Mostly Voices [0:00]

A foolish consistency is the hobgoblin of little minds, adored by little statesmen and philosophers and divines. If a man does not keep pace with his companions, perhaps it is because he hears a different drummer. A different drummer.

Mostly Mary [0:19]

And now, coming to you from dead center on your dial, welcome to Risk Parity Radio, where we explore alternatives and asset allocations for the do-it-yourself investor. Broadcasting to you now from the comfort of his easy chair, here is your host, Frank Vasquez. Thank you, Mary, and welcome to Risk Parity Radio.

Mostly Uncle Frank [0:46]

If you have just stumbled in here, you will find that this podcast is kind of like a dive bar of personal finance and do-it-yourself investing. Expect the unexpected. It's a relatively small place. It's just me and Mary in here. And we only have a few mismatched bar stools and some easy chairs. We have no sponsors, we have no guests, and we have no expansion plans.

Mostly Voices [1:10]

I don't think I'd like another job.

Mostly Uncle Frank [1:14]

What we do have is a little free library of updated and unconflicted information for do-it-yourself investors.

Mostly Voices [1:23]

Now who's up for a trip to the library tomorrow?

Mostly Uncle Frank [1:27]

So please enjoy our mostly cold beer served in cans, and our coffee served in old chipped and cracked mugs, along with what our little free library has to offer.

Mostly Voices [1:50]

But now onward to episode 233.

Mostly Uncle Frank [1:54]

Today on Risk Parity Radio, we'll just go back to doing what we seem to do best here.

Mostly Voices [2:01]

All that noise, noise, noise, noise. Well, I didn't really mean that. What I meant was, here I go once again with the email.

Mostly Uncle Frank [2:13]

And, first off, First off, we have an email for my contact info.

Mostly Voices [2:21]

Oh, I didn't know you were doing one.

Mostly Uncle Frank [2:25]

Actually, we have three emails for my contact info, but they're short and I thought we would just do them all together. I think I've improved on your methods a bit too. And so in the first one, my contact info writes.

Mostly Mary [2:37]

Frank, enjoyed the commentary on buffered ETFs. Specifically, in addition to your assessment, my interpretation, H2O is water and is still water even if in fancy, expensive bottles. These types of structured products are suboptimal given potential counterparty risk and other potential nonlinear risks. Hard to measure all the explicit and implicit costs in these products, but they are likely not insignificant and unfortunately, insidiously not obvious. Thanks as usual for your informative, interesting, and entertaining podcast. Yes. And in the second one, My Contact Info writes, Recently listened to this audiobook on Gold by Peter Bernstein. I think you have mentioned some of his books. Lots of detail and I found the book interesting. Offers, in my view, some interesting perspectives on the shiny metal. Let's go, Jerry, go.

Mostly Voices [3:33]

And in the third one, my contact info writes.

Mostly Mary [3:37]

In my humble opinion, this study is worth internalizing.

Mostly Uncle Frank [3:41]

Okay, going to your first email, you were referring to episode 219, where we were talking about buffered ETFs and more generally about structured and other complicated financial products and funds that incorporate some aspect of the stock market, but then try to modify it or lessen the volatility of it. And my point there was simply that those things really do not work very well and they are beside the point. The better method of reducing your exposure to the stock market or the volatility of the stock market is simply to hold less in stock funds in your portfolio and not try to attach things to it in hopes that it will make the performance of an investment in stock funds somehow better because it really doesn't and it just costs you money. There was a podcast from Paul Merriman I heard several years ago now, and I wish I could remember where it was or be able to link to it, but I can't. But he was reflecting on his decades of experience as a financial advisor in the industry and his experience with these kinds of products or really anything that was heavily marketed as this new special fund that did special things was that in order to support the marketing for such things, they had to have high fees. Bing! Because otherwise they wouldn't make sense for whomever was promoting the thing to be marketing it the way they were. Bing again! And so I tend to use that as a rule of thumb. Frank Vasquez：that if I see a financial product or fund that is being heavily marketed, I will tend to discount the value of that product or hold that as a strike against that product. Because in my experience, as well as his, those things just really aren't worth getting involved with. Not going to do it. Wouldn't be prudent at this juncture. More complicated and more expensive is not good for your financial health. Forget about it. If you want to be good at portfolio construction, you should for the most part try to stick with raw ingredients in their most pure and cheapest form, which these days is ETFs that invest in specific things, like a small cap value fund or an intermediate treasury bond fund. Chances are if Vanguard has an ETF that fits one of those bills of what you're looking for, that's probably going to be one of your best choices. And there's no reason to complicate that because as soon as you complicate that, as soon as you have multiple things inside of one fund, when you are trying to figure out what you actually hold in terms of asset allocations, you will have to pull apart that fund into its components and compare with your other stuff just to figure out what you are holding overall. What is that? What is that? What is that? And while you can do that, it's not really desirable and it's not really necessary for the most part. If you stick with raw ingredients, you will be able to construct easily manageable portfolios and also portfolios that have extensive data to back test them with so that you can have some confidence that it's going to perform Similarly in the future, because you can't really have much confidence in some kind of mixed, buffered, or structured product that just came off the shelf a few years ago and may not be around within another decade.

Mostly Voices [7:29]

And it's gone. But enough of that mini-rant.

Mostly Uncle Frank [7:33]

I invite you to go back and listen to episode 219 if you haven't done it already. Moving on to your next two emails, which I will take together. One was about the book on gold called the Power of Gold by Peter Bernstein, and then another was a reference to an article about investing in gold from Campbell Harvey and others at the CFA Institute. For those of you who do not know who Campbell Harvey was, he was the person who first wrote a paper and observed that an inverted yield curve was a harbinger of a recession in the next year or two. Crystal Ball can help you. It can guide you. Which was his PhD thesis back in the 1980s, and he's been a well-respected academic and researcher ever since then. Starting with that paper, unfortunately, I was not able to access it. I will put the link in the show notes. It does go to the CFA Institute, but then I got stuck behind a paywall, and I do not have an account there. So if there is another way of accessing it, I would be pleased to take a look at it. Sorry for the inconvenience on that. Man's got to know his limitations. And now on the Peter Bernstein book. For those of you who do not know who Peter Bernstein was, He was a financial writer who died in 2009 and wrote a series of excellent books that were almost kind of the precursors to the way people write these kind of books these days. And the one that is most prominent is called Against the Gods, which is the history of risk. That book was written in about 1996 or 7. I think I read it in about 2005. because around the time Nassim Taleb was publishing the Black Swan and his first forays into those areas. But that is a really excellent book because Bernstein's work is extremely accurate and extremely prescient. And so if you like particularly histories of finance, I would highly recommend them. I have not read this book that you cite, although I note from its descriptions that it has in its most recent version from 2012, a foreword written by Paul Volcker. And I'll just read you that because it gives you a flavor as to what the thesis of this book is. And Paul Volcker writes, the need for realism in reform of its monetary system is what makes Bernstein's story of the power of gold so timely. It is a compelling reminder that maintaining a fixed price for gold and fixed exchange rates were difficult even in a simpler financial environment. Peter Bernstein was reluctant to project the story of gold into the future, but to me his message was clear：Yes, gold will be with us, valued not only for its intrinsic qualities, but as a last refuge and store of value in turbulent times. But it's days as money, as a means of payment, and as a fixed unit of account are gone. It's gone. It's all gone. And I tend to agree with what Volcker says there, that the days of using gold as the basis for money are probably gone and probably never will be seen again. Uh, what? But also his observation that Gold will be with us as long as we're around and have economies.

Mostly Voices [11:18]

We have become lovers of pleasure rather than lovers of the economy.

Mostly Uncle Frank [11:24]

But it will be a store of value is how it should be thought of and how it should be used. And that is in fact how we use it in our risk parity style portfolios as something that holds its value and helps us diversify In years like last year, where sure gold didn't do much, but just being at zero helped stock and bond portfolios perform better. Sometimes nothing can be a real cool hand. And if you look at back tests that go back 100 years now, you will see that a portfolio that has an allocation to gold of about 10 to 15% is going to perform better as a drawdown portfolio than one that doesn't.

Mostly Voices [12:12]

That's the fact, Jack. That's the fact, Jack.

Mostly Uncle Frank [12:17]

So if we can put aside a lot of the magical thinking out there about gold standards and hoarding physical gold and hiding it in our basements or somewhere.

Mostly Voices [12:29]

Fat, drunk, and stupid is no way to go through life, son.

Mostly Uncle Frank [12:33]

and just using it like any other financial asset for what it's worth and its most useful properties as a financial asset.

Mostly Voices [12:43]

Hello, hello, anybody home?

Mostly Uncle Frank [12:48]

It will be helpful to us as a diversifying mechanism in our portfolios. Think McFly, think, think McFly, think. One other thing this reminded me of is that I hear a lot of spurious histories about money and gold these days, particularly coming from people who are involved in the cryptocurrency communities, who are trying to push forward Bitcoin or some other cryptocurrency as the money of the future. And oftentimes they tell this inaccurate and magical history of money about how people chose gold to be the money in the past. and there was some kind of magical free market decision-making mechanism that happened that unfortunately is gone due to various conspiracies and Illuminati, etc. Everything that has transpired has nothing to do with my design. That's not how it works. That's not how any of this works.

Mostly Mary [13:53]

The truth is more banal.

Mostly Uncle Frank [13:57]

but is laid out in particular in Ray Dalio's Principles book, the more recent one I'm talking about, where he goes through the 500-year history of various economies, which is simply that for any large developed economy of any significance in history, it is the governmental authority or state that actually determines what is the money for that society and perhaps the whole world, if it has dominance over the world, which is usually expressed through military dominance and other forms of dominance, economic dominance. And so, for instance, when the Spanish economy was dominant in world trade after the voyages of Columbus, people used their currency as the world's currency, and that included countries like Great Britain or England at the time. And during the war of 1812, the US was using the pound as the global reserve currency. And during the Vietnam War, the Vietnamese were using the US dollar for their international trade. So I'm sorry to tell you all, but if you're talking about what becomes money, there are always governments involved and the biggest and most powerful governments are the ones that ultimately decide what is going to be used for money in that economy and financial system.

Mostly Voices [15:25]

That is the straight stuff, O Funkmaster.

Mostly Uncle Frank [15:31]

And I'll link to a recent YouTube video by Peter Zeihan, which goes over a few of these ideas as well. You need somebody watching your back at all times. But I think that's enough on that topic. That's what I'm talking about. And so since we've already had three emails, we're only going to do one more today. And so, last off. Last off, we have an email from Eric.

Mostly Mary [16:00]

Dear Uncle Frank, what a quaint little group you have here.

Mostly Voices [16:04]

We represent the lollipop kids. The lollipop kids. The lollipop kids.

Mostly Mary [16:12]

It is so nice you are talking about these little risk parity ideas and taking out four to six percent of your portfolio every year to live on. Yeah, baby, yeah! Don't you know fortune favors the brave? Fortune favors the brave.

Mostly Voices [16:26]

Four to six percent. How cute. Real wrath of God type stuff. There are people out there taking rocket ships to the moon. Stay in formation. Targets just ahead. Targets should be clear if you go in low enough. You'll have to decide. You'll have to decide. you have to decide.

Mostly Mary [16:51]

Do you know what the return is on an arrow that starts at Earth and points straight up to the moon?

Mostly Voices [16:55]

Do you think anybody wants a roundhouse kick to the face while I'm wearing these bad boys? It's like a billion percent. Forget about it. It's time to get on board before it's too late.

Mostly Mary [17:02]

We can put that check in a money market mutual fund.

Mostly Voices [17:07]

Then we'll reinvest the earnings into foreign currency accounts with compounding interest.

Mostly Mary [17:11]

Then after the moon, we can all go to Mars. Great.

Mostly Voices [17:14]

We can just put that into your retirement account and make it go to work for you.

Mostly Mary [17:17]

Hurry up, it's time to go all in. Oh, Mr.

Mostly Voices [17:21]

Marsh, don't worry, we can just transfer money from your account. Do you want to be left behind?

Mostly Mary [17:25]

My dad said he listened to Matt Damon and lost all his money. What's that?

Mostly Voices [17:29]

It's gone, it's all gone. What was that sound?

Mostly Mary [17:33]

It's gone. And poof, It's gone. It's all gone. Poof. It's times like these that aphorisms feel very relevant. Three that come to mind are, one, not your coins, not your crypto.

Mostly Voices [17:51]

Next thing you know, these people over here started chanting, huddle, huddle.

Mostly Mary [17:55]

Two, the path to getting wealthy is usually different than the path to staying wealthy. We can do this. We just have to be brave. But not too brave or else Matt Damon will come and take all our money. And three, a fool and his money are soon parted.

Mostly Voices [18:10]

Which made these guys beat the living hell out of anyone who said it was just FOMO and died screaming that it was the Flippening. Luckily, I came out of it okay. I got this little miniature donkey with a lit-up sombrero. Frank, thank you for your podcast and your community of engaged listeners.

Mostly Mary [18:25]

The best, Jerry, the best. I appreciate the fact that you point out the excitement of living in the steel age, But also remind us that we don't have to jump in with both feet. No more flying solo.

Mostly Voices [18:36]

It's okay to have experimental portfolios where we can try things

Mostly Mary [18:39]

like DBMF, leverage funds, or, heaven forbid, BITW. Experimenting is for learning, not losing our shirts. It's for learning inexpensive lessons and mistakes about the markets. Small, inexpensive mistakes and learning opportunities are the best kind. Thanks, Eric. You can't handle the gambling problem. Well, this email made me laugh.

Mostly Uncle Frank [19:06]

And so Eric gets extra points. And may God have mercy on your soul. And it is quite fun to be investors, do it yourself investors in the age that we are living in right now.

Mostly Voices [19:19]

You are correct, sir, yes.

Mostly Uncle Frank [19:23]

Because never before could you take a portfolio only worth a hundred or a thousand dollars or some small amount of money and actually create a diversified portfolio of funds and not have to pay any transaction fees to do it. In terms of portfolio construction and development and knowledge, we've never had it so good. This is the dawning of the age of Aquarius. Because now anybody can construct portfolios, anybody can test them, anybody can run them. All you really need is a smartphone with an app.

Mostly Voices [20:05]

That and a nickel get your hot cup a jack squat.

Mostly Uncle Frank [20:11]

And so I think over, say, the next 10 years, we're going to learn a whole lot more as do-it-yourself investors about the best approaches for us whether we're accumulating or decumulating or trying to do something else. And that's why I call this the Age of Steel. Have a time! And I am also grateful for this little community that has piled into this dive bar. You don't frighten us English pig dogs. Honestly, I didn't expect it to be so popular and to have such levels of engagement that we have here. They're not going to catch us. We're on a mission from God. I know it's greatly expanded my knowledge base and I hope it will continue to do so in the future.

Mostly Voices [21:06]

You are talking about the nonsensical ravings of a lunatic mind.

Mostly Uncle Frank [21:16]

So thank you very much for your participation and your sense of humor and thank you for your email. But now I see our signal is beginning to fade. If you have comments or questions for me, please send them to frank@riskparriyradio.com that email is frank@riskparriyradio.com or you can go to the website www.riskparriyradio.com and put your message into the contact form and I'll get it that way. Sorry, it was just a short episode today. We'll pick up again this week with our weekly portfolio reviews and probably some more emails we are still working on November. If you haven't had a chance to do it, please go to your favorite podcast provider and like, subscribe, give me some stars or review. That would be great. Okay. Thank you once again for tuning in.

Mostly Voices [22:11]

This is Frank Vasquez with Risk Parity Radio signing off. Yo, I told you, you can't touch this. Why you standing there, man? You can't touch this. Yo, sound the bell, school is in, sucker. You can't touch this. The Risk Parity Radio show is hosted by Frank Vasquez.

Mostly Mary [22:28]

The content provided is for entertainment and informational purposes only. and does not constitute financial investment, tax, or legal advice. Please consult with your own advisors before taking any actions based on any information you have heard here, making sure to take into account your own personal circumstances.