In this episode we answer emails from Dave, Isaiah, and Ian. We discuss back-testing tools, revisit UPRO and leverage from the last episode, the inherent biases and incentives for retail financial advisors to recommend underspending and using underspending plans larded with window dressings, and revisit a limited 401k and a retirement scenario from Episodes 420 and 444.
And THEN we our go through our weekly portfolio reviews of the eight sample portfolios you can find at Portfolios | Risk Parity Radio.
Additional links:
Father McKenna Center Donation Page: Donate - Father McKenna Center
Portfolio Visualizer Backtester: Backtest Portfolio Asset Allocation
Testfolio Backtester: testfol.io
Breathless Unedited AI-Bot Summary:
Think your withdrawal rate is just a number? We dig into why the path matters more than the headline, showing how 0%, 3%, and 6% withdrawals change resilience without altering which portfolios dominate across different eras. Then we pull apart the leverage mirage: why 3x S&P funds can look unbeatable in calm runs yet suffer brutal volatility drag and catastrophic left tails when the decade turns against you. The goal isn’t fear—it’s sizing risk so you don’t bet your future on luck.
We also wade into the psychology of advice. Even fee-only planners face incentives to keep clients underspending, leaning on cash-heavy buckets, retirement “paychecks,” and tidy jargon that soothes but often costs performance. If you’re wired for DIY, you’ll appreciate a finance-first approach: let evidence drive the allocation, not marketing hooks. We contrast retail comfort with institutional discipline and offer a practical way to align your plan with the results you actually want.
For listeners wrestling with constrained 401k menus, we map out how to approximate risk parity using the levers that matter most: low-cost stock and core bond indexes, selective value tilts, and tax-aware placement. We touch Roth versus traditional choices when you’re in a low bracket, how to secure your FI core, and why continuing to work a decade after reaching FI might mean it’s time to spend more on life, not just accumulate more line items.
We close with a sharp market rundown and performance across sample portfolios, from classic diversifiers to levered blends. If you want a clear-eyed, practical framework for withdrawals, leverage, advisor incentives, and building robust portfolios with imperfect tools, this conversation will sharpen your plan. If it resonates, follow the show, leave a review, and share it with a friend who needs a finance-first reset.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Voices (00:00):
A foolish consistency is the hobgoblin of little minds,
adored by little statesmen andphilosophers and divines.
If a man does not keep pacewith his companions, perhaps it
is because he hears a differentdrummer.
A different drummer.
Mostly Queen Mary (00:18):
And now, coming to you from Dead Center
on your dial, welcome to RiskParity Radio, where we explore
alternatives and assetallocations for the
do-it-yourself investor.
Broadcasting to you now fromthe comfort of his easy chair,
here is your host, FrankVasquez.
Mostly Uncle Frank (00:36):
Thank you, Mary, and welcome to Risk Parody
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 one, three, five,seven, and nine.
Some of our listeners,including Karen and Chris, have
identified additional episodesthat you may consider
foundational.
And those are episodes twelve,fourteen, sixteen, nineteen,
twenty-one, fifty-six,eighty-two, and one hundred and
(01:15):
eighty-four.
And you probably should checkthose 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):
Light in the Francis.
Mostly Uncle Frank (01:37):
But now onward, episode 464.
Today on Risk Perry Radio, it'stime for our weekly portfolio
reviews of the eight sampleportfolios you can find at
www.riskperdy.com on theportfolios page.
Voices (01:54):
Not the bees.
Mostly Uncle Frank (01:56):
Yeah, well, the bees did show up last week.
It wasn't too bad, actually,unless you were all invested in
the NASDAQ.
But before we get to that.
Voices (02:10):
I'm intrigued by this.
How you say emails.
Mostly Uncle Frank (02:16):
And first off.
First off, we have an emailfrom Dave.
And Dave writes.
Mostly Queen Mary (02:30):
Hi Frank.
I just started listening toyour podcast and have only
listened to the recommendedepisodes and a few others.
Two questions.
One, do you have a breakdown orestimate of how the sample
portfolios would do if thewithdrawal rates were the same
percentage?
I am most interested in theleverage portfolio.
You have a gambling problem.
(02:51):
Two, along those lines, I stilldon't fully understand the full
downside of UPRO other than itgoing to zero if the SP 500 goes
down one-third in a day, or Iguess if there are a lot of
significant one-day declines.
Looking at the long-term chart,it seems to have returned close
to three times the SP 500 indexover the last five to ten
(03:14):
years.
Seems like a no-brainer toinvest a decent amount in UPRO
and get 24 to 30% annualreturns.
Well, you have a gamblingproblem.
I donated to the Father McKennaCenter, but if you just want to
email me back, that's fine, asI'm sure there are likely better
questions from your listeners.
Dave.
Voices (03:35):
This is pretty much the worst video ever made.
Mostly Uncle Frank (03:39):
Well, first off, thank you for being a donor
to the Father McKenna Center.
As most of you know, we do nothave any sponsors on this
program.
We do have a charity wesupport.
It's called the Father McKennaCenter, and it supports hungry
and homeless people inWashington, D.C.
Full disclosure, I am the boardof the charity and am the
current treasurer.
If you give to the charity, youget to go to the front of the
(04:01):
email line, as Dave has donehere.
Couple ways to do that.
You can go to the donation pageat the Father McKenna website.
I'll link to that in the shownotes.
Or you can become one of ourpatrons on Patreon, in which
case you just go to the supportpage at www.riskpartyreader.com
and follow the links to sign upthere.
(04:23):
Either way, you get to go tothe front of the email line, but
be sure to mention that you area donor in your email so that I
can move you to the front ofthe line.
Voices (04:32):
Yes!
Mostly Uncle Frank (04:33):
Now getting to your email.
Do I have a breakdown orestimate of how the sample
portfolios would do if drawrates were the same percentage?
No, but you can generatesomething like that pretty
quickly.
Voices (04:45):
It's not that I'm lazy.
It's that I just don't care.
Don't don't care?
It's a problem of motivation,alright?
Mostly Uncle Frank (04:54):
If you use portfolio visualizer, the back
tester there, or testfolio,testful.io, both of those have
back testers that you can put inthese portfolios.
Actually, testful has some ofthese as generic already set up
portfolios.
And then they both have afeature where you can have it
(05:17):
either adding money to theportfolios or taking money out
of the portfolios.
And therefore you can set awithdrawal rate and run them all
to your heart's content.
The only limitations you'regoing to have are portfolio
visualizer is limited to 10years on ticker symbols, unless
you pay.
Testfolio is not limited exceptfor the existence of a
(05:40):
particular ticker symbol.
And you can also test by assetclass at portfolio visualizer.
If you are interested in thistopic and want to test
portfolios, and you should dothat if you're going to create
your own.
Those two tools, testfolio andportfolio visualizer, are very
useful.
And also portfolio charts isvery useful.
(06:01):
What you're going to findthough is that portfolios over a
given time period are going tohave kind of the same relative
performances, whether you'rewithdrawing 0%, 3%, or 6% out of
them.
As I mentioned in episode 463,what the withdrawals really
affect is the overall volatilityof the portfolio and how long
(06:23):
it takes to recover.
And if you are comparingportfolios over recent times,
and by recent I mean since thegreat financial crisis in 2008
and 2009, you're basically goingto find that the ones with the
most stocks in them perform thebest.
Mostly because it's just been arelatively benign period and a
(06:44):
very good period to be investedin the stock market with only a
couple of short downturns.
But I think this is why a lotof amateur investors in
particular have been lulled intothinking that going into
retirement with a hundredpercent stock portfolio is a
good idea because they've gottenaway with it, frankly.
Voices (07:02):
Uh, what?
It's gone.
It's all gone.
What's all gone?
The money in your account, itdidn't do too well, it's gone.
Mostly Uncle Frank (07:10):
And the truth is, any portfolio will do
just fine in periods like we'vehad for the past 15 years, and
you'll probably take out 8% outof some of these portfolios, and
you'd be alright.
Where you get into real safewithdrawal rate issues is when
you have bad decades, like theearly 2000s or the 1970s or
something like that.
Voices (07:31):
There was this sound like a garbage truck dropped off
the Empire State Building.
Mostly Uncle Frank (07:40):
And that is really the litmus test for
portfolios.
A good test, a stress test,would be to start your
portfolios at the end of 1999and see how they perform,
relatively speaking.
Because then you will get atleast one bad decade there, and
that'll give you a good idea ofhow bad a risky portfolio is
(08:03):
going to be.
Now, as for your secondquestion, leverage in a
portfolio and you pro inparticular.
You've got to ask yourselfquestions.
We did talk a lot about this inthe last episode, so go back
and listen to that as to howleverage works.
The truth is though, if youwere holding UPRO during 2008,
(08:23):
it didn't exist then, it wouldhave gone close to zero, or a
loss of something like 90%,effectively going to zero.
Voices (08:32):
And it's gone.
Mostly Uncle Frank (08:36):
Because the stock market can lose 50% of its
value in a short period of timein a real market crash.
Now, as I mentioned, we haven'thad anything like that since
2008 or nine.
And so YouPro looks a whole lotbetter these days than it would
look over a long period of timethat included periods like
(08:57):
that.
And what that ultimately tellsyou overall is you can put some
of your eggs in a basket likethat, but you don't want to put
all your eggs in a basket likethat because it's just too
dangerous long term.
I know what you're thinking.
Voices (09:12):
Did he fire six shots or only five?
Well, to tell you the truth andall this excitement, I kind of
lost track myself.
Being this the 44 magnet is themost powerful handgun in the
world and would blow your headclean off.
You've got to ask yourself onequestion.
Do I feel like it?
Mostly Uncle Frank (09:30):
What do you think?
That being said, I have atleast one listener who rode UPro
from about 2011 to 2020 andbecame financially independent
just on that.
Shirley, you can't be serious.
I am serious.
And don't call me Shirley.
So it's possible to get lucky.
Do I feel lucky?
Voices (09:53):
Do I feel lucky?
Mostly Uncle Frank (09:55):
I do believe he has de-risked his portfolio
now by adding some diversifiedelements.
Although I think he's stillriding with a bunch of leverage
in it.
Voices (10:06):
You're a legend in your own mind.
Mostly Uncle Frank (10:09):
A lot of this is all fine and good if
you're young and have a lot ofwork life and new investing in
front of you.
But it's not very palatableonce you get to retirement age
and you don't expect to be goingback to work anymore.
Voices (10:22):
I don't think I'd like another job.
And then I want to go back tomy apartment and watch Kung Fu.
Mostly Uncle Frank (10:28):
We've actually talked about this a lot
in the past, and if you go tothe website, you can search the
podcast for things like UPro andLeverage and find all kinds of
episodes discussing the pros andcons of such things.
I'm glad you're curious, butdon't let your curiosity kill
you.
Thank you for being a donor tothe Father McKenna Center, and
(10:54):
thank you for your email.
Voices (10:58):
Every day for the last ten years, Loretta there has
been giving me a large blackcoffee.
Today she gives me a largeblack coffee, only it's got
sugar in it.
A lot of sugar.
I just came back to complain.
Now you boys put those gunsdown.
Say what?
Go ahead.
(11:20):
Make my day.
Second off.
Mostly Uncle Frank (11:27):
Second off, we have an email from Isaiah.
Voices (11:30):
Off we go into the Bible.
Mostly Uncle Frank (11:35):
And Isaiah writes.
Mostly Queen Mary (11:37):
Hi, Frank and Mary.
The discussion in the mostrecent episode, 462, about money
managers who recommend 4% orlower withdrawal rates to their
clients made me think about themisalignment of incentives even
for flat fee or hourly advisors.
I want to die with zero.
(11:57):
It is unlikely that this willhappen precisely, with some
probability that I will fallshort and some probability that
I will oversave.
Voices (12:05):
Oh boy, I'm rich! I'm wealthy! I'm independent! I'm
socially secure.
Mostly Queen Mary (12:11):
A baseline withdrawal rate for me in my
early 40s might be 5.1%, say,adjusting to market and life
events as I age.
A professional advising me ormanaging my money may not be
willing to give me advice thatwould effectively pursue that
goal, because they may only careabout the risk that I may fall
short and run out of moneyearly.
If that were to happen, I mightget mad at them and spread
(12:34):
negative word of mouth, submitcomplaints to regulatory bodies,
or even sue them.
Voices (12:39):
As you all know, first prize is a Cadillac El Dorado.
Anybody want to see secondprize?
Second prize instead of steakknives.
Third prize is your fire.
Mostly Queen Mary (13:08):
Bing again.
So their incentives are biasedtoward oversaving and
underspending purely from acover their butts perspective,
even if they aren't drinking mymilkshake through AUM.
Cheers, Isaiah.
And I have a straw, there itis.
That's a straw, you see.
Voices (13:25):
Watching.
My straw reaches a cruo'sthrough and starts to drink your
milkshake.
I drink your milkshake.
I drink it up!
Mostly Uncle Frank (13:48):
Well, Isaiah, first you're in luck
because I did remember that youare a patron on Patreon and
moved your email to the front ofthe line, even though you
didn't mention it in your email.
Voices (14:00):
Lucky?
Mostly Uncle Frank (14:02):
Well, thank you for being a donor to the
Father McKenna Center.
And please do mention it thenext time you email in.
Voices (14:08):
And uh I'll go ahead and make sure you get another copy
of that memo.
Mostly Uncle Frank (14:12):
Okay.
As for your email, yeah, I tendto agree with your observations
here.
As Charlie Munger is famous tohave said, that if you know what
somebody's incentives are, youcan predict their behaviors.
And I always find this veryinteresting looking at the
psychology and the businesspractices or marketing aspects
(14:33):
of financial advisory services.
Voices (14:37):
A B C.
A always B B C closing.
Always B closing.
Always be closing.
Mostly Uncle Frank (14:47):
Mostly because I'm trained to think
that way as a lawyer.
I'm always thinking, if I'mgonna cross-examine this person,
one of the things youcross-examine people on are
their biases and incentives.
I don't like your attitude.
Voices (15:02):
What else is no?
I'm holding you in contempt ofcourt.
Mostly Uncle Frank (15:06):
And so whenever I'm dealing with
somebody that is either justselling me something or offering
a service, I'm often thinkingabout what are their incentives.
Voices (15:15):
You know, whenever I see an opportunity now, I charge it
like a bull.
Ned the bull, that's me now.
Mostly Uncle Frank (15:20):
And I think what might be going on here is
what Charlie Munger calls aLollapalooza effect.
When you have more than oneincentive pointing in the same
direction.
And in this case, there is kindof a self-selection or
survivorship bias in that peoplewho are likely to hire
financial advisors are probablymore conservative than the
(15:45):
general population to beginwith.
And they are more likely tohave just saved a bunch of money
and then they are hiring afinancial advisor because
they're afraid of losing it orsomething bad happening to it.
So they're naturallyconservative by nature.
Voices (15:58):
You can't handle the gambling problem.
Mostly Uncle Frank (16:01):
The financial services industry kind
of knows this and caters to itandor markets to it, which is
why when you get these freesteak dinner invitations, they
always have something aboutavoiding taxes or avoiding the
next calamity or avoiding somebad thing that's going to happen
to your money.
Voices (16:20):
A guy don't walk on the lot lest he wants to buy.
They're sitting out therewaiting to give you their money.
Are you gonna take it?
Mostly Uncle Frank (16:28):
And that's what also leads to the
attraction of all of theseexpensive shiny objects, whether
they're variable annuities,things with buffers attached to
them, things that supposedlygenerate guaranteed income of
some kind or high income of somekind, like these covered call
funds and stuff like that.
But even if we're talking aboutan advisor that is not selling
(16:50):
shiny objects, essentially, andis trying to be efficient about
asset selection, it is always inan advisor's best interest to
have clients that don't spendmuch money.
Because it takes a lot lesseffort to serve such a client,
they're more likely to be happywith the service, and they're
more likely not to have anyproblems whatsoever.
Voices (17:10):
That's the fact, Jack! That's a fact, Jack!
Mostly Uncle Frank (17:14):
And so if you can come up with a formula,
and most advisors do use somekind of formula that keeps the
clients happy and keeps them notspending too much money, you'll
pretty much be golden, and youradvisory practice will be very
profitable over time.
And if you happen to run into apotential client who wants to
spend a lot of money, maybe youjust say, yeah, I don't think
(17:35):
you're a good fit.
Voices (17:36):
Not gonna do it.
Wouldn't be prudent at thisjuncture.
Mostly Uncle Frank (17:40):
And it also leads to overly conservative
planning, and in particularusing time segmentation
structures that involve lots ofcash.
Buckets, ladders, and flowerpots full of cash.
Voices (17:55):
There's $250,000 lining the walls of the banana stand.
Mostly Uncle Frank (18:00):
Because that kind of planning or structure
has a lot of surface appeal.
You'll just have five years ofcash in front of you and you
won't have a problem.
The problem is if you actuallydo the research, as Bill Bangin
and many others have done, it isvery clear that having more
than 10% of your portfolio incash or cash equivalents does
(18:23):
detract from a safe withdrawalrate.
And so essentially, if you aredoing that, you are
automatically reducing theability of the client to spend
in favor of what ispsychologically comfortable.
Voices (18:38):
That's not an improvement.
Mostly Uncle Frank (18:40):
But that is the fundamental difference
between, say, personal financewith retail clients and
professional finance withinstitutional clients.
Because ultimately somebody whois working with retail clients
is selling psychology orpsychological comfort.
Voices (18:56):
Did you see the memo about this?
Mostly Uncle Frank (18:59):
Whereas somebody who is working with an
institutional client is going tobe totally focused on finances
and just what is the mostefficient way to reach the
financial goal without regard tohow comfortable somebody feels
about it.
Other than making sure theymeet whatever fiduciary or
reporting standards they arerequired to meet as an
institution.
(19:19):
But to me, that's also whyretail personal finance is
larded with lots of sing-song-ysounding jargon that may or may
not mean anything.
Including things like go-go,slow go and no-go.
Voices (19:34):
Forget about it.
Mostly Uncle Frank (19:35):
Minimum dignity floors and safety
buckets and and these obsessionsabout creating retirement
income paychecks.
Voices (19:45):
Unicorns, unicorns, unicorns, yeah.
I love you.
Unicorns, unicorns, unicorns,yeah, and all the things you do.
Mostly Uncle Frank (19:57):
Or really anything with the word income in
it.
Which sounds great until yourealize that the first word
after income is taxes.
Didn't you get that memo?
You don't really want income inretirement.
What you want are liquidresources, but no retail
financial advisor is gonna tellyou that.
Instead, what you get are a lotof these jargons which lead to
(20:18):
built-in inefficiencies to servepsychological needs, but not
really serving financial needs.
Anyway, it's no surprise at theend of the day, if you listen
to financial advisors talkamongst themselves, like the
Kitsis podcast where heinterviews them, or Andy Panko's
podcast, where he talks toother financial advisors, that
the biggest problem financialadvisors report is that their
(20:40):
clients do not spend money.
They're not even spending whatthey plan to spend.
And yes, that part of that isjust the makeup of the clients
and the selection bias.
But another part of that is theway financial advisors sell
their services to the public.
And the psychology of that andthe Lollapalooza effect that is
(21:03):
caused.
So, what I've realized over thepast decade or so is that only
a certain segment of thepopulation is really cut out to
be DIY investors.
Because if you're really goingto be good at being a DIY
investor, you need to be able toseparate out what is finances
from what is psychology.
Voices (21:20):
Hello?
Hello, anybody home?
Huh?
Think McFly, think.
Mostly Uncle Frank (21:25):
And make sure you're doing the finances
first.
That's why I'm most interestedand started with what do
professionals do?
People that run hedge funds orinvest for pensions or insurance
companies, because they aredoing pure finance.
They're not doing psychology atthat level.
And I think if you take thatand then simplify that down into
(21:48):
something, you get things likewhat we do here, these risk
parity style portfolios.
Voices (21:54):
Inconceivable.
Mostly Uncle Frank (21:56):
And then you can also separate out what are
unnecessary or inefficientwindow dressings, which usually
involve those buckets, ladders,and flower pots.
Voices (22:08):
Tell me, have you ever heard of single premium life?
Because I think that reallycould be the ticket for you.
Mostly Uncle Frank (22:14):
Too much cash and too many complications
with things that aren't reallymoving the needle or may be
moving the needle in the wrongdirection.
Voices (22:22):
Fat, drunk, and stupid is no way to go through
lifestyle.
Mostly Uncle Frank (22:26):
Because it's interesting when I press
advisors or people who recommendor do things like that and
point out that they are nothelpful from a financial
perspective, they don't fight onthat.
They don't have anything tostand on when I tell them it's
like there's really no point tothese buckets, ladders, and
flower pots you got floatingaround here.
(22:46):
What they invariably say isthis they say what's important
is to get a plan that people canstick with, and the only way
that I can get my clients orwhomever to stick with the plan
is to add these windowdressings.
So it's all psychology.
Voices (23:04):
It's all a fugazi.
You know what a fugazi is?
Fugazi, it's uh fake.
Yeah, Fugazi, Fugazi, it's awazie, it's a woozy, it's a f
fairy dust.
It doesn't exist, it's neverlanded.
It is no matter, it's not onthe elemental chart.
Mostly Uncle Frank (23:18):
And that's also where this overweening
appeal to simplicity comes in aswell.
That if it's not the simplestthing I can think of, I'm not
gonna be able to stick with it.
Or somebody's not gonna be ableto stick with it.
Voices (23:30):
I'm not a smart man.
Mostly Uncle Frank (23:32):
Again, that's psychology, it's not
finance.
Voices (23:35):
It's all a Fugazi.
You know what a Fugazi is?
Mostly Uncle Frank (23:38):
So what I have come to realize is that
people who want to do things theway we do here and focus on the
finance first are outliers.
And that's fine.
Because I get the mostpsychological comfort from
knowing I'm doing the bestfinance possible.
Voices (23:54):
The best, Jerry, the best.
Mostly Uncle Frank (23:56):
And not succumbing to psychological
tricks or jargon or windowdressing to make me feel good so
I can stick with something.
Voices (24:05):
You're so magical, yeah.
You're so wonderful, yeah.
You're so colorful, yeah.
Just like me.
Mostly Uncle Frank (24:17):
I can stick with something if I think it's
the best financial decision Ican make.
And I guess not everybody cando that.
And that's fine.
Anyway, interestingobservations.
(24:38):
I do agree with them.
Thank you for being a donor tothe Father McKenna Center, and
thank you for your email.
And Ian writes.
Mostly Queen Mary (25:49):
I would like to continue to discuss with you
what you feel are the absolutebest fund options to establish a
risk parity type portfolio formy company-sponsored 401k plan.
I've attached documents from myplan to help shed more light on
my questions.
Please note I would prefer tokeep the company I work for
confidential.
I wanted to add there is adecent chance I may be staying
(26:11):
with my company for up to 10years after I reach my FI
number, which is why I continueto follow up on this question
with the intent of convincingmyself I have figured out the
best case scenario regarding arisk parity allocation with what
is available.
The reason to stay longer wouldmostly be because of the good
medical insurance offered withmy wife's medical history.
Before I get into it, to answeryour question from episode 444,
(26:35):
I make approximately $109,000annually.
The reason I do Roth instead oftraditional in my wife's and my
IRA is because I'm followingthe recommendations of the
Choose a Fi podcast to invest ina Roth once the 401k is maxed
out.
I've attached a PDF of all theinvestments available to me in
my company-sponsored 401k.
(26:55):
You should be able to seeperformance and expense ratios.
I have also attached morein-depth information on the
LCVAL fund you had recommended Isplit with the S P 500 index
fund for my stock allocation inepisode 444.
This would be a good time tobring up that I noticed going
through the fund choices as partof sending this new email that
(27:16):
my company had changed out allthe Vanguard funds with State
Street.
Any thoughts on this changewould be appreciated.
With these new options, bringsperhaps different answers to
what would best constitute arisk parity portfolio.
As you mentioned in the lastepisode, a lot of the funds
listed are unique to my companyplan and don't have publicly
traded tickers.
Because of this, I've comparedthem to what appears to be their
(27:39):
publicly traded counterpartsticker.
Feel free to agree or disagreewith this.
The new SP 500 is SS S P 500Index Lend C L, which appears to
be comparable to SVSPX.
The new bond fund is SS US BondIndex Lend CLX, which appears
to be comparable to SSFDX.
(28:00):
I would also like to discussthe new MidCap fund State Street
SMMID CAP IDX CL2, whichappears to be comparable to
SSMHX.
Since T Row Price is sayingtheir LCVAL fund tracks the
Russell 1000 value TRUSD, thisappears to compare to IWD.
(28:21):
I have attached pictures fromTestfolio where I have back
tested these funds to look attheir correlations.
Other than those times, overallit performs poorly, with a
(28:54):
negative 13% return in its11-year history.
I understand comparing it to aTreasury bond is crude, but the
point mainly is its poorperformance and negative
correlation versus an S P 500index fund.
I also wanted to show thecorrelations to the State Street
Mid Cap Fund versus the S P 500fund that shows a 7% wider
(29:15):
correlation than comparing theLCVAL fund versus the S P 500
fund and a lower expense ratioto boot.
Please let me know if there areany other funds you think I
should be looking at from thelist of investments I've
attached.
I proposed based on theanalysis given that I do a
modified golden ratio portfoliowith the following funds and
percentages.
(29:35):
26% bonds, SSFDX, because ofpoor overall performance and
negative correlations similar toT bonds, 38% SP 500, SVSPX,
SSMHX, 6% capital preservation,CPP, cash allocation.
Please let me know yourthoughts and critique of my
(29:56):
analysis and what you recommend.
Thanks so much for being agreat member.
To me, albeit from afar, andmaking me think of different and
better ways to invest.
Best regards, Ian.
Voices (30:08):
Mary, Mary, I need y'all again.
Mostly Uncle Frank (30:16):
All right, Ian, I did go back and listen to
episode 444 to refresh myrecollection again about what we
were talking about.
Ian basically has a 401k planwith very limited choices.
Basically, there are about 10stock funds and two bond funds
and then a bunch of target datefunds.
And most of the stock fundshave expense ratios that are 0.3
(30:41):
or above.
And there's only a couple ofones that have expense ratios of
less than 0.1.
Okay, before we get to thefunds, just looking at your
income, it's $109,000 annually.
It wasn't clear to me whetherthat is the only income in your
family.
I'm assuming that it is for thepurpose of this.
(31:02):
If that is correct, then youare in the 12% tax bracket.
And you should put as muchmoney in Roths as you can.
If you have a Roth option inthe 401k, I would definitely use
Roth.
Because the only tax problem Icould see you ever having would
be if you put all of your moneyin traditional accounts and then
(31:24):
underspent your portfolio wellinto your 70s, you might have
large RMDs at that point.
That can easily be avoidedthough.
The only point I'm trying tomake here is you're not getting
a whole lot of tax benefits byusing the traditional 401k right
now.
And I did not get theimpression that you had a Roth
option, but if you do, I woulddefinitely use it.
(31:45):
And I would also make sure thatyou fill up the Roths outside
of that, the IRAs, even beforeputting more money into the
401k.
The Roth IRA should be yourfirst priority.
And I know you're saying you'refollowing the recommendations
of the Choose FI podcast, but ifyou listen to somebody like
Sean Mullaney on that podcast,he would tell you what I'm
(32:06):
telling you.
You may also want to get theirbook, which I linked to in the
last episode of this podcastabout taxes and early
retirement, and it will tell youthe same things that people who
are in the lowest tax bracketsto begin with should really
focus on Roths and not ontraditional.
And that's where you are afterthe standard deductions are
(32:27):
taken out of the 109,000 salary.
Alright, the next overallplanning issue you've got here
is that you say that you couldbe working at the company for up
to 10 years after you actuallyreach your FI number in terms of
the money you need to havesaved.
In that case, you may considernot contributing more to these
(32:49):
retirement plans if you reallydon't think you're going to need
the money.
It might be more fun to spendsome of that money earlier while
you're still working.
Take a vacation.
Voices (32:59):
Now I owe it to myself to tell you, Mr.
Griswold, that if you'rethinking of taking the tribe
cross country, this is theautomobile you should be using,
the Wagon Queen familytruckster.
You think you hate it now, butwait till you drive it.
Mostly Uncle Frank (33:12):
Because otherwise you're just going to
be well oversaved at retirementtime.
And then the question is, well,what was the point of that if
you're not going to spend themoney?
In fact, by that time you'llprobably have twice as much
money as you need forretirement.
If you reach your FI number,you continue to work for 10
years, continuing to accumulate,you will have easily twice as
(33:34):
much money as you need forretirement.
Which is a good problem tohave, but it might not be a very
efficient use of your time inlife, if you will.
And that you should either bespending more money earlier or
planning to upscale yourlifestyle when you reach
retirement.
Unless, of course, your goal isto die with the most money, in
which case, carry on.
Voices (33:56):
What's with you anyway?
I can't help it.
I'm a greedy slob.
It's my hobby.
Save me!
Mostly Uncle Frank (34:03):
Okay, and then looking at these fun
choices, yeah, it it's a limitedselection here.
And what you would really betrying to do, the only thing you
really could do with this setupis to just de-risk the part of
the portfolio that you're usingfor retirement assets.
And yes, that would involveadding bonds essentially, and I
would use that simple bond fund.
(34:25):
Either one of those bond fundsis actually serviceable, but you
might as well use the cheaperone.
And then on the other side,yeah, I would put most of it in
the SP 500 and any of theseother funds.
If you wanted the mid-cap,that's fine.
It's not going to do a wholelot differently than the SP 500,
most likely.
If you wanted to reduce therisk, you would use the large
(34:47):
cap value fund that's availablethere, which is another option.
And that is the thing, you haveso many options here that are
not necessarily based onfinances, but are based more on
personal preferences.
Because if you are going tohave enough money to retire and
then continue to work foranother 10 years, you can do all
kinds of things.
Voices (35:08):
Johnny, what do you make out of this?
This?
Mostly Uncle Frank (35:16):
You could still leave the money mostly
invested in stocks.
You could move it to a moreconservative portfolio.
You could do something inbetween.
Voices (35:30):
Sorry, Henry.
Mostly Uncle Frank (35:34):
What you might consider is just taking
that portion that constitutesyour financial independence
number.
When you get to that, put thatpart in a more conservative
portfolio with some bonds in itat that point in time.
And then future contributions,you can do whatever you want
with it.
You can spend it, you caninvest it aggressively.
(35:56):
You can keep those two thingsseparate, just knowing that your
financial independence money issecured.
Money was indeed secured.
And as long as you're nottaking money out of it, it
doesn't matter as much that it'snot in a fully developed risk
parity style portfolio.
What matters more is thatmacroallocation principle that
(36:17):
says that the basic performancecharacteristics are going to be
determined by things like whatis the percentage of stocks in
the portfolio versus bonds andother stuff.
And then ultimately, if you dobuild out those Roth IRAs, you
can put anything you want inthose and balance out what
you've got in here.
Because the extent you'reholding bonds, I would hold them
(36:38):
all in this traditional 401k,even if you can't get the
specific funds you want.
Because eventually you willroll this into a proper IRA with
all of the choices, and thenyou'll shift it to the exact
things you want.
But right now, you would justfocus on the macro allocations
in terms of stocks versus bonds,because that's really all you
(36:59):
can do with this.
But you're gonna be in goodshape regardless here, because
if you have enough money toretire, but you plan to work for
another 10 years, there's noway you could lose.
And the only thing that I wouldbe considering is, well, maybe
you should be spending moremoney because you have enough
money to spend more money eithernow or later.
And it might be better to dosome of that earlier in life and
(37:22):
space out the spending ratherthan just keep piling it up for
some kind of spending atretirement that's well in excess
of what you're doing right now.
But in your case, I definitelywould not sweat the details
here, because it's all gonnawork out fine.
Hopefully that helps.
And thank you for your email.
(37:42):
And now for somethingcompletely different.
And yes, it does appear thebees have shown up a little bit
at this early point in November.
(38:02):
I think the report was theNASDAQ had its worst week since
last April.
Otherwise, things were notreally that bad, though.
Voices (38:22):
Oh, Mr.
Marsh, d don't worry, we canjust transfer money from your
account into a portfolio withyour study and it's gone.
Mostly Uncle Frank (38:30):
Looking at the markets, the SP 500
represented by the fund VOO isnow up 15.57% for the year.
The NASDAQ represented by QQQ,the NASDAQ 100, is now up 19.71%
for the year.
Small cap value, represented bythe fund VIOV, is still the
(38:51):
laggard or one of the laggards.
It's only up 3.14% for the yearso far.
Gold continues to shine.
It didn't really move very muchlast week.
Voices (39:00):
I love gold.
Mostly Uncle Fra (39:04):
Representative fund at GLDM is up 52.45% for
the year so far.
Long-term treasury bondsrepresented by the fund VGLT are
up 6.76% for the year so far.
REITs represented by the fundRET are up 8.78% for the year so
far.
Commodities represented by thefund PDBC are up 4.93%.
(39:25):
Preferred shares represented bythe fund PFFV are up 2.8%.
And managed futures are stillmanaging to be up.
A representative fund DBMF isup 9.65% for the year so far.
Moving to these portfolios,first one is this reference
(39:45):
portfolio called the AllSeasons.
It's only 30% in stocks in atotal stock market fund, 55% in
intermediate and long-termtreasury bonds, and the
remaining 15% in goldencommodities.
It is down 0.57% for the monthof November so far.
It's up 12.64% year to date andup 22.28% since inception in
(40:07):
July 2020.
Moving to these bread andbutter kind of portfolios, first
one's golden butterfly.
This one is 40% in stocksdivided into a total stock
market fund and a small capvalue fund, 40% in treasury
bonds divided into long andshort, and the remaining 20% in
gold.
It's down 0.32% for the monthof November.
(40:29):
It's up 16.14% year to date,and up 55.54% since inception in
July 2020.
Next one's the Golden Ratio.
Voices (40:40):
A number so perfect.
Mostly Uncle Frank (40:42):
Perfect.
Voices (40:43):
We find it everywhere, everywhere.
Mostly Uncle Frank (40:50):
This one is 42% in stocks, in a large cap
growth fund, and a small capvalue fund, half and half.
It's 26% in long-term treasurybonds, 16% in gold, 10% in a
managed futures fund, and 6% incash.
It was down or is down 0.75%for the month of November so
(41:12):
far.
It's up 16.09% year to date,and up 50.87% since inception in
July 2020.
Next one's the Risk ParityUltimate.
Not going to go through all 12of these funds.
We use this as kind of akitchen sink of various and
sundry assets.
It is down 0.75% for the monthof November.
(41:33):
It is up 15.51% year to dateand up 37.86% since inception in
July 2020.
Moving to these experimentalportfolios that all involve
leverage funds.
It's down 1.74% for the monthof November.
(42:20):
It's up 20.83% year to date,and up 22.02% since inception in
July 2020.
Next one's the aggressive 5050.
This is the most levered andleast diversified of these
portfolios.
It's one-third in a leveredstock fund UPRO, one-third in a
levered bond fund TMF, and theremaining third divided into
preferred shares fund and anintermediate treasury bond fund
(42:44):
as ballast.
It's down 2.44% for the monthof November.
It's up 12.66% year to date anddown 0.78% since inception in
July 2020.
And this is an example ofvolatility drag, as we discussed
in the last episode.
Moving to the next one, whichis a year younger than the first
(43:06):
six.
This is the levered goldenratio.
This one is 35% in a compositelevered fund called NTSX, that's
the SP 500 and Treasury Bonds.
15% in AVDV, which is aninternational small cap value
fund, 20% in GLDM, that's gold,10% in KMLM, a managed futures
(43:28):
fund, 10% in TMF, a levered bondfund, and the remaining 10%
divided into a levered Dow fundand a levered utilities fund.
It is down 1.03% for the monthof November.
It's up 22.29% year to date andup 16.88% since inception in
(43:49):
July 2021.
And now moving to the last oneand newest one, the OPTRA
portfolio.
One portfolio to rule them all.
This one is 16% in UPRO, thatis a levered SP 500 fund, 24% in
AVG, which is a worldwide valuefund, 24% in GOVZ, which is a
(44:13):
Treasury Strips From theremaining 36% divided into gold
and a managed futures fund.
It's down 1.31% month to datefor the month of November.
It's up 21.1% year to date andup 24.63% since inception in
July 2024.
And that concludes ourportfolio reviews.
(44:36):
But now I see our signal isbeginning to fade.
If you have comments orquestions for me, please send
them to Frank atRiskPardyRadio.com.
That email is Frank atRiskPardyRadio.com.
Or you can go to the websitewww.riskpardyRadio.com.
Put your message into thecontact form and I'll get it all
that way.
If you haven't had a chance todo it, please go to your
(44:59):
favorite podcast provider andlike subscribe.
Give me some stars, a follow, areview.
That would be great.
Okay.
Thank you once again for tuningin.
This is Frank Basquez withFrisk Party Radio.
Signing off.
Mostly Queen Mary (46:12):
The content provided is for entertainment
and informational purposes only,and does not constitute
financial investment, tax, orlegal advice.
Please consult with your ownadvisors before taking any
actions based on any informationyou have heard here, making
sure to take into account yourown personal circumstances.
A foolish consistency is the hobgoblin of little minds,
adored by little statesmen andphilosophers and divines.
If a man does not keep pacewith his companions, perhaps it
is because he hears a differentdrummer.
A different drummer.
Mostly Queen Mary (00:18):
And now, coming to you from Dead Center
on your dial, welcome to RiskParity Radio, where we explore
alternatives and assetallocations for the
do-it-yourself investor.
Broadcasting to you now fromthe comfort of his easy chair,
here is your host, FrankVasquez.
Mostly Uncle Frank (00:36):
Thank you, Mary, and welcome to Risk Parody
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 one, three, five,seven, and nine.
Some of our listeners,including Karen and Chris, have
identified additional episodesthat you may consider
foundational.
And those are episodes twelve,fourteen, sixteen, nineteen,
twenty-one, fifty-six,eighty-two, and one hundred and
(01:15):
eighty-four.
And you probably should checkthose 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):
Light in the Francis.
Mostly Uncle Frank (01:37):
But now onward, episode 464.
Today on Risk Perry Radio, it'stime for our weekly portfolio
reviews of the eight sampleportfolios you can find at
www.riskperdy.com on theportfolios page.
Voices (01:54):
Not the bees.
Mostly Uncle Frank (01:56):
Yeah, well, the bees did show up last week.
It wasn't too bad, actually,unless you were all invested in
the NASDAQ.
But before we get to that.
Voices (02:10):
I'm intrigued by this.
How you say emails.
Mostly Uncle Frank (02:16):
And first off.
First off, we have an emailfrom Dave.
And Dave writes.
Mostly Queen Mary (02:30):
Hi Frank.
I just started listening toyour podcast and have only
listened to the recommendedepisodes and a few others.
Two questions.
One, do you have a breakdown orestimate of how the sample
portfolios would do if thewithdrawal rates were the same
percentage?
I am most interested in theleverage portfolio.
You have a gambling problem.
(02:51):
Two, along those lines, I stilldon't fully understand the full
downside of UPRO other than itgoing to zero if the SP 500 goes
down one-third in a day, or Iguess if there are a lot of
significant one-day declines.
Looking at the long-term chart,it seems to have returned close
to three times the SP 500 indexover the last five to ten
(03:14):
years.
Seems like a no-brainer toinvest a decent amount in UPRO
and get 24 to 30% annualreturns.
Well, you have a gamblingproblem.
I donated to the Father McKennaCenter, but if you just want to
email me back, that's fine, asI'm sure there are likely better
questions from your listeners.
Dave.
Voices (03:35):
This is pretty much the worst video ever made.
Mostly Uncle Frank (03:39):
Well, first off, thank you for being a donor
to the Father McKenna Center.
As most of you know, we do nothave any sponsors on this
program.
We do have a charity wesupport.
It's called the Father McKennaCenter, and it supports hungry
and homeless people inWashington, D.C.
Full disclosure, I am the boardof the charity and am the
current treasurer.
If you give to the charity, youget to go to the front of the
(04:01):
email line, as Dave has donehere.
Couple ways to do that.
You can go to the donation pageat the Father McKenna website.
I'll link to that in the shownotes.
Or you can become one of ourpatrons on Patreon, in which
case you just go to the supportpage at www.riskpartyreader.com
and follow the links to sign upthere.
(04:23):
Either way, you get to go tothe front of the email line, but
be sure to mention that you area donor in your email so that I
can move you to the front ofthe line.
Voices (04:32):
Yes!
Mostly Uncle Frank (04:33):
Now getting to your email.
Do I have a breakdown orestimate of how the sample
portfolios would do if drawrates were the same percentage?
No, but you can generatesomething like that pretty
quickly.
Voices (04:45):
It's not that I'm lazy.
It's that I just don't care.
Don't don't care?
It's a problem of motivation,alright?
Mostly Uncle Frank (04:54):
If you use portfolio visualizer, the back
tester there, or testfolio,testful.io, both of those have
back testers that you can put inthese portfolios.
Actually, testful has some ofthese as generic already set up
portfolios.
And then they both have afeature where you can have it
(05:17):
either adding money to theportfolios or taking money out
of the portfolios.
And therefore you can set awithdrawal rate and run them all
to your heart's content.
The only limitations you'regoing to have are portfolio
visualizer is limited to 10years on ticker symbols, unless
you pay.
Testfolio is not limited exceptfor the existence of a
(05:40):
particular ticker symbol.
And you can also test by assetclass at portfolio visualizer.
If you are interested in thistopic and want to test
portfolios, and you should dothat if you're going to create
your own.
Those two tools, testfolio andportfolio visualizer, are very
useful.
And also portfolio charts isvery useful.
(06:01):
What you're going to findthough is that portfolios over a
given time period are going tohave kind of the same relative
performances, whether you'rewithdrawing 0%, 3%, or 6% out of
them.
As I mentioned in episode 463,what the withdrawals really
affect is the overall volatilityof the portfolio and how long
(06:23):
it takes to recover.
And if you are comparingportfolios over recent times,
and by recent I mean since thegreat financial crisis in 2008
and 2009, you're basically goingto find that the ones with the
most stocks in them perform thebest.
Mostly because it's just been arelatively benign period and a
(06:44):
very good period to be investedin the stock market with only a
couple of short downturns.
But I think this is why a lotof amateur investors in
particular have been lulled intothinking that going into
retirement with a hundredpercent stock portfolio is a
good idea because they've gottenaway with it, frankly.
Voices (07:02):
Uh, what?
It's gone.
It's all gone.
What's all gone?
The money in your account, itdidn't do too well, it's gone.
Mostly Uncle Frank (07:10):
And the truth is, any portfolio will do
just fine in periods like we'vehad for the past 15 years, and
you'll probably take out 8% outof some of these portfolios, and
you'd be alright.
Where you get into real safewithdrawal rate issues is when
you have bad decades, like theearly 2000s or the 1970s or
something like that.
Voices (07:31):
There was this sound like a garbage truck dropped off
the Empire State Building.
Mostly Uncle Frank (07:40):
And that is really the litmus test for
portfolios.
A good test, a stress test,would be to start your
portfolios at the end of 1999and see how they perform,
relatively speaking.
Because then you will get atleast one bad decade there, and
that'll give you a good idea ofhow bad a risky portfolio is
(08:03):
going to be.
Now, as for your secondquestion, leverage in a
portfolio and you pro inparticular.
You've got to ask yourselfquestions.
We did talk a lot about this inthe last episode, so go back
and listen to that as to howleverage works.
The truth is though, if youwere holding UPRO during 2008,
(08:23):
it didn't exist then, it wouldhave gone close to zero, or a
loss of something like 90%,effectively going to zero.
Voices (08:32):
And it's gone.
Mostly Uncle Frank (08:36):
Because the stock market can lose 50% of its
value in a short period of timein a real market crash.
Now, as I mentioned, we haven'thad anything like that since
2008 or nine.
And so YouPro looks a whole lotbetter these days than it would
look over a long period of timethat included periods like
(08:57):
that.
And what that ultimately tellsyou overall is you can put some
of your eggs in a basket likethat, but you don't want to put
all your eggs in a basket likethat because it's just too
dangerous long term.
I know what you're thinking.
Voices (09:12):
Did he fire six shots or only five?
Well, to tell you the truth andall this excitement, I kind of
lost track myself.
Being this the 44 magnet is themost powerful handgun in the
world and would blow your headclean off.
You've got to ask yourself onequestion.
Do I feel like it?
Mostly Uncle Frank (09:30):
What do you think?
That being said, I have atleast one listener who rode UPro
from about 2011 to 2020 andbecame financially independent
just on that.
Shirley, you can't be serious.
I am serious.
And don't call me Shirley.
So it's possible to get lucky.
Do I feel lucky?
Voices (09:53):
Do I feel lucky?
Mostly Uncle Frank (09:55):
I do believe he has de-risked his portfolio
now by adding some diversifiedelements.
Although I think he's stillriding with a bunch of leverage
in it.
Voices (10:06):
You're a legend in your own mind.
Mostly Uncle Frank (10:09):
A lot of this is all fine and good if
you're young and have a lot ofwork life and new investing in
front of you.
But it's not very palatableonce you get to retirement age
and you don't expect to be goingback to work anymore.
Voices (10:22):
I don't think I'd like another job.
And then I want to go back tomy apartment and watch Kung Fu.
Mostly Uncle Frank (10:28):
We've actually talked about this a lot
in the past, and if you go tothe website, you can search the
podcast for things like UPro andLeverage and find all kinds of
episodes discussing the pros andcons of such things.
I'm glad you're curious, butdon't let your curiosity kill
you.
Thank you for being a donor tothe Father McKenna Center, and
(10:54):
thank you for your email.
Voices (10:58):
Every day for the last ten years, Loretta there has
been giving me a large blackcoffee.
Today she gives me a largeblack coffee, only it's got
sugar in it.
A lot of sugar.
I just came back to complain.
Now you boys put those gunsdown.
Say what?
Go ahead.
(11:20):
Make my day.
Second off.
Mostly Uncle Frank (11:27):
Second off, we have an email from Isaiah.
Voices (11:30):
Off we go into the Bible.
Mostly Uncle Frank (11:35):
And Isaiah writes.
Mostly Queen Mary (11:37):
Hi, Frank and Mary.
The discussion in the mostrecent episode, 462, about money
managers who recommend 4% orlower withdrawal rates to their
clients made me think about themisalignment of incentives even
for flat fee or hourly advisors.
I want to die with zero.
(11:57):
It is unlikely that this willhappen precisely, with some
probability that I will fallshort and some probability that
I will oversave.
Voices (12:05):
Oh boy, I'm rich! I'm wealthy! I'm independent! I'm
socially secure.
Mostly Queen Mary (12:11):
A baseline withdrawal rate for me in my
early 40s might be 5.1%, say,adjusting to market and life
events as I age.
A professional advising me ormanaging my money may not be
willing to give me advice thatwould effectively pursue that
goal, because they may only careabout the risk that I may fall
short and run out of moneyearly.
If that were to happen, I mightget mad at them and spread
(12:34):
negative word of mouth, submitcomplaints to regulatory bodies,
or even sue them.
Voices (12:39):
As you all know, first prize is a Cadillac El Dorado.
Anybody want to see secondprize?
Second prize instead of steakknives.
Third prize is your fire.
Mostly Queen Mary (13:08):
Bing again.
So their incentives are biasedtoward oversaving and
underspending purely from acover their butts perspective,
even if they aren't drinking mymilkshake through AUM.
Cheers, Isaiah.
And I have a straw, there itis.
That's a straw, you see.
Voices (13:25):
Watching.
My straw reaches a cruo'sthrough and starts to drink your
milkshake.
I drink your milkshake.
I drink it up!
Mostly Uncle Frank (13:48):
Well, Isaiah, first you're in luck
because I did remember that youare a patron on Patreon and
moved your email to the front ofthe line, even though you
didn't mention it in your email.
Voices (14:00):
Lucky?
Mostly Uncle Frank (14:02):
Well, thank you for being a donor to the
Father McKenna Center.
And please do mention it thenext time you email in.
Voices (14:08):
And uh I'll go ahead and make sure you get another copy
of that memo.
Mostly Uncle Frank (14:12):
Okay.
As for your email, yeah, I tendto agree with your observations
here.
As Charlie Munger is famous tohave said, that if you know what
somebody's incentives are, youcan predict their behaviors.
And I always find this veryinteresting looking at the
psychology and the businesspractices or marketing aspects
(14:33):
of financial advisory services.
Voices (14:37):
A B C.
A always B B C closing.
Always B closing.
Always be closing.
Mostly Uncle Frank (14:47):
Mostly because I'm trained to think
that way as a lawyer.
I'm always thinking, if I'mgonna cross-examine this person,
one of the things youcross-examine people on are
their biases and incentives.
I don't like your attitude.
Voices (15:02):
What else is no?
I'm holding you in contempt ofcourt.
Mostly Uncle Frank (15:06):
And so whenever I'm dealing with
somebody that is either justselling me something or offering
a service, I'm often thinkingabout what are their incentives.
Voices (15:15):
You know, whenever I see an opportunity now, I charge it
like a bull.
Ned the bull, that's me now.
Mostly Uncle Frank (15:20):
And I think what might be going on here is
what Charlie Munger calls aLollapalooza effect.
When you have more than oneincentive pointing in the same
direction.
And in this case, there is kindof a self-selection or
survivorship bias in that peoplewho are likely to hire
financial advisors are probablymore conservative than the
(15:45):
general population to beginwith.
And they are more likely tohave just saved a bunch of money
and then they are hiring afinancial advisor because
they're afraid of losing it orsomething bad happening to it.
So they're naturallyconservative by nature.
Voices (15:58):
You can't handle the gambling problem.
Mostly Uncle Frank (16:01):
The financial services industry kind
of knows this and caters to itandor markets to it, which is
why when you get these freesteak dinner invitations, they
always have something aboutavoiding taxes or avoiding the
next calamity or avoiding somebad thing that's going to happen
to your money.
Voices (16:20):
A guy don't walk on the lot lest he wants to buy.
They're sitting out therewaiting to give you their money.
Are you gonna take it?
Mostly Uncle Frank (16:28):
And that's what also leads to the
attraction of all of theseexpensive shiny objects, whether
they're variable annuities,things with buffers attached to
them, things that supposedlygenerate guaranteed income of
some kind or high income of somekind, like these covered call
funds and stuff like that.
But even if we're talking aboutan advisor that is not selling
(16:50):
shiny objects, essentially, andis trying to be efficient about
asset selection, it is always inan advisor's best interest to
have clients that don't spendmuch money.
Because it takes a lot lesseffort to serve such a client,
they're more likely to be happywith the service, and they're
more likely not to have anyproblems whatsoever.
Voices (17:10):
That's the fact, Jack! That's a fact, Jack!
Mostly Uncle Frank (17:14):
And so if you can come up with a formula,
and most advisors do use somekind of formula that keeps the
clients happy and keeps them notspending too much money, you'll
pretty much be golden, and youradvisory practice will be very
profitable over time.
And if you happen to run into apotential client who wants to
spend a lot of money, maybe youjust say, yeah, I don't think
(17:35):
you're a good fit.
Voices (17:36):
Not gonna do it.
Wouldn't be prudent at thisjuncture.
Mostly Uncle Frank (17:40):
And it also leads to overly conservative
planning, and in particularusing time segmentation
structures that involve lots ofcash.
Buckets, ladders, and flowerpots full of cash.
Voices (17:55):
There's $250,000 lining the walls of the banana stand.
Mostly Uncle Frank (18:00):
Because that kind of planning or structure
has a lot of surface appeal.
You'll just have five years ofcash in front of you and you
won't have a problem.
The problem is if you actuallydo the research, as Bill Bangin
and many others have done, it isvery clear that having more
than 10% of your portfolio incash or cash equivalents does
(18:23):
detract from a safe withdrawalrate.
And so essentially, if you aredoing that, you are
automatically reducing theability of the client to spend
in favor of what ispsychologically comfortable.
Voices (18:38):
That's not an improvement.
Mostly Uncle Frank (18:40):
But that is the fundamental difference
between, say, personal financewith retail clients and
professional finance withinstitutional clients.
Because ultimately somebody whois working with retail clients
is selling psychology orpsychological comfort.
Voices (18:56):
Did you see the memo about this?
Mostly Uncle Frank (18:59):
Whereas somebody who is working with an
institutional client is going tobe totally focused on finances
and just what is the mostefficient way to reach the
financial goal without regard tohow comfortable somebody feels
about it.
Other than making sure theymeet whatever fiduciary or
reporting standards they arerequired to meet as an
institution.
(19:19):
But to me, that's also whyretail personal finance is
larded with lots of sing-song-ysounding jargon that may or may
not mean anything.
Including things like go-go,slow go and no-go.
Voices (19:34):
Forget about it.
Mostly Uncle Frank (19:35):
Minimum dignity floors and safety
buckets and and these obsessionsabout creating retirement
income paychecks.
Voices (19:45):
Unicorns, unicorns, unicorns, yeah.
I love you.
Unicorns, unicorns, unicorns,yeah, and all the things you do.
Mostly Uncle Frank (19:57):
Or really anything with the word income in
it.
Which sounds great until yourealize that the first word
after income is taxes.
Didn't you get that memo?
You don't really want income inretirement.
What you want are liquidresources, but no retail
financial advisor is gonna tellyou that.
Instead, what you get are a lotof these jargons which lead to
(20:18):
built-in inefficiencies to servepsychological needs, but not
really serving financial needs.
Anyway, it's no surprise at theend of the day, if you listen
to financial advisors talkamongst themselves, like the
Kitsis podcast where heinterviews them, or Andy Panko's
podcast, where he talks toother financial advisors, that
the biggest problem financialadvisors report is that their
(20:40):
clients do not spend money.
They're not even spending whatthey plan to spend.
And yes, that part of that isjust the makeup of the clients
and the selection bias.
But another part of that is theway financial advisors sell
their services to the public.
And the psychology of that andthe Lollapalooza effect that is
(21:03):
caused.
So, what I've realized over thepast decade or so is that only
a certain segment of thepopulation is really cut out to
be DIY investors.
Because if you're really goingto be good at being a DIY
investor, you need to be able toseparate out what is finances
from what is psychology.
Voices (21:20):
Hello?
Hello, anybody home?
Huh?
Think McFly, think.
Mostly Uncle Frank (21:25):
And make sure you're doing the finances
first.
That's why I'm most interestedand started with what do
professionals do?
People that run hedge funds orinvest for pensions or insurance
companies, because they aredoing pure finance.
They're not doing psychology atthat level.
And I think if you take thatand then simplify that down into
(21:48):
something, you get things likewhat we do here, these risk
parity style portfolios.
Voices (21:54):
Inconceivable.
Mostly Uncle Frank (21:56):
And then you can also separate out what are
unnecessary or inefficientwindow dressings, which usually
involve those buckets, ladders,and flower pots.
Voices (22:08):
Tell me, have you ever heard of single premium life?
Because I think that reallycould be the ticket for you.
Mostly Uncle Frank (22:14):
Too much cash and too many complications
with things that aren't reallymoving the needle or may be
moving the needle in the wrongdirection.
Voices (22:22):
Fat, drunk, and stupid is no way to go through
lifestyle.
Mostly Uncle Frank (22:26):
Because it's interesting when I press
advisors or people who recommendor do things like that and
point out that they are nothelpful from a financial
perspective, they don't fight onthat.
They don't have anything tostand on when I tell them it's
like there's really no point tothese buckets, ladders, and
flower pots you got floatingaround here.
(22:46):
What they invariably say isthis they say what's important
is to get a plan that people canstick with, and the only way
that I can get my clients orwhomever to stick with the plan
is to add these windowdressings.
So it's all psychology.
Voices (23:04):
It's all a fugazi.
You know what a fugazi is?
Fugazi, it's uh fake.
Yeah, Fugazi, Fugazi, it's awazie, it's a woozy, it's a f
fairy dust.
It doesn't exist, it's neverlanded.
It is no matter, it's not onthe elemental chart.
Mostly Uncle Frank (23:18):
And that's also where this overweening
appeal to simplicity comes in aswell.
That if it's not the simplestthing I can think of, I'm not
gonna be able to stick with it.
Or somebody's not gonna be ableto stick with it.
Voices (23:30):
I'm not a smart man.
Mostly Uncle Frank (23:32):
Again, that's psychology, it's not
finance.
Voices (23:35):
It's all a Fugazi.
You know what a Fugazi is?
Mostly Uncle Frank (23:38):
So what I have come to realize is that
people who want to do things theway we do here and focus on the
finance first are outliers.
And that's fine.
Because I get the mostpsychological comfort from
knowing I'm doing the bestfinance possible.
Voices (23:54):
The best, Jerry, the best.
Mostly Uncle Frank (23:56):
And not succumbing to psychological
tricks or jargon or windowdressing to make me feel good so
I can stick with something.
Voices (24:05):
You're so magical, yeah.
You're so wonderful, yeah.
You're so colorful, yeah.
Just like me.
Mostly Uncle Frank (24:17):
I can stick with something if I think it's
the best financial decision Ican make.
And I guess not everybody cando that.
And that's fine.
Anyway, interestingobservations.
(24:38):
I do agree with them.
Thank you for being a donor tothe Father McKenna Center, and
thank you for your email.
And Ian writes.
Mostly Queen Mary (25:49):
I would like to continue to discuss with you
what you feel are the absolutebest fund options to establish a
risk parity type portfolio formy company-sponsored 401k plan.
I've attached documents from myplan to help shed more light on
my questions.
Please note I would prefer tokeep the company I work for
confidential.
I wanted to add there is adecent chance I may be staying
(26:11):
with my company for up to 10years after I reach my FI
number, which is why I continueto follow up on this question
with the intent of convincingmyself I have figured out the
best case scenario regarding arisk parity allocation with what
is available.
The reason to stay longer wouldmostly be because of the good
medical insurance offered withmy wife's medical history.
Before I get into it, to answeryour question from episode 444,
(26:35):
I make approximately $109,000annually.
The reason I do Roth instead oftraditional in my wife's and my
IRA is because I'm followingthe recommendations of the
Choose a Fi podcast to invest ina Roth once the 401k is maxed
out.
I've attached a PDF of all theinvestments available to me in
my company-sponsored 401k.
(26:55):
You should be able to seeperformance and expense ratios.
I have also attached morein-depth information on the
LCVAL fund you had recommended Isplit with the S P 500 index
fund for my stock allocation inepisode 444.
This would be a good time tobring up that I noticed going
through the fund choices as partof sending this new email that
(27:16):
my company had changed out allthe Vanguard funds with State
Street.
Any thoughts on this changewould be appreciated.
With these new options, bringsperhaps different answers to
what would best constitute arisk parity portfolio.
As you mentioned in the lastepisode, a lot of the funds
listed are unique to my companyplan and don't have publicly
traded tickers.
Because of this, I've comparedthem to what appears to be their
(27:39):
publicly traded counterpartsticker.
Feel free to agree or disagreewith this.
The new SP 500 is SS S P 500Index Lend C L, which appears to
be comparable to SVSPX.
The new bond fund is SS US BondIndex Lend CLX, which appears
to be comparable to SSFDX.
(28:00):
I would also like to discussthe new MidCap fund State Street
SMMID CAP IDX CL2, whichappears to be comparable to
SSMHX.
Since T Row Price is sayingtheir LCVAL fund tracks the
Russell 1000 value TRUSD, thisappears to compare to IWD.
(28:21):
I have attached pictures fromTestfolio where I have back
tested these funds to look attheir correlations.
Other than those times, overallit performs poorly, with a
(28:54):
negative 13% return in its11-year history.
I understand comparing it to aTreasury bond is crude, but the
point mainly is its poorperformance and negative
correlation versus an S P 500index fund.
I also wanted to show thecorrelations to the State Street
Mid Cap Fund versus the S P 500fund that shows a 7% wider
(29:15):
correlation than comparing theLCVAL fund versus the S P 500
fund and a lower expense ratioto boot.
Please let me know if there areany other funds you think I
should be looking at from thelist of investments I've
attached.
I proposed based on theanalysis given that I do a
modified golden ratio portfoliowith the following funds and
percentages.
(29:35):
26% bonds, SSFDX, because ofpoor overall performance and
negative correlations similar toT bonds, 38% SP 500, SVSPX,
SSMHX, 6% capital preservation,CPP, cash allocation.
Please let me know yourthoughts and critique of my
(29:56):
analysis and what you recommend.
Thanks so much for being agreat member.
To me, albeit from afar, andmaking me think of different and
better ways to invest.
Best regards, Ian.
Voices (30:08):
Mary, Mary, I need y'all again.
Mostly Uncle Frank (30:16):
All right, Ian, I did go back and listen to
episode 444 to refresh myrecollection again about what we
were talking about.
Ian basically has a 401k planwith very limited choices.
Basically, there are about 10stock funds and two bond funds
and then a bunch of target datefunds.
And most of the stock fundshave expense ratios that are 0.3
(30:41):
or above.
And there's only a couple ofones that have expense ratios of
less than 0.1.
Okay, before we get to thefunds, just looking at your
income, it's $109,000 annually.
It wasn't clear to me whetherthat is the only income in your
family.
I'm assuming that it is for thepurpose of this.
(31:02):
If that is correct, then youare in the 12% tax bracket.
And you should put as muchmoney in Roths as you can.
If you have a Roth option inthe 401k, I would definitely use
Roth.
Because the only tax problem Icould see you ever having would
be if you put all of your moneyin traditional accounts and then
(31:24):
underspent your portfolio wellinto your 70s, you might have
large RMDs at that point.
That can easily be avoidedthough.
The only point I'm trying tomake here is you're not getting
a whole lot of tax benefits byusing the traditional 401k right
now.
And I did not get theimpression that you had a Roth
option, but if you do, I woulddefinitely use it.
(31:45):
And I would also make sure thatyou fill up the Roths outside
of that, the IRAs, even beforeputting more money into the
401k.
The Roth IRA should be yourfirst priority.
And I know you're saying you'refollowing the recommendations
of the Choose FI podcast, but ifyou listen to somebody like
Sean Mullaney on that podcast,he would tell you what I'm
(32:06):
telling you.
You may also want to get theirbook, which I linked to in the
last episode of this podcastabout taxes and early
retirement, and it will tell youthe same things that people who
are in the lowest tax bracketsto begin with should really
focus on Roths and not ontraditional.
And that's where you are afterthe standard deductions are
(32:27):
taken out of the 109,000 salary.
Alright, the next overallplanning issue you've got here
is that you say that you couldbe working at the company for up
to 10 years after you actuallyreach your FI number in terms of
the money you need to havesaved.
In that case, you may considernot contributing more to these
(32:49):
retirement plans if you reallydon't think you're going to need
the money.
It might be more fun to spendsome of that money earlier while
you're still working.
Take a vacation.
Voices (32:59):
Now I owe it to myself to tell you, Mr.
Griswold, that if you'rethinking of taking the tribe
cross country, this is theautomobile you should be using,
the Wagon Queen familytruckster.
You think you hate it now, butwait till you drive it.
Mostly Uncle Frank (33:12):
Because otherwise you're just going to
be well oversaved at retirementtime.
And then the question is, well,what was the point of that if
you're not going to spend themoney?
In fact, by that time you'llprobably have twice as much
money as you need forretirement.
If you reach your FI number,you continue to work for 10
years, continuing to accumulate,you will have easily twice as
(33:34):
much money as you need forretirement.
Which is a good problem tohave, but it might not be a very
efficient use of your time inlife, if you will.
And that you should either bespending more money earlier or
planning to upscale yourlifestyle when you reach
retirement.
Unless, of course, your goal isto die with the most money, in
which case, carry on.
Voices (33:56):
What's with you anyway?
I can't help it.
I'm a greedy slob.
It's my hobby.
Save me!
Mostly Uncle Frank (34:03):
Okay, and then looking at these fun
choices, yeah, it it's a limitedselection here.
And what you would really betrying to do, the only thing you
really could do with this setupis to just de-risk the part of
the portfolio that you're usingfor retirement assets.
And yes, that would involveadding bonds essentially, and I
would use that simple bond fund.
(34:25):
Either one of those bond fundsis actually serviceable, but you
might as well use the cheaperone.
And then on the other side,yeah, I would put most of it in
the SP 500 and any of theseother funds.
If you wanted the mid-cap,that's fine.
It's not going to do a wholelot differently than the SP 500,
most likely.
If you wanted to reduce therisk, you would use the large
(34:47):
cap value fund that's availablethere, which is another option.
And that is the thing, you haveso many options here that are
not necessarily based onfinances, but are based more on
personal preferences.
Because if you are going tohave enough money to retire and
then continue to work foranother 10 years, you can do all
kinds of things.
Voices (35:08):
Johnny, what do you make out of this?
This?
Mostly Uncle Frank (35:16):
You could still leave the money mostly
invested in stocks.
You could move it to a moreconservative portfolio.
You could do something inbetween.
Voices (35:30):
Sorry, Henry.
Mostly Uncle Frank (35:34):
What you might consider is just taking
that portion that constitutesyour financial independence
number.
When you get to that, put thatpart in a more conservative
portfolio with some bonds in itat that point in time.
And then future contributions,you can do whatever you want
with it.
You can spend it, you caninvest it aggressively.
(35:56):
You can keep those two thingsseparate, just knowing that your
financial independence money issecured.
Money was indeed secured.
And as long as you're nottaking money out of it, it
doesn't matter as much that it'snot in a fully developed risk
parity style portfolio.
What matters more is thatmacroallocation principle that
(36:17):
says that the basic performancecharacteristics are going to be
determined by things like whatis the percentage of stocks in
the portfolio versus bonds andother stuff.
And then ultimately, if you dobuild out those Roth IRAs, you
can put anything you want inthose and balance out what
you've got in here.
Because the extent you'reholding bonds, I would hold them
(36:38):
all in this traditional 401k,even if you can't get the
specific funds you want.
Because eventually you willroll this into a proper IRA with
all of the choices, and thenyou'll shift it to the exact
things you want.
But right now, you would justfocus on the macro allocations
in terms of stocks versus bonds,because that's really all you
(36:59):
can do with this.
But you're gonna be in goodshape regardless here, because
if you have enough money toretire, but you plan to work for
another 10 years, there's noway you could lose.
And the only thing that I wouldbe considering is, well, maybe
you should be spending moremoney because you have enough
money to spend more money eithernow or later.
And it might be better to dosome of that earlier in life and
(37:22):
space out the spending ratherthan just keep piling it up for
some kind of spending atretirement that's well in excess
of what you're doing right now.
But in your case, I definitelywould not sweat the details
here, because it's all gonnawork out fine.
Hopefully that helps.
And thank you for your email.
(37:42):
And now for somethingcompletely different.
And yes, it does appear thebees have shown up a little bit
at this early point in November.
(38:02):
I think the report was theNASDAQ had its worst week since
last April.
Otherwise, things were notreally that bad, though.
Voices (38:22):
Oh, Mr.
Marsh, d don't worry, we canjust transfer money from your
account into a portfolio withyour study and it's gone.
Mostly Uncle Frank (38:30):
Looking at the markets, the SP 500
represented by the fund VOO isnow up 15.57% for the year.
The NASDAQ represented by QQQ,the NASDAQ 100, is now up 19.71%
for the year.
Small cap value, represented bythe fund VIOV, is still the
(38:51):
laggard or one of the laggards.
It's only up 3.14% for the yearso far.
Gold continues to shine.
It didn't really move very muchlast week.
Voices (39:00):
I love gold.
Mostly Uncle Fra (39:04):
Representative fund at GLDM is up 52.45% for
the year so far.
Long-term treasury bondsrepresented by the fund VGLT are
up 6.76% for the year so far.
REITs represented by the fundRET are up 8.78% for the year so
far.
Commodities represented by thefund PDBC are up 4.93%.
(39:25):
Preferred shares represented bythe fund PFFV are up 2.8%.
And managed futures are stillmanaging to be up.
A representative fund DBMF isup 9.65% for the year so far.
Moving to these portfolios,first one is this reference
(39:45):
portfolio called the AllSeasons.
It's only 30% in stocks in atotal stock market fund, 55% in
intermediate and long-termtreasury bonds, and the
remaining 15% in goldencommodities.
It is down 0.57% for the monthof November so far.
It's up 12.64% year to date andup 22.28% since inception in
(40:07):
July 2020.
Moving to these bread andbutter kind of portfolios, first
one's golden butterfly.
This one is 40% in stocksdivided into a total stock
market fund and a small capvalue fund, 40% in treasury
bonds divided into long andshort, and the remaining 20% in
gold.
It's down 0.32% for the monthof November.
(40:29):
It's up 16.14% year to date,and up 55.54% since inception in
July 2020.
Next one's the Golden Ratio.
Voices (40:40):
A number so perfect.
Mostly Uncle Frank (40:42):
Perfect.
Voices (40:43):
We find it everywhere, everywhere.
Mostly Uncle Frank (40:50):
This one is 42% in stocks, in a large cap
growth fund, and a small capvalue fund, half and half.
It's 26% in long-term treasurybonds, 16% in gold, 10% in a
managed futures fund, and 6% incash.
It was down or is down 0.75%for the month of November so
(41:12):
far.
It's up 16.09% year to date,and up 50.87% since inception in
July 2020.
Next one's the Risk ParityUltimate.
Not going to go through all 12of these funds.
We use this as kind of akitchen sink of various and
sundry assets.
It is down 0.75% for the monthof November.
(41:33):
It is up 15.51% year to dateand up 37.86% since inception in
July 2020.
Moving to these experimentalportfolios that all involve
leverage funds.
It's down 1.74% for the monthof November.
(42:20):
It's up 20.83% year to date,and up 22.02% since inception in
July 2020.
Next one's the aggressive 5050.
This is the most levered andleast diversified of these
portfolios.
It's one-third in a leveredstock fund UPRO, one-third in a
levered bond fund TMF, and theremaining third divided into
preferred shares fund and anintermediate treasury bond fund
(42:44):
as ballast.
It's down 2.44% for the monthof November.
It's up 12.66% year to date anddown 0.78% since inception in
July 2020.
And this is an example ofvolatility drag, as we discussed
in the last episode.
Moving to the next one, whichis a year younger than the first
(43:06):
six.
This is the levered goldenratio.
This one is 35% in a compositelevered fund called NTSX, that's
the SP 500 and Treasury Bonds.
15% in AVDV, which is aninternational small cap value
fund, 20% in GLDM, that's gold,10% in KMLM, a managed futures
(43:28):
fund, 10% in TMF, a levered bondfund, and the remaining 10%
divided into a levered Dow fundand a levered utilities fund.
It is down 1.03% for the monthof November.
It's up 22.29% year to date andup 16.88% since inception in
(43:49):
July 2021.
And now moving to the last oneand newest one, the OPTRA
portfolio.
One portfolio to rule them all.
This one is 16% in UPRO, thatis a levered SP 500 fund, 24% in
AVG, which is a worldwide valuefund, 24% in GOVZ, which is a
(44:13):
Treasury Strips From theremaining 36% divided into gold
and a managed futures fund.
It's down 1.31% month to datefor the month of November.
It's up 21.1% year to date andup 24.63% since inception in
July 2024.
And that concludes ourportfolio reviews.
(44:36):
But now I see our signal isbeginning to fade.
If you have comments orquestions for me, please send
them to Frank atRiskPardyRadio.com.
That email is Frank atRiskPardyRadio.com.
Or you can go to the websitewww.riskpardyRadio.com.
Put your message into thecontact form and I'll get it all
that way.
If you haven't had a chance todo it, please go to your
(44:59):
favorite podcast provider andlike subscribe.
Give me some stars, a follow, areview.
That would be great.
Okay.
Thank you once again for tuningin.
This is Frank Basquez withFrisk Party Radio.
Signing off.
Mostly Queen Mary (46:12):
The content provided is for entertainment
and informational purposes only,and does not constitute
financial investment, tax, orlegal 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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The official podcast of comedian Joe Rogan.
Two Guys, Five Rings: Matt, Bowen & The Olympics
Two Guys (Bowen Yang and Matt Rogers). Five Rings (you know, from the Olympics logo). One essential podcast for the 2026 Milan-Cortina Winter Olympics. Bowen Yang (SNL, Wicked) and Matt Rogers (Palm Royale, No Good Deed) of Las Culturistas are back for a second season of Two Guys, Five Rings, a collaboration with NBC Sports and iHeartRadio. In this 15-episode event, Bowen and Matt discuss the top storylines, obsess over Italian culture, and find out what really goes on in the Olympic Village.