Queen Mary and Voices [0:01]

A foolish consistency is the hobgoblin of little minds, adored by little statesmen and philosophers and divines.

Uncle Frank and Voices [0:10]

If a man does not keep pace with his companions, perhaps it is because he hears a different drummer.

Queen Mary and Voices [0:17]

A different drummer 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.

Uncle Frank and Voices [0:37]

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.

Queen Mary and Voices [0:50]

Yeah, baby, yeah.

Uncle Frank and Voices [0:52]

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. Whoa, and you probably should check those out too, because we have the finest podcast audience available.

Queen Mary and Voices [1:27]

Top drawer, really top drawer.

Uncle Frank and Voices [1:31]

Along with a host named after a hot dog. Lighten up, francis. But now onward, episode 455. Today, on Restorative Radio, we're just going to do what we do best here, which is attend to your emails. Before we get to that, one little announcement we're about to go on hiatus here for the next few weeks and this will be the last episode you'll hear for about a month. We'll probably make a new one around October 11th or 12th, whatever that weekend is. We're going on vacation. I will try to update the website in the meantime, but I can't make any promises. Forget about it In any event. Sometimes when I go on hiatus, people wonder if something bad happened to us. And it's gone Poof. I want to assure you nothing bad is going to happen to us. Should be pretty good, actually.

Queen Mary and Voices [2:48]

The best, jerry the best. But now, without further ado, here I go once again with the email.

Uncle Frank and Voices [2:56]

And First off, first off, an email from Chris.

Queen Mary and Voices [3:02]

I want to hold him like doing Texas plays. Fold them, let them hit me, raise it. Baby, stay with me, I love it.

Uncle Frank and Voices [3:11]

And Chris writes.

Queen Mary and Voices [3:13]

Uncle Frank and Queen Mary. I've been a listener since your early episodes and truly appreciate all the information and knowledge you have synthesized for all of us. I have learned so much and am attempting to construct a retirement portfolio for my wife and me. To show my appreciation, I have donated to the Father McKenna Center via registering for the Walk for McKenna See the screenshot below. I live in Indiana so because of distance, I donated a little extra in the hopes that I could get one of those awesome t-shirts size large with the Risk Parity Radio at the top mailed to me. Yeah, baby. Yeah.

Queen Mary and Voices [4:03]

My wife and I are currently 40 years old and, depending on market returns, we should be financially independent and completely work-optional in approximately four years. We are currently 100% in equities and I am struggling to transition our assets to a risk parity style portfolio because of limited options in our 401ks. Limited options in our 401ks. We have approximately 72% of our investments in 401ks, 7% in Roth IRAs and 21% in taxable brokerage. We contribute up to the match in our 401ks, max out our IRAs and everything else goes to the taxable brokerage. The 401ks offer various equity funds, target date funds and a bond fund or two. Do I move some to bonds, even though they're not the preferred treasuries, or do I hold my breath that we don't experience a sharp downturn and transfer to the desired allocation after we can roll one or both over to an IRA?

Queen Mary and Voices [4:58]

I wanted to get your thoughts on the portfolio I have constructed. It meets the guidelines you have discussed, but I think I need to hear it from your mouth that it's good, or for you to offer up some suggestions 25% large cap growth, a mix of S&P 500, total market and VUG. 25% small cap value, viov and AVUV. 20% long-term treasuries, 10% VGLT and 10% GOVZ, to be more like a 25% allocation. 12.5% gold, gldm, 12.5% managed futures, dbmf and or KMLM. 5% property and casualty. 1% each TRV, all CB, pgr, brk, b. I'm still a little fuzzy on GOVZ.

Queen Mary and Voices [5:51]

Can you explain how these strips funds work? Do I need more than one managed futures fund or should I just choose one and stick with it? Should I direct index the PNC or just pay the management fee of KBWP? I like the idea of direct indexing, but what kind of rules would you put in place to decide if one of the individual companies should be swapped out for another in the future? I've toyed with the idea of taking 2.5% from the gold and managed futures. Any suggestions for that 5%? If I were to do that, I bounce back and forth between wanting more growth and smoothing out the ride with a higher expected safe withdrawal rate. I hope this wasn't too long. I don't want Mary to be bugging. Thanks again for all you do with the podcast. Keep up the great work and the entertaining soundbites, chris.

Uncle Frank and Voices [6:44]

Mary. Mary, I need your huggin' Well. First off, thank you for being a donor to the Father McKenna Center. As most of you know, we do not have any sponsors on this program. We do have a charity we support. It's called the Father McKenna Center and it serves hungry and homeless people in Washington DC. Full disclosure I am on the board of the charity and am the current treasurer. But if you give to the charity, as Chris has done here, you get to go to the front of the email line. Actually, all of our emailers today have gone to the front of the line for that reason. Yes, there are two ways to do that. Either you can do it through the Father McKenna website, at the donation page, or you can become a patron on Patreon, which you do through the support page at wwwriskparityradiocom, and either way, we'll move you to the front of the email line. Just make sure you reference it in your email. And for those of you who gave to the top of the t-irt campaign and do actually want your T-shirts, oh, boy is this great.

Uncle Frank and Voices [7:49]

You can send a request for that straight to Ben at the Father McKinnon Center, if you didn't already put it in your note in the box when you made your donation. Or send me an email. Make sure you include the size and your address and I will talk to Ben and get those sent out as soon as we can. Or send me an email. Make sure you include the size and your address and I will talk to Ben and get those sent out as soon as we can. We have top men working on it right now. Who Top men? All right now. Let's get to your questions.

Uncle Frank and Voices [8:25]

Now you mentioned you should be financially independent in about four years, but I wasn't sure how far you are in terms of reaching your FI number, as in what the percentage is, because if it's 80% or over, then, yeah, you should probably start making some transitions here, particularly if you have any flexibility on the time of retirement. And yeah, the easiest thing to do, particularly if you have large 401ks or IRAs traditional ones is to build out that bond allocation in that account, even if it's not the exact treasury bonds you want. You can just use a total bond market fund or something similar at this point, because once you move it off to an IRA, then you can transition it to the exact bonds you want. Really, the main purpose of it now is to take some of that risk off the table, and any reasonable bond fund can suit that purpose for a short period of time. Make sure you stay out of those target date funds. People are actually catching on to how bad these things are. You know I first talked about this back in episode 333 a while ago, but the most recent Rational Reminder podcast with Ben Felix came out and they went over a study by an academic researcher at the University of Arizona which showed these things are really bad in terms of long-term accumulation and they're basically like putting a 1% drag on what you're doing when you compare them to just basic index fund investing. Now, I know you don't have that problem given what you've said, but I will link to that podcast in the show notes. If you have any doubts about the problems with target date funds and why you should not be using them, listen to that and you can get the paper that they refer to as well. But that's not the first paper to come to this same conclusion.

Uncle Frank and Voices [10:14]

So in de-risking your portfolio in the near term, the most important thing is to deal with those macro allocations. So get that allocation to stocks approximately what you want it to be, the allocation to bonds approximately what you want it to be and the alternatives as best you can deal with it at this point in time, which might mean buying something now in the taxable account and then switching things up later on or doing something in the Roth Now. Looking at this sample or planned portfolio you've got here, I think this fits the bill. It conforms with all of the things that make a portfolio have a higher safe withdrawal rate. It's got between 40 and 70 percent in stocks. Looks like 55 percent. The way you have it structured now Looks like at least half of that is tilted towards value. Looks like you've got between 15 and 30 percent in long and intermediate treasury bonds and then you've got between 10 and 25 percent in alternatives and you don't have an excessive pile of cash. I notice you also have what Bill Bengen thinks is the sweet spot for a stock equity allocation, which is 55 percent, which is good. You need somebody watching your back at all times. Make sure you listen to the last podcast where we talked a little bit more about those kind of factors and that kind of research.

Uncle Frank and Voices [11:33]

All right, looking at your next questions, let's deal with the property and casualty insurance company question first. I would probably just pay the KBWP management fee in this case, although it kind of depends on what the overall allocations are. Since your overall allocation to these is going to be so small, the extra added fee isn't going to be that large in the grand scheme of things. Now, it's not wrong to manage them yourself, like I do, but it will be annoying and I'm not sure you want to go through the annoyance of it just to save on that fee on 4% or 5% of your portfolio. Because, as you surmise, as soon as you start direct indexing something like that, you have to come up with other rules or guidelines to handle well what happens to this part of the portfolio.

Uncle Frank and Voices [12:24]

The way I tend to look at that part of our portfolio, which is somewhere around 8% to 10% that we have in property and casualty insurance companies is first, I just consider the whole allocation to all of the stocks as one big allocation in terms of comparing that to other things. So in your case I would not be looking at 1% of each one of those things. I would consider that 4% or 5% if you're considering Berkshire as part of that, and so that is what you'd be comparing to your other asset allocations for rebalancing purposes, because really you want to avoid making too many transactions with those individual allocations. Other than that, I would just plan on essentially holding them forever and selling pieces of them whenever it seemed appropriate or buying more of something, but that would be the place where you would buy an additional company or something like that. It would be if you ended up buying into the allocation because you're rebalancing into it. At that point in time I might consider buying a different company that's in the same allocation. Other than that, I'd probably just kind of let the winners run, because that seems to work best for individual stocks, even though it's counterintuitive and we're not talking about gigantic allocations, which would be a different kettle of fish. You're going to need a bigger boat.

Uncle Frank and Voices [13:43]

Okay, now you mentioned whether taking five percent out of the gold and managed futures would make sense and what you would put it in. Well, it could make sense. You could put it in international growth or international small cap value or some combination of those if you wanted more stocks. You could put it in cash if you wanted to be more conservative and just take out from that cash allocation or bucket, if you will. Or maybe you want to do some kind of rising glide path thing, like we talked about in episode 454 and in Bill Bengen's new book, whereas you start with that allocation but then you reallocate maybe 1% to equities for the next five years or some period over time. But I have to tell you, all of that is making this a lot more complicated than it really needs to be, because I'm not sure any of those things is going to have a big difference on your overall performance of this thing over long periods of time.

Uncle Frank and Voices [14:37]

Next question do you need more than one managed futures fund? The answer is no. You could have more than one. Again, if you want to fiddle with that, you will get slightly better diversification, but I don't know if you'd get better performance ultimately, and the total allocation to this asset class just isn't that great. So I would probably just use DBMF in most circumstances, because that is the closest thing we have to an index fund in this category right now. We have new funds that have come out recently, but I can't tell you that much about them, and DBMF has been around long enough that we have a really good idea of how it's likely to perform in the future, at least relative to other things in the same class.

Uncle Frank and Voices [15:20]

And finally, you asked about STRIPS GOVZ in particular. What are Treasury STRIPS? Believe it or not, that's an acronym. It stands for Separate Trading of Registered Interest and Principal Securities. Inconceivable, isn't that a mouthful? But basically what they're doing is taking apart a bond and separating the principal part of it from the coupons or the interest paying part of it, and what you're really getting with respect to the strips is the bond part of it that doesn't include the interest. Now you can look this up on chat, gpt or Grok or your favorite artificial intelligence to explain to you exactly how these work, because if I try to do it on this podcast, it'll be very confusing.

Uncle Frank and Voices [16:06]

But the upshot of it is you end up, when you put these things in a fund and you got a whole bunch of them is you end up with something that acts like a long-term bond with longer duration than standard long-term treasury bonds, and so typically, a long-term treasury bond fund like VGLT is going to have a duration of about 17 years or something like that, whereas a STRIPS fund is going to have a duration of about 25 years. The way that plays into your investments is that the longer duration funds are more sensitive to changes in interest rates. So if the change in the overall interest rates depending on where you are in the curve goes down, say 1%, a long-term treasury bond like VGLT is likely to go up somewhere between 15 and 20% and a strips fund is likely to go up somewhere between 20 and 30%, and the same thing happens on the other side of it when interest rates go up somewhere between 20 and 30 percent, and the same thing happens on the other side of it. When interest rates go up, these tend to go down in value. That's why what they do is make good recession insurance, because that's what happens during a recession.

Uncle Frank and Voices [17:15]

Other than that, like pretty much all bonds are kind of a mediocre return driver. So it was why you don't want to be having 30 or 40 percent of these things in your portfolio. Now they do also pay an annual yield, although technically it's not actually interest. It's just a mechanism how the funds are operated to essentially simulate that as they roll these things over and as they manage them in the fund. But they do have a relatively predictable yield that you can look up on Morningstar, and so the general way they function in a portfolio is they behave as if they were a levered version of a long-term treasury bond fund and the leverage is about 1.5 to 1, if you're looking at how they behave when interest rates are moving, which is what you care about the most.

Uncle Frank and Voices [18:04]

So, as you surmise, your 10% long-term treasury bond allocation and your 10% strips allocation is going to behave a lot like a 25% allocation to just the long-term treasury bonds, and you don't need to know all those mechanics of how these things work in practice, although it's probably a good idea to spend some time with an artificial intelligence just to educate yourself so you can understand how it all works internally. Anyway, hopefully that all helps. Thank you for being a donor to the Father McKenna Center and thank you for your email. Bow to your sensei. Bow to your sensei. Second off, second off. We have an email from George.

Queen Mary and Voices [18:51]

So, george, what?

Uncle Frank and Voices [18:51]

does Art Vandelay?

Queen Mary and Voices [18:53]

import.

Queen Mary and Voices [18:55]

And George writes Hi Frank, I heard your rant about many financial planners, such as the rocking retirement guy, doing little more than entering your inputs into a planning tool and producing a pretty report based on Monte Carlo simulations. That's not an improvement. I have been using the Perlana Retirement Calculator for several years and believe it is the best high-fidelity tool for analysis on the market today. It was designed by an engineer like us and is very robust. I don't know if you have looked at Perlana, but I would be curious to hear what you think about it. The reports generated by Perlana are quite useful, especially for providing a detailed summary for my CEO, my wife George. I don't get it. There's no human fund. Those donation cards were fake. I also have access to MoneyGuide Pro, the same one used by Roger of Rocking Retirement, but I found it is medium fidelity at best, george.

Uncle Frank and Voices [19:53]

Georgie, would you like some jello? Why'd you put the bananas in there? George likes the bananas. Well, thank you also for being a donor to the Father McKenna Center, George. It is greatly appreciated, George we've got a problem.

Queen Mary and Voices [20:10]

There's a memo here from accounting telling me there's no such thing as the human fund.

Uncle Frank and Voices [20:19]

Well, there could be, and I know you've written before and I do appreciate your emails and questions. Now getting to your question, pralana, so I don't spend a whole lot of time analyzing these calculators because I find that they almost all have the same advantages and drawbacks to them, just in slightly different ways. I know it's very popular to talk about these a lot, to compare them a lot. There are a lot of podcasters and other people now who are actually making a lot of money promoting various calculators. So if you hear about calculators on a particular podcast or venue, you should probably look up and see whether they are getting paid, because a lot of people are getting paid. A lot more people are getting paid than you think.

Uncle Frank and Voices [21:08]

So all of these calculators are very good at the basic spreadsheet functions that you would ordinarily do on Excel spreadsheets, and that is organizing your expenses and inputs for those sorts of things and then also analyzing different cash flows as they may start or stop over a period of time, and you can do this on those kind of calculators and get nice, pretty charts out of them.

Uncle Frank and Voices [21:35]

Or you can do it at Portfolio Visualizer for free at the Financial Goals tool, or you can do it on your own spreadsheets if you're so inclined, because I started doing these kind of projections a long time ago, before most of these things existed, and I can tell you they're actually not improving people's forecasting abilities.

Uncle Frank and Voices [21:54]

They're probably detracting from them overall, because there's a lack of understanding as to what's going on under the hood, whereas if you actually did it on a spreadsheet, you'd have a better feel for what was really going on.

Uncle Frank and Voices [22:06]

So what I just described in these calculators calculating expenses, dealing with cash flows, those sorts of things that goes to what we talked about last time in the last episode about good forecasting techniques and the difference between risk and uncertainty. All of what I'm talking about falls into the risk category, and so the more calculating you do of it, the better understanding you're going to get of it. Particularly when you're talking about expenses, if you're not going too far out into the future and if you have known cash flows like social security that are going to appear at a particular time, that is also a very good use of these calculators. Where these calculators tend to fall down is on the uncertainty part of these projections, which has to do with actually projecting the returns of a portfolio, and the reason they fall down there is because they're often black boxes using embedded crystal balls that come from various sources.

Queen Mary and Voices [23:08]

As you can see, I've got several here.

Uncle Frank and Voices [23:10]

A really big one here, which is huge.

Queen Mary and Voices [23:15]

This is the one that I tend to use more often. I have a calcite ball and I have a black obsidian one here.

Uncle Frank and Voices [23:26]

And so they are not actually modeling historical returns, which would be the base rates and what you should start with when you're modeling returns. The historical long-term returns are your base rates that you're supposed to be working with. If you're using other things, you're using crystal balls.

Queen Mary and Voices [23:44]

Now the crystal ball has been used since ancient times. It's used for scrying, healing and meditation.

Uncle Frank and Voices [23:53]

And most of these calculators are using other things, because, instead of using historical returns, they're using what are called parameterized returns, where you say that a particular asset class, or sub-asset class you think, is going to have a return of a particular amount and it's going to have a certain standard deviation. And there are several fundamental problems with modeling something that way. The first one is unless this is lined up with something that relates to historical returns, it could be wildly inaccurate. Forget about it. And if you're using different crystal balls for different assets, then you don't have consistency amongst your crystal balls. The crystal ball is a standard piece of equipment for any modern fortune teller, but where do crystal balls come from? Gazing into the orb is supposed to give the soothsayer a vision of the future, which will then be shared with the client for a fee. And then, finally, this is treating all of these assets as independent variables, which is not true at all. All of your performance, of your assets are dependent variables because they are dependent on the environment in which they exist at the particular time the economic environment. So in a recessionary environment, you do not expect stocks to do well, you do expect bonds to do well If you model these things as independent variables. You can essentially be modeling one in a recession and one in an inflationary period at the same time, and that is a fundamental problem with using parameterized returns. That cannot be corrected. So Prolana has this same problem that other calculators have that use parameterized returns because that's how its returns are set up. Now it's interesting.

Uncle Frank and Voices [25:41]

I didn't spend a lot of time looking at Prolana websites. I did talk to a couple of different artificial intelligences about the default settings for Prolana. Chatgpt says it does not have default settings but just allows you to set them up, which is actually the preferable way to go, because you would want to know what the source of the data is you're using for the parameterized returns and make sure it's consistent over all of the asset classes you're putting into this sort of thing. And you don't know that if you're just using default returns of thing, and you don't know that if you're just using default returns. Now Grok says that Perlana actually does have default parameterized returns and according to Grok I don't know whether this is completely accurate it is using 5% as the real return for stocks. So these are all inflation adjusted.

Uncle Frank and Voices [26:33]

It's using 5% for international stocks. It's using 5% for REITs. It's using 1% to 2% for bonds, it's using 1% for international bonds, it's using 1% for tips, it's using 0% to 0.5% for cash and using 0% to 1% for other things like commodities or gold. I could tell you those are generally all bad return assumptions. They are essentially subtracting 3% from historicals, 2% to 3% from historicals. They appear to be based on these valuation metric kind of forecasts that Vanguard does or Morningstar does sometimes. Those have been miserable failures for at least the past 15 years and there is no reason anyone should be using them because they are more likely to be wrong in the future than simply using base rate historical returns. And since those are not base rates but based on a crystal ball, based on current conditions, if you will.

Queen Mary and Voices [27:39]

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

Uncle Frank and Voices [27:43]

That's just bad forecasting. That's not how you do good forecasting. You're supposed to use base rates, like we talked about last time, not make up things from a crystal ball that says things are going to be worse than they were before, better than they were before, or blah, blah, blah.

Queen Mary and Voices [27:57]

That's not how it works. That's not how any of this works.

Uncle Frank and Voices [28:02]

So if Perlana is actually using those as its default settings, that is pretty much worthless and you shouldn't be using it. You need to go in and set those things for yourself, based on things that you think are actually reliable and that have actually been predictive in the past. Unfortunately, you're not going to find any crystal balls that are more predictive than simply using historical base rates.

Queen Mary and Voices [28:26]

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

Uncle Frank and Voices [28:31]

But it may be a useful exercise to compare those kind of projections to historical projections and you can use something like Portfolio Visualizer for that. Portfolio Visualizer actually lets you do it both ways. It lets you do it historically and is going to do horribly in, say, the first 10 years of this century, because it hasn't really been tested on that kind of basis and is likely to be modeling things that have never occurred and are never likely to occur. The way financial advisors typically try to get around this is by doing these parameterized forecasts, using these calculators and then going back and doing simulations of how whatever you come up with would have done in, say, 1987 or 2008 or whatever bad period 1973, 1974. And that is kind of used to attempt to solve this problem of not having done a historical-based forecast in the first place.

Uncle Frank and Voices [29:38]

So where I come out on this is that you should not be using Perlana's default settings, if they are in fact what Grok says they are.

Uncle Frank and Voices [29:46]

If you're going to put them in yourself, you need to make sure you've done the actual research and are comfortable with those parameterized returns search and are comfortable with those parameterized returns.

Uncle Frank and Voices [29:57]

But in any event, you still should do independently historical-based forecasting and or looking at worst-case scenarios based on historical events, Because whatever you get out of these parameterized projections should be not too far from what the historicals would suggest. Otherwise, you know you are just going off the reservation as far as good data science is concerned and you're not adhering to something that's called the bias-variance dilemma, which says the more precise you try to be with, the more inputs you try to put into something, the more likely it's going to be wildly inaccurate after you put it through some kind of forecasting or compounding calculator. And that is pretty much exactly what you're doing when you're doing a set of parameterized returns. So those are my thoughts. Hopefully that was helpful and didn't get down into too many weeds. But you do need to get into weeds if you're actually going to talk about good and bad forecasting methodologies. And thank you for being a donor to the father mckenna center and thank you for your email you can't go.

Queen Mary and Voices [31:02]

Who's gonna do the feats of strength? How about george?

Uncle Frank and Voices [31:07]

good thinking, cougar. Until you pin me, george.

Queen Mary and Voices [31:13]

Festivus is not over oh, please someone stop this.

Uncle Frank and Voices [31:18]

Let's rumble.

Queen Mary and Voices [31:20]

I think you can take him, Georgie, Come on be sensible.

Uncle Frank and Voices [31:24]

Stop crying and fight your father. Ow Ow, I got it. This is the best Festivus ever. Last off, Last off. We have an email from I have no name.

Queen Mary and Voices [31:37]

You got a name, do you? I have no name. Well, that right there may be the reason you've had difficulty finding gainful employment and I have no name rights.

Queen Mary and Voices [31:50]

Queen Mary and he whose greatness in this endeavor will echo for a very long time into the unknowable future. Ha ha. For retirees, who think that risk parity sounds nice, but they worry about the lack of buckets, I introduced the Golden Butterfly Bucket of Buckets. Surely you can't be serious. I am serious and don't call me Shirley. Start with the retirement bucket and fill it with the equivalent of 25 years of expenses. Inside of this bucket there are five more buckets which each receive the equivalent of five years of expenses and are invested in low-cost index funds. One, a large bucket, invested in large-cap blend.

Uncle Frank and Voices [32:34]

Excellent.

Queen Mary and Voices [32:36]

Two a small bucket invested in small-cap value.

Uncle Frank and Voices [32:40]

I'm telling you, fellas, you're going to want that cowbell.

Queen Mary and Voices [32:44]

Three a bond bucket invested in long-term bonds. That's what I'm talking about. Four a cash bucket invested in short-term bonds.

Uncle Frank and Voices [32:54]

Always money in a banana stand.

Queen Mary and Voices [32:57]

And five, a golden bucket invested in gold. I love gold. Each month, remove the equivalent of one month of expenses from the bucket that has the highest value at the time. Let's do it.

Uncle Frank and Voices [33:13]

Let's do it.

Queen Mary and Voices [33:18]

And there you have it, problem solved.

Uncle Frank and Voices [33:21]

I'm happier than a peg and slop.

Queen Mary and Voices [33:23]

For retirees who love buckets. You can thank me by donating to the Father McKenna Center Sincerely. I have no name. I hate this place. Geographical oddity.

Uncle Frank and Voices [33:34]

Two weeks from everywhere.

Queen Mary and Voices [33:36]

PS For retirees who really just want one bucket. Please also consider the Obtra portfolio.

Uncle Frank and Voices [33:42]

One bucket to rule them all and in the darkness bind them in the land of Mordor where the shadows lie, One bucket to rule them all. Eh, this was a very amusing email. What is one good? Some kind of fun house, why having fun? And thank you also for being a donor to the father mckinnon center, before I forget. But I think what this really illustrates is the problem I see with a lot of the labeling and cutesy names and other things that go on in financial planning, particularly when you're talking about time-segmented strategies which may involve buckets, ladders, hoses and flowerpots and pie cakes. And that is looking at personal finance and separating what is finance from what is personal. And in this context, what personal means is? What is psychology? What is being put in place to make it easier for the user to either comprehend or to be able to stick with, and putting things in buckets and labeling them is psychology. It is not finance.

Queen Mary and Voices [35:01]

I am a scientist, not a philosopher.

Uncle Frank and Voices [35:04]

Because it does not improve something like the safe withdrawal rate overall and, in fact, may detract from it and or may make it more difficult for you to manage the portfolio, because the performance of the portfolio is based on the assets themselves and how they are put together, how they are mixed. After that. It's not influenced by what order you put them in, or how many buckets you have, or what labels you put on them or what future expenses you assign them to. All of those things may be convenient for various reasons. Oh how convenient.

Uncle Frank and Voices [35:44]

But they don't change how the portfolio is going to perform and how the plan is going to work overall. And your email makes a great illustration of that, because what you've described is a five-bucket strategy with all the bells and whistles anyone could want, but when you break it down, it's the exact same way we look at and manage the golden butterfly portfolio on the website, without any reference to buckets at all.

Queen Mary and Voices [36:10]

No triple at all.

Uncle Frank and Voices [36:11]

Now, I don't mind that people want to use psychological tools to either help manage or help present a plan to a client, or whatever, but the problem is confusing the psychological labels and tools with the actual finance and performance of the assets, and that's what happens often. It mostly happens when people think that by having buckets of cash or things like that solves sequence of returns risk. It does not solve sequence of returns risk, at least any sequence of returns risk you actually care about, and the one you care about is about a decade long. It's not two or three years, or it's not even five years. The problem with having a decade-long cash or bond ladder, though, is it's probably going to be very inefficient.

Queen Mary and Voices [37:00]

I could have told you that.

Uncle Frank and Voices [37:03]

So if you want to be knowledgeable, or more knowledgeable, about how all this stuff works in terms of financial planning and portfolio construction, you do need to sit down and look at a plan and be able to separate out which are the financial aspects of this plan and which are psychological aspects of it, because anything that is involving arranging the lollipops on the good ship lollipop and hoping they taste better that way is just psychology. It's not finance. Good ship lollipop, it's a sweet trip to the candy shop where fun fun's, and the sooner we stop confusing those two things, the better we will be at comprehension and real planning, as opposed to exercises and labeling. Stupid is what stupid does, sir. So thank you for that very amusing email that illustrates an important point. Those are the best kind, aren't they? That's gold, jerry gold, and thank you for being a donor to the Father McKenna Center again, and thank you for your email.

Uncle Frank and Voices [38:13]

But now I see our signal is beginning to fade. If you have comments or questions for me, please send them to frankatriskpartyradarcom. That email is frankatriskpartyradarcom. Or you can go to the website, wwwriskpartyradarcom. That email is frankatriskpartyradarcom. Or you can go to the website wwwriskpartyradarcom. Put your message into the contact form and I'll get it that way. Then maybe someday in the future I'll actually take a look at them After we're done vacating. Looks like you've been missing a lot of work lately. I wouldn't say I've been missing it, bob. In the meantime, 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, a review that would be great, okay, thank you once again for tuning in. This is Frank Vasquez with Risk Party Radio signing off Holiday Road, holiday Road. Holiday Road Holiday.

Queen Mary and Voices [39:32]

Road. The Risk Parody 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.