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.

Mostly Uncle Frank [0:38]

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 [1:31]

Along with a host named after a hot dog. Lighten up, Francis. But now onward, episode 346. I'm back. Are you stupid or something? Yes, I am back from my little hiatus. I was off in Montana visiting my parents. and other family and friends. And whenever I go visit my father, I like to reflect on how lucky I am. You could ask yourself a question.

Mostly Voices [2:04]

Do I feel lucky?

Mostly Uncle Frank [2:08]

My father's 95 years old and still lives unassisted. Only 0.2% of the men born in 1929 in the US are still alive today. 99.8% are dead.

Mostly Voices [2:24]

Dead is dead.

Mostly Uncle Frank [2:28]

And at least half of those who are left are cognitively impaired. So the chances of me having the kind of experience I just had on a Father's Day are less than one in a thousand. But we took him out for some meals, for some drinks, had some laughs, put some nice pictures on Facebook. Yes! Covered all the bases. Oh, behave.

Mostly Voices [2:51]

Yeah, yeah, baby.

Mostly Uncle Frank [2:58]

My mother is a mere 90 years old, still a spring chicken, and we will see them again in September.

Mostly Voices [3:06]

But in the meantime, I will continue to reflect on how lucky I am. Lucky?

Mostly Uncle Frank [3:09]

Another lucky encounter of the friends that I've come to make through this podcast. Well, there's another fellow lawyer named Chuck, who I met in Montana again this time. Chuck has all kinds of interesting stories to tell, including a months-long tour of Europe on a bicycle with a dachshund in a basket. Surely you can't be serious. I am serious.

Mostly Voices [3:36]

And don't call me Shirley.

Mostly Uncle Frank [3:41]

First with his wife on a tandem, from Portugal to Berlin to the Balkans, and then on a solo trip in Ireland and Scotland. And we talked about his financial situation on this podcast all the way back in episodes 64, 66, and 68. Gosh! If you want to go back and listen to those. These days he's become the court-appointed receiver for a cannabis business Which also led to some amusing conversation. Stay off the weed. Reefer madness.

Mostly Voices [4:20]

Basically, he said he's getting paid hundreds of dollars an hour now as a lawyer to go water plants. And you're getting high in the middle of the afternoon off some weed.

Mostly Uncle Frank [4:32]

Anyway, the friendships and fellowships I've been able to enjoy Also, let me reflect on how lucky I actually am. Shut it up, you.

Mostly Voices [4:41]

Shut it up, me.

Mostly Uncle Frank [4:44]

But enough about me, let's start talking about you and your emails.

Mostly Voices [4:48]

And so without further ado, here I go once again with the email. And? First off.

Mostly Uncle Frank [4:55]

First off, we have an email from Mark.

Mostly Voices [4:59]

All hail the commander of His Majesty's Roman Legions. The brave and noble Marcus Vindictus.

Mostly Mary [5:11]

And Mark writes, hi Frank, I retired earlier this year at age 56 and started looking closer at and educating myself about my investments. Thankfully, I've discovered lots of great resources including Risk Parity Radio.

Mostly Voices [5:23]

Yeah, baby, yeah!

Mostly Mary [5:27]

Episode 303 really resonated with me given that I'm invested with the folks at Empower and have one of those horribly complicated portfolios they're notorious for. After lots of review and study, I think my macro asset allocation at Empower is as follows：44% US equities, 20% international equities, 25% total bond market, 5% REITs, 3% gold, 2% commodities, and 1% cash. Using the tools at Portfolio Visualizer, I developed what I think is a more optimal asset allocation. 25% US large cap growth, 25% US small cap value, 25% long-term treasuries, 5% short-term treasuries, 15% gold, 5% managed futures. I've backtested these two asset allocations at Portfolio Visualizer as follows, using commodities instead of the managed futures asset class. The results look pretty good. Compound annual growth rate, 7.99% versus 6.6%. SWR, 9. 01% versus 7.52%. PWR, 5.18% versus 3.9%. Worst year, -17.83% versus -27.5%. Max drawdown, -26% versus -39.8%. 86%. And the current portfolio is even worse given that I still have AUM fees to pay in power dragging the results even further. In-kind transfers to fidelity are underway. However, it seems like a no-brainer to move to this type of portfolio. I'd appreciate any comments, thoughts, questions about anything I'm missing or haven't considered. Keep up the great work, both here and at the Father McKenna Center. I'm now a donor to this great cause. Thanks, Mark.

Mostly Uncle Frank [7:27]

Well, first off in my answer, let me first thank you for being a donor to the Father McKenna Center.

Mostly Voices [7:33]

The best, Jerry, the best.

Mostly Uncle Frank [7:37]

As most of you know, we do not have any sponsors on this podcast. We do have a charity we support. It is called the Father McKenna Center and it serves hungry and homeless people in Washington, DC. And I am on the board of the charity and the current treasurer. Now what do you get for donating to the Father McKenna Center? You get to go to the front of the email line, which Mark has duly done and been duly awarded. And if you wish to give to the Father McKenna Center, you can do that through our Patreon site, through the support page at www.riskparriarradio.com, or you can go directly to the donation page of the Father McKenna Center, which I will put again in the show notes. Either way, you will go to the front of the email line, but please let me know that you've done that in your email so that I can flag it and move it to the front of the email line. Because I do look at these briefly when they come in and then put them on the stack with the rest of them since we're still back at the beginning of May as far as the whole stack of emails is concerned. But now getting to your questions. You referred to episode 303 and the kind of hideous Empower style portfolios.

Mostly Voices [8:51]

Look away, I'm hideous.

Mostly Uncle Frank [8:57]

Empower bought personal capital in the past couple years and personal capital used to suck people in with their nice free calculator and asset tracker to get people involved and to hopefully manage their portfolios. Unfortunately, what personal capital does is something that is not very optimal. They are trying to create very diversified portfolios. They do it in a ham-handed way by putting people in dozens of different things that is completely unnecessary when we have ETFs for these sorts of things now. And they really don't do that good of a job in their overall diversification. I suck. So we do end up with some Personal capital slash empower refugees here, if you will. Everybody's got to learn something somewhere. Now this portfolio you've come up with 25% US large cap growth, 25% small cap value, 25% long-term treasuries, 5% short-term treasuries, 15% gold and 5% managed futures. Does look like a very serviceable and suitable risk parity style portfolio that is similar to the golden ratio. And we can see from the parameters that you've run in the link that you've provided that indeed this does perform much better than what you were given at Empower to chew on and pay for. Forget about it.

Mostly Voices [10:41]

And I agree that it would be a no-brainer to move to this from what

Mostly Uncle Frank [10:45]

you are presently ensconced in.

Mostly Voices [10:48]

And that's the way, -huh, -huh, I like it.

Mostly Uncle Frank [10:53]

And I don't think you are missing anything. If you'd like, and I would invite you to do so, to take the new calculator we found at testfold.io and put this formula in there and you can compare it with 60/40s and other sorts of things. The reason that calculator is very useful now is because you can do a managed futures analysis all the way back to the 1990s. I will see if I can actually put that together and link to it in the show notes. But I think you'll see this is a very solid portfolio that is superior to most of the standardized things you find out there.

Mostly Voices [11:31]

Top drawer, really top drawer. And so I feel like you are off and running. Run, run, run as fast as you can. You can't catch me. I'm the gingerbread man.

Mostly Uncle Frank [11:43]

And I'm glad you have been able to take advantage of the information here and construct something that is appropriate for your situation. You have my blessing to the extent you needed it.

Mostly Voices [11:55]

In the name of my most royal majesty, I knight thee, Arise, Sir Loyn of Beef.

Mostly Uncle Frank [12:04]

And thank you for your email.

Mostly Voices [12:07]

Arise, Earl of Clothes. Arise, Duke of Brittingham. Arise, Baron of Monkshalsen. Arise, Essence of Myrrh. Arise, King of Magnesia, Quarter of Ten. Second off. Second off, we have an email from Casey.

Mostly Mary [12:36]

And Casey writes, Can you provide an artist and song name for the Anchorage song used on the latest episode? Where can one download this song? I use Shazam to get the song title and artist. Not sure if what I get back is accurate. I can't find it on any of the usual platforms：YouTube, Spotify, Apple Music, etc. Thanks. Long time listener, first time emailer. Huge fan of the show, Casey.

Mostly Uncle Frank [13:13]

Well, thank you for writing in with this question. It's funny, we do have a kind of a large percentage of listeners who are actually from Alaska, at least the ones that write in. And I just wonder what the attraction to this podcast is. I guess if you're sitting there in six months of darkness, you have to have something to entertain yourself with. Hey, Shell, you know it's kind of fun.

Mostly Voices [13:36]

Texas always seems so big, but you know you're in the largest state of the union when you're Anchor down in Anchorage. But that song Anchorage, the original one was by Michelle Shocked.

Mostly Uncle Frank [13:57]

The one that you've heard on this podcast is by an artist named Larry Kennedy, and it's off his album Everybody Knows, and I did find it on YouTube or on Spotify or somewhere like that. So hopefully you can find it now and enjoy listening to it. And thank you for your email.

Mostly Voices [14:19]

Hey, Shell, you know it's kind of funny Texas always seems so big, but you know you're in the largest state of the union when y'all anchor down in Anchorage, Alaska. Anchor down in Anchorage, Anchorage, down in Anchorage.

Mostly Uncle Frank [14:52]

Last off. Last off, we have an email from Kyle. Kyle.

Mostly Mary [15:01]

And Kyle writes, Dear Frank and Mary, hope you are well. I was hoping to get your thoughts on something not strictly related to alternatives of asset allocation. You seem to have some knowledge and experience with this type of thing, but if not, feel free to pitch this email into the deleted items folder and move on to better things. My wife has a life insurance policy which I'm trying to figure out. It seems a bit complicated and believe it or not, wink wink, the documentation with the policy isn't very intuitive. It's called Freedom Global IUL2 Flexible Premium Adjustable Life Insurance with an index account option. quite a mouthful. It's a doozy. I gather a couple of things from the name. It is indexed universal life insurance. It has a flexible premium. It is adjustable, and it has an index account option. Bing. Unfortunately, I don't know what any of this means. Bing again. Could this be the ticket for us? I think that really could be the ticket for you. Am I right or am I right or am I right? Right, right, right.

Mostly Uncle Frank [16:11]

Am I right or am I right? Am I right? Am I right? Am I right?

Mostly Mary [16:14]

Any thoughts you have would be well received. Sincerely, Kyle.

Mostly Uncle Frank [16:19]

Wow, we are really sinking to the ninth level of hell here in Dante's Inferno. Probably calls for some Sam Kinison. It was hell! It was hell! I'm sorry you are saddled with such a thing, but Let me give you some observations.

Mostly Voices [16:39]

Well, now, about Sarah. Frankly, I've had some difficulty with her. Yeah, I have a theory. I think it's because she's so stupid.

Mostly Uncle Frank [16:54]

First, I'm probably not the best person to talk about this. The best person to talk about the problems with IUL and other Life Insurance Concoctions is Andy Panko. And he has a nice YouTube channel and a podcast, and he runs a group in Facebook called Retirement Education. Well, let me link to one of his playlists where he discusses some of the ins and outs of some of this stuff. Oh, I can tell, Gebbler, I know a lot of dumb, stupid, idiot kids.

Mostly Voices [17:25]

She's really stupid, man. She's really stupid. I mean, I like to be a light at the end of the tunnel for you, but you got a real idiot on your hands. Now, as you've observed, this is a contract.

Mostly Uncle Frank [17:39]

It's not really an investment. So there is no way to evaluate it by any objective criteria. You can't back test it, you can't forecast it. All you can do is read the contract. And what a contract does is create its own world that is separate and apart from the reality of the investing world. Because all of these adjustments, premiums, features, even the index involved are manifestations or creations of the language in the contract. The little engine that could. That's Sarah's favorite book. and typically they do not relate to anything in reality or only partially do.

Mostly Voices [18:30]

Sarah's favorite book. Yeah, it's a sweet little book. It's my little trainee goes, I think I can, I think I can, I think I can. And it goes up the little mountain and it makes it, huh? And it's so lifelike. It's so real, isn't it? Life is just that way. You know, if you're positive and you really believe things can change, it can really happen, huh? Yeah, wrong Keeblers.

Mostly Uncle Frank [18:52]

The most recent trick that is used in these products and in annuity products is to come up with weirdo indexes that kind of sound like they're related to something like the S&P 500, but aren't really the same thing, and also put provisions in the contract that allow the purveyor to change the index or change other parameters of what's going on in there. It's called buried alive. So is a good lawyer who is not your lawyer, I can tell you that the only way to determine what a contract means and what your benefits and liabilities are in connection with this contract is to read it and understand the terms of it. And if you cannot do that, you should not be signing contracts like that.

Mostly Voices [19:39]

Because only one thing counts in this life. Get them to sign on the line which is dotted.

Mostly Uncle Frank [19:47]

Which means that most people should not be signing contracts like this because they're not capable of reading and understanding them, or they do not have an independent advisor to explain these things to them. You need somebody watching your back at all times. I like to look at these things from a more holistic perspective, which comes from Physics and from patent law. I am a scientist, not a philosopher. When you file for a patent, you can get rejected for many reasons. One of the reasons falls under Section 101, which is things that are not patentable. And those things include things that violate the laws of physics. So you are not allowed to patent a perpetual motion machine or anything that says it can create energy out of nothing. I had a friend who's a patent lawyer who once just accidentally used those words in a patent he was writing. He said, and this tends to perpetuate the motion. He wasn't talking about a perpetual motion machine, but that language alone was enough to get his original application rejected it, and he had to rewrite it. IUL policies and a lot of these other policies are sold like perpetual motion machines with the idea that somehow you can get more out of this than you could investing the money, and it will cover all of the costs of the insurance, the commissions and everything. But you need to think about that. When you're buying an insurance contract, you're giving the money to the insurance company They are going to invest that money for themselves and then they are going to give you back some benefit. Now, there is no way that they can give you a bigger benefit than you could get by investing your own money. Forget about it.

Mostly Voices [21:47]

That would be a perpetual motion machine because they have

Mostly Uncle Frank [21:51]

to make a profit, they have to pay for the insurance costs and they have to pay the commissions, which are generally substantial.

Mostly Voices [22:03]

Because we're adding a little something to this month's sales contest. As you all know, first prize is a Cadillac El Dorado. Anybody want to see second prize? Second prize is a set of steak knives. Third prize is you're fired. So whatever you get out of one of these contracts, is going to be less than you can get by investing the money.

Mostly Uncle Frank [22:29]

Didn't you get that memo? And the only way you can believe that's not true is if you believe that insurance companies have special magic balls and magic crystals that they can take your money and somehow magnify it or multiply it in a way that nobody else in the world can do and then they can give you a bigger benefit and pay for their commissions and pay for their fees and pay for everything else.

Mostly Voices [22:59]

Now you can also use the ball to connect to the spirit world.

Mostly Uncle Frank [23:02]

But since that is akin to a perpetual motion machine that violates the laws of thermodynamics, the real question always should be when you're talking about these contracts is what are they giving up or why is this Possible for them to do? What did they get out of it?

Mostly Voices [23:23]

A guy don't walk on the lot lest he wants to buy. They're sitting out there waiting to give you their money or you're gonna take it.

Mostly Uncle Frank [23:31]

Because there's no way you can get back more than you put in. Just like there's no way you can get more energy out of an engine or a process than you put into it. That's not how it works. That's not how any of this works. So that is the very basic reason that you should not buy insurance contracts as investments. Not gonna do it.

Mostly Voices [23:54]

Wouldn't be prudent at this juncture. You should buy them as insurance though.

Mostly Uncle Frank [23:58]

That's what they're good at. That's what they're primarily designed to do. All of this other window dressing and bells and whistles and other things attached to them are just intended to make insurance companies money. Coffee's for closers only. Which is why I like to invest in insurance companies, but not in insurance contracts. With a name like Chubb, it's got to be good. So I would stop asking these questions about how does this thing work and ask a different question first, which is what is the purpose of this? And whenever you have something that has flexible premiums and is adjustable, I would get worried that there's a lapse risk that you may be required to pay more into it under the terms of the contract at some point with the risk as if you don't, then it lapses and you end up with a big tax bill. Believe it or not, insurance companies account for lapsing as part of their profits because they know that a large percentage of policies that are originally bought, the premiums will eventually not get paid, the contract will lapse, and they won't be on the hook for any insurance costs, at least any paying out of insurance. So generally, if you are not far along in something like this, it's best just to get out of it. But if you are far enough along, and I don't know how this one works, if you had a much simpler contract, like a whole life policy, and it was paid up, you could just let it sit there and not have to pay any more premiums. I actually have one of those things. Part of my misspent youth, I bought one from our friends over at Northwestern Mutual. Fortunately, it was not a large policy, and it's been paid up for some time, but it can just sit there like a glorified savings account and I can look at it and be glad I didn't follow up with any more of that.

Mostly Voices [26:04]

I want you to be nice.

Mostly Uncle Frank [26:08]

It's not horrible, but it's not good either. That's what happens, man. Oh my God.

Mostly Voices [26:11]

Yeah, that's what happens.

Mostly Uncle Frank [26:15]

I would worry much more about the kind of product that you're talking about here because the problem with some of these kinds of policies is a lapse risk if you do not continue to pay these flexible or variable premiums. So I would get a handle on understanding what her obligations are under this contract. Not what the benefits are. What are her obligations under this contract to keep it in force and then decide whether it's worth it or not to do that or not given the purpose of it. If the so-called purpose of this was as an investment, I would be ditching it sooner rather than later. in most cases. And if the purpose of it was actually to buy life insurance for some dependents, then there's a question of whether you just leave it how it is or convert it into some kind of other policy that might be better or cheaper or some combination of both. In any event, hopefully she can chalk this up as a lesson learned and move on more successfully in her financial life if this was intended as an investment. Hopefully that helps at least a little bit. And thank you for your email.

Mostly Voices [27:30]

Do you think you could ever be able to preach again? Do you think there's anything left inside you that has any good to it that could shine a light into somebody's lost way? Do you think if you had to, if your soul was riding on the line and you had to testify and you had to make a commitment, if it was a final answer, what would you do?

Mostly Uncle Frank [27:53]

But now I see our signal is beginning to fade. If you have comments or questions for me, please send them to frank@riskparityradio.com that email is frank@riskparityradio.com or you can go to the website www.riskparityradio.com, put your message in the contact form and I'll get it that way. I will be around for at least this weekend. We'll go back on hiatus for the next one. So we'll get at least one more podcast in the next week or so here, and we'll even be talking about a rebalancing of one of the portfolios this weekend. 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. A lot of funny guys, funny guys all over the place here. What can I tell you? Oh, by the way, I want to apologize for the inconvenience tonight.

Mostly Voices [28:55]

There's no man in the men's room, you know? The guy in the men's room quit. He couldn't stand the smoke from the kitchen.

Mostly Mary [29:02]

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.