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 [0:18]

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.

Mostly Uncle Frank [0:36]

Thank you, Mary, and welcome to Risk Parity Radio. If you are new here and wonder what we are talking about, you may wish to go back and listen to some of the foundational episodes for this program. Yeah, baby, yeah! And the basic foundational episodes are episodes 1, 3, 5, 7, and 9. Some of our listeners, including Karen and Chris, have identified additional episodes that you may consider foundational. And those are episodes 12, 14, 16, 19, 21, 56, 82, and 184. And you probably should check those out too because we have the finest podcast audience available.

Mostly Voices [1:28]

Top drawer, really top drawer.

Mostly Uncle Frank [1:32]

Along with a host named after a hot dog. Lighten up, Francis. But now onward, episode 332. Today on Risk Parity Radio, we're just gonna do what we do best here, which is attend to your emails.

Mostly Voices [1:48]

Looks like I picked the wrong week to quit on fettuccine. and so without further ado, here I go once again with the email.

Mostly Uncle Frank [1:59]

And first off, I have an email from Ed. Hello, I'm Mr. Ed.

Mostly Mary [2:12]

And Ed writes, hello, Frank and Mary. Many thanks for all your work. I've made another donation, including a corporate match to the Father McKenna Center. Thank you for spreading the good word for this organization. My parents are in a position with limited resources, about $2,000 per month in Social Security, and are 73 and 70 years old. My dad still does part-time work in HVAC to help cover expenses, but at 73 years old, that can't continue for much longer. Although they never made much income, they raised three kids, me and my two sisters very well, and we are all happy adults in our early 50s. Yes, they were very young. My dad is just finishing up treatment from a bout with lung cancer. He quit smoking about 20 years ago, but the damage was already done. That said, we all agree that they should be able to continue to enjoy the next stage of their slower go years. They have about $25,000 remaining from an inherited IRA, from which they are drawing down $1,000 a month. Once this is exhausted, Social Security will be the only source of income. The kids are able and willing to help the parents in any way, and they first want to exhaust a reverse mortgage or similar option. My parents own their home, and a reverse mortgage is a viable tool since they have no mortgage and the home is well maintained. We children do not need the home for any sort of inheritance. I understand that reverse mortgages are fee laden and continue to accrue interest at variable rates throughout the life from any outstanding principal. With the goal to use every bit of home equity for their wants and needs, I'd like your opinion on options beyond the reverse mortgage. I know there's refi, HELOC, and home equity loan options. Anything else? Would an immediate annuity offer a potentially better solution? Many thanks, Ed. Mr.

Mostly Uncle Frank [4:10]

Epp will never speak unless he has something to say. Well, first off, thank you very much for your donation to the Father McKenna Center.

Mostly Voices [4:19]

Yeah, baby, yeah!

Mostly Uncle Frank [4:23]

As most of you know, this podcast does not have any sponsors, but we do sponsor a charity, which is the Father McKenna Center that serves hungry and homeless people in Washington, D.C. And full disclosure, I am on the board of the charity and am the current Time is money, boy. And so if you do make a donation to the Father McKenna Center, you get to go to the front of the email line. That's all I've got to offer you here.

Mostly Voices [4:51]

Watch me pull a rabbit out of my hat. Again.

Mostly Uncle Frank [4:55]

In addition to my undying gratitude, of course. And you can do that in a couple of different ways. If you go to the support page of this podcast at www.riskparityradio.com, you'll find a way to donate through Patreon there, or you can go directly to the Father McKenna website and donate there. No doubt about it.

Mostly Voices [5:20]

I gotta get another hat.

Mostly Uncle Frank [5:24]

But just let me know in your email then so I can move you to the front of the line. And if you do have a corporate match option, We'll take that too. Thank you very much, Ed.

Mostly Voices [5:34]

Now here's something we hope you'll really like.

Mostly Uncle Frank [5:38]

Now this particular question we actually have a lot of personal experience with and I will relate to you what we did and how that worked out. But my parents also did not have enough money for retirement really, or at least a very long retirement because Their parents had all died in their 60s and 70s. My last grandfather lasted until he was 80. So I don't think they thought that they would actually live that long. So when they were in their 70s, they did get a reverse mortgage, which helped out some, but it was clear after a while that it was not going to be adequate and wasn't going to last as long as they needed it to last. So about 15 years ago, Mary and I decided to step in to stabilize their situation because I also have a disabled sister who lives with them. One of the other issues they were having at that time is their kind of first retirement home was on five acres in a rural area, which was a great place to be and they really loved being there. But as they got older, it became very inconvenient in terms of going to doctors, going to the store, and all those other things that somebody would want to have close by when they get older. So what we did was buy their house from them, which we then turned around and resold, because we certainly didn't want that house. And then we bought them a different house to live in, in the city close to stores and their doctors and things. And so they've been living there for the past 15 years and can stay there as long as they need to. But we eventually plan on selling that house and then putting that money back into our retirement accounts. So in terms of the way the finances worked for this, when we bought their house from them, we paid off their reverse mortgage. And then also when we bought out the other equity in their house, instead of giving them a cash payment, We agreed to essentially give them a monthly payment for life, like a private annuity, if you will. And so they now have that money to supplement their Social Security and they've been getting it every month for the past 15 years. And then also in terms of additional support, we take care of the house they now live in, all the maintenance, the taxes, and pay the utilities on it so that they can then focus their Social Security and this additional payment just on their day-to-day needs. Now, I realize what I'm talking about is kind of a big lift for most people, and we were in our 40s at the time, but we were making enough money to be able to swing this and save for college educations and save for retirement and all the other things we needed to do. And we chose to do that instead of upgrading our lifestyle again, as many partners in large law firms tend to do in their 40s. And this has allowed my parents to grow old gracefully. My father just celebrated his 95th birthday at the end of February. And as I may have mentioned before, got 95% off on his dinner, which consisted of a steak, a couple of margaritas, and some other things. Now, in your situation, I think your first instinct is correct that you should be looking into reverse mortgages. The way these things work has changed over time, and I'm honestly not that familiar with the way things work today. None of these ever seem to be good deals, but they can do the job, depending on the other circumstances, such as how much equity they have in the house, how much they would need extra on a monthly basis. So that may be a complete solution or an interim or partial solution. I think you and your sister should probably get together and talk about what else you're able to do or willing to do in terms of stabilizing their situation. Because one of the reasons we handled it the way we did is that we could maintain control over the whole financial situation and pretty much know exactly what the outflows were going to be out of this whole operation. What I think some families get into the problem with is the elderly person just having a series of emergencies that have to be covered. And in our case, that would have been likely given where they lived in the rural area, because that property required a lot more maintenance and was difficult to get to sometimes when it snowed and all of those other things you can imagine could cause an emergency. So I would also be thinking about whether it makes sense for them to move. from where they live right now, and I have no way of knowing, given your description, whether where they're living makes the most sense or not. And I don't know how resistant they would be to moving, for example. Oftentimes, an older person in this situation just has a difficult time coming to grips with the reality that their resources cannot cover their lifestyle in terms of where they're living, which is usually the main expense. And then I think the other thing you'll want to look into is whether they are eligible for other forms of aid, whether that is simple tax relief or other services, food, anything that would reduce their monthly burn rate. Now you also asked about other options including a refi, a HELOC, or a home equity loan option. Those probably won't work in this situation because they don't have the income to pay that kind of a loan off, and so they are unlikely to qualify for those things. You can try, and I would ask some banks and lenders whether those would be available. But essentially a reverse mortgage works kind of like a HELOC for the most part, in that you are drawing down on a amount of money that you're allowed to spend out of it. I don't think an annuity would be that helpful in this situation unless you were able to fund it. Simply because if they only have $25,000 remaining, you're just not going to be able to get an annuity that pays a significant amount of money starting with that. I think realistically you have to look at it as if that $25,000 is going to disappear in some period of time in the next year or two, and they will be left essentially with just their social security to live on. And I realize this is a difficult situation, but it's also a fairly common situation. that many of us are dealing with today. And it can be a positive story where the family rallies around and takes care of what needs to be taken care of and everybody's all on the same page or it can be a negative story where it pulls people apart. I think it's important for everybody to get on the same page and in particular for you and your sisters to be clear with your parents as to what your willing and able to do and what you're not willing or able to do. And if they're stubborn, they may have to wait until the money is gone and your father can't work anymore. There's not a whole lot you can do about that simply because some people don't want to come to grips with their economic reality until they are forced to do it. But I think now is the time for you to be addressing this. And I'm glad you are being proactive about it because obviously they're at a crossroads here in terms of getting that money out of their house so they can use it to live on. But I do think the critical question is whether they can stay there or not and whether that makes sense in their situation. As an aside, this is part of what led me or motivated me to do the kind of research I've done for this podcast in looking for ways that we could maximize our spending earlier in retirement because obviously if you're going to take on something like this and have more expenses to deal with, you are going to want to maximize your safe withdrawal rate. And we really didn't have the option of just not spending money or hoarding money until we had 30 or 40 times expenses. Because if we were going to help my parents, we needed to do it then and there. and figure out how to deploy our resources in the most efficient way possible. And one of those efficiencies is using a risk parity style portfolio. Yes! And not hoarding cash and not finding reasons or excuses not to spend money out of fear or some other irrational consideration. Use the force, Luke. Let go, Luke. I hope you're able to write in again at some point and tell us how things are going because I think a lot of our listeners here would be interested in this and thinking about how they may adapt it to their own personal situations. And so thank you for bringing this topic to our attention and thank you for your email. The woods are lovely.

Mostly Voices [15:12]

Dark and deep, but I have promises to keep and miles to go before I sleep and miles to go before I sleep. Second off, Second off, we have an email from Anderson. You know, back in Baton Rouge, we could have fed 600 men in the time it's taken you Ham and Agers just to take my order.

Mostly Mary [15:47]

And Anderson writes, Uncle Frank, I'm assuming you've been keeping track of the three emails I sent you over the past two years with bated breath waiting for my next question. Au contraire.

Mostly Voices [15:58]

Don't be saucy with me, Bernaise.

Mostly Mary [16:02]

One, thank you for your podcast. I have only two podcasts that I listen to every episode and you are one of them. I really appreciate your input. You're insane, Gold Member. I'm 38 and in the accumulation phase. I don't expect to retire until the traditional 60 plus. Six children will keep me working for a while. Donate to the children's fund. Why?

Mostly Voices [16:24]

What have children ever done for me?

Mostly Mary [16:28]

Originally, I had limited options with my employer 401. However, now I have an option to open a Fidelity Brokerage Link account, which allows me to invest in anything Fidelity has to offer. Yes. You can't handle the gambling problem. I emailed you a few months back about leverage funds for an accumulation portfolio. This is the portfolio I came up with that I think can increase my returns and be palatable for me. I'm not that concerned about max drawdowns for the next 20 years. It is based on a lot of the information that you have provided and further reading with factor funds, Paul Merriman, Larry Swedroe, etc. UPRO 15%, EDV 25%, AVUV 40%, AVDV 10%, AVE 10%. One, your thoughts on this portfolio? Two, unfortunately, this is in three retirement accounts and functionally appears challenging to manage. They are all with the same employer and I cannot roll any of them over to combine them. One is 100% Roth funds, one is 100% traditional, and one is mixed. How would I functionally invest/rebalance with these three? Should I just recreate this portfolio in all three accounts? Or should I try to get my more aggressive funds like UPRO and the Roth and attempt to split the others up with the other funds. Thanks for any input, Anderson.

Mostly Voices [17:57]

Boy, I tell you what, Dusty, I felt like a one-legged cat trying to bury turds on a frozen pond out there today.

Mostly Uncle Frank [18:05]

All right, looks like you've got two questions here. First, my thoughts on this portfolio, which is 15% UPRO, 25% EDV, 40% AVUV, 10% AV DV and 10% AVE M. So when I look at something like this and it's got some leverage in it, the first thing I want to do is figure out what the leverage makes the total percentage, because it's going to be more than 100. So that UPRO at 15% is going to behave like a 45% allocation to the S&P 500. I'm also going to do that with the EDV. because that is a strips version of a treasury bond fund. So it has an even longer duration than a long-term treasury bond fund, which effectively gives it a form of leverage. And so a fund like EDV is going to perform as if it had about one and a half times the oomph, if you will, than something like TLT or VGLT. in terms of its volatility and gains or losses in a given year. So the other three funds are value and small cap value, and I would not consider them to be leveraged. When you add up these numbers, the implied leverage in the EDV and the leverage in the UPRO, this behaves as if it had 142.5% of a normal portfolio, and then you can take those numbers to get to your macro allocations. So when we add up the UPRO at 45 and the other three stock funds, that adds up to 105. And then we divide that by 142.5 and that comes out to a 74% exposure to equities. And so this portfolio behaves like a 74-26 portfolio. stocks to bonds, and that's your macro allocations. Now for an accumulation portfolio, ordinarily that would be a little bit on the conservative side, because generally an accumulation portfolio tends to look like 80% to 100% in equities. But the fact that you're adding leverage into this is going to make it just as aggressive and volatile as something that is straight 100% in stocks. Now, I tried to run this in Portfolio Visualizer, but the short time frame some of these funds have existed doesn't give you much in the way of results. And even if you substitute DFA funds for the Avantis funds, you still are limited by UPRO only going back to 2009. But I think I was able to get more interesting results by using the Portfolio Matrix set portfolio charts. And so what I did is put in 45 for large cap blend, 38 for long-term treasuries, and then 40 for US small cap value, 10 for international small cap value, and 10 for emerging markets. And what you see there when you run that portfolio is it does have similar performance characteristics to a total stock market fund. with a higher return, but pretty much just as much volatility drawdowns and all of those things you might care about in a retirement portfolio, but don't care that much about in an accumulation portfolio that you're adding to. So it looks pretty good to me, but I will caution you, you need to stick with it through thick and thin if you're going to do something like this, because it will be very volatile and the components will be very volatile. I would just keep adding to the worst performers as you go. Now, as for asset location, I think your instinct to put the highest grower into the Roth, which would be the UPRO, makes sense to me. You have a gambling problem.

Mostly Voices [22:06]

If the rest of these are all in retirement accounts,

Mostly Uncle Frank [22:10]

it doesn't really matter where they go. You probably don't want the bond fund in a taxable account. The other ones should be fine wherever you have room for them. so I think you're on the right track. One other note I should make you mention being able to open up the Fidelity Brokerage Link account, which allows you to do essentially a self-directed 401k. I think that's a feature that a lot of people have, but they don't realize they have. So you should make sure that you go to your plan and see whether you have it. What this is, it allows you to basically create a separate account within your 401k that acts like a regular brokerage account and you are allowed to buy whatever you want. Fortunately, I had one of these things and so I've been using it since in the early 2000s I think is when it was rolled out in our account system. And ours was very low fee trading and then no fee trading. And you do have to be mindful of that, but then you are freed from the strictures of whatever the administrator of your 401 chose to make available and can construct whatever portfolio you'd like to have, which I highly encourage.

Mostly Voices [23:27]

And may the odds be ever in your favor.

Mostly Uncle Frank [23:31]

Hopefully that all helps and thank you for your email.

Mostly Voices [23:45]

Last Off.

Mostly Uncle Frank [23:49]

Last Off, an email from Joe. Hey Joe, I'm where you going with that gun in your hand? And Joe writes, hi Frank and Mary, Binging on podcasts at two times speed to catch up.

Mostly Mary [24:15]

Much to learn and unravel financial misnomers once considered as gospel, like Luke training with Master Yoda.

Mostly Voices [24:24]

You must unlearn what you have learned. All right, I'll give it a try. No, try not. Do. Or do not. There is no try.

Mostly Mary [24:40]

I plan on retiring in less than four years at age 60. I have 36% of my portfolio in a government TSPC fund, 34% in taxable and remaining IRAs. In building out a golden butterfly style portfolio, what is your assessment to substitute 20% of the C fund into the G fund in place of short-term treasury bonds? Reading the Death Star Morningstar article, is the G Fund equivalent to a short-term treasury or would it be considered like cash? My other option is to wait to roll over TSP at 59 and a half into short-term treasuries. Thanks, Joe.

Mostly Voices [25:19]

What do you mean they blew up the Death Star? Oh, who's they? What the hell is an aluminum Falcon?

Mostly Uncle Frank [25:34]

Finally, I get an easy question.

Mostly Voices [25:38]

Never his mind on where he was, what he was doing. Yes, I think the G Fund is equivalent to short-term treasuries.

Mostly Uncle Frank [25:54]

It's a little bit shorter than short-term treasuries, but that Selection in that portfolio, I think, is the most flexible that instead of SHY, you could put in any number or collection of short-term things that could be CDs, the G Fund, money markets, other stuff. Because SHY is just one to three year treasury bonds. So half of it is very short and the other half of it is not very long. The reason this doesn't matter so much on the short end here is because these things just roll over so quickly and they're usually all about the same kinds of interest rates anyway. I should also note that Vanguard now has a short-term bond fund, VGSH, which I think is slightly more expense friendly than SHY, but very similar. But again, you can use any number of these sorts of funds for this purpose. There are another couple of ultra short term funds now that I've found to be interesting and useful. One is called VUSB and one is called JPST and those are less than a year's duration in those sorts of funds. And again, that could be part of this pool of short term stuff that forms this 20%. So you're in very good shape with the G fund here or many other similar alternatives. And thank you for your email.

Mostly Voices [27:20]

Ready are you? What knows ready? For 800 years have I trained Jedi. My own counter will I keep on who is to be trained. But now I see our signal is beginning to fade.

Mostly Uncle Frank [27:37]

If you have comments or questions for me, please send them to Frank@riskparityradio.com that email is frank@riskparityradio.com or go to the website www.riskparityradio.com and put your message into the contact form and I'll get it that way. If you haven't had a chance to do it, please go to your favorite podcast provider and like, subscribe, give me some stars, a review, a follow. That would be great. Mmmkay? Thank you once again for tuning in. This is Frank Vasquez with Risk Parity Radio. Signing off.

Mostly Voices [28:20]

We're the wind and the river in my blood. The names that have flowed in the past. But with his crutch, it's old age and his wisdom. It was with his snow. This will be the last.

Mostly Mary [28:43]

The wind, cross, carry. the Risk Parity Radio Show is hosted by Frank Vasquez. 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.