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 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.riskparty radio.com. Inconceivable! All thanks to our friend Luke, our volunteer in Quebec. Zacosh. We'd be helpless without him.

Voices [1:35]

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, alright?

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 [2:05]

Really top drawer.

Mostly Uncle Frank [2:07]

Along with a host named after a hot dog.

Voices [2:10]

Lighten up Francis.

Mostly Uncle Frank [2:14]

But now onward episode 487. Today on Risk Party Radio, we're just gonna try and do what we do best here, which is attend to your emails. But before we get to that, we have something very special to talk about today that I mentioned in passing in a recent episode. So Mary is here. If you didn't know, we do have matching easy chairs, and she would like to address you from her easy chair, which we will do right now.

Voices [2:58]

Listen to the story now.

Mostly Queen Mary [3:01]

Hello, Risk Parody Radio Listeners. This is Mary, stepping away from the emails and taking over the airways temporarily to talk to you about a cause that's near and dear to my heart. As many Risk Parity Radio listeners know, I'm a volunteer with court-appointed special advocates of Fairfax County. Some of you may be wondering exactly what a CASA does? CASA's are volunteers who are appointed by the family court judges to be the eyes and ears of the court for children whose parents have been cited for abuse or neglect. As part of my role as a volunteer for CASA, I spend time with each child, visit each child at least twice a month, attend all of their court hearings, follow up to make sure they have gone to the doctor, seen the dentist, I attend their IEP meetings, speak with their teachers, their counselors, and their foster parents to make sure that the children are thriving while they're under the supervision of the court. And I'd like to share with you some of the numbers behind Fairfax Casa. Last year, Fairfax Casas served 404 children from 241 different families. Casas wrote over 320 court reports, made more than 2,000 recommendations, of which 93% were adopted and ordered by the court. Fairfax Cassas spent over 23,000 hours serving the children of Fairfax County and drove over 150,000 miles to do so. Fairfax Cassas made over 36,000 contacts on behalf of the children that they serve and completed 8,130 visits to the children whom they serve. Another important number for Fairfax Casa is that Fairfax Casa has a 4 out of 4 stars or 100% rating on Charity Navigator. Beyond these numbers, what a CASA does for a child is to become a consistent part of that child's life. A child may change foster homes, social workers, judges, they may change their guardian ad lightum, but a casa is committed to being with a child from the time the child comes under the supervision of the court until the time that that child has a safe, permanent, and loving home. I wanted to share with you what it can mean to a family to have a casa involved in their lives. At the conclusion of one of my cases, one of the adoptive parents texted me to thank me for being a part of their families' lives, to thank me for attending all of the IEP meetings, participating in every phone call with a social worker, being a part of all the late-night conversations about the children, and thank me for fighting for the kids as though they were my own. I'm not saying this to toot my own horn, but to show you what each and every CASA is doing every day for the children whom they serve. So we're going to change things up a little bit here on Risk Parity Radio. Beginning in March and concluding in April, which is National Child Abuse Prevention Month, you can step to the head of the email line by making a donation to Fairfax Casa. You have all heard Frank speak about the parable of the starfish thrower. So this year, in March and April, I invite you to join me at my end of the beach and help throw some of the littlest starfish back into the ocean.

Mostly Uncle Frank [6:29]

So let it be done.

Mostly Queen Mary [6:37]

That donation came in the amount of a prime number from Bill Yount of Catching Up to Fi and his wife Karen. So thank you to our dear friends Bill and Karen for your generous contribution.

Voices [6:49]

They will keep on turn. We're rolling. Rolling Rollin' on a river.

Mostly Uncle Frank [7:06]

They don't river. And if you're wondering about that starfish thrower story, you'll want to go back and listen to episode 441 again, which I will try to put a little video summary of in the show notes. As well as another video about that particular case that Mary worked on. So the way we'll work this for Fairfax Casa is first I'm going to put a link in the show notes, the donation page for Mary's charity Fairfax Casa, so you can donate directly through there. And if you do that, please do mention in the comment box that it's Risk Parity Radio or Mary Vasquez so that they can keep track of it. And then also we're going to take all of the Patreon money that we collect for March and April and also donate that to Fairfax Casa. And I'll also put the link to Fairfax Casa on our support page for good measure. So any donations to Fairfax Casa also get you moved to the front of the email line. Because I know that's what you're looking for here.

Voices [8:09]

I don't care about the children. I just care about their parents' money.

Mostly Uncle Frank [8:13]

And if we have conflicting donations to Fairfax Casa and the Father McKenna Center, we'll do the Fairfax Casa ones first and then the Father McKenna ones second.

Voices [8:24]

Yes!

Mostly Uncle Frank [8:25]

But really we want to focus on Fairfax Casa for the next couple months because we will be doing the top of the t-shirt campaign for the Father McKenna Center coming up later this year. But we wanted to get this announcement out now because we are about to go on a little vacation, and so you won't hear from us for a couple weeks, and by the time we get back, it will be almost March. So you can start the Fairfax Casa donations now if you would like, in anticipation. Just make sure you do mention your donations in whatever emails you send us, because we don't really have any other way of keeping track, if you will. And so now speaking of emails.

Voices [9:15]

I'm intrigued by this. How you say emails.

Mostly Uncle Frank [9:21]

First off. First off of an email from Tim. Oh, I know. How about the new student, Timmy?

Voices [9:30]

Timmy!

Mostly Uncle Frank [9:31]

And Tim writes?

Mostly Queen Mary [9:33]

Frank and Mary, thanks to your help in episode 428, we are building our intermediate term savings in golden butterfly portfolio.

Voices [9:41]

Looks like a tricky job, Bob. Not when you have a good team, Mr. Bentley.

Mostly Queen Mary [9:46]

Okay, team, let's get to work. We already held a large portion of one of the wings in total stock market funds, but we've recently been balancing it with bonds, gold, and cowbell.

Voices [9:57]

I gotta have more cowbell. I gotta have more cowbell.

Mostly Queen Mary [10:01]

The butterfly should be able to fly straight any day now. I was talking to a coworker who was concerned that his HYSA balance was getting large, and I told him about this strategy. As I talked him through it, I remembered you mentioned several times that the historic max drawdown was about three years for these types of portfolios. However, as I explained it, I realized that what may be more important to him is the max period of underperformance when compared to his other option of leaving it in an HYSA. I ran a few tests in Testfolio comparing the Golden Butterfly to SHY as a stand-in for the HYSA. I tried rolling metrics which showed that the distributions of 36-month performances look much better for Golden Butterfly as expected. However, I couldn't find a good way to view time-correlated performance in those rolling waves to learn this max period of underperformance metric that I was looking for. I know enough about finance and the work that is poured into it to know I didn't just invent an unconsidered metric. Do you have any guidance on how to approach this question? Thanks, Tim. Gwen isn't here this time, but I'm sure she would say hi if she was.

Voices [11:06]

Now, Timmy, you need to work on your study skills. Are you mocking me? Because if you are, I have no problem sending your butt to the principal's office.

Mostly Uncle Frank [11:16]

Well, first off, thank you for being a donor to the Father McKenna Center, Tim. Or Fairfax Casa in the future. Either way, you get to go to the front of the email line. Just let us know in your emails so we can duly move you to the front of the line. Tim and Gwen are also good friends of ours, and they have a funny podcast called Fire Takes, which is directed at millennials with money relationship problems. It's alternately very sad and very amusing, depending on what they're talking about.

Voices [11:47]

You're never home. You talk to your trucks more than you do me. You never even touch me anymore, Bob. I just can't do this. Wendy, can we fix it? No, we can't.

Mostly Uncle Frank [12:01]

So I'm glad you're able to use a golden butterfly as an intermediate accumulation portfolio. And just to inform everybody what we're talking about here, one of the things that our adult children do is use a risk parity style portfolio for what you would call intermediate accumulation. So in their main long-term accumulation, that is 100% stocks, usually in their retirement accounts. They also have like an emergency fund up front, which is just like in a savings account or a money market. But in between that, for these intermediate savings, whether you're talking about a car or a house or a vacation or something that you want to buy in some period of years, maybe three or five years, but you're not sure exactly when, you're not sure exactly how much, but you want the money to grow, using a risk parity style portfolio is a good mechanism for doing that, because it has this pattern of much lower and shorter drawdowns than standard accumulation kind of portfolios. So what they will do, and what Tim is talking about doing is for the money you have that's above your emergency fund money and it's just sitting there, instead of just throwing it into a high yield savings account, you pour that over into this intermediate accumulation portfolio in a risk parity style portfolio, and put it in an account in a place like Fidelity, and there you go. You don't have to rebalance it because you just add to whatever is low at the time. So the easiest place to see the drawdown pattern long term for any portfolio is at the drawdown chart at portfolio charts, and you can just put in whatever portfolio you have and look at it or look at the presets, and it's also in there. And so what you'll see there is that risk parity style portfolio has maximum length drawdown of three to four years, whereas something like a total stock market or a 60-40 portfolio might have a drawdown that lasts up to 13 years.

Voices [13:55]

That's not an improvement.

Mostly Uncle Frank [13:57]

But the place you probably want to run little test experiments is probably at test folio, because you can put more than one portfolio and check it at a time and also look at the drawdowns. For something like an HYSA, if you're modeling that, you don't want to model that with S H Y. What you want to model that is with T bills. So use the symbol T B I L L in Testfolio or Cash X, C-A-S-H-X. It's the same thing, but that is going to give you one to three month T bills going back something like 145 years, and that's equivalent to a high yield savings account for modeling purposes. The other thing I would do with your modeling is make sure that you are actually putting money into this thing for the purpose we're describing here. Because the way it works typically for our kids is they might not have any money extra for one paycheck or they might have a few hundred dollars. Whatever they have extra goes into this thing. And so you would want to model it with a cash flow going into it. When you do that for any portfolio, it's going to reduce the volatility of it. That's just a general principle that if you are adding money to a portfolio, it's going to reduce the overall volatility of it, reducing the amount of chaos, if you will.

Voices [15:13]

We are lords of chaos.

Mostly Uncle Frank [15:18]

When you're taking money out of a portfolio, it has the opposite effect. It tends to increase the volatility of the portfolio. But I would model this in test folio by putting in some sample amount of money. I don't know if it's $100 a month or whatever you think is appropriate, because that's also going to give you a different look in terms of the drawdown pattern. It'll be less, basically. The other thing you might do is just model this also on three to five year time frames, because you can set the dates in testfolio to actually model just a three or a five-year time frame, because that is really the amount of time you're talking about to compare a savings account portfolio with this kind of portfolio. And then if you pick various dates, you can get worst-case scenarios, if you will. What I've learned about testfolio is it has infinite tools within it, and they're growing all the time. In fact, there are so many things there that I cannot keep up with them.

Voices [16:12]

Are you stupid or something?

Mostly Uncle Frank [16:14]

But it is really an awesome service to the do-it-yourself community. And if you haven't taken advantage of that or checked it out, you should do that right away.

Voices [16:24]

And uh, I'll go ahead and make sure you get another copy of that memo.

Mostly Uncle Frank [16:28]

Okay. And I will link to that back test page in the show notes. So hopefully that helps. And thank you for your email.

Voices [16:58]

Second off.

Mostly Uncle Frank [16:59]

Second off, we have an email from Anderson.

Voices [17:03]

You know, Belkin Baton, we could have fed six hundred men in the ten of it's taken, you hammeniggers, just to take them in order. And Anderson writes.

Mostly Queen Mary [17:13]

Uncle Frank, I have a question about 529th and the new rule allowing unused funds to be rolled over to an IRA. It's a write-off for them.

Voices [17:22]

How is it a write-off? They just write it off. Write it off what? Jerry, all these big companies, they write off everything. You don't even know what a write-off is.

Mostly Queen Mary [17:35]

If you did that, could you withdraw contributions tax and penalty free after it's in the IRA? I'm just wondering if I have one of my kids who does not go to university or has scholarships. If converted to a Roth IRA, they could use some of the contributions for, say, a down payment on a house or a wedding, etc.

Voices [17:53]

It's getting so Mexico is the only place you can be in American anymore.

Mostly Uncle Frank [17:59]

Well, interesting question, Anderson, and I do think you found a loophole. Of course, I did not know the answer to this, so I used my friendly chat bots of ChatGPT and GROK to look it up. And they both confirmed that, yes, under the current rules, if you were able to get a 529, hold it for the 15 years, and go through the other little hoops that you're required to go through, you can use that as a mechanism to make Roth contributions up to the limit for a particular year, assuming the child is eligible for Roth contributions by having earned income. And once it is in there, it is treated like an ordinary contribution, and so the contribution can be withdrawn tax-free and penalty-free, at least according to these AI bots.

Voices [18:48]

The 9000 series is the most reliable computer ever made. No 9,000 computer has ever made a mistake or distorted information. We are all, by any practical definition of the words, foolproof and incapable of error.

Mostly Uncle Frank [19:06]

Now remember that does not apply to any earnings that are accumulated in the Roth while you are waiting for this house or wedding thing going on, but it would apply to the contributions themselves. So I'm certainly no expert here and did not bother to look up the regulations myself. We know why that is. It's not that I'm lazy. It's that I just don't care. But I would do a check on it, and you might be good to go with this.

Voices [19:32]

Why?

Mostly Uncle Frank [19:33]

What have children ever done for me? The interesting thing about this is I believe from a prior email you have a number of children, if you are the same person I'm thinking about. And once you have a number of children, you have a number of Roth IRA opportunities, and you also have opportunities for shifting the beneficiary on 529s. Now that might run you afoul of a 15-year rule. I don't know. This can get complicated. But whenever you see a family with a lot of capacity for Roth IRA contributions, you sort of want to take advantage of that sort of any which way you can, whether it's from grandparents, your own funds, 529s, whatever you've got, whatever you've got to stick into a Roth IRA in any given year, you might as well use that contribution limit because it's use it or lose it. And since you can get the contribution out at any time, there's no penalty. Basically, you're creating tax-free growth that will stay there as long as the Roth IRA is in operation. So that sounds like a great plan. Everything that has transpired has done so according to my desire. Thank you for bringing it to our attention. And thank you for your email.

Voices [21:05]

Last off.

Mostly Uncle Frank [21:07]

Last off of an email from Pete.

Voices [21:11]

I got a little rabbit in this hole, and I'm gonna catch the little rabbit and eat him up.

Mostly Uncle Frank [21:22]

And Pete writes.

Mostly Queen Mary [21:24]

Dear Uncle Frank and Aunt Mary, just thought I'd share an update to my Crazy Kids Roth portfolio. My six-year-old has been binging Mab Favor podcasts lately and lamp basted me for not embracing more managed futures in portfolio constructions. You have a gambling problem. Combined with his addiction to leverage, we've created a monstrosity that has both of us chain smoking as we watch the news. Managed futures, split equally amongst DBMF, KMLM, and CTA. Well, you have a gambling problem. Over the past 30 years, it has returned a compound annual growth rate of 20% with a max drawdown of 48%, which is almost double the return for an all-equity portfolio without affecting volatility or drawdown. Here's a link to the MAC test. View it on log scale, otherwise, it just gets silly.

Voices [22:27]

You can't handle the gambling problem. Money printer go brrrrr. We're trillions of dollars in debt. The debt to GDP ratio is out of control. Who's going to pay for it?

Mostly Uncle Frank [22:39]

Haha. Money printer go brrrrr.

Mostly Queen Mary [22:48]

I have just made myself laugh thinking about Mary reading that. To be fair, if you change the start date to the bursting of the tech bubble in 2000 and the subsequent loss decade for large cap US stocks, this portfolio needs about 14 years just to overtake the more conservative golden butterfly that kept chugging along nicely the whole time. But my six-year-old is more of a Leroy Jenkins or Amos Burton from the Expanse type than South Park's butters. So to the moon we go.

Voices [23:27]

Point is I learned some things about myself. I learned that I could hold my breath for almost two minutes while engaging in physical stressful activity. So you have to ask yourself, how much damage do you think I can do to you in two minutes before the knockout gas gets to me? Because I'm betting it's a lot.

Mostly Queen Mary [23:54]

As always, de oppressor libre, Pete.

Voices [23:58]

Are any of you familiar with what's referred to as a Leroy Jenkins? Well, I don't know what that is, but let's make a very long, elaborate plan. Alright, so I'll run in first and use an intimidating shout. When my shout's done, I'll need Joe to come in and use his shout too. What do you think, Joe? Can you give me a number crunch real quick? Yeah, give me a sec. I'm coming up with uh 32.33. Repeating, of course. Okay, that's a lot better than we usually do. So let's Leah Dragon! Oh my god, he just ran in. Let's go! Stick to the plan! Let's go! Let's go! We're done again! He's got to have minute, guys! You're an idiot!

Mostly Uncle Frank [24:44]

Well, we're really having an old friend's day here at Risk Parity Radio, aren't we? Enhancing the dive bar quality of this operation. And Pete, of course, is one of our most insane gamblers out there, at least when it comes with his kids' money.

Voices [25:17]

This is the grandson of the 17th richest man in California. Does he drink? What he wants is money because he doesn't know when to say that's it. I'm two million ahead. I have a car and a house and a family, and it's all paid for. I mean, even I did that.

Mostly Uncle Frank [25:34]

I will link to your back tests. It's funny, one of these test portfolios you put together as an 80% drawdown on it. As a max drawdown, which doesn't surprise me with a whole bunch of leverage in it. So I probably wouldn't be using something like that. But on the other hand, you know, as we've talked about before, and as Ben Felix has noted in that video about leverage that I'll try to link to again in the show notes, this actually is a viable strategy and something that economists often recommend that when you are young, it behooves you to actually take leverage to get growth going in a portfolio, at least from a theoretical perspective.

Voices [26:18]

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

Mostly Uncle Frank [26:24]

As a practical matter, it might cause you to blow up one or more accounts if you're not careful.

Voices [26:30]

Oh, Mr. Marsh, d don't worry. We can just transfer money from your account into a portfolio with your son, and it's gone!

Mostly Uncle Frank [26:38]

But I think also, as I was talking about with Tim before, the way you really want to model this is having money going into it steadily, because that in fact will reduce these horrific drawdowns that you are likely to experience with such a portfolio.

Voices [26:54]

Uh what? The money in your account. It didn't do too well, it's gone.

Mostly Uncle Frank [26:59]

And while I would never encourage gambling except for entertainment purposes. You've got to ask yourself questions. Do I feel lucky? I do think it is important to have somewhat of an attitude that you're not afraid of your finances, you're not afraid to experiment. Because too much of personal finance and what goes on in the retail financial services world is essentially fear-based. Everybody's taught to don't touch it, don't invest in anything other than this two one or two funds, as if the thing's going to blow up in a magic fireball if you don't do the right thing.

Voices [27:40]

And it's gone.

Mostly Uncle Frank [27:42]

Poof. That's just not how finances work, especially when you're talking about putting money into something over a long period of time.

Voices [27:50]

That's not how it works.

Mostly Uncle Frank [27:52]

And instead of teaching these lessons in fear, we ought to be teaching lessons in learning knowledge, growth.

Voices [28:02]

Always with you what cannot be done. Hear you nothing that I say. You must unlearn what you have learned. Alright, I'll give it a try. No! Try not! Do not! There is no try.

Mostly Uncle Frank [28:25]

My latest mental model for the financial services industry is there are basically only two kinds of financial advisors.

Voices [28:32]

You see, in this world there's two kinds of people, my friend.

Mostly Uncle Frank [28:37]

Those that seek to exploit fears.

Voices [28:40]

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

Mostly Uncle Frank [28:47]

And those that seek to cater to fears.

Voices [28:50]

Usually with buckets, ladders, and flower pots. Somebody says, Yeah, but I'm looking for safety and security. Fine, then huddle in a corner. We'll cover you with a sheet, bring you three meals a day. And we'll protect you, feed you, look after you, care for you. We won't let anything happen to you, and you'll probably live to be 100. The guy said, Well, yeah, I'd live to be 100. But what a way to live. Right. What a way to live safe and secure.

Mostly Uncle Frank [29:20]

Because if your clients aren't at least a little bit afraid, it's kind of hard to charge them a whole lot of money to quell those fears, isn't it?

Voices [29:27]

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

Mostly Uncle Frank [29:31]

And I do find that even the most well-meaning advisors do tend to succumb to fear speak in one or more aspects of what they are talking about or doing.

Voices [29:41]

You can't handle the dogs and cats living together.

Mostly Uncle Frank [29:45]

And it usually has something to do with taxes or Irma or long-term care or something like that.

Voices [29:52]

Hearts and kidneys are tinker toys!

Mostly Uncle Frank [29:56]

But it really plays with financial media, which is also designed to stoke fears to attract clicks and eyeballs to what they're doing. Anyway, we do know from psychology that one of the ways to overcome irrational fears or phobias is what they call exposure therapy. Go buy a little bit of that thing you feared. Maybe it will go to zero, or maybe it'll go to the moon. I don't know which.

Voices [30:28]

Fortune favors the brave.

Mostly Uncle Frank [30:30]

But you will learn something and you will be able to put that risk in its proper place and stop thinking about things in terms of the cognitive bias known as the possibility effect, where you take any little fear and magnify it into a high probability of a problem. When usually it's really not.

Voices [30:51]

Forget about it.

Mostly Uncle Frank [30:53]

Anyway, it's always really good to hear what's going on in Peat Land.

Voices [31:02]

Oh, two or four.

Mostly Uncle Frank [31:20]

So I'm glad you and your six-year-old are doing well. And thank you for your email.

Voices [31:26]

Oh dear, I gave you one too many. Well, we can fix that. And here's a cigar for you.

Mostly Uncle Frank [31:41]

But now I see our signal is beginning to fade. If you have comments or questions for me, please send them to Frank at RiskPartyRadio.com. That email is frank at riskpartyrador.com. Or you can go to the website www.riskpartyrador.com, put your message into the contact form, and I'll get it that way. Please do consider Mary's charity. Because if you don't, who knows what your emails are gonna sound like the next time she reads them. And if you haven't had a chance to do it, please go to your favorite podcast provider and like, subscribe, and be some stars, a follow, a review. That would be great. Okay. Thank you once again for tuning in. This is Frank Vasquez with Risk Purdy Radio. Signing off.

Voices [32:49]

You come down to the river. You gonna find some people. You don't have to worry. You got the money to be followed.

Mostly Queen Mary [33:49]

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.