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 [0:36]

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.riskpartyRadio.com. Inconceivable! And all thanks to our friend Luke, our volunteer in Quebec. 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.

Voices [1:44]

I'll give you the moon, alright? I'll take it.

Mostly Uncle Frank [1:48]

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

Voices [1:52]

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. Along with a host named after a hot dog.

Voices [2:10]

Lighten up Francis.

Mostly Uncle Frank [2:13]

But now onward, episode 488. We actually have five emails. Although only two that are questions. The first three are about Mary's campaign to raise money for Fairfax Casa that we talked about in the last episode.

Voices [2:36]

What is it you want, Mary? What do you want? You you want the moon? Just say the word and I'll throw a lasso around it and pull it down. Hey, that's a pretty good idea.

Mostly Uncle Frank [2:47]

So we will begin our podcast with an all hail Queen Mary segment that will include those three emails and some more words from Mary about Fairfax Casa. Which stands for Court Appointed Special Advocates, if you haven't got that message. Did you get that memo? And so without further ado, it is Mary time. And Nick, Gina, and Ashley Wright.

Mostly Queen Mary [3:48]

Frank and Mary, this is a donation towards Mary's work with Casa. Thanks for shining light on this important work on the podcast the other day. I can imagine how crucial it is for foster youth to have this consistent oversight in their lives amidst the turmoil. Nicksee. Uncle Frank, about ten months ago, you were gracious enough to respond to a question I had posted on the Choose a Five Facebook group. Between your initial response suggesting that my husband and I develop an investment policy and your further guidance on drawdown allocations on the Afford Anything podcast, we were able to switch from an accumulation portfolio to one that will allow us to maximize our safe withdrawal rate. In appreciation for your guidance, I've sent a small donation to Fairfax Casa. My family spring break will take me out of the state for most of the economy conference, but I hope to have the chance to meet you and Mary and thank you both in person at the Solaire on March 20th. Many thanks, Gina. Hi, Uncle Frank. I hope you and Mary are doing well enjoying this holiday weekend. Hearing about Mary's work with Fairfax Casa is inspiring. My wife and I have set up recurring annual donations of $1,000 as a result of hearing about her work. Please send our appreciation to Queen Mary for all that she does. As for me, I've been keeping busy since I left my W-2 helping my friends who own the first women's sports bar in New York City. Best regards, Ashley.

Mostly Uncle Frank [5:12]

Well, first, let me thank the three of you for jumping in so quickly to help out with Mary's charity.

Voices [5:19]

The best, Jerry. The best.

Mostly Uncle Frank [5:22]

When we finished our last episode, she says to me, I wonder if anybody will really want to donate to my charity. What'd you wish, Mary? And I said, They'll probably want to donate to your charity more than they want to hear about mine. And you've come through in spades.

Voices [5:42]

Top drawer. Really top drawer.

Mostly Uncle Frank [5:46]

And it's especially heartening to have people who have been listening to this podcast for a while jump right in and support what Mary is doing with Fairfax Casa. Nick has actually been a guest at our house with his lovely wife and two lovely daughters. And that's a few years back now.

Voices [6:09]

How much for the little girl? The women. How much for the women?

Mostly Queen Mary [6:14]

What?

Voices [6:15]

Your women. I I I want to buy your women, the little girl, your daughters. Sell them to me. Sell me your children. May! May.

Mostly Uncle Frank [6:25]

But we hadn't heard from you recently, although Nick did send me a nice picture of an ice crystal ball that he found in the northern climb where he works. And I won't be too specific about that.

Voices [6:41]

As you can see, I've got several here. Um, a really big one here, which is huge.

Mostly Uncle Frank [6:49]

It will also be nice to meet you, Gina and your husband, at the Economy Conference. We weren't sure whether to pronounce your name Gina or Gina. We guessed Gina, and we're sorry if we got that wrong. But for those of you who are going to the Economy Conference in March, we are having a little Risk Parity Radio meetup at the Solaire Hotel in their main bar dining room on the main reception floor at 3 p.m. on Friday. I believe that is March 20th. We hope to be playing a little Risk Parity Radio trivia and handing out some door prizes, but we'll see how far we get with that. Wow, is it very nice? But we hope to see you there. And Ashley, we will link to the first women's sports bar in New York City that you mentioned. It's called Wilka's. And their slogan is everyone wins at Wilka's.

Voices [7:50]

Winner, winner, chicken dinner.

Mostly Uncle Frank [7:55]

And Mary says we should go there the next time we go to New York City. And so I suppose that we shall. And so here she is.

Mostly Queen Mary [8:20]

In early winter of 2023, a Fairfax County police officer was flagged down around midnight one evening by a concerned citizen who told the officer that a baby was left alone in a car outside of a bar. The temperature that night was well below freezing. The baby, four-month-old Noah, dressed in just a onesie and sock, was found crying locked inside a parked car. The officer broke the window of the car and paramedics transported the baby to the hospital. His mother was found inside the bar intoxicated. She was arrested and charged with felony child abuse. Noah was placed in foster care and a casa was assigned immediately. Noah had been exclusively breastfed and struggled with the sudden shift to a bottle. His first foster placement was short-lived, and his second foster home also just lasted a short time. Both homes expressing that his bottle feeding was a source of stress and frustration. Noah's casa was concerned about Noah's size and worried that he was not receiving enough formula. Taylor, his mother, also expressed this concern. The casa talked with the third foster parent who agreed and opted to feed Noah more often and with more formula. Soon Noah was gaining weight and appeared much happier. His mother was granted supervised visitation and allowed to attend church on Sundays with Noah and his foster parents. Taylor showed up for every visit on time, and supervisors reported that she was not only appropriate but engaging, and that there was a clear bond between mother and son. Taylor worked full-time and was enrolled in an online degree program. She was court ordered to take part in an alcohol assessment, random drug screens, a psychological evaluation, and a parent-child assessment. She was also ordered to take part in parenting classes. Taylor immediately completed her evaluations, assessments, and parenting classes. She fulfilled every request for a random drug screen and actively engaged in all recommendations made by her evaluators, including intensive outpatient drug and alcohol programs, which included therapy. Her instructors and counselors described her as an engaged and eager learner. She graduated from her IOP program successfully, as well as her parenting classes. As Taylor completed her court-ordered services, the Casa advocated for the supervised visitation to transition to unsupervised visits, as well as overnight visits in Taylor's home. Both were granted, and Taylor and Noah enjoyed their time together. A year after the case came into court, Noah was placed in his mother's home on a trial home visit. He's meeting all of his developmental milestones, walking, talking, laughing, and blowing kisses. Taylor has maintained her sobriety. Their case closed before the court, and the Casa's last note on the case said, Noah is in good hands.

Mostly Uncle Frank [11:05]

And so we hope you like that little story, and hopefully it motivates some more of you to also give to Fairfax Casa.

Voices [11:13]

Show me the money! I need to feel you, Jerry! Show me the money! Jerry, you better yell! Show me the money!

Mostly Uncle Frank [11:21]

As we mentioned in the last episode, we'll be raising money for Fairfax Casa for March and April of this year. And like we do here, if you give to Fairfax Casa, you get to go to the front of the email line. Ahead of the people that have given to the Father McKenna Center, at least for March and April. Although we do have one question from a Fairfax Casa donor and one question from a Father McKenna Center donor coming up here. The rest of you may be waiting a long time, however, since the other emails are backed up to last October right now. But now let's turn to those two questions.

Voices [11:57]

Here I go once again with the email.

Mostly Uncle Frank [12:01]

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

Voices [12:06]

Ain't nothing wrong with that.

Mostly Uncle Frank [12:09]

And Chris writes.

Mostly Queen Mary [12:11]

Uncle Frank and Queen Mary. I've made a donation to Fairfax Casa to support Mary and the organization.

Voices [12:17]

Yeah, baby, yeah!

Mostly Queen Mary [12:20]

I would first like to thank you for your answers to my questions in episode 455. I would also like to thank Graham from episode 483 for sharing a way to back test managed futures further back over the past 46 years in test folio. I also commend his full house portfolio for achieving almost identical stock market returns with approximately 60% of the risk and volatility. It inspired me to do some more exploration of my own, which brought up a new question. You have a gambling problem. First off, to follow up on my previous email, we are approximately 75% of the way to financial independence. Therefore, we will be ready to start transitioning soon as we are very close to the 80% you recommend.

Voices [13:06]

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

Mostly Queen Mary [13:13]

Second off, I used the full house portfolio as a jumping-off point and tried to simplify my last portfolio: 25% large cap growth, 25% small cap value, 5% KBWP, 10% long-term treasuries, 10% long-term treasury strips, 12.5% gold, 12.5% managed futures. I came up with the following portfolio: 30% large cap growth, 30% small cap value, 15% long-term treasury strips, and a combination of gold and managed futures for the remaining 25%. That remaining 25% in alternatives is where my question comes in. Last off, because a managed futures fund includes gold, do we really need gold as a separate holding? My understanding is a fund like DBMF would hold gold only when or in a larger proportion while it is trending. DBMF will not catch all of the wild ride up gold has had recently, but it should miss out on the steep declines gold has experienced in the past. Perhaps this is the wrong thinking as volatility in assets is not necessarily our enemy. It matters more how a mix of assets works together. However, when I tested variations of this portfolio and test folio, 25% managed futures versus 12.5% gold and 12.5% managed futures versus 25% gold, the variation with only managed futures was superior in nearly every metric of returns, drawdown, and withdrawals. Please punch holes in this idea or confirm it's got some validity. Please see the testfolio link for these comparisons here. Thanks, Chris.

Voices [15:07]

Don't go to parties with metal detectors. Sure it feels safe inside, but what about all those waiting outside with guns? They know you ain't got one.

Mostly Uncle Frank [15:30]

And I'm glad you're able to use some of the work from our other listener, Graham, to construct another Risk Parity style portfolio to your liking. I will link to your testfolio links in the show notes so people can check out these various portfolios you've constructed. And that also includes the one that Graham had constructed earlier. Just so it's all in one place. I think all these portfolios do fit into the basic parameters for portfolios that have higher safe withdrawal rates. And to review what those basic parameters turn out to be. It's somewhere between 40 and 70% in stocks divided into growth and value. Somewhere between 15 and 30% in treasury bonds, intermediate or long term, less than 10% in cash, and then somewhere between 10 and 25% in alternative assets like gold and managed futures. So I'm not surprised that these test out pretty well. But your main question was whether you need to include both gold and managed futures and you favor managed futures. And the answer is no, I don't think you necessarily need to include gold, although gold and managed futures are in fact uncorrelated over the course of long periods of time. They can be correlated when managed futures is picking up a trend in gold, but that is only one exposure you're going to find in a fund like DBMF or any other fund that follows commodities, interest rates, and currencies. Gold does have a much longer history, obviously, of being used in portfolios and what we can back test. Now we do have simulated back tests of managed features going back over a hundred years that I've referenced recently. You can find at the AQR website. But the funds available have not been around that long, and the funds like DBMF that are the closest thing to an index fund in that area have not been around longer than about eight years. Really, the problem with that asset category prior to, say, the past eight years had been the cost of the exposure to it because the funds were expensive, or you were going through a hedge fund, or you had to do it yourself with managing a whole bunch of futures contracts, which is not a pleasant idea.

Voices [18:01]

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

Mostly Uncle Frank [18:04]

So I would say you're probably going to have a little more confidence in your portfolio in terms of it performing similarly to it has done in the past if you're including gold in it. And although managed futures and gold are performing similarly today, it is not always the case that they perform similarly. So you will get more diversification if you include both of them.

Voices [18:27]

That is the straight stuff, oh funkmaster.

Mostly Uncle Frank [18:30]

In the end, it's still your choice. I think your portfolio is going to quote work, unquote. Either way you go here. Because it does fall into the general parameters of what we see for portfolios that have higher safe withdrawal rates. And it's gone. Poof. So thank you for sending in your sample portfolios and ideas building on what Graham had proposed. It'll be in there in the show notes so other people can check it out. Thank you for being a donor to Fairfax Casa. And thank you for your email.

Voices [19:05]

Here's a horoscope for everyone. Aquarius, you're gonna die. Capricorn, you're gonna die. Gemini, you're gonna die twice. Last off.

Mostly Uncle Frank [19:22]

Last off of an email from Sarah.

Voices [19:26]

Clint Eastwood is back, and don't you forget it. The deadliest man alive takes on a whole army in two mules for Sister Sarah, co-starring Shirley McLean from Universal Rated GP.

Mostly Uncle Frank [19:38]

And Sarah writes.

Mostly Queen Mary [19:40]

Dear Frank and Queen Mary, I have donated to the Father McKenna Center and submitted my employer match, so it will triple.

Voices [19:47]

Yes!

Mostly Queen Mary [19:48]

First, I feel so lucky to have found this incredible dive bar of a podcast. Lucky? I love your show, clips included, and I have appreciated your no-nonsense, non-commercial approach to do-it-yourself finance, which I can both understand and trust.

Voices [20:05]

It's a write-off for them. 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. Do you?

Mostly Queen Mary [20:20]

I also love that this entire enterprise helps the homeless and hungry in DC. It's the best deal in town.

Voices [20:27]

The best, Jerry. The best.

Mostly Queen Mary [20:29]

So now, perched on the ripped red vinyl bar stool at the end of the bar, I humbly submit these questions. I am a 45-year-old single mom. I work full-time, have majority custody, and now my mother has an Alzheimer's diagnosis, which will require me to travel frequently across the country, placing me firmly in the sandwich generation. This feels a lot more like a vice group than a fluffy sandwich, so I'm thinking, can I arrange my finances to ease the pressure during the sandwich years and then reapply the pressure during the empty nest years, all while staying on track for retirement? I decided to attempt a medium-term retirement for the next eight years until the kids are out of the house, then go back to work. Here's the setup. I'm going to quit my job and take a medium-term retirement for eight years from ages 45 to 52. I will go back to work at ages 53 to 62-ish. I'll retire fully between ages 62 and 65. My annual cost of living is $90,000 a year. I have approximately $1.5 million net worth split like this, $50,000 in an emergency fund, $75,000 cash for living expenses for the remainder of 2026, $670,000 in a taxable brokerage, $550,000 in an IRA, and $205,000 in a Roth IRA. My thinking is to split the portfolio in half. I can stretch The $75,000 cash and $670,000 brokerage for the next eight years at $90,000 a year plus inflation. Then I can leave the other $755,000 K untouched in the IRA and Roth to continue to grow aggressively until my permanent retirement at 62 to 65-ish. And between ages 53 to 62-ish, I'll work at a job that will pay my living expenses at minimum and would likely start contributing to the retirement funds again too, although I wouldn't need to. I am hoping to get your opinion on the following investment plan. I'd like to do a golden ratio style portfolio in the brokerage account. This year, because I had to convert a 100% equities portfolio, which was quite a tax hit, I plan to start with the $660,000 allocated at 59% stocks, 38% SP 500, 21% small cap value, 26% long-term treasury bonds, 10% gold, 5% managed futures. Another $75,000 cash is in a high yield savings account for spending and tax payments for the remainder of 2026. By next year, I'll reallocate that extra SP 500 into managed futures and cash to match the true allocations of golden ratio 42, 26, 16, 10, 6. I'm treating both the IRA and the Roth IRA as one big account and keeping them in an aggressive growth model, a 50-50 allocation of small cap value and large cap growth, and planning not to touch it for about 17 years until I'm 60 to 62. Theoretically, it will reach 2.5 million in value by then, and I can convert it into a risk parity portfolio and retire fully. That amount, plus my social security, will be enough for retirement, assuming I continue frequenting dive bars and not fancier places.

Voices [23:56]

Peter, I don't think you should be driving with your feet. Roadhouse. Wait, why are you taking the back way home? There are so many turns. Roadhouse. Roadhouse.

Mostly Queen Mary [24:08]

Roadhouse. Roadhouse. Of course, that 50-50 mix could always perform differently in the future, in which case I may need to work past 62. But I like working, and I'm willing to take that risk to spend the most important years with my child and mother while I still can.

Voices [24:26]

Don't ever take sides with anyone against the family again.

Mostly Queen Mary [24:30]

My main question is: how does a risk parity portfolio construction or withdrawal change, if at all, when using it as an eight-year retirement fund and it's all being held in a taxable brokerage account? Is the golden ratio portfolio allocation still the investment route you would take in this scenario?

Voices [24:48]

Not gonna do it. Wouldn't be prudent at this juncture.

Mostly Queen Mary [24:51]

If not, what might you adjust? Specifically, the following issues are on my mind as potential flaws in the plan, and I'm curious to hear your take. 1. While I've heard you say that golden ratio risk parity style portfolios are great for medium-term savings, five to seven years, I haven't heard anyone talk about doing an eight-year retirement on one, withdrawing as you go along. I imagine draining it in eight years changes the dynamics of the portfolio itself, probably adding more volatility. In this case, would it be safer to go with a different allocation? Could a 30% stock, 70% bond portfolio, or something like that be a smarter plan, considering that the next eight years will undoubtedly be highly volatile in stocks. Sorry, I'm peeking into a crystal ball here. The crystal ball is a conscious energy. Would it be smart to reduce the sequence of returns risk by building a three-year bond ladder first and relying on the portfolio for years four to eight? Two, should I consider a substitute for gold that has lower tax implications? Since I only need $90,000 a year, I'll be in the 0% bracket for cap gains, which is pretty great and I would love to keep it that way. 3. Additionally, given the whole risk parity portfolio is in a taxable brokerage account and only needed for 8 years, would that change what asset allocations you recommend? I'm curious if you'd recommend intermediate treasuries instead of long-term treasuries. Because I only need $90,000 a year to live, I can easily qualify for the 0% capital gains tax bracket. Yay! So adding alternative assets that get taxed at ordinary income rates does not feel appealing. Gold and REITs. Since I am only holding the portfolio for eight years and trying to minimize taxes, perhaps I can get by with another substitute. At the end of the day, I'm clear that I'd rather have more taxes and less volatility, so I'm willing to hold the gold. I'm just unsure how to assess this trade-off, or if there might be an alternative. 4. I know you can't time the market, forget about it.

Voices [27:05]

Forget about it.

Mostly Queen Mary [27:06]

But you also can't deny that stocks are insanely overvalued right now and they will drop at some point soon. Overall, I want to prioritize reducing volatility and protecting the principal and the brokerage. Bill Bangin advocates for active risk management, which he clarifies is different from trying to time the market. In particular, he suggests using InvestTech research as a guidance for when to buy and sell, meaning making incremental changes to the portfolio allocation in response to one's assessment of market risk. From previous episodes, I'm guessing your answer is that the portfolio construction itself is the risk management.

Voices [27:46]

You are correct sir, yes!

Mostly Queen Mary [27:48]

But what's your take on active risk management in an eight-year time frame?

Voices [27:53]

Forget about 5.

Mostly Queen Mary [27:55]

Along those same lines, I'm willing to take much higher risk in the IRAs given my longer time frame of 17 to 20 years. And yet, to convert the IRAs into those aggressive models, I'd have to buy the large cap growth stocks at this all-time high pricing. At this particular moment, might it be wise to wait until the stocks cool off before buying, even if it's a year or more? I don't know if this is foolish, but I'm thinking perhaps I could buy 100% small cap value right now, hold it till the market drops, then sell half the small cap value off, and rebalance to 50-50 large cap growth small cap value at that time. Thoughts? Now that I've become the rambling drunkard at the end of the bar, I will conclude this. Thank you from the bottom of my heart for helping me use these principles to take care of my family in this season of my life while still responsibly saving for retirement. Sincerely, single mom Sarah in Southern California.

Voices [28:55]

You know what you're talking about. It's crazy, Sarah. The least you can do is take off your hat. I haven't got time for that.

Mostly Uncle Frank [29:03]

Well, Sarah, first off, thank you for being a donor to the Father McKenna Center. Just to plug that for a moment. As all of you know, here we do not have any sponsors on this program. We do support charities! Both Fairfax Casa and the Father McKenna Center. The Father McKenna Center serves hungry and homeless people in Washington, D.C. And full disclosure, I'm the board of the charity and the current treasurer. But if you give to either one of the charities, you get to go to the front of the email line. Fairfax Casa gets prioritized first these days. So, yes, Bill and Brian, I have you in the queue, but you'll have to wait. At least one more episode. Anyway, getting to your email. First off, I really find your email very intriguing, and I'm really happy to be able to serve you. You are exactly the kind of person that I'm hoping to reach and be able to help because you are prioritizing your life over your finances and trying to make your finances work for your life. That's what I'm talking about. And like you, we've had complicated lives involving both parents that need help and children that need help. And if we can use portfolio construction to make our lives work, that's what we're really trying to do here. That's why we're messing around with finances. It's not for the finances, it's for the life. We the people.

Voices [30:38]

That's what you call Eid Plebnista was not written for the chiefs or the kings or the warriors or the rich or the powerful, but for all the people.

Mostly Uncle Frank [30:48]

And so the way I break your situation down is you have about $795,000 that you want to use at about $90,000 a year over the next eight years, then you're going to go back to work and you have another part of the portfolio that is not going to be used for more like 20 years. But you really want to focus on what do we do with this $795,000 in terms of investing it, given that you are using most of it over the next eight years. Now, if you went to a traditional financial advisor, they would probably put you in some kind of a bond ladder or a tips ladder, because that is actually an appropriate use for that kind of structure, that you are disgorging a pile of money and spending it all within a fixed period of time. And that is one good use for things like bond ladders. I tend to agree with you that you probably don't want to use a bond ladder in this case. And really for one reason, if you set up that kind of structure in a bond ladder, really you are taking a fixed approach that you're not going to be able to vary your spending if in one of those years you happen to want to spend more money. And I think having some flexibility here is going to be important, particularly since you do not have an income coming in over this eight years, or we're assuming that you don't have any other income coming in. So then we're talking about what kind of portfolio solution could we use for this kind of purpose. And this is quite different than a long-term retirement portfolio. And your instincts are correct that what you probably want is something that is much more conservative than something like a golden ratio kind of portfolio. And you mentioned 3070, which is actually within the ballpark of what I'd be thinking about for something like this. So I did a little analysis for you that we're going to put in test folio. But basically, what I'm doing here is trying to apply Bruce Lee's adage here, which is to look at several other examples, take what is useful, discard what is useless, and then add what is uniquely your own to this mix given the short time frame we're talking about and really disgorging most of this portfolio. So I pulled up three examples of conservative portfolios, one being the all seasons portfolio, which is one of the sample portfolios that is 30% in stocks, 55% in intermediate and long-term treasury bonds, and the remaining 15% divided into golden commodities. The next portfolio, conservative portfolio I picked up was the permanent portfolio, which is kind of the godfather of these kinds of portfolios. That portfolio is one quarter in stocks in the total stock market fund, one quarter in long-term treasury bonds, one quarter in cash or short-term treasury bonds, and one quarter in gold. Then the third idea or concept I picked up is the Vanguard Wellesley fund. And that fund is about 35% in stocks, between 30 and 35% in stocks, and 65% in bonds. What is notable about that portfolio, besides it being around forever, is that the stocks are value tilted. They're essentially large cap value tilted, and the bonds are kind of a total bond mix. So I thought about why don't we take those three things and take what is most useful out of each one of them to construct an even more conservative portfolio that will work for you. So in the take what is useful category, looking at the stocks, the all seasons and permanent portfolios have a total stock market fund or SP 500 fund as the stock allocation. I think if you want to go more conservative, you'd be better off looking at something like what the Wellesleys got, which is an allocation that is focused on large cap value stocks. These are going to be less volatile than the total stock market. So slightly less returns, but they're less volatile, and that's what actually makes the Vanguard Wellesley fund a good fund for conservative retirees. That's who it's really for. And I think 25 to 30% in stocks is a good amount. So we can go with 30% in stocks here. So in order to tilt that towards large cap value, the first fund I would look at is something like VTV, which is just Vanguard's large cap value fund. And you could actually go with that as the entire allocation. But one thing I would like to add to that would be an allocation to property and casualty insurance companies, which is essentially mimicking Warren Buffett and the baseline for Berkshire Hathaway. Now the fund for that is called KBWP. And so I would probably make this 15% VTV and 15% KBWP, or it could be 10% KBWP. What that will give you is a little protection if we have in particular a inflationary bout like we had in 2022. KBWP was actually up 10% in that year. And over its history, since about 2010, it has performed almost like Berkshire Hathaway, but slightly better. So it's very conservative and even diversified from large cap value itself. It's interesting, I was listening to one of my favorite new finds, which is the podcast YouTube channel run by Steve Eisman. Steve Eisman is the character who is played by Steve Carell in the big short film. So he's this longtime Wall Street guy and has that typical cynical New York attitude about everything, which I do really appreciate because he speaks his mind.

Voices [37:00]

So let me get this straight. Yeah. We're not in the Merrill Lynch building. Okay. You're 20 minutes away. Five E's a helicopter. That's hilarious. Because only one thing counts in this life. Get them to sign on the line which is dotted.

Mostly Uncle Frank [37:37]

So I was unaware he had a YouTube channel, and I started watching this. He's actually going through cancer treatment right now, and I can't believe he's out there actually doing this, but he has a weekly podcast YouTube video and also does interesting interviews. Recently interviewed somebody who was pro-artificial intelligence and then somebody who was anti-artificial intelligence, both experts. I thought that was interesting too. But anyway, one of the things he was talking about recently was diversification, particularly away from growth stocks and into more value and cyclicals. And he actually particularly pointed out that although property and casualty companies reside in the financials sector and technically are cyclical, they really perform more like the consumer staples of financials or more defensive. And he particularly pointed out Chubb and Travelers and Progressive, which are the heart of the fund KBWP. And I've had an allocation to KBWP for six or seven years now that I've been very happy with. So I would make that part of a stock allocation for this kind of portfolio to keep it really conservative. The next thing I would take from these three sample portfolios is the idea that because you are taking out a lot of money soon, you do want a substantial allocation to cash or short-term bonds in this portfolio. And so 25% in cash and short-term bonds seems like a good number to me. That's about three years worth, would be similar to your three-year bond ladder. So I would take 25% of this portfolio, and this could include the cash money markets you already have floating around in there, but then you can add a short-term bond fund for the rest of the 25%. Something like VGSH or SHY would be fine for that. But that's going to add a lot of stability to this portfolio, which is a very useful idea on this time frame. So, what about the rest of the bonds? Now, all of these portfolios have allocations to long-term bonds. And I don't think that's appropriate for this kind of portfolio given what you're doing. So the longest bond I would hold would be an intermediate term bond. Now, these portfolios have 65% in bonds or 25% in long-term treasuries and the permanent portfolio, or 55% in intermediate and long-term treasuries in the all seasons. You already have the 25% in cash, so I would take another 25% and just put that in an intermediate treasury bond fund. And this is basically your recession insurance. It's not going to be as volatile as long-term treasury bonds. You can use something like VGIT for this purpose. So we are discarding what is not useful here, which is to have long-term assets in a portfolio that you are drawing down on this severely, this quickly. But you are essentially having 50% in short and intermediate treasury bonds or money markets, which is similar to all these other portfolios. And if we add that to the 30% in stocks we already talked about, we have 20% of space left in this. I would just make it half gold and half managed futures, I think would work well for this. So that's 10% each in those. So I took this Sarah portfolio, I called it, in testfolio, and ran that with these other three conservative portfolios, taking out $7,500 a month, which is $90,000 a year, which is what you said you needed. And then testfolio allows you to change the start date, which you really want to do in something like this. You can go back all the way to 2000, which is probably the worst start date that you can have, and then you could make it a start date of say 2015 or 2010. But you can play around with that and see what happens. Now, if you run this, what you'll see is that at least over the past 25 years, in terms of having the best returns, the all seasons and the Wellesley have the best returns. The permanent portfolio and this new portfolio I constructed for you, the Sarah portfolio, have similar returns. All of these work for what you're trying to do. They all last at least like 10 years in terms of disgorgement. The advantage this new portfolio I constructed for you to consider is that it has by far the least amount in drawdowns. The other ones have over 20% as a maximum drawdown, but this portfolio has a maximum drawdown of like 14%, which I think is very attractive for what you're trying to use it for here. This portfolio also has the highest sharp ratio and Sortino ratio in just about any run you make on it, which tells you that it has a better risk reward profile than the other ones. And that is primarily because it has this much shallower drawdown than the other three do. Now, it probably will not be the best performer because it is more conservative, but in terms of making your life easier and having the best survival properties, it works the best for that. And this is essentially rebalancing it every year as you draw it down. So you can check that out and see what you think. But I do think if you're going to use a portfolio solution here, not just a straight kind of ladder solution, that you do want a really conservative portfolio and something that is more conservative than something like a golden ratio portfolio for sure. So check out the Sarah portfolio and see what you think.

Voices [43:37]

More money, more money, more money.

Mostly Uncle Frank [43:41]

Now your next question was should you consider a substitute for gold that has lower tax implications? I don't think I would, given the kind of allocation we're talking about putting to gold here is only going to be 10%. It's going to be similar to the tax implications of holding a bunch of bonds. Be better actually, and similar to holding the managed futures. The bonds and the managed futures are actually the worst holdings from a tax perspective, they're worse than gold. The thing is, I don't think you have any tax issues here really, because you're talking about probably something like forty thousand dollars of income in a year that's taxable, because most of what you're gonna be withdrawing is not going to be taxable, it's part of the principle. So by the time you get through your standard deductions and everything else, your taxable income is going to be really low. In fact, you're gonna be easily qualifying for ACA subsidies and other things. So, in this situation, at least for the next eight years, I really wouldn't be that concerned with your taxables at all. And I certainly would not be trying to substitute equities for any of the bonds managed futures or gold in this. This is actually mostly a bond-heavy portfolio, is the kind of portfolio that you need for something of this nature. And since gold is not paying an income every year, you're not forced to take the taxes until you actually sell it, and then you're only being taxed on the gains. And that's just gonna end up being ordinary income for you, just like the bonds and the managed futures. Alright, I think that answers your first three questions. Your fourth one was about market timing.

Voices [45:24]

My name's Sonia. I'm gonna be showing you um the crystal ball and how to use it or how I use it.

Mostly Uncle Frank [45:31]

No, I wouldn't market time this. I wouldn't try to market time this in terms of reducing the volatility. That is why we're pushing you over to large cap value as the stocks in the portfolio. That it's a much better solution than attempting to jump in and out.

Voices [45:52]

You can actually feel the energy from your ball by just putting your hands in and out.

Mostly Uncle Frank [45:57]

I was aware of Bill Bengins' market timing exploits. Although I can tell you they're not that much of exploits because that using InvestTech has essentially kept him out of the market a lot and into lots and lots of cash. I think if I go back to 2020, 2021, around there, he was still half in cash due to what he was getting from InvestTech research. And I may be wrong about those dates, but I have not analyzed what they do, but I would not attempt it here. I think you can deal with your issues with very conservative portfolio construction and not be attempting to market time using InvestTech or any other mechanism that might appear from somebody named Sonia.

Voices [46:48]

A crystal ball can help you, it can guide you.

Mostly Uncle Frank [46:53]

As enticing that might be.

Voices [46:56]

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

Mostly Uncle Frank [47:01]

And then finally, question five, which is about what to do about the things you're leaving to grow for the next 17 to 20 years. I think that does go into 100% equities. And yeah, I probably would go with a 50-50 large cap growth, small cap value kind of split. I think the real question there is whether you want to add some international component to that. I was just listening to Paul Merriman talk about international small cap value, which is done particularly well recently. And evidently he's he and his boys have done a long-term analysis that shows that it tends to perform just as well as domestic small cap value. So if you were trying to hedge something here by altering the allocation, I would allocate at least some of your small cap value to an international small cap value fund like AVDV. I would not attempt to do any market timing here with respect to the large cap growth. If you're not comfortable with the large cap growth itself, just use large cap blend for that part of the allocation, which would be the SP 500 or a total market fund. If you wanted an international fund there, use something like IDMO. But again, the real point there is to put this all into equity index funds. Come up with an allocation you're comfortable with, and then just stick with that. Because we really don't know what part of the market will outperform in the next period. Although small cap value has been outperforming the rest of the market since the middle of last year, I don't know how long that's going to go on.

Voices [48:44]

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

Mostly Uncle Frank [48:50]

I don't think anybody would have picked that as a start date in the middle of last year to suddenly jump into small cap value stocks, even though that would have been the right move. I wasn't aware of anybody that was reading tea leaves or crystal balls and coming up with that prediction. And if you didn't come up with the prediction then, I don't know what basis you'd have for predicting when to stop focusing on small cap value now.

Voices [49:18]

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

Mostly Uncle Frank [49:27]

If you're looking for some comfort about whether we're in an AI bubble or not, I will tell you that Oswad the Motor and the god of valuation professor at NYU thinks that we're not. And he's recently done a seven-part series on basically the state of the market and all of his analysis. But he thinks that the market is essentially fairly valued right now, and his primary recommendation would be to make sure you're not all in the US and that you have allocations outside of the US. But the only reason I'm telling you that is that you can look around and find an expert that's going to say whatever you want them to say or feel like you want to believe at a particular time.

Voices [50:11]

What does Matt David say on that Bitcoin commercial? Fortune favors the brave.

Mostly Uncle Frank [50:16]

Because no, there is no consensus about what part of the market is going to perform the best in the near future. Just any kind of opinion you would like to have.

Voices [50:29]

Yes, everyone did, but they were brave in doing so.

Mostly Uncle Frank [50:32]

So my recommendation is to stay away from the market timing, lest you become that rambling drunkard at the end of the bar with a gambling problem.

Voices [50:40]

My name is Barney, and I'm an alcoholic.

Mostly Uncle Frank [50:44]

And we have to call you a cab.

Voices [50:46]

You can't handle the Crystal Bowl.

Mostly Uncle Frank [50:49]

So please do check out that test folio link and play around with it a little bit to find something you're comfortable with, because that's the main thing is that you need to be comfortable with whatever you're going into here so that you're not jumping in and out of things. But I think if you have a nice big pile of cash or short-term bonds, that will ameliorate any misgivings you might have should we have a bad market coming up next.

Voices [51:14]

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

Mostly Uncle Frank [51:21]

And in addition, if you have a bunch of large cap value stocks, you're going to find that those do not go down in a crash the way large cap growth stocks will. And that will also help to reduce a lot of your potential volatility. So you have one of the most interesting issues that we've dealt with on this podcast, and I'm very happy again to be able to assist you with this, especially giving your family obligations.

Voices [51:47]

Family.

Mostly Uncle Frank [51:51]

Hopefully that all helps. Thank you for being a donor to the Father McKenna Center. Please do write in if you have follow-up questions. And thank you for your email.

Voices [52:09]

Oh just smile for me, Sarah.

Mostly Uncle Frank [52:17]

And with that, 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.riskperdiRadio.com. Put your message into the contact form, and I'll get it that way. If you haven't had a chance to do it, please go to your favorite podcast provider and like, subscribe, give me some stars, a follow, a review. That would be great. Okay. Thank you once again for tuning in. This is Frank Vasquez with Risk Party Radio. Signing off.

Voices [52:55]

Forever.

Mostly Queen Mary [54:03]

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.