year in
duration or are just likesavings accounts.
Having more than about 10% isnot going to make your portfolio
better.
One of the other kind of rulesof thumb is that you probably
need between 15% and 30% inintermediate and long-term
(39:00):
treasuries in order to get thehigher safe withdrawal rates,
and you could have someintermediate ones too if you
really wanted them.
That would be.
Vgit is the Vanguard fund forthat.
As far as the funds areconcerned, tlt and VGLT are
essentially almost the same fund, except VGLT is cheaper.
I'll link to a test folioanalysis of the two of them.
(39:22):
You can see they track together.
So the reason that you woulduse VGLT is because it's cheaper
.
The reason you would model withTLT is because it has a longer
history.
But you can find even longerhistories of long-term treasury
bonds that go back 100 years.
They just don't have tickersymbols, and if you're going to
hold 25% in gold in a portfolio,that is actually a lot, and you
(39:45):
should recognize that gold canhave very long drawdowns or bad
times when it's not doing muchof anything, up to a decade or
more, just like any of theseother assets.
So just because it's been thebest performer, say this century
doesn't guarantee that that'salways going to be the case.
So I would make sure you modelthat in the 80s and 90s in
(40:08):
particular, when you would muchrather have been holding
long-term treasury bonds thanprobably anything else and
certainly would prefer that overgold in that period.
But that's why we hold avariety of things, because we
don't know what's going toperform best and we don't know
which asset's going to have thebad decade next or when their
bad five years or decade, orwhatever it is, is actually
going to end.
Voices (40:28):
We don't know.
What do we know?
You don't know, I don't know,nobody knows.
Mostly Uncle Frank (40:35):
I'm glad you're enjoying working with the
charts.
Make sure that you work withmore than one set of them to get
the best results for comparisonpurposes, because whatever
portfolio you pick, you reallywant it to be better than
portfolio B or some alternative.
In all of these long-termcharts that you can find I'm
talking about portfolio charts,portfolio visualizer, whatever
(40:57):
you could run a test folio andthen, if you're up for it,
download the toolbox at earlyretirement now, because that'll
give you a lot of data.
That goes back to 1926.
It is a spreadsheet so it takesa little bit of wrangling to
get results out of it, butbasically what that shows is
that dividing your stocks intogrowth and value helps your
(41:18):
portfolio a lot, as well asholding 10 to 15 percent in gold
.
Gold really becomes morerelevant after 1970 because
that's when the dollar went offthe gold standard and you were
allowed to own it again in theUnited States.
Voices (41:32):
This is gold, mr Bond.
I think you've made your point.
Goldfinger, thank you for thedemonstration.
Do you expect me to talk?
No, mr Bond, I expect you todie.
Mostly Uncle Frank (41:45):
Anyway, I'm glad you're enjoying everything
we have to offer here.
Thank you for being a donor tothe Father McKenna Center and
thank you for your email, butnow I see our signal is
beginning to fade.
If you have comments orquestions for me, please send
them to frank atriskparityradarcom.
That email is frank atriskparityradarcom.
Or you can go to the website,wwwriskparityradarcom.
(42:08):
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.
Give me some stars, a follow, areview.
That would be great, Okay,Thank you once again for tuning
(42:30):
in.
This is Frank Vasquez with RiskPretty Radio.
Voices (42:53):
Signing off.
Times have changed and timesare strange.
Here I come, but I ain't thesame.
Hey, mama, I'm coming home, I'mcoming home, I'm home.
Mostly Mary (43:31):
Thank you.
A foolish consistency, is the hobgoblin of little minds
, adored by little statesmen andphilosophers and divines.
Mostly Mary (00:10):
If a man does not keep pace with his companions.
Perhaps it is because he hearsa different drummer.
A different drummer and nowcoming to you from dead center
on your dial.
Welcome to Risk Parity Radio,where we explore alternatives
and asset allocations for thedo-it-yourself investor,
broadcasting to you now from thecomfort of his easy chair.
(00:33):
Here is your host, frankVasquez.
Mostly Uncle Frank (00:37):
Thank you, Mary, and welcome to Risk Parity
Radio.
If you are new here and wonderwhat we are talking about, you
may wish to go back and listento some of the foundational
episodes for this program.
Voices (00:50):
Yeah, baby, yeah.
Mostly Uncle Frank (00:52):
And the basic foundational episodes are
episodes 1, 3, 5, 7, and 9.
Some of our listeners,including Karen and Chris, have
identified additional episodesthat you may consider
foundational, and those areepisodes 12, 14, 16, 19, 21, 56,
(01:13):
82, and 184.
Whoa, and you probably shouldcheck those out too, because we
have the finest podcast audienceavailable.
Voices (01:26):
Top drawer, really top drawer.
Mostly Uncle Frank (01:31):
Along with a host named after a hot dog.
Voices (01:34):
Lighten up Francis.
Mostly Uncle Frank (01:37):
But now onward to episode 440.
Today on Risk Parity Radio.
Yes, it is our first episode ofSeason 6.
(02:01):
And also, on a sad note, it isthe passing of Ozzy Osbourne, a
non-conformist who captures alot of the spirit of what we do
around here.
So you say it's sad, it'ssomething that I enjoy, and what
(02:31):
we'll be doing around heretoday is attending to your
emails All aboard.
Voices (02:36):
I, I, I, I, I, I, I, I, I, I, I, I, I, I, I, I, I, I, I,
I, I, I, I, I, I, I, I, I, I, I, I, I, I, I, I, I, I, I, I, I,
I, I, I, I.
Mostly Uncle Frank (02:42):
I.
But before we get to that, gotsome nice comments from many of
you about the state of ouralternative website.
We are in rebuilding mode.
Voices (02:54):
Can we fix it?
Yes, we can.
Mostly Uncle Frank (02:59):
If you'd like to take a look at that, go
to the website atwwwriskparitybroadcastcom, and
if you click on the alt site atthe top of the page on the right
, it'll take you to our demo ofthe site we are working on.
Well, my top man, luke, isworking on it.
Voices (03:16):
It has to be researched and it will be, I assure you, dr
Brody, dr Jones we have top menworking on it right now.
Who Top?
Mostly Uncle Frank (03:32):
men and I want to thank you all who have
already made some comments.
If you've got some othercomments, please get them in
here by the end of the month andthen Luke and I will sit down
and look at them and implementthe alternative website as the
new spanking new website.
Voices (03:49):
Let's go, Jerry go.
Mostly Uncle Frank (03:51):
But now without further ado.
Voices (03:53):
Here I go once again with the email.
Mostly Uncle Frank (03:57):
And first off.
First off, we have an emailfrom Iron Tony.
Off, we have an email from IronTony, and Iron Tony writes Hi
(04:21):
Uncle Frank and Aunt Mary.
Mostly Mary (04:23):
I'm a huge fan of your work to educate us DIYers
Over these many years.
I always look forward tolistening to every podcast and
all those great sound clips.
Voices (04:33):
Shirley, you can't be serious.
I am serious, and don't call meShirley.
Mostly Mary (04:37):
I also appreciate Mary's silky smooth voice as she
reads through the sometimesvery lengthy emails.
Voices (04:47):
She's a real professional and very kind to
help us all out no-transcript.
Mostly Uncle Frank (05:03):
That's what I'm talking about.
Mostly Mary (05:05):
I noticed there are a lot of charts and plots for
each of the portfoliosdescribing the historic and
anticipated behaviors, like theequalizer target, accuracy, heat
map and others.
Would you kindly provide abrief rundown of the different
charts describing what they show, why they may or may not be
useful and their importance?
I want to be sure I'm notmissing something as I build my
(05:28):
own unique portfolio.
I like the golden ratio, soI'll likely use this as a
jumping off point to create myown unique mix of assets using
the tools, talent, monte Carlosimulations and a box of scraps
in my cave.
It's impossible.
Voices (05:43):
Tony Stark was able to build this in a cave with a box
of scraps.
Mostly Mary (05:52):
My wife and I are two years from launching into
full retirement mode and havemostly transitioned our
portfolio into something betterthan 100% equities.
Time to ease up on the gaspedal.
Voices (06:04):
Down the quarter mile of death in their 7,000 horsepower
nitro burning suicide machines.
Mostly Mary (06:09):
as they shake hands with the devil, Having worked
for the civilian government formany decades and also retired
from the US Navy Reserves, Iwill have pensions that cover
our minimum dignity floor, soour portfolio assets will help
fund our bright and beautifulfuture, making distribution
amounts very flexible based onneed and market volatility.
(06:30):
When I visit family inWashington DC, I gladly tell
them that I donate to the FatherMcKenna Center and listen to
Uncle Frank and Aunt Mary onRisk Parity Radio, as they
should do too.
Thank you again, Iron Tony.
Voices (06:51):
Is he blind?
Can he walk at all?
Or if he moves, will he fall.
Mostly Uncle Frank (07:12):
Well, first off, I did not pick this email
out due to Ozzy Osbourne'spassing.
It had been picked out before Iknew that, so maybe it was
meant to be Aye, aye, aye, aye,aye, aye, aye, aye, aye, aye,
aye, aye, aye, aye, aye, aye,aye, aye, aye, aye, aye, aye,
aye, aye, aye, aye, aye, aye,aye, aye, aye.
The reason I picked it out isbecause Iron Tony is a donor to
(07:35):
the Father McKenna Center, andif you donate to the Father
McKenna Center, you get to go tothe front of the email line.
As most of you know, we do nothave any sponsors on this
program.
We do have a charity we support.
It's called the Father McKennaCenter and it supports hungry
and homeless people inWashington DC.
Full disclosure I am the boardof the charity and I'm the
current treasurer.
(07:56):
We are in the midst of amatching campaign called the Top
of the T-Shirt Campaign that werolled out in episode 426, and
we'll be continuing with thatuntil the end of the month.
So get your donations in showme the money.
Voices (08:11):
I need to feel you, jerry.
Show me the money.
Jerry, you better yell.
Mostly Uncle Frank (08:15):
Show me the money you can do that by going
to the father mckenna websiteitself in the donation page, or
if you go to the support page atwwwriskparityradiocom.
There are links there to becomea patron on Patreon of the show
, and all that money does go tothe Father McKenna Center.
(08:36):
Either way, make sure you notein your email when you send it
that you are a donor and I willduly move you to the front of
the line.
Now, getting to your email, youwant to talk about the charts
at Portfolio Charts.
Well, there's a lot of goodcharts there.
Voices (08:51):
The best, Jerry the best .
Mostly Uncle Frank (08:53):
I'll just rattle them off.
They are annual returnsdrawdowns, the equalizer chart,
financial independence, globalwithdrawal rates, the heat map,
long-term returns, the optimizer, portfolio growth, retirement
spending, rolling returns,savings rates, start date,
sensitivity, target accuracy andwithdrawal rates.
(09:17):
I'll link to the charts page inthe show notes, but no, I'm not
going to talk about all ofthese charts.
Voices (09:24):
I don't think I'd like another job.
Mostly Uncle Frank (09:26):
That would take too long.
These charts, I don't think I'dlike another job.
That would take too long.
I will talk about a few of themthat I find most interesting
for what we are trying to dohere, which is to have
portfolios that have high safewithdrawal rates and would be
good in retirement.
First, if you want to see allthe charts in one place, just go
to one of the portfolios, likeGolden Butterfly or Golden Ratio
(09:46):
from their portfolios page andthey will show you all the
charts for that particularportfolio and then you can go to
each chart individually afterthat and put in your own
portfolio and get the resultsout of it.
So two of the charts I like themost are the withdrawal rates
chart and the drawdowns chart.
Now, the withdrawal rates chartis just showing you safe
(10:08):
withdrawal rates for a portfolio, but it's got them lined out so
you can see it from a zero-yeartime frame out to a 45-year
time frame, and it gives youthree alternative measurements,
one being a safe withdrawal rateyou're not going to run out of
money.
One being a perpetualwithdrawal rate that you at
least end up with the sameamount of money and not have
(10:30):
your portfolio go below that.
And then what is called along-term withdrawal rate, and
all three of these things aredescribed in the notes for it.
But it does give you a goodsense of not only what a 30-year
withdrawal rate would look likefor a particular portfolio, but
basically going out to forever,because you can see how it
becomes asymptotic as you go outthere.
And this is a really good toolfor comparing portfolios because
(10:54):
it really shows you that if youhave just a simple traditional
portfolio like a 60-40 orsomething like that, it's going
to have a mediocre performance.
If you have something that'slike 100% stocks, it's going to
have a bad safe withdrawal rateI mean less than 4%.
But then if you add the assetsthat we usually add into this,
you're going to get 30-yearwithdrawal rates of 6%.
(11:17):
Now, mind you, the data is onlyback to 1970.
So you would still reduce it alittle bit for that.
But the point of it is to showyou which portfolios are better
than other ones on thisparticular metric.
Now, very much related to safewithdrawal rates is this
drawdowns chart, and this is areally interesting chart.
(11:39):
What it shows is, for anyportfolio you put in there, how
far has this been down in termsof maximum drawdowns and then
how long has it been down interms of maximum years
underwater, and you can reallysee a very strong correlation
between portfolios with lowermaximum drawdowns and shorter
(12:01):
maximum drawdowns and portfolioswith high safe withdrawal rates
.
And so when you're looking atportfolios like the Golden
Butterfly or Golden Ratio,you're seeing portfolios that
are only down a max of 20% orless and have drawdowns that
only last three or four years,whereas if you took some either
all-stock portfolio or somesimple stock bond portfolio,
(12:24):
that's going to have a drawdownof up to 13 years and up to 40%.
So what this gives you a reallygood feel for is well, how bad
could this get?
If I adopted this and this isalso how I recognize that using
a risk parity style portfoliowas also a good way for you to
save for intermediate goals interms of saving for a house or a
(12:47):
car in five years or somethingthat was kind of amorphous that
this kind of portfolio, sinceit's not going to be down for
more than three or four yearsever, essentially it makes a
great intermediate termportfolio, in addition to being
good retirement portfolio thatis the straight stuff, oh master
.
This also gets to some veryinteresting theoretical
(13:09):
parameters as to what you aretrying to actually maximize when
you're trying to construct aportfolio with a higher safe
withdrawal rate.
And there is a paper by JimSandage that I will link to
again in the show notes Ihaven't linked to this for a
while and also a presentation byDana Anspach, who's a
well-known financial advisor,about this very issue that
(13:32):
really, in retirement, what youare trying to maximize in terms
of a portfolio is not thehighest Sharpe ratio or the
highest overall returns, butwhat is called a mini-max.
Basically, what does the bestin the worst environments, what
is the best of the worst.
And that kind of portfolio isthe kind of portfolio that has a
(13:55):
higher safe withdrawal rate andworks as a better retirement
portfolio.
She also analogizes this kindof portfolio to being the SUV or
Jeep of the portfolios.
Whereas your all-stockportfolio is more like a race
car, something like a simple60-40 portfolio might be like a
minivan or something, but whatyou really want to take into
(14:16):
retirement in my mind is aToyota 4Runner.
It's all the same to you, I'lldrive that tanker that has
things like four-wheel drive andfog lights.
But you're not going to havethat unless you have some
alternative assets in yourportfolio.
Voices (14:35):
I love gold.
Mostly Uncle Frank (14:39):
Anyway, check out the Sandage paper.
It is applying chaos theory tothis whole concept of retirement
portfolios and it's very astute.
It brings together a lot ofmeta thoughts, if you will, and
really goes well with thisdrawdown chart in terms of
thinking about what are the bestkind of portfolios to hold in
retirement.
All right, getting to anothercouple interesting charts here.
(15:01):
One is the annual returns chart, which is nice.
It gives you a histogram oflittle bar graphs showing how
often the portfolio is negativein terms of annual returns and
then what the spread is in termsof the annual returns, and
you'll see that good portfoliosfor retirement tend to have
(15:23):
negative returns only about 20%of the time.
Mind you, this is inflationadjusted.
Ordinary portfolios that arejust highly total stock market
or S&P 500 based tend to havepositive years 70% of the time
after you account for inflation,and it's that one year out of
10.
That makes all the difference,in addition to not having a huge
(15:45):
variance on the distribution ofreturns over time that these
risk parity style portfoliostend to have a pretty tight
distribution in the middle anddon't vary too much from their
overall return profiles, whereasother portfolios are all over
the place.
Another nice chart to look atis the heat map, and this also
(16:07):
shows you a nice illustration ofhow long a particular portfolio
has been down if you startedretirement any particular year
since 1970.
And so the positive years areall blue, the neutral years are
white and the bad years are pinkor red.
And you will see lots of pinkor red for traditional
(16:28):
portfolios but hardly any forrisk parity style portfolios,
which again goes with this idea.
Sure, they can be down, butthey're not going to be down for
very long or very many years ina row.
Another calculator I really likeplaying around with is the
retirement spending calculator,and what is unique about this
calculator in this set ofcalculators is that it allows
(16:51):
you to effectively modelvariable spending plans, like
the Geithner-Klinger or theKitsis-Ratchett or many other
ones, and it tells you in thewrite-up what those look like.
But you can model portfoliosthat are reducing spending at a
certain point, if the marketgoes down, or the portfolio goes
down, or increasing spending ata certain point and seeing what
(17:13):
that looks like.
And I don't really know of anyother provider that provides a
calculator like this that iseasy to use.
And the other calculators arevery good for various things, so
I would check them out too forvarious things.
So I would check them out too.
The only other calculator I'mgoing to mention specifically is
called the Portfolio MatrixCalculator, which allows you to
(17:33):
compare a whole slew ofportfolios all of the sample
portfolios against one that youput in yourself.
The drawback to this is youhave to be a member of the site
to get access to it, but it'scheap.
It's only five bucks a month.
If you're interested in it, ifyou want to see what it looks
like, I'll link to an articleabout the Golden Ratio portfolio
(17:53):
, where the portfolio matrix isdisplayed, showing the
comparison with the other sampleportfolios, and it goes through
a variety of metrics, includingsafe withdrawal rates and total
returns and standard deviationsand things like that, and so
you can see in one place acomparison of all kinds of
different kind of portfoliosthat you might hold or not hold.
(18:16):
But that's probably my favoriteone actually.
Wow, it's very nice, and thereare a number of other benefits
to becoming a member, as listedon the site.
There are a number of otherbenefits to becoming a member,
as listed on the site, includinggetting all the calculators on
one page for your portfolio, oreven modifying the data or
uploading your own data to doanalyses with these calculators.
(18:38):
Anyway, I'm hoping you'reenjoying your life in a cave
with a box of scraps.
Voices (18:43):
You need somebody watching your back at all times.
Mostly Uncle Frank (18:47):
Seems to be suiting you pretty well.
Thank you for your donation tothe Father McKenna Center and
thank you for your veryinteresting email.
Voices (18:57):
Has he lost his mind?
Can he see or is he blind?
Can he walk at all?
Or if he moves, will he fall.
Mostly Uncle Frank (19:17):
Second off.
Second off we have an emailfrom Ben and ben writes frank,
(19:41):
thank you for your excellentshow.
Mostly Mary (19:43):
I made a donation to the father mckenna center.
It's very impressive how muchgood you've done via your hobby.
I'm 42, want to retire in 10 to15 years and I'm about halfway
to my target portfolio value.
When I realized I need just a5% return from here on, I
transitioned from VTSAX andCHILL to a levered golden ratio
(20:07):
portfolio.
Transition from VTSAX and CHILLto a levered golden ratio
portfolio it has a similarvolatility too, and a lower best
case return than VTSAX, inexchange for a higher worst case
return estimated via portfoliocharts, thus minimizing the
probability I'll miss my target.
My question my grandfathercreated a trust where my father
receives the dividends andinterest and when he passes away
(20:28):
, probably in 20 years, Ireceive the principal Lucky Mini
rant.
It is a blessing to receive anyinheritance, but the structure
is a minor nightmare.
It was created in the mid-80sexploiting all the fashionable
tax loopholes.
Voices (20:44):
What a guy in a suit.
No, it's a tax collector Hide usSpongeBob.
Mostly Mary (20:51):
But changes to the tax code mean a significant
portion has in fact been taxedaway.
Plus 40 years of legal andinvestment fees have taken a
compounding toll.
That's not an improvement.
Further thinking of dividendsand interest separately from
principal misaligns theincentives of my father and me.
He wants corporate bonds tocollect a yield.
(21:11):
I want equities for capitalgains.
Welcome to another edition ofThunderdome.
The worst part we are requiredto employ a wealth manager as
co-trustee to drink ourmilkshake.
Voices (21:25):
I drink your milkshake, I drink it up.
Mostly Mary (21:33):
This probably made sense in the 80s, but paying any
management fee today kills me.
My great-grandfather said hedidn't want us to forget him.
Voices (21:41):
Death stalks you at every turn.
Mostly Mary (21:45):
But I also can't forget how much he squandered
through this scheme.
The point is again I am verythankful for my resources.
However, I urge everyone tokeep their estates as simple as
possible to avoid taxes, feesand family problems.
Voices (22:01):
You fell victim to one of the classic blunders.
Mostly Mary (22:04):
You cannot anticipate how the investing
environment will change or whatwill be best for your
beneficiaries after you die.
For example, if I had receivedthe money when I was buying my
first home, it would have beenlife-changing.
Instead, when I receive it inmy 60s, I'll probably just hoard
it.
Voices (22:21):
What's with you?
Anyway, I can't help it.
I'm a greedy slob, it's myhobby Save me.
Mostly Mary (22:29):
Alternately, your plan to spend or give away your
money before you die avoids someof these problems.
Voices (22:35):
You are correct, sir.
Yes.
Mostly Mary (22:38):
All that said, the trust holds 50% blue chip stocks
, 30% corporate bonds and 20percent cash.
My question how would you thinkabout managing this with the
rest of a levered goldenportfolio, given I have minimal
control over rebalancing orother changes and the dividends
and interest are extracted?
The current value is about aquarter of my portfolio, so it's
(23:01):
a meaningful chunk, but not themain event.
Voices (23:18):
Thanks again, Ben.
Mostly Uncle Frank (23:21):
Well, Ben also gets to go to the front of
the email line because he's alsoa donor to the Father McKenna
Center.
I wouldn't say it's veryimpressive how much good I've
done with my hobby.
What's more impressive is howmuch good you all have done with
my hobby.
Voices (23:36):
That's the fact, Jack.
That's the fact, Jack.
Mostly Uncle Frank (23:40):
Because I certainly did not set out to
create or ever imagine that thiscould be such a great
fundraising vehicle for theFather McKenna Center.
And it is really all due to youand your inspiration and
generosity.
Voices (23:59):
And I want to thank you again for it.
Mostly Uncle Frank (24:10):
Today, I consider myself the luckiest man
on the face of the earth.
Now, getting to your questionyeah, this is kind of a crazy
situation.
Voices (24:24):
I'm going off the rails on a crazy train.
I'm going off the rails on acrazy train I'm going up.
Mostly Uncle Frank (24:32):
the rail got a crazy train, but it is kind
of a law of unintendedconsequences, if you will, and a
philosophical, financial andlegal problem of trying to leave
funds that essentially lastforever or a very long time
after you pass.
I'm not sure you can reallycount this as anything right now
(24:54):
.
It's a very odd asset.
What I might look at is thehistory of the fund itself to
see how much growth it has had,because it is likely to keep
growing at the same long-termrates, and then you might be
able to project what thoseresults would be over a long
period of time.
It's going to take some workwith either a spreadsheet or a
(25:17):
calculator, because you have tosubtract out whatever's being
paid to your father, in additionto dealing with the growth
prospects of it and all the feesand everything else bits and
doozy so that would, in theoryat least, give you a curve of
potential outcomes in apotential future, now, of course
.
Then the other issue is and thisis the morbid one you don't
(25:40):
know when your father's gonnapass if you don't start making
more sense, we're gonna have toput you in a home.
Voices (25:48):
You already put me in a home, then we'll put you in the
crooked home.
Mostly Uncle Frank (25:52):
It's on 60 minutes, I'll be good and if
it's not anytime soon, all of asudden this doesn't look like
much of anything you can counton because, believe it or not,
as both get older, there is achance that you would
pre-decease him, among otherthings.
And then I wonder what wouldhappen there under the will or
(26:12):
the terms of the trust, whetherit's supposed to go to your
surviving family or how it works.
But I'm sure there's a lawyerthere that could answer that
question.
So, even though you can dothose calculations, I'm not sure
I would really count it asanything in particular at this
point.
You didn't mention whether youhad children or not or how old
they were.
(26:32):
But it might be a good ideajust to earmark that money for
somebody else's tuitions orweddings or some other big thing
that you might want to do inthe future.
But you don't know exactly howyou're going to pay for it, and
I am wondering what the taxationis going to be like on it,
(26:53):
although I'm sure you can asksome lawyers and tax accountants
about what the status is andwhat it's going to be like when
you actually inherit it, becausethat could be some kind of a
tax bomb, depending on how it'sconstructed.
But I'm really glad you broughtthis to our attention, because
I really think this is somethingto learn from that.
A couple things.
I think there is a desire in alot of men in particular to try
(27:18):
to essentially live forever withthese structures that are going
to be created or they havecreated, before you pass on.
But recognize that unless thatis really simple, you may be
causing more problems thanyou're solving, and particularly
when something's supposed to goon for generation after
generation, that probablyactually is not a good idea.
(27:41):
It's likely to get squanderedeventually, like the Vanderbilt
money it's the most famous oneof those.
These tend to work best if theyare the start of some
foundation or actual charity,because that is much easier for
someone to manage, and thenmaybe the charity issues grants
or has some other structure.
That's more of a familiar wayof doing things and the idea
(28:05):
there would be.
Instead of putting all thismoney in this thing that's
supposed to preserve your memorywhen you're dead, why don't you
just give the money to thepeople while you're alive, at
least the ones that are going tobe your heirs, and try to give
most of that to them, or asignificant amount of that to
them, and then the rest of thiscan be that charity money.
(28:26):
One thing I've realized overthe past five years of
retirement is that we do tend togive away about 1% every year.
Out of the approximately 5%we're spending, about 1% of it
gets spent on advances to ourchildren as advances on their
inheritances, supporting familymembers and giving it to
(28:49):
charities such as the FatherMcKenna Center, and I honestly
think that's a pretty good goalfor a lot of people that when
you retire, if you are givingaway 1% and living on the 4% you
(29:12):
have a lot of flexibility, that, yes, if we had horrible years
we could not give away moneythat year or not give away as
much that year.
But having a goal like that doesgive us some urgency and some
purpose for the money.
So it's just not stacking upfor some weird trust that our
great-grandchildren are going toinherit someday.
(29:34):
Not going to do it Wouldn't beprudent at this juncture.
If you really want to leavesome kind of a legacy, I would
think more about just doingthings like that.
Or if you want somethingcreative write a book or paint
or create something, a monumentsomewhere perhaps.
But this not dispersing moneywhile you're alive so you can
(29:55):
have this giant thing whenyou're dead does not seem to me
to be a desirable or efficientway of approaching this.
Voices (30:03):
But what about your grandfather's work, sir?
My grandfather's work wasdoo-doo.
I am not interested in death.
Mostly Uncle Frank (30:12):
The only thing that concerns me is the
preservation of life thatconcerns me is the preservation
of life, and it may actuallycause a lot of unwanted family
drama and bad feelings,depending on how various people
are treated in this trustarrangement, because it's almost
like the more you leave to agroup of people, the more
there's going to be fightingabout it.
(30:32):
I can tell you that.
Voices (30:34):
Listen on.
This is the truth of it.
Fighting leads to killing andkilling gets to warring, and
that was damn near the death ofus all.
Look at us now busted up andeveryone talking about hard rain
.
But we've learned by the dustof them.
All barter towns learned.
Mostly Uncle Frank (30:57):
Now, when men get to fighting, it happens
here and it finishes here twomen enter, one man leaves so I'm
really glad you're thinkingabout these things and have
brought them to our attention,because it is something that we
should all be thinking about ifwe've accumulated some
(31:17):
significant amount of wealth.
Voices (31:20):
I wonder how that crazy duck ever made out with that
genie.
Hey, what do you know?
A poil.
It's mine, understand Mine, mine, all mine, go, go, go, mine.
Do you hear me?
Oh, oh, oh Mine mine, mine, ohbrother, only enough for me.
Oh sesame, I'm rich, I'm ahappy miser.
(31:44):
So thank you for being a donorand thank you for your email.
Baby, it's not too late Tolearn how to love and forget how
to hate.
Mostly Uncle Frank (32:00):
Last off, last off, an email from Robin.
Right now you care.
Right now you care.
Right now you care, right nowyou care, and Robin writes your
(32:24):
alternative website is about10,000 times better.
Mostly Mary (32:27):
I believe I emailed you twice before because I
couldn't figure out how to workthe website.
I thought that was the only wayto get it to do anything.
Of course it did not doanything, but now it is very
user-friendly.
Plus, I have donated to theFather McKenna Center.
Voices (32:42):
Groovy baby.
Mostly Mary (32:44):
I love all the crazy, funny sound effects Do
not ask him for mercy.
Voices (32:49):
Let's face it you can't talk him out of anything.
Mostly Mary (32:53):
In fact, one time I saw that the market had had a
very bad day, so I checked mybrokerage website and, lo and
behold, I was up due to my gold.
I immediately heard I love gold.
Yes, I am a nut too, but in agood way.
Voices (33:07):
You're insane gold member and that's the way I like
it.
Okay, see you in the sunshinebud.
Mostly Mary (33:16):
I cannot begin to tell you how much I have learned
from listening to your podcast.
It has been about three or fourmonths since I started
listening, but I really, reallylove it and always look forward
to your new episodes.
I'm still working my waythrough older episodes.
The cheat sheet podcast topiclist that's now available on the
website is wonderful.
I was using a golden butterflyportfolio but have switched to
(33:38):
my own risk parity portfolio 25%TSM, 25% SCV, 25% GLDM, 15% BIL
and 10% long-term treasury, tltand VGLT.
I have run this portfoliothrough portfolio charts and
sometimes it beats both thegolden ratio and golden
(34:00):
butterfly in certain categories.
As you can tell from myallocations, I am not keen on
long-term treasury bonds, but Ihave come to realize that they
are the only thing that isnegatively correlated and they
act as insurance.
I have two questions.
Question one please convince meor give me reasons for
including long-term treasuries,and question two I previously
(34:22):
only have TLT based on the bookrecommended on portfolio chart
for doing Golden Butterfly.
The title of the book is thePermanent Portfolio Harry Brown
Long-Term Investment Strategy byCraig Rowland and JM Lawson.
I'm sure you're familiar with itand I noticed on your website
you recommend VGLT and on paperit seems that VGLT pays a
(34:43):
similar or higher interest rate,but also has a lower expense
ratio.
So my question is what's thecatch as in?
When was the last time 30-yeartreasury bonds acted as
insurance, and did VGLT performas well as TLT?
Thanks again for all you do.
I really appreciate it.
(35:03):
Say hi to Mary Sincerely, robin.
Voices (35:28):
Well, I'm glad you're enjoying the podcast and are
learning some things and are atthe links that I put attached to
the episodes.
Mostly Uncle Frank (35:43):
Of course, a lot of the older ones probably
don't work anymore and no, I'mnot going to fix them.
Voices (35:50):
It's not that I'm lazy, it's that I just don't care.
Mostly Uncle Frank (35:54):
But I think things like that sandage paper I
just mentioned today are reallyenlightening and whenever I've
linked to a Michael Kitsisarticle in the past, it's
definitely worth reading.
Now you mentioned the PermanentPortfolio and Harry Brown and
then the book by Craig Rowland.
Yes, I have read those,including the one from about
(36:16):
1980-something by Harry Brownwhich I have in hardback.
It's interesting all themachinations you had to do to
invest in gold in those days,because you were literally
talking about buying Krugerrandsand gold in physical form.
There were no ETFs and it'sdifficult to do things just by
futures contracts.
Those early stabs at a reallywell-diversified portfolio are
(36:43):
part of the history of thiswhole topic and I believe that's
in episode three or five, socheck those out if you haven't.
I know the golden butterflyportfolio is largely based on
that original idea.
Harry Brown was also a famouslibertarian and wrote a book
that is more famous.
It's called how I Found Freedomin an Unfree World.
(37:06):
I believe it was written in the1960s and is kind of a
follow-up on some ideas fromEmerson and Thoreau and is good
in some ways and not so good inothers, but that is one of the
threads or roots that led to themodern FI movement, although
it's not nearly as prominent orpopular as it was, say, around
(37:28):
2009.
But a lot of people pursuefinancial independence just so
they can be left alone, andthere's certainly a lot of merit
to that in many circumstances.
All right, getting to yourportfolio.
Yes, the reason you puttreasury bonds in these kind of
portfolios intermediate orlong-term treasury bonds is
essentially as recessioninsurance, so that when you have
(37:52):
your 2020 or 2008 or 2001 to2003, your experience is not
nearly as bad as if you didn'thave them.
And this would be a good thingto run through that drawdowns
calculator to see how thatvaries depending on what you put
in the portfolio or don't putin the portfolio.
So I can tell you that in termsof what you got, it should work
(38:16):
fine.
If you just want to tweak it alittle bit, I would move 5% of
what you have in T-bills over tothe long-term treasuries,
because typically you do notwant more than 10% in short-term
instruments like that in anyportfolio if you want to have a
higher safe withdrawal rate.
We've known that since theoriginal Bill Bengen research in
(38:37):
the 1990s and it's never reallybeen contradicted.
If you're talking about thingsthat are less than one year in
duration or are just likesavings accounts.
Having more than about 10% isnot going to make your portfolio
better.
One of the other kind of rulesof thumb is that you probably
need between 15% and 30% inintermediate and long-term
(39:00):
treasuries in order to get thehigher safe withdrawal rates,
and you could have someintermediate ones too if you
really wanted them.
That would be.
Vgit is the Vanguard fund forthat.
As far as the funds areconcerned, tlt and VGLT are
essentially almost the same fund, except VGLT is cheaper.
I'll link to a test folioanalysis of the two of them.
(39:22):
You can see they track together.
So the reason that you woulduse VGLT is because it's cheaper
.
The reason you would model withTLT is because it has a longer
history.
But you can find even longerhistories of long-term treasury
bonds that go back 100 years.
They just don't have tickersymbols, and if you're going to
hold 25% in gold in a portfolio,that is actually a lot, and you
(39:45):
should recognize that gold canhave very long drawdowns or bad
times when it's not doing muchof anything, up to a decade or
more, just like any of theseother assets.
So just because it's been thebest performer, say this century
doesn't guarantee that that'salways going to be the case.
So I would make sure you modelthat in the 80s and 90s in
(40:08):
particular, when you would muchrather have been holding
long-term treasury bonds thanprobably anything else and
certainly would prefer that overgold in that period.
But that's why we hold avariety of things, because we
don't know what's going toperform best and we don't know
which asset's going to have thebad decade next or when their
bad five years or decade, orwhatever it is, is actually
going to end.
Voices (40:28):
We don't know.
What do we know?
You don't know, I don't know,nobody knows.
Mostly Uncle Frank (40:35):
I'm glad you're enjoying working with the
charts.
Make sure that you work withmore than one set of them to get
the best results for comparisonpurposes, because whatever
portfolio you pick, you reallywant it to be better than
portfolio B or some alternative.
In all of these long-termcharts that you can find I'm
talking about portfolio charts,portfolio visualizer, whatever
(40:57):
you could run a test folio andthen, if you're up for it,
download the toolbox at earlyretirement now, because that'll
give you a lot of data.
That goes back to 1926.
It is a spreadsheet so it takesa little bit of wrangling to
get results out of it, butbasically what that shows is
that dividing your stocks intogrowth and value helps your
(41:18):
portfolio a lot, as well asholding 10 to 15 percent in gold
.
Gold really becomes morerelevant after 1970 because
that's when the dollar went offthe gold standard and you were
allowed to own it again in theUnited States.
Voices (41:32):
This is gold, mr Bond.
I think you've made your point.
Goldfinger, thank you for thedemonstration.
Do you expect me to talk?
No, mr Bond, I expect you todie.
Mostly Uncle Frank (41:45):
Anyway, I'm glad you're enjoying everything
we have to offer here.
Thank you for being a donor tothe Father McKenna Center and
thank you for your email, butnow I see our signal is
beginning to fade.
If you have comments orquestions for me, please send
them to frank atriskparityradarcom.
That email is frank atriskparityradarcom.
Or you can go to the website,wwwriskparityradarcom.
(42:08):
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.
Give me some stars, a follow, areview.
That would be great, Okay,Thank you once again for tuning
(42:30):
in.
This is Frank Vasquez with RiskPretty Radio.
Voices (42:53):
Signing off.
Times have changed and timesare strange.
Here I come, but I ain't thesame.
Hey, mama, I'm coming home, I'mcoming home, I'm home.
Mostly Mary (43:31):
Thank you.
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