Voices [0:00]

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

Mostly Queen Mary [0:18]

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

Mostly Uncle Frank [0:37]

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. And the basic foundational episodes are episodes 1, 3, 5, 7, and 9. Yes, it is still in my memory banks. We have also created an additional resource, a collection of additional foundational episodes and other popular episodes.

Voices [1:07]

We have top men working on it right now.

Mostly Uncle Frank [1:14]

Top men. And you can find those on the episode guide page at www.riskparodyradio.com. Inconceivable! All thanks to our friend Luke, our volunteer in Quebec. Sacosh. We'd be helpless without him.

Voices [1:36]

I have always depended on the kindness of strangers.

Mostly Uncle Frank [1:41]

Because other than him, it's just me and Marion here. I'll give you the moon, right?

Voices [1:46]

I'll take it.

Mostly Uncle Frank [1:48]

We have no sponsors, we have no guests, and we have no expansion plans.

Voices [1:53]

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

Mostly Uncle Frank [1:55]

Over the years, our podcast has become very audienced focused, and I must say we do have the finest podcast audience available.

Voices [2:03]

Top drawer. Really top drawer.

Mostly Uncle Frank [2:07]

Along with a host named after a hot dog.

Voices [2:10]

Lighten up frenches.

Mostly Uncle Frank [2:14]

But now onward, episode 477. Today in Risk Parity Radio, we're just gonna get back to doing what we do best here, which is answer your emails. We got a long one to start with, so we'll see how far we get.

Voices [2:29]

Yadda yadda yada.

Mostly Uncle Frank [2:30]

Yadda yadda yadda yada yada yada yada yada yada yada yada yada. And so without further ado.

Voices [2:37]

Here I go once again with the email.

Mostly Uncle Frank [2:40]

And first off. First off, we have an email from Midwest Nice.

Voices [2:46]

Oh, Tom, how are ya? Yeah, no, I just had a couple hours between taking Bill to the airport and helping Frank move. So I figured, you know, I was already cutting my lawn. Why not just cut your lawn too? From Wisconsin, actually. Come on, it's Czechoslovakia. We zip in, we pick them up, we zip right out again. And we're not going to Moscow. It's Czechoslovakia. It's like going into Wisconsin. Well, I got the shit kicked out of me in Wisconsin once. Forget it.

Mostly Uncle Frank [3:12]

And Mr. Nice writes.

Mostly Queen Mary [3:15]

Hi, Uncle Frank and Queen Mary. I can't thank you enough for all the information and insight you have provided to me and countless others.

Voices [3:23]

Hey Mary, good news I got some extra banana peppers. You can come pick them if you want, or I'll just can them and bring them over.

Mostly Queen Mary [3:31]

I have been wanting to write in for some time, but didn't feel like the questions that I had were worthy or ones that hadn't already been asked. The time has come for me to bow before my sensei to try to obtain the wisdom I seek.

Voices [3:44]

Bowdy sensei. Bowter your sensei.

Mostly Queen Mary [3:47]

Question one. I need to know how to be nice until it's time not to be nice. I grew up in the Midwest with the most loving of family that instilled those Midwest nice values in me.

Voices [3:58]

Hey, do you guys like the casserole we brought over? Yeah, I do the thing where I put the cornflakes on the top. It's pretty good. Alright, be good now.

Mostly Queen Mary [4:06]

I lost my father a number of years ago and have been trying to be the best son I can to my mom. Tell your mom I say hi, okay. She is very fortunate in that all her expenses and then some are covered by her monthly income streams. She also has other assets in IRA, Roth IRA, and brokerage accounts, which she has not needed to touch. Unfortunately, I have not been able to convince her that she is going to be okay and can spend the resources she has built. Her fear is that the state pension and social security check might not show up next month. I assured her that if that happened, we all have bigger things to worry about.

Voices [4:45]

Human sacrifice, dogs and cats living together, mass hysteria.

Mostly Queen Mary [4:49]

While trying to help my mom with her finances, I found out she is having her milkshake drink up and is getting no additional value for that drink other than keeping her assets invested and no discernible plan. That's not an improvement. There was never any thought or discussion of Roth conversions. They didn't advise QCDs prior to RMDs, and there is no consideration to asset location. As best I can tell, as all the accounts are approximately the same allocation. The list is longer, but I will stop with those.

Voices [5:22]

Hello, Mrs. Farnickel. How are you today? Making a deposit, are we? Great, we can just put that into your retirement account and make it go to work for you, and it's gone.

Mostly Queen Mary [5:32]

What? How do I be nice to my mom who thinks her advisor is a nice person while telling the wicked witch of the west, the advisor, to go back to Oz?

Voices [5:44]

Now, my beauty. Something with boys in it is finding me. With boys in it, but attractive to the eye. And soothing to the smell. Hoppies. Hoppies will put them to sleep.

Mostly Queen Mary [6:09]

I know I should have used the horse and cart metaphor there for the advisor, but I'd rather tell the witch to go back to Oz because I'm trying not to be nice. Or am I better off leaving it alone and clicking my heels three times? Because at the end of the day, my mom will be fine either way. And think to yourself, there's no place like home.

Voices [6:50]

There's no place like home. There's no place like home.

Mostly Queen Mary [6:56]

There's no place like home. Question two. Should my mom want to continue with any advisor going forward, what areas of value would you prioritize for the fee you are paying? Tax strategy, asset management, estate planning, risk management, etc. Question three. If a person sold a home and didn't have any intentions of buying another home for 5 to 10 years, would a golden ratio style portfolio be a good way to invest the proceeds of the sale for a future purchase or to use for housing costs down the road? What other options should be considered to maintain purchasing power in case of high inflation? Are there other considerations I might be missing? Question 4. I started my finance journey like many other people by first finding Mr. Ramsey in my early years. This helped my wife and I keep on the straight and narrow, but I never agreed with all his philosophies. Many moons past unit, I discovered people like J.L. Collins and the Bogleheads. This simple approach to investing was something I could easily understand and implement, but I was still young and dumb enough to think I could do better somehow. Many moons passed, and the gray hair is starting to come in now, and I realize that's not a squirrel I should chase.

Voices [8:12]

Forget about it.

Mostly Queen Mary [8:14]

Finally, I came upon the fire crowd and then you.

Voices [8:18]

Every single day of my life has been worse than the day before it. So that means that every single day that you see me, that's on the worst day of my life.

Mostly Queen Mary [8:28]

While I am confident a golden ratio style portfolio is one that I will use when we reach financial independence. Do you have any ideas on areas of finance I should continue to learn about? I want to stay confident that the portfolio I pick I will stay with and won't jump ship when the road gets rocky. I'm currently doing my best to work on how to live my best life and not worry so much about the numbers as we are on track to get there.

Voices [8:53]

Yes!

Mostly Queen Mary [8:54]

It's just a matter of when and how fast now. Thanks again for all you do. So shines a good deed in a weary world. You will find my donation to the Father McKenna Center below.

Voices [9:06]

So shines a good deed in a weary world.

Mostly Queen Mary [9:11]

Sincerely, sincerely Midwest Nice. P.S. Tell your folks I says hi.

Voices [9:18]

Hey Jane. Jane, yeah, you want you want a rhubarb cutting for next year? Hey Ann, how you doing? Alright, hey, take care now. Tell your mom I says hi. Hey, tell your dad I says hi.

Mostly Uncle Frank [9:32]

Well, Mr. Nice, I'm glad you're enjoying the podcast. And thank you for being a donor to the Father McKenna Center. I'd love to help. It's what gets me out of purgatory. As most of you know, we don't have any sponsors on this program. We do have a charity we support. It's called the Father McKenna Center, and it supports hungry and homeless people in Washington, D.C. Full disclosure, I'm on the board of the charity and I'm the current treasurer. But if you give to the charity, you get to go to the front of the email line, as Mr. Nice has done here.

Voices [10:04]

Oh, you betcha, yeah.

Mostly Uncle Frank [10:06]

Yeah Two ways to do that. You can go directly to the Father McKenna website, go to their donation page, and donate there, or you can become a patron on Patreon, which you do through our support page at www.riskpartyreader.com. Either way, you get to go to the front of the email line. And it is quite a long line now as the other emails are stacked up back to September right now. But make sure you do mention it in your email so I can duly move you to the front of the line. Now getting to your email. I do notice that our donors often have multiple questions. Which is a good thing. Keep her moving. Now your first two questions are about your mom, and unfortunately, I do not have a good answer to your first question.

Voices [11:01]

The good news is I think I can help you.

Mostly Uncle Frank [11:04]

This is a difficult situation that I think many people find themselves in. As you get to your middle age and you see your parents aging, sometimes they've done good things with their finances, sometimes they've done bad things, and sometimes they're in the middle somewhere. And what you're looking at is a very common situation where somebody has been a diligent saver and good with money all their life, but they have bought into the whole marketing shtick of the financial services industry.

Voices [11:34]

Am I right or am I right or am I right? Right, right, right.

Mostly Uncle Frank [11:38]

Which has been for the longest time that, oh, this is so complicated, and you need to have these people, and they used to have their kind of wood-paneled offices and bring you in there and impress you with what appeared to be the trappings of knowledge and wealth.

Voices [11:52]

Good investments don't walk up, bite you on the bottom, and say we're here. Finding them takes good old-fashioned hard work research, the kind they do at Smith Barney.

Mostly Uncle Frank [12:05]

Which we now know is a lot of smokescreens going on here. But for people who were inculcated into that environment, which is basically most people in the 20th century, because it wasn't until this century, really, that it became well known that advisors did not have special powers to go and pick investments such that you needed to hire them to do that. Because that was their marketing shtick until very recently.

Voices [12:36]

Smith Barney. They make money the old-fashioned way. They earn it.

Mostly Uncle Frank [12:43]

Now they've shifted, but their message is always still the same. It's like you need to be scared, and you need to be scared of taxes, and you need to be scared of long-term care, and you need to be scared of inflation and the government and anybody anything you can be scared of. This is the stock and trade of free steak dinners, but it's also basically the way all of these large financial outfits that advertise on sports channels and in stadiums approach.

Voices [13:10]

Always be closing. Always be closing.

Mostly Uncle Frank [13:16]

That we will take care of you. And unfortunately, a lot of people just believe it and are willing to pay excessive fees for substandard work, essentially, or cookie cutter work, I should say.

Voices [13:29]

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

Mostly Uncle Frank [13:37]

What you are facing is a different problem, which is well represented by the nugget of wisdom that you can find in the Bible and elsewhere, which is that no one can be a prophet in their own land. No one can be a prophet in their own land. Look, it's MacGyver. And what that means especially is that particularly when you're talking about your family or people that knew you as a child, it is more difficult to convince them of something than it is for people that you've never met before. Because they still view you as a child. And this is particularly the case when you're dealing with elderly parents. There's a natural distrust because they think, well, this is basically the judgment of a ten-year-old. Now they realize you're not ten years old anymore, but that is kind of the way they think, and kind of the way your friends or your siblings might think about you as well, particularly if you're a younger sibling like I am. And in many circumstances, it is not really a battle you could win. I mean, if Jesus Christ couldn't win this battle, what possible chance do we have? And I wouldn't want you to otherwise damage your relationship with your mother. That sounds very good. But can this kind of spell be broken? Yes, it can, but usually it's not in good circumstances. It's usually it's when the parent suddenly has a financial problem. And this is what happened in my case as well. I found out when it was really too late to be worried about investments anymore. Or there's been some kind of a scam situation. Another friend of mine recently had their mother almost get scammed out of $65,000 out of one of these people call you and something appears on your computer screen and says you need to call this number and all that kind of stuff that goes on these days. And sometimes that can lead to some kind of a reckoning and a willingness to take advice and assistance in finances from one's adult children. But in your case, there does not seem to be a real kind of emergency situation that would be a catalyst for that. So you are stuck kind of making suggestions which may or may not be heated, and it's difficult for someone who's basically been doing the same thing and not having a problem with it to really change, and what will motivate them is going to be different in different circumstances. So you may need to try different approaches, but please try them subtly. One is to see if there is something they are actually interested in donating their money to. Usually, grandchildren is the most motivated in that circumstance that people will refuse adamantly to part with any money to give to their own children before they're dead, but are willing to lavish their grandchildren with all sorts of things. And there may be other things that might motivate her, but I can't tell you what they are since I don't know the woman. The other approach that sometimes works, but probably won't in this circumstance, is to talk to the person about your own financial decisions or problems and subtly raise it with them. This often works when you have parents that have not gotten their wills in order or their state documents in order, and the general approach is to say things like to them, you know, I'm thinking about having my will done. Do you have somebody that does that? Or subtly bringing it up as your problem and not their problem. It's easier for them to recognize it's something that they need to do if it's brought up in that context. If you can find the way to make the conversation about somebody else oftentimes that causes somebody to reflect on their own situation and want to do something about it. What might be motivating in this circumstance is to start talking to her about these kind of scams that target the elderly because they're all over the place right now. There is a podcast put out by AARP called The Perfect Scam, which talks endlessly about the various different ways people get ripped off and their personal stories about various situations. And I would bet that she knows somebody that has been a victim of a scam. The way you would leverage that conversation in this context is to get yourself inserted into more of her financial affairs by being somebody that's going to watch out for her so she doesn't get scammed. Which is basically what my recent friend set up with his mother that he's got some authority now on her accounts that the bank is going to notify him if something strange goes on with those accounts. But if you can start being a notified party, then you'll have a better chance of having actual discussions about what's going on day-to-day in these finances. In the end, I would not probably push too hard on this. I mean, I try a few things, but if it doesn't work, it doesn't work. In your case, you might try something like talking about you potentially hiring a financial advisor and looking at the fees and how much they charge and how they charge it, and asking her what she thinks about that to see whether that can spark some kind of a conversation there. But if you put it in the context of your problem and not her problem, it might go down a little easier. But I will tell you, she is the ideal client for most AUM advisors.

Voices [19:07]

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

Mostly Uncle Frank [19:14]

People that just sit on their money, don't spend it, the balances go up, the AUM fees go up. There's no reason to make a plan for such a person. Because all they want to know is they're okay. And much of the financial services industry subsists on these sorts of models.

Voices [19:31]

And I have a straw, there it is. That's a straw, you see. Watching. My straw reaches a cruestroom and starts to drink your milkshake. I drink your milkshake. I drink it up.

Mostly Uncle Frank [19:57]

In their minds, the less work they do. And the less conversations they have with their clients, the better off everybody is.

Voices [20:04]

Bing!

Mostly Uncle Frank [20:05]

Because the gravy train just keeps gravying.

Voices [20:08]

Bing again.

Mostly Uncle Frank [20:10]

Now your second question was, should she want to continue with an advisor, what sort of areas would she prioritize or sho should she prioritize? And when you're talking about somebody who is essentially not planning on spending their retirement money, there's only kind of a couple of big issues. One is taxes and tax management and making sure that the right assets are in the right accounts. Another is kind of just overall simplification and also sort of matching up their risk tolerance to the kind of portfolio they have. Because we're we're talking about personal preferences now. We're not talking about maximizing financial goals. And from what I see, a lot of people like this would be better off with something like the Vanguard Wellington Fund and just calling it a day after that. It's a 65-35 portfolio. It's been around for a hundred years, it is actively managed, but with a very light touch and it's very cheap. And you can have confidence with something like that, your money will grow and it will be safe. Now, on the on the other hand of the spectrum, if you're dealing with somebody who's just terrified of the stock market, then you are looking at things with, you know, only 20 to 30% in stocks that look more like a Vanguard Wellesley fund. Or you're looking at simple annuities that pay income. But I don't think you would want anything like that in this circumstance because that's just creating tax problems. It's not solving any problems. If she's not really using this money and she's getting the pension and the social security money as her income, there's no reason to be using other things to generate more income. If she is particularly worried about longevity, and you didn't say how old she was, but if she's in her 70s, approaching RMDs or at RMD age, you can use some of that money to buy what's called a QLAC, which you then turn on when you become very old. It's a form of deferred simple annuity. Some people find that comforting to know it's there because it's certainly going to cover any needs for long-term care she would have whenever she would have them. When you combine that with her social security and pension money. Now, if she truly was trying to maximize wealth for inheritance purposes, obviously you'd go into essentially all stock portfolios or Warren Buffett type portfolios that are 90% equity and 10% T bills, but something like that is probably not going to be appealing to somebody who's afraid that their money's gonna disappear.

Voices [22:33]

Uh what? It's gone. It's all gone. What's all gone? The money in your account.

Mostly Uncle Frank [22:38]

It didn't do too well, it's gone. If you're looking for a new advisor, unfortunately, older people like older people, but what they really need is younger people. The best advisors in my mind these days are people that are independent and are younger. Because older advisors tend to follow patterns they established 15, 20 years ago that are no longer best practices in this area. So if I were looking for an advisor, I would be looking for somebody in their 30s or 40s and who is up on modern best practices. And I'm talking about best practices since 2020. Because if you're still doing things like you're living in 2010, you're not up to date anymore. You're just not. This area is actually changing very rapidly, and you do want somebody who's nimble enough to be able to adapt to the new technologies, funds, and other things we have going forward. In addition to being savvy on things like taxes, which are also a key consideration for retirees because of all the rules you need to follow. Alright, question three. If a person sold a home and didn't have intentions of buying another for five to ten years, would a golden ratio style portfolio be a good way to invest the proceeds? And the answer is yes.

Voices [23:54]

You are correct, sir. Yes.

Mostly Uncle Frank [23:57]

Because you are looking at an intermediate accumulation kind of portfolio. You do not have a specific time frame at which you need to spend the money. You know this kind of portfolio is going to have a maximum downturn of three to four years, and so it fits very well into that scenario. That five to ten years with some kind of nonspecific time frame is really too long to be just hoarding the money in cash. But on the other hand, you don't want to put it all into a total stock market fund that could be down for a decade in the worst case scenario. So a golden ratio style portfolio or another risk party style portfolio does work very well for that scenario. Giddy up. Alright, your question four What other areas of finance should you continue to learn about?

Voices [24:45]

Let me put it this way. Have you ever heard of Plato, Aristotle, Socrates? Yes, morons.

Mostly Uncle Frank [24:52]

And that actually is a very subjective question because it really depends mostly on what you are interested in, what you are curious about. For instance, some people want to get into real estate, they really like the idea. You can go learn about that, you can acquire some rental properties, you can do pretty well at that if you study it first and put the effort into it. And that's the same with any other kind of potential business-related investment like that. But I would say if you just want to be more knowledgeable about finance in general and kind of move up the ladder from personal finance books to something a little bit more sophisticated where you're not just applying formulas to simple portfolios and you're actually applying principles to investing, then what you want to look for are books that are written for the common people, but they are written by people who are institutional investors or have institutional investing experience. And you specifically want to stay away from anybody who is really known as a personal finance person or is fixated on making things as simple as possible. Because you're not going to learn anything then. You already know that stuff. If you want to expand your knowledge base, you need to look to people with high-level financial experience managing lots of money. He wrote a book called The Aspirational Investor about 10 years ago. I'd pick that up and read it. A book like Money for the Rest of Us by J. David Stein is an excellent book as well. He also managed institutional money, but he gives in there 10 questions for analyzing any investment, which are certainly what you want to be considering. On the more theoretical, big picture side, I like Michael Mobison, who I think is still a professor at Columbia, but has been involved in many high-level endeavors. He wrote a book called More Than You Know, about, I don't know, 15 years ago, longer than that. I'd read that one. He wrote a more recent one called Think Twice. And these are largely about decision making in finance. If you want to know the way something like an outfit like AQR and how they approach things, read books by Auntie Ilmanen, who manages investments there. I think he's got two books out. There's a nice book written by Andrew Lowe's from MIT that is called In Pursuit of the Perfect Portfolio, which is a chapter-by-chapter summary of a whole bunch of different really good investors and what they do. And interestingly enough, the only real commonality that he finds, or the main commonality, which you can read in the summary towards the end of the book, is that they are all recognizing that the holy grail of investing is diversification, both across asset classes and within asset classes. Which is why it's our number one principle here.

Voices [28:11]

That's the fact jack! That's the fact, Jack!

Mostly Uncle Frank [28:15]

Because I try not to make up any ideas myself, I just steal them from other people.

Voices [28:20]

Yeah, that's smart.

Mostly Uncle Frank [28:22]

And if you're looking for a podcast recommendation and YouTube channel, check out Excess Returns. In Excess Returns, it's a couple of financial advisors, but they interview all kinds of different people from Corey Hofstein to Larry Swedro to Rick Ferry to anybody you can think of, but you see the variety of approaches that people have, and you're really going to learn a lot more about what are essentially current best practices in personal finance and finance generally. There's a great series where they have various people show them their portfolios, which I think you'll find eye-opening because professionals' portfolios are frankly all over the map, but they have different theories and different purposes. And you really need to pay attention to what they are trying to do and how the portfolio fits or does not fit that goal. Because I like to say personal finance is finance, that you need to make sure your financial behaviors are matching your financial goals, and you're not picking financial behaviors based on formulas or dogmas or being part of a group or a club.

Voices [29:28]

I've got a good mind to join a club and beat you over the head with it.

Mostly Uncle Frank [29:32]

Anyway, if you're curious about learning things at the next level, those are the sorts of things that would tell you to check out. The Rational Reminder podcast is also quite good most of the time. But I should also caveat with the admonition that you really don't need to know all that stuff in order to succeed with this. It doesn't need to be that hard. But most of the people listening to this are just curious in general and want to know what else is there. So I am kind of speaking to the audience that generally presents itself here, and not people who are content with just knowing what they need to know and leaving the rest at that.

Voices [30:06]

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

Mostly Uncle Frank [30:12]

So hopefully some of those answers help. Thank you for being a donor to the Father McKenna Center, and thank you for your email.

Voices [30:22]

Dude, I can't wait for your wedding. Hey, better have enough beer. You know what I mean? Thanks, bud. It's actually gonna be a dry wedding. Indoors. Yeah, my range. No, it's alcohol free. Free alcohol? Open bar. Who's picking up that tab? There's no alcohol. Got it. So just beer. Wisconsin sober. I can respect that. No, there will be no alcohol on the premises. Beers like getting married in high school or college? Oh, it should be like tailgated. Tailgated. There will be zero alcohol at or before the wedding. I don't think I get it. It is a wedding without alcohol. So what's everyone gonna do? Well, we're gonna have games. We're gonna have a DJ, DJ. People are supposed to dance sober. Yeah. How are you supposed to do the wobble without the bottle? How are you supposed to do the humore without the gasoline? It's not gonna start. People dance sober all the time. Kids, maybe. So let me get this right. You're gonna invite 150 people to an event and make them interact with each other with no no booze? Yes, you okay? No, I'm not okay. Oh, hey man, I forgot to tell you. Um, I can't make it to your wedding. Yeah, my my my grandpa, he's gonna um die then, unfortunately. So second off.

Mostly Uncle Frank [31:38]

Second off, we have an email from Ron.

Voices [31:41]

All these shenanigans take place in a hilarious new Hollywood movie called Bedtime for Bonzo, starring Ronald Regan, Diana Lynn, and Bonzo, that amazing gym.

Mostly Uncle Frank [31:52]

And Ron Wright.

Mostly Queen Mary [31:54]

Happy New Year, Frank and Mary.

Voices [31:57]

Merry New Year!

Mostly Queen Mary [31:58]

Here is the quarterly and annual update from the All Equity McKenaman Portfolio.

Voices [32:04]

Show me the money! Jerry, you better yell! Show me the money!

Mostly Queen Mary [32:09]

Q4 net results, minus 2.5% after withdrawal. 2025 net results, 10.3%. Q4 donation, $118. 2025 total donations, $449. Annual rebalancing will also occur to get back to 60% total market, 30% international, and 10% small cap with annual withdrawals at 8%. Here's to a great 2026. Thanks, Ron. And then the fun began.

Mostly Uncle Frank [32:43]

Well, thank you, Ron. For those of you who don't know who Ron is or what we were talking about, he is one of our Father McKenna backers and set up a small portfolio to fund donations going forward. So we give him the velvet rope treatment whenever we can. Eddie reports in quarterly as to how this portfolio has been doing. If you want to listen to where this started, you go back to episode 399, which is almost a year old now, and also in episode 437. But basically he's set up a aggressive 100% equity portfolio that he's taking about 8% annualized out of and giving to the Father McKenna Center every quarter and reports on it every quarter. And here is his latest report. Sweet It was a good year for returns this year, Ron, especially with that international component going on. And I do want to thank you again for all of your generosity and all the generosity that has been shown to us by so many of your listeners.

Voices [33:48]

The best, Jerry. The best.

Mostly Uncle Frank [33:51]

So here is to a great 2026 to you too, Ron. And to all of our listeners.

Voices [33:57]

Yeah, baby, yeah.

Mostly Uncle Frank [34:00]

Thank you for your support. And thank you for your email.

Voices [34:05]

Oh boy, is this great? Last off.

Mostly Uncle Frank [34:12]

Last off? We have an email from Stefan. Or it could be Stefan. Stefan or Stefan from Australia.

Voices [34:21]

A legendary figure about to encounter a world more treacherous than any he has ever known.

Mostly Uncle Frank [34:39]

And Stefan or Stefan writes.

Mostly Queen Mary [34:42]

Hi Frank, g'day from Australia. I love the show. Got a night.

Voices [34:53]

That's a night.

Mostly Queen Mary [34:55]

I absolutely lost it when Mary broke the third wall in episode 449. Do these people still know I need to live with you? Brilliant.

Voices [35:04]

Mary, Mary, I need you again.

Mostly Queen Mary [35:12]

My questions are: one, is long-only plus gold, slightly geared, factor-tilted portfolio an optimal approach for someone who is 37, investing in a taxable account with a 15-year horizon, given that my retirement is already handled separately by Australian Super. I don't mind the volatility. 2. Or is there a cost-effective way to realistically beat a long-only approach, risk parity light, managed futures, convexity sleeve, etc., that you'd recommend instead?

Voices [35:42]

No more fun, solo.

Mostly Queen Mary [35:44]

3. What are your thoughts on low volatility and quality factors? Are they worth adding alongside value, momentum, and small caps? Or do they dilute rather than enhance the mix? 4. Would manage future plus macro ETF improve future returns? I've read the research at AQR, and man, but I think I am being fooled by recent performance. Thinking AQLT. For context, this is my core portfolio. I tilt exposures based on valuations and the macro backdrop. No cape, I promise. I follow evidence-based frameworks, PAMA French, AQR, Research Affiliates, Rational Reminder, but have avoided AQR-style brisk parity and long, short BAB market neutral due to cost and complexity. As an Australian, I prefer locally domiciled ETFs for tax efficiency, first slash, second layer relief, but I'll go offshore when the expected alpha is worth it. U.S. domiciled funds that hold only US assets are fine. Current portfolio, USA ticker, AVLV large value, SPMO, SP 500 Momentum, AVUV, US Small Value, International, Ticker, IDMO, SP International Momentum, VEUASX, Vanguard All World X US, AVDV International Small Value, Emerging Markets, Ticker, EMKT ASX, MSCI Multifactor Emerging, AVEE Emerging Small Value, Australia Plus Gold Ticker, QO Z, FTSE, Rafi Australia 200, IAUM Gold. Thanks also for calling out the rigidity of the buy and hold Bogle crowd. Mr. Fairy's dismissiveness and frankly ego when it comes to Paul Merriman or anyone straying from pure market cap orthodoxy always grates on me. P.S. I thought you and the audience would enjoy this sparkline capital piece. They have built ETFS on the theory too. Be well, dude, Stefan.

Voices [37:54]

Babies, before we're done here, y'all be wearing gold-plated diapers. I gotta have more cowbell. I gotta have more cowbell.

Mostly Uncle Frank [38:06]

Well, first off, I am grateful that Mary does, in fact, still want to live with me. Although a lot of people wonder why. You led a trite, meaningless life. But I suppose I have at least one or two redeemable qualities. And you're a very bad person. It's interesting putting your email in the context of our first emailer and his last question about what else should he be interested in. But I can tell you if you read those books I mentioned, you may end up with portfolios that look like this. If you're curious enough about such things.

Voices [38:47]

Hearts and kidneys are tinker toys.

Mostly Uncle Frank [38:50]

What Stefan or Stefan has done here is a good example of a factor-based investing approach. It may be a little more complex than it needs to be, but there's nothing wrong with it if you like a little bit of the complexity. But you are clearly incorporating the five-factor model from Fama and French, including things like low volatility and quality, including a lot of Avantis funds you've got here, and this actually is pretty much a best practice approach to stock investing, at least from a diversification perspective. I should have mentioned the book All About Factor Investing from Larry Swedro is another one of the ones that you might want to read if you're not familiar with these approaches. So looking at your questions, I mean I think they all boil down to one thing as to whether this approach is going to maximize your long term returns over a 15 year horizon or longer. And here's my baseline answer We don't know.

Voices [39:49]

What do we know? You don't know, I don't know, nobody knows.

Mostly Uncle Frank [39:53]

But I realize that's not very helpful, even though it's true. Well, let's talk about some considerations and a probabilistic approach to this. In general, equities are going to outperform most other kinds of investments. They're generally going to outperform managed futures or long short strategies or gold and certainly any kind of fixed income. And I think the reason for that is they really have unlimited growth potential when you think about it, or a lot less limited than just about any other asset class. Unfortunately, which ones are going to outperform in the future is an almost impossible question to ask. Because in theory, and this is what many sophisticated investors or hedge funds try to do now, is try to get some reading on the macroeconomic outlook for the next period they're investing in, and then tilt their equities to the kinds of things that are likely to outperform in that environment. So if you knew that a year like 2022 was coming up next, you'd put all your money in things like energy and property and casualty companies on the equity side. If you knew we were going to have some kind of Goldilocks environment like we've had much of the time for the past 10 or 15 years, you would probably just put it all in growth stocks, particularly on the tech side of things. And if you knew that we were going to have a recession or a depression, you would get out of equities for that period of time and jump back in when it was over. And that's what a lot of people are trying to do, but it's a really hard thing to do, and most people do not succeed at it, which is why most people are better off just sticking with some index funds or sticking with a group of funds that represent the things you want to be exposed to. Because if you really want to outperform basic stock index funds, you can only do it in one of two ways. Either you need to take a concentration in the things that are going to perform the best, whatever sectors of the market or countries or whatever are going to perform the best next. Or you need to take leverage. These were the two things that came out of this Ben Felix video I've often linked to on leverage, and I'll link to it again. But I think that's a very astute observation because it kind of sweeps away everything else and gets you down to the core of the truth of the matter is. Now, what you were trying to do with factor investing is essentially get some concentrations that are going to outperform. Now, as it turns out, if you look at just the basic two factors of size and growth versus value, you can see that small cap value and large cap growth have outperformed large cap value and small cap growth over long periods of time. So a natural combination to use that's nicely diversified is large cap growth and small cap value. And that's almost a no-brainer. And I see a lot of what you've done fits that bill, so that makes a whole lot of sense. I will link to that comparison in the show notes because it's striking if you've never looked at the comparison of those four combinations. And when you're thinking about things like low volatility and quality, you are essentially trying to eliminate the most volatile and least profitable companies, which often is a good strategy. In fact, that is the kind of strategy that the Warren Buffets of the world apply over time. By not investing in bad things, they outperform the general market. And that is actually what makes a lot of the DFA and Avantus funds attractive, is not so much the concentrations that they make, but the algorithms they apply to things like profitability and quality that basically get rid of the bad stuff or more of the bad stuff, because that is actually a way of concentrating on quote the good stuff, unquote, and getting outperformance. That's really what is going on there at the bottom of the analysis. So the way professionals often approach this is either choosing the right, and I put that in quotes, asset classes that are going to perform best the next based on whatever crystal balls they have. And then the other approach is to take leverage. Now, the problem with leverage is you can blow up. And so what a risk parity style portfolio was originally designed for by Bridgewater and others is to reduce the overall volatility of the portfolio enough that when you applied leverage to it, it wasn't going to blow up. And so if you look at the last of our sample portfolios, that OPTRA portfolio, that is an attempt to do just that in what they call these days a return-stacked format. But it's really just a form of risk parity with leverage in it. But in my mind, that is an easier approach to attempting to outperform the market than actually trying to pick the best performing sectors. Because applying leverage doesn't require a lot of analysis or a lot of thought. It just requires appropriate sizing, if you will. Which gets you to things like the Kelly Criterion and the work of Ed Thorpe. Which reminds me another good book to read is Ed Thorpe's autobiography, A Man for All Markets. So I guess my bottom line answer to your questions are, yes, you can do it the way you've approached it, which is essentially picking the right kinds of funds with the right kinds of factors. I think that's a more difficult approach actually than reducing the overall volatility of the portfolio and applying leverage to it. And if I'm forced to pick a side, I would pick the latter. But that does not mean that you could not succeed by either picking sectors or analyzing individual companies and choosing the best ones. But that's even more work.

Voices [45:43]

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

Mostly Uncle Frank [45:46]

But I would not think using alternatives is going to improve your performance, at least not without applying leverage to them. And that is also true for gold, unless you have a crystal ball that says that gold is going to continue to outperform the way it has recently.

Voices [46:02]

I love gold.

Mostly Uncle Frank [46:06]

Because obviously, if you know what's going to outperform in the next period and you just pick that, you win all the time.

Voices [46:12]

Winner winner chicken dinner.

Mostly Uncle Frank [46:17]

Easy peasy lemon squeezy, huh?

Voices [46:20]

You're gonna end up eating a steady diet of government cheese and living in a van down by the river.

Mostly Uncle Frank [46:29]

So I'm sorry I couldn't be more helpful on that, but those are my thoughts for what they're worth.

Voices [46:34]

You get nothing, you lose. Good day, sir.

Mostly Uncle Frank [46:40]

There was one other thing you mentioned I thought I should comment on, about the pure market cap orthodoxy from Rick Ferry, you mentioned there. And that is true of a lot of people, particularly people who are fixated on simplicity, and these two fund portfolios that are US total market and international total market, or worldwide total market. And the belief that by market cap weighting everything, that automatically gives you the best performing possibility.

Voices [47:16]

Forget about it.

Mostly Uncle Frank [47:17]

In my mind, that's both theoretical and mythical. And we know from a practical perspective, just by doing an historical analysis and what Fama and French and all the people that are following them have found out, is that no different combinations of factors and funds have outperformed a total market fund. And then the debate always devolves down to well, is that always going to be true? Is it gonna be true in the future? Why was it true in the past? Blah, blah, blah, blah, blah. Because based on some theoretical constructs, that should not be true in the future, and that a market cap-weighted portfolio should outperform in the future. I just don't buy that because it hasn't been true. I believe history does not repeat, but it rhymes.

Voices [48:01]

Yogi Berra said that in theory there's no difference between theory and practice, but in practice there is.

Mostly Uncle Frank [48:08]

But the other problem is this mythical component, because it's based on an idea that by buying all the stocks in a cap-weighted manner, you are in fact capturing essentially all of the wealth in the world, or at least all the investable things in the world. But it's obvious that's not true because so much of the world's assets are in things like bonds, they're in things like real estate, they're in a lot of private companies, they're in a lot of other forms that are not encapsulated by what you can buy on public exchanges. So it is a myth that by buying a total market fund, you are actually buying the entire US economy. You're not. And by buying a total world fund, you're buying the entire world economy. You're not.

Voices [48:55]

Forget about it.

Mostly Uncle Frank [48:56]

You're buying the portion of it that is publicly traded and that is presented in equity form. And once you throw out that myth, you've lost one of the assumptions that a lot of this theory relies upon. And so ultimately, I think you're much better off approaching finances from a practical perspective as an engineer who is building something and not as a theoretical physicist who is trying to describe something. This, in fact, is why most theoretical economists are not very good investors.

Voices [49:28]

I've officially amounted to Jack US.

Mostly Uncle Frank [49:34]

Because you are much better off looking at the practical history and designing with an eye towards that, than coming up with grand theories and trying to apply them prospectively.

Voices [49:46]

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

Mostly Uncle Frank [49:50]

This always reminds me of problems with bridges and the building of bridges. And the problem that became very well apparent with things like the Tacoma Narrows Bridge, where it harmonically oscillated and came apart in a very spectacular manner, which I will hopefully find a video and link to in the show notes. You'll note that we generally do not have those kind of problems now because people that build things actually learn from the past. And they're not concerned with why it was oscillating or what exactly the wind speed needed to be for that. What they're concerned about is whether the thing's gonna fall down or not. And if you approach it like that and just look at it and say, okay, this works and this doesn't, and we have all of these examples from the past to go by, the theory is not as important as the practical realities and the experience. And if you don't believe me, go back and look at what happened to long-term capital management, which was based on the best theories and lots of leverage, and it exploded.

Voices [50:55]

My dad said he listened to Bad David and lost all his money. Yes, everyone did, but they were brave in doing so.

Mostly Uncle Frank [51:01]

Because it have failed to account for what would happen in broken and illiquid markets like the Russian debt crisis in the late 1990s. Now I could go off and start talking about concepts of material science and the mixing of Roman cement now. But I think I'll give it a rest. Anyway, that was a very interesting and thought-provoking email. And I hope all is well now that you're enjoying summertime in the land down under at the moment.

Voices [51:34]

Out where the river broke, the blood wood and the desert oak. Steam at 45 degrees.

Mostly Uncle Frank [51:50]

Don't forget to wear your sunscreen. And thank you for your email. But now I see our signal is beginning to fade. If you have comments or questions for me, please send them to Frank at RiskPardyRadio.com. That email is Frank at RiskPardyRadio.com. Or you can go to the website www.riskparodyradio.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 and give 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.