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 [0:37]

Thank you, Mary, and welcome to Risk Parity Radio. 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.

Mostly Voices [0:52]

Expect the unexpected.

Mostly Uncle Frank [0:56]

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. I don't think I'd like another job. What we do have is a little free library of updated and unconflicted information for do-it-yourself investors. Now who's up for a trip to the library tomorrow? 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 [1:51]

But now onward, episode 352.

Mostly Uncle Frank [1:55]

Today on Risk Parity Radio, we're just going to get to a few of your emails, which are still piling up. But before we get to that, I have a little announcement and a plea. And this comes out of a podcast I recently recorded with a man named Josh Jelinski, who runs The Financial Quarterback Podcast. Now, I had never heard of the Financial Quarterback Podcast until they contacted me last month and asked me if I'd like to go on the Financial Quarterback Podcast. Surely you can't be serious. I am serious. Now, don't call me Shirley.

Mostly Voices [2:32]

So I looked at it and it turns out that it is actually a

Mostly Uncle Frank [2:36]

long running AM radio show, but they are now really trying to Branch out into more podcasting like I'm sure many of you are familiar with. So he had already interviewed people like Paula Pant of Afford Anything and David Blanchett and Jim Dolly, the white coat investor. So I says, well, sure, you must be scraping the bottom of the barrel when you get down to me. I don't exactly have the reach of any of those folks. You can't handle the truth. And in the exchange leading up to the recording last week, he asked whether there was anything I wanted to talk about in particular. And I said, not really, but I would like to promote the charity we promote on this podcast, which is the Father McKenna Center, which serves hungry and homeless people in Washington, DC. And he graciously allowed me to do that at the end of our recording. and then surprised me, a very pleasant surprise, by offering to have his podcast donate up to $10,000 in matching donations to the Father McKenna Center in connection with his broadcasting of the podcast I appeared on. Now that podcast will probably come out in the next two weeks, but I thought I would get a jump start on the pleas for matching funds. And so, if you are interested or had been thinking about making a donation to the Father McKenna Center, this is the time to do it. Yes! And the way you need to do it in order to get the match is to donate directly to the Father McKenna Center using their donation page. And there will be a place in the donation where it allows you to dedicate the donation or make a comment or something. And in that little box, what I need you to do is put in the financial quarterback, spelled just like it sounds, and we'll be adding all those up and then asking the financial quarterback for the matching money, and also seeing if they might not want to be a sponsor of the Walk for McKenna, our major fundraiser that we hold in September every year. We had already collected enough risk parity radio donations on Patreon to get another qualifying donation to get us on the t-shirt that we'll all be wearing on that walk at the end of September. But maybe there'll be a financial quarterback icon on there too. Yeah, baby, yeah! So, I will be promoting this for the next month or so and then seeing where we are. And I'll also let you know when that episode of the Financial Quarterback comes out featuring yours truly. But now without further ado, here I go once again with the email. And first off, I have an email from Judy and Judy writes, Hi, Frank. You finally convinced me to invest in gold.

Mostly Mary [6:05]

Now that I've read Ray Dalio's book about the changing world order, I see you are probably both right about that. I wonder why you picked GLD over other gold ETFs. I don't want to buy gold at Costco and put it under my mattress, but I am also concerned about the security of buying an ETF that holds gold in a trust somewhere. And I assume it could be stolen or risk fudged books. I guess there isn't a good solution, but I would love to hear your musings on why you chose GLD over some others. I assume you think it is the most trustworthy as some have lower expense ratios, so it would be good to know why. Also, do you know where these non-governmental trusts are getting their gold? I hope not at Costco. I continue to enjoy your show. Oh, and I should say that I donated some clothing to the Father McKenna Center through their Amazon link. Judy.

Mostly Voices [7:01]

Top drawer, really top drawer.

Mostly Uncle Frank [7:05]

Well, Judy, welcome to the Gold Member Club. I love gold. We've been talking about gold as a diversifying asset all the way back to episodes 12 and 40, which describe that in a whole lot more detail. You should go back and listen to if you haven't. But gold is something that is bad on its own, or not very good on its own, but makes a great diversifying asset in a portfolio that is mostly stocks and bonds. And we learned from a big earn analysis back in episode 40 that the optimal allocation to it seems to be somewhere around 10 to 15% in most generic stock and bond portfolios. That being said, although it's had a very good run recently, I think it's up 20% in the past year or something like that, it usually is very boring and it usually just I sit there and that's what you should probably expect it to do, which isn't always a bad thing because it was pretty flat in 2022 and a lot of other things were looking pretty ugly. So now let's talk about how to buy it or the best way to buy it. And as I've said many times in the past, the best way to buy just about any financial asset these days is in ETF form. Because ETFs are regulated by the SEC. They come with prospectuses. They come with lots of penalties if they're promoters. Screw them up and they are generally put out by very reputable creators of ETFs like Vanguard, iShares, Spyder and other things that put out lots and lots of ETFs and that we can be very confident in. This is the way professionals invest in gold. They do not run out and buy physical pieces of gold from Costco or anywhere else. Professional investors, hedge funds, registered investment advisors, and other people like that use ETFs for these purposes and so should you.

Mostly Voices [9:15]

No more flying solo. You need somebody watching your back at all times. And we'll talk a little bit more about that in a minute.

Mostly Uncle Frank [9:26]

But in terms of which ETFs to use, I will refer you to the ETF database and also to another link one of our listeners posted recently. There are at least a 10 or a dozen gold ETFs right now. Now you mentioned GLD. That is the oldest and still the most popular of the ETFs that invest in gold. It holds about, I think, $65 billion in assets. The next most popular one is IAU, then GLDM, then SGOL, and then IAU. Now, I think GLD is the most popular for two reasons. First, it's the oldest one. It's been around for about 20 years now. And second, it is also used as a basis for trading options on. and so is well liked by the large scale institutional investors and other people who are employing advanced strategies, if you will. I actually don't prefer that one for our sample portfolios or otherwise. I prefer GLDM, which is the third most popular. It's also put out by the same people that put out GLD. But GLDM is really designed for smaller portfolios. buy and hold type people and has a lower expense fee on it. It has one of the lowest right now. I think it's.09 or.10 in terms of an expense fee. I think IAU M also has a very low expense fee. I'm not sure what it is on SGOL these days. They keep actually reducing these over time as they have to compete with each other. So you could really use any of them, but I would probably pick GLDM as a first choice. Now, where does GLD or GLDM or many of these other ETFs actually hold their physical gold? Well, they do it through banks. I think GLD uses HSBC and JP Morgan. This is a very old time-honored function of banks. It's kind of like gringotts on the Harry Potter movies. What exactly are these things?

Mostly Voices [11:32]

They're goblins, Harry. Clever as they come, goblins, but not the most friendly beasts. Best stay close. Mr. Harry Potter wishes to make a withdrawal. And does Mr.

Mostly Uncle Frank [11:59]

Harry Potter have his key? They actually have vaults where they have gold stored in them, generally in London and New York.

Mostly Mary [12:02]

bolt 687. Lamp, please. Key, please.

Mostly Voices [12:47]

Didn't think your mom and dad would leave you with nothing though, did you?

Mostly Uncle Frank [12:53]

And that way when somebody buys or sells it and they have storage rights at a bank like that, they don't actually have to move the gold around. They simply either move it from one vault to another if they're going to move it at all, or just count it and designate it. But I'll link to an FAQ in the show notes and you can look at that or look at any prospectus for any gold ETF and it'll tell you exactly how they operate it. Bearing in mind, if they're not doing what they're saying in their prospectus, somebody could be going to jail, which is another reason that you use ETFs for this purpose. Okay, so that leads to the next question, which is why is there something in the air with respect to gold ETFs where people are saying, well, you need to have physical gold and hold it under your mattress and Those gold ETFs, you don't know what they're doing. That's a lie. Forget about it. That is a lie. It is being perpetrated by what I call the physical gold racket or physical metals racket. Who are these people? They are similar to people who are shysters selling all kinds of dubious financial products.

Mostly Voices [14:11]

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

Mostly Uncle Frank [14:19]

They are the dealers, the brokers who make the spreads on selling physical gold. They are the people that sell the storage facilities for physical gold. They are the people that write these books or newsletters talking about apocalypses and why you should have physical gold sitting around in your house or somewhere, as if you're actually going to use it as money when the nuclear bomb drops. Forget about it! And they are people who run podcasts and other media who like to bring these people on. And so they all work together. They all scratch each other's backs. Now they have these stupid, high-priced IRAs for storing physical gold in. It's another part of the physical metals racket. Am I right or am I right or am I right or am I right?

Mostly Voices [15:11]

Right, right, right.

Mostly Uncle Frank [15:15]

But all of this is just another part of the dregs of the financial services industry. It's all one big crapshoot, anywho. And they put enough propaganda out there that when people are unfamiliar with the subject, they hear that and it makes them wonder, should I buy an ETF? What's in the ETF? Where's the gold? Oh, no. I don't think it means what you think it means. Well, think about it. You could say the same thing with respect to any ETF. Suppose you have an ETF that invests in REITs. Do you feel a need to go inspect the property? Do you feel a need to review all of the leases? If there is property involved, are you concerned that it has not been staked out and there has not been boundary set for each and every piece of property that is owned by one of those REITs in that fund. And for stock funds, are you concerned that there are no stock certificates involved? Shouldn't you be getting your stock certificates for everything you own? After all, you don't know what they're doing if they don't have stock certificates to show you. You don't know that they really own Apple or not, do you? This is all a lot of hogwash. directed at amateur investors who do not know what they're doing and who get sucked into these things because they're listening to some program or reading some email that came in. I get these all the time. A lot of them are politically based. They say, if so-and-so gets elected, the world is going to hell and everybody needs to own gold. So go over here and buy these gold coins or this gold thing or something else that's in physical form. And then we'll take care of you.

Mostly Voices [16:58]

Are you stupid or something?

Mostly Uncle Frank [17:02]

It's all a lot of fear-mongering nonsense.

Mostly Voices [17:06]

I'm just as stupid as a stupid does.

Mostly Uncle Frank [17:09]

And the other reasons are just practical is why you do not want to have physical gold or any significant amount or basically for entertainment purposes only. If you're managing a portfolio, you are living off it, you are using it in retirement, You want to be able to sell any asset in your portfolio at the drop of a hat. When it's time to rebalance, you don't want to be digging around in your seller looking for the gold and then taking it down to the broker and running in through a bunch of silly transactions. You want to get on your phone or your computer, go buy or sell the ETF and be done with it, just like every other thing in your portfolio. Didn't you get that memo? Just don't do it. And this is general advice that I have for anybody who wants to be an investor in stocks, bonds, or anything else. The first thing you should be looking at is how do the real professionals hold this asset? What do they do? Where do they go? Now maybe that's not applicable to you. But chances are, a lot of what they do is something you can do yourself. Like have an account at Fidelity or Schwab, put your money there, buy your ETFs, and do whatever else you need there. That's how professionals and smart amateurs run their money. That's the fact, Jack! That's the fact, Jack! They are not going to Costco or anywhere else. to buy physical precious metals. That is something we did back in the 1970s. And thankfully, we don't have to do that anymore.

Mostly Voices [18:52]

And that's the way, -huh, -huh, I like it. Kashi on the Sunshine Band.

Mostly Uncle Frank [18:59]

Now, I do credit Costco for the marketing and taking advantage of the current popularity in gold. Whenever the price of gold goes up, you see a lot of these physical metal shysters come out of the woodwork and everybody's tripping over each other to sell people gold because it's shiny and it's going up and people get excited about it then. Bing! There's a lot of FOMO in the air. Bing again! But Costco is smart enough to make it small enough increments that sort of anyone can buy it, but it gets people in the door. like the $1.50 hot dogs. That's why the Costco is selling it. Because if you're going to go to Costco to buy some gold, you're probably going to pick up a few more things. Am I right or am I right? Or am I right? So it was very good marketing on their part. So to conclude, if you want to invest in gold, and it probably makes sense for a lot of us, if you're looking for a diversified retirement portfolio, then use ETFs like the professionals. and sleep very well at night, like I do, knowing that nobody's going to be trying to rob your house because they think there's a whole bunch of gold in it. I always remember a very tragic story. There was a famous football player for the then-Washington Redskins. His name was Sean Taylor, and he was reputed to have a lot of gold in his house. And one day some people broke in and they shot and they killed him. because they were looking for this gold. And to me, that's just another cautionary tale because there were certainly no reason if he wanted to invest in gold that he should have been collecting physical gold. And I don't even think he had that much in his house. Anyway, that's probably enough on that. I did forget to thank you for your donation to the Father McKenna Center. Yes, you can not only donate cash, but you can also donate clothing, And food, although it's much more difficult to do, will even take gold from Costco. Or whatever other source that you have, so long as it's legitimate.

Mostly Voices [21:14]

I welcome any enterprise that will increase my stock.

Mostly Uncle Frank [21:18]

But I did move you to the front of the line for your donation. If you are feeling the spirit, please go ahead and make another one. Put that financial quarter back in and see if we can get some matching funds off of that. And for those who don't know, if you do make a donation, you get to go to the front of the email line. That's what I have to offer you other than my undying gratitude and the gratitude of the people being served. And so thank you for your support and thank you for your email. Second off, we have an email from Steve.

Mostly Voices [22:12]

Hey, Steve.

Mostly Mary [22:16]

And Steve writes, I'm a regular listener and just wanted to give you a smile. I was listening to the latest Money Guy podcast and they said the first question was from Kyle and in my mind I heard Cartman yelling Kyle! Alas, they didn't play that clip. Steve.

Mostly Voices [22:33]

Sometimes love is hard, but you can't just run away from it. When you start to have something special, you have to work at it. What could I say, Steve?

Mostly Uncle Frank [22:43]

But And the funny thing is, I think we have at least three people named Kyle that have written emails into the show. This is the end, Kyle. It's you and me. It is right up there with Mark as one of the most popular names.

Mostly Voices [23:03]

The brave and noble Marcus Vindictus.

Mostly Uncle Frank [23:07]

And while the Money Guy Show may be much more popular than this one, Probably for good reasons. They are not nearly as fun or as weird.

Mostly Voices [23:18]

Even though it might seem like the world is against you, you still have to hold on with both hands. Don't let society dictate who you can and can't be with.

Mostly Uncle Frank [23:31]

I'm glad you appreciate the humor here because not everybody else does. And thank you for your email. Thank you. Thank you all.

Mostly Voices [23:38]

That's all I wanted to say. That and the Batmobile's outside. Seriously, you guys gotta see it. It's the Batmobile, it's outside. Last off.

Mostly Uncle Frank [23:51]

Last off, we have an email from my contact info.

Mostly Voices [23:55]

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

Mostly Uncle Frank [23:58]

And my contact info rights.

Mostly Mary [24:02]

Hi, Frank and Mary. Congratulations on the graduation of your son and his gainful employment.

Mostly Voices [24:10]

All we need to do is get your confidence back so you can make me more money.

Mostly Mary [24:14]

I realize that it is beyond the typical scope of this podcast, but if you are willing, would look forward to your thoughts on the value of education and the development of human capital. Null hypothesis, return on human capital may likely exceed that on financial assets. Thank you.

Mostly Uncle Frank [24:30]

Well, we can tell this email was written in May. Since that's when the graduation was of our youngest. He is off now earning his bread as a newly minted financial analyst working for a large credit union. And I've convinced him that he should really overstuff his Roth 401K this year by the end of the year, since his adjusted gross income will be relatively low compared to his annual salary. So all is right with the world with that. The best, Jerry. The best. Getting to your question, yes, you do have a habit of asking questions that are not typical of the scope of this podcast.

Mostly Voices [25:26]

I think I've improved on your methods a bit, too.

Mostly Uncle Frank [25:30]

But I will answer it as best I can in as short an amount of time as I can. Now first, I'm taking your definition of human capital as essentially your ability to generate income, which I think is the common definition of it. And that's based primarily on two factors. First is how old you are, because the younger you are, the more time you have to live, and so the more time you can potentially spend using your human capital to earn money. And then the second is, what kind of skills do you have that are likely to be serviceable in making that money? You know, like numchuck skills, bow hunting skills, computer hacking skills. Girls only want boyfriends who have great skills. And one of the best ways to improve your skill set make your human capital more valuable at a younger age, is to get some education.

Mostly Voices [26:35]

Now, I would say Mary and I are very biased in this department because our family histories show that the American dream came essentially from people getting an education. What are we doing here? We promised you'd visit the penguin the day you got out. Yeah? So I lied to him. You can't lie to a nun. We gotta go in and visit the fang.

Mostly Uncle Frank [26:56]

My father came to this country when he was 17 years old in 1946 to go to college and then stayed and became a doctor. And that was the secret of his success, improving his human capital to make it more valuable. My mother was also one of the first in her family to get a college education. and that helped her get a job as a teacher. This is even more stark on Mary's side. Both of her parents have PhDs and were professors, and they both have written books in their field. And so most of Mary's siblings have post-graduate educations, and so do most of my siblings, you include me. And most of us went into some kind of profession that required that kind of education in order to be able to perform in that field. Lawyers, doctors, veterinarians, etc.

Mostly Voices [27:48]

Send lawyers, guns and money.

Mostly Uncle Frank [27:52]

Dead get me out of this. So I'd have to say as a general proposition, getting some kind of education generally improves your human capital and makes you more valuable in a marketplace. Now, that being said, in the day and age we live, a lot of education is overpriced for what you're getting. Education used to be really cheap, particularly if you go back pre-1980. Now it can be extremely expensive, and in a number of cases, if you're not careful, the improvement that you're getting to your human capital is not worth the cost of what is being paid. and that has to do with what kind of education you're getting, what kinds of degrees you're getting, and where you are going to get that education, how much you're having to pay out of pocket, and whether you could have gone somewhere else and got something similar. I think this is becoming better known these days, especially since people have finally figured out that since about 2006, student loan debt is not dischargeable in bankruptcy most of the time. and so can create a real big albatross around your neck if you're not careful. And there are many good options for getting a good education without paying too much for it. So for example, if I lived where I live today in Virginia and couldn't afford an education or to send our kids to school, one good option here is you can go to community college for two years at a relatively low cost, then transfer to any number of the state institutions that are well-regarded and get the same four-year degree that anyone who went there to begin with would get. But if you are paying for your child's education, I do urge you to sit down with them before they go to college and have what I call the Talk, which is not about the birds and bees, but about your expectations of what they are supposed to be doing in college if you were going to pay for it. Get out. And don't come back until you've redeemed yourselves. And what I told ours is simply, look, from our perspective, you are not going to college to go find yourself or have a vacation or twiddle your thumbs for four years that we expected that you would get a valuable certification learn some valuable skills while you were there, and then make some valuable connections so that you could launch yourself into an emancipated state upon leaving that institution. Can we fix it? Yes, we can!

Mostly Voices [30:40]

And while that certainly will not work for everyone,

Mostly Uncle Frank [30:43]

it did work for us and our three children. But now let's talk about who education may not be appropriate for as a means of improving human capital, at least formal education. There's a very interesting book to read. It's called Barking Up the Wrong Tree. It's by an author named Eric Barker, who also had a blog called Barking Up the Wrong Tree. I'm not sure it's still active anymore, but it talked a lot about a lot of popular psychology topics and other things. And the very first chapter of that was about the fact that some people are just more predisposed to getting more out of education than others, which may dictate some of their path. And so if you are really good in school, you should probably stay on that track and go become a doctor or lawyer or something like that. But if you're not, there's a lot of people who Would be better off going straight into the workforce and working on things like the ability to sell things.

Mostly Voices [31:53]

Because if you have the ability to sell things, you're good at sales. Always be closing. Always be closing.

Mostly Uncle Frank [32:00]

In our consumer culture, that sort of trumps everything. That even if you don't have a very good education and you're good at sales, you can succeed very well.

Mostly Voices [32:13]

Because we're adding a little something to this month's sales contest. As you all know, first prize is a Cadillac Eldorado. Anybody want to see second prize? Second prize is a set of steak knives.

Mostly Uncle Frank [32:25]

And a lot of entrepreneurial people or people who are extroverted and don't take well to formal education often have the kinds of skills that rendered themselves well to things like sales or entrepreneurship or other things like that. Or if you gravitate towards working with your hands or some other thing like that, then perhaps trade school is the best option for you. You combine that with a little bit of sales skills and all of a sudden you are making millions of dollars in your own small business. That's gold, Jerry, gold! But if you read that chapter and then go read a book like so Good They Can't Ignore your by Cal Newport, both of those essentially talk about it's really the development of skills of some kind and whether you can do that through formal education or some other way. The development of skills will help you improve your human capital so you're more valuable that way, but also help you with figuring out what your purpose is in life. or at least a purpose in life. And so that is fundamentally the skill development, whether that comes through a formal education or some kind of informal education. Going out there knocking on doors, making those phone calls and improving your sales skills.

Mostly Voices [33:49]

A-I-D-A, attention, interest, decision, action, attention. Do I have your attention? Interest? Are you interested? I know you are. Decision. Have you made your decision an action?

Mostly Uncle Frank [34:03]

There are many different opportunities for many different kinds of people. And so you should not foreclose any particular method of improving your human capital. It is largely going to be based on your personal predilections and natural aptitudes. But that's probably way too much on this. Although we do need to talk about your null hypothesis that is return on human capital may likely exceed that in financial assets. I think that's definitely true, particularly near the beginning, simply because if you, for instance, gain some skills and get some position, you are likely to get many raises going up right away. And that's often what people are doing in their 20s or 30s going from an average salary or returns on their investments in terms of personal work to a much higher return in a relatively short amount of time. And you're really not going to be able to do that if you don't have any capital or don't have access to capital. One of the things about student loans is you can't borrow money necessarily to start a business or make an investment, but you can borrow to get an education. And so particularly when you are young, that is the time when it makes the most sense to get those skills, get up to a high enough salary because the salary is probably not going to go down over time. Now this would be an entirely different calculus if you were talking about somebody who decided they wanted to go back and get some kind of certification at age 50 or 60. If you're doing it then, you should not be doing it for financial reasons because it's probably not going to pay off then. You can do it for personal reasons and personal satisfaction, but at that point, assuming you've accumulated some amount of assets, the fact that you're going off and doing a new skill development through education is probably not going to be that financially remunerative compared to just sitting on a bunch of assets and watching them grow financially. So I would say your hypothesis is likely true with a high probability for younger people, but not nearly as true for older people who have been around for a while. And now that's certainly more than enough on that.

Mostly Voices [36:33]

You telling me to shut up? I'm telling you to shut up. I will tell you a recorder so that you don't forget. Hello, this is Chuck to remind Bill to shut up! Because now I see our signal is beginning to fade.

Mostly Uncle Frank [36:47]

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 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 follow or a review. That would be great. M'kay? Thank you once again for tuning in. This is Frank Vasquez with Risk Parity Radio signing off.

Mostly Mary [37:36]

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.