Cold Open And Theme

Voices [0:00]

A foolish consistency is the goblin of a little mind. A goblin by the little statesman and philosopher of the mind. 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, thanks. 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. Who?

Mostly Uncle Frank [1:14]

Top men. And you can find those on the episode guide page at www.riskparody radio.com. Inconceivable! All thanks to our friend Luke, our volunteer in Quebec. Sacosh. 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, Mary.

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 [1:52]

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.

Voices [2:04]

Really top drawer.

Mostly Uncle Frank [2:07]

Along with a host named after a hot dog. But now onward, episode 504. Today on Risk Parity Radio, it's time for our weekly portfolio reviews. Of the eight sample portfolios you can find at www.riskperodyradio.com on the portfolios page. Yeah. Not much happened this week, which is probably a relief given what's been going on the past six to eight weeks in the markets.

Voices [2:39]

I'm putting you to sleep.

Email On Treasury Bond Mix

Mostly Uncle Frank [2:41]

But before I put you to sleep with that I'm intrigued by this how you say email. And first off. First off of an email from Jose.

Mostly Queen Mary [2:56]

No way.

Mostly Uncle Frank [2:58]

And Jose Wright.

Mostly Queen Mary [3:00]

Hello again, Frank and Mary. Thank you so much for your response to our last email. We have two follow-up questions and one new question, so this will be a much shorter email, Mary. We promise.

Voices [3:12]

Mary, Mary, I need you hugging.

Mostly Queen Mary [3:20]

In your answer to our bond funds questions, you stated, so yeah, that's all in the retirement accounts. You can dump all that and buy VGIT and VGLT. So this might be helpful to you in that if you are holding VGLT because it's the long-term treasury bond with a higher duration and more volatility, you basically can hold less of that than you would have to if you're holding VGIT, which is less volatile but also moves less to the positive side during a recession. First off, this raises the question question. What percentage VGIT and what percentage VGLT? We've got our fingers crossed that this question doesn't classify us as level three investors, more interested in formulas than principles. We did try to find the answer on your website, but didn't find anything specific relating to the breakdown. We apologize if we missed it. Second question, is 18 to 20% in Treasury sufficient for a risk parity portfolio? Our IRA investments are 28.35% of our portfolio, with 10% of that in DBMF and GLDM? Last question. This is the new question. Question. Do the municipal bond funds in our brokerage account have any place in a de-accumulation portfolio? Why is it that every time I walk into the bank, the tellers look at me like I'm the one that robbed them last week? They're about 18% of our total portfolio. You are correct that the munis were purchased because of my income.

Voices [5:07]

You are correct, sir. Yes!

Mostly Queen Mary [5:09]

They were also purchased to increase our bond holdings to about 50% of our portfolio. We do not believe we need to have it that high. We could sell some and get our GLDM up to 15% and invest the other 3% in AVUV. We want to keep our stocks at around 55%. Thank you, Bill Bangin.

Voices [5:30]

Yes!

Mostly Queen Mary [5:31]

We're hoping we end with 55% stocks split evenly between large cap growth and small cap value, 20% treasury bonds, and 25% alternatives. Side note, I didn't receive a response email from Mr. Bangin, which I attach for your review. Feel free to comment on it if you believe it will be helpful to your listeners. Thank you so much for everything you both do. We've been moved by Mary's Casa Vignettes, and we made an additional donation to Fairfax Casa.

Voices [6:01]

Yeah, baby, yeah.

Mostly Queen Mary [6:03]

I'm a lawyer and my wife is a teacher. We're both looking at becoming volunteer advocates at our local casa. Take care. Best Jose and Mary Lou.

Voices [6:14]

Well, maybe it's like Casey says. A fella ain't got a soul of his own, just a little piece of a big soul. The one big soul that belongs to everybody. Then what, though? Then it don't matter. I'll be all around in the dark. I'll be everywhere. Wherever you can look. Wherever there's a fight so hungry people can eat, I'll be there. I'll be in the way guys yell when they're mad. I'll be in the way kids laugh when they're hungry and they know supper's ready. I don't understand it, Doug. Me neither, Mom, but just something I've been thinking about.

Treasuries As Recession Insurance

Mostly Uncle Frank [7:09]

Well, first off, thank you for being a donor to Fairfax Casa. As most of you know, we are running a promotion for Mary's charity, the Fairfax Court Appointed Special Advocates, or Casa for short, who are volunteers appointed by the court to assist children going through the foster system here in Fairfax County. April is Child Abuse Prevention Month, and so we thought it would be appropriate to run this in March and April. It's been going swimmingly so far. And Mary will report the results next week and the following week as we finish out the month. But if you have been thinking about it and haven't donated yet, now is the time. You do get to go to the front of the email line if you donate to Fairfax Casa or to my charity, the Father McKenna Center. And all three of our emailers today have moved to the front of the line by donating to Fairfax Casa. So the link to that will be in the show notes, and it's also on our support page at www.riskpartio.com. Just make sure you mention it in your email so we can duly move you to the front of the line. But now getting to your email. So your first question is what percentage of VGIT, which is intermediate treasury bonds, and the percentage of VGLT, which is long-term treasury bonds, would it be appropriate in the portfolio? Well, let's just step back and think about what role these play in the portfolio and sort of the general guidelines. And the role that treasury bonds play in a portfolio like this is to be essentially recession insurance. So we're not looking at them to really do anything in particular in most circumstances. It's just those 15% of the time when there are recessions, we want them to increase in value when just about everything else is likely to be decreasing in value. So that's a 2020 or a 2008 kind of scenario. And as a general guideline, most of these portfolios tend to have the highest safe withdrawal rates when that percentage of treasuries in intermediate and long term is somewhere between about 15 and 30 percent. So what is the difference between intermediate and long-term treasuries? Well, long-term treasuries are just more sensitive to interest rates, so they're more volatile overall. They will go up more in value in a recessionary environment. They will also go down more in value in an inflationary environment. So in a sense, they do add a little bit of volatility to a portfolio, although most of it is canceled out since they're zero or negative correlated with most other things most of the time. Except in those inflationary environments, unfortunately. But that's why you really don't want to overdo bonds in a portfolio or try to use them for things other than recession insurance or stability if they're short-term bonds or income. Well, we'll talk about that in a minute.

Voices [9:58]

Forget about it.

Mostly Uncle Frank [10:00]

But a lot of this ends up being more personal preference that some people are used to holding the intermediate-term treasuries because those are much more similar to, say, a total bond fund in the way they behave most of the time. They have the same kind of duration and usually the same kinds of volatility, except during recessions when they do better. So if you're looking for a general rule of thumb, if you have close to 30% of bonds in your portfolio, you would want some of those to be intermediate term because you're kind of overloaded there. If you had more than 30%, you would certainly want some of those things to be intermediate term. But if you're more towards the 15%, then you'd want to focus on the long-term ones. But other than that, it's kind of a personal preference, really. Because overall these portfolios perform pretty similarly in most circumstances. So I've seen people do one or the other or half and half. I prefer the simplicity of just having one of these funds. I'm not a smart man. So I just go with the long-term ones. So if you just wanted to split the difference, that would be fine. This does relate a little bit though to your second question, which is whether 18 to 20% in treasuries is sufficient in this kind of portfolio. And the answer is yes, but the lower amount you have, the more you would want to tilt towards the longer-term treasury bonds. Here's what I would do though, I would just go and run these portfolios as test portfolios, particularly over at portfolio charts, where you can just switch intermediate and long-term treasury bonds in whatever portfolio you're contemplating and see what the kinds of results were in the past. You'll find that they're not that much different in most cases. And you can do the same thing at testfolio. And maybe that will just tell you that it doesn't really matter that much in most circumstances. So it's not really the big decision here. The big decision was the amount of treasury bonds in the portfolio, that macro allocation to them. The specific funds are always a secondary decision or choice in one of these kind of portfolios, or really any portfolio. And I believe that also answers your second question. Is 18 to 20% in treasury sufficient? And the answer is yes. I would make at least half of those long-term treasury bonds, if not a little more.

Voices [12:20]

You can always use a little more. Am I right or am I right or am I right? Right, right, right.

Munis In Decumulation Portfolios

Mostly Uncle Frank [12:25]

But that is a goodly amount. Now moving to your last question. Do the municipal bonds in your portfolio have any place in a decumulation portfolio? They're about 18% of your total portfolio. And the answer to that is they're not necessary for this kind of portfolio. They are more of some kind of optional add-on that you would keep along for personal preference.

Voices [12:50]

Necessaire? Is it necessary for me to drink my own urine? Probably not. No. But I do it anyway because it's sterile and I like the taste.

Mostly Uncle Frank [13:02]

Now, thankfully, they are municipals and not taxables in your taxable account. Because this is a real problem I see in retirement scenarios generally and the way that financial advisors market retirement planning.

Voices [13:18]

I want you to be nice until it's time to not be nice.

Mostly Uncle Frank [13:27]

Roadhouse. Frequently, retirement planning is marketed as retirement income or retirement income paychecks, or something that sounds like a source of income, as if the goal of retirement planning was to generate income.

Voices [13:45]

Always be closing. Always be closing.

Mostly Uncle Frank [13:50]

That is not the goal of retirement planning. I'm sorry, it's not.

Voices [13:55]

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

Mostly Uncle Frank [14:02]

And income causes a serious problem sometimes because the first word after income is taxes. Get that through your head. Whenever you're talking to a retirement planner, ask them, why are you telling me to generate income when I know and you know and everybody else knows that the first word after income is taxes?

Voices [14:27]

You're too stupid to have a good term. You need somebody watching your back at all times.

Mostly Uncle Frank [14:51]

Now you did the smart thing for this taxable account by dealing with that problem by using municipal bonds for that income. And that deals with the tax problem. The other way of dealing with a tax problem because of the income you're generating that you probably don't need.

Voices [15:07]

Do you think anybody wants a roundhouse kicked to the face while I'm wearing these bad boys?

Liquidity Over Retirement Income

Mostly Uncle Frank [15:13]

Roadhouse. Is putting those things, tax locating them inside of traditional retirement accounts, because then the income generated inside those accounts is not going to be taxed, at least not in the year that you are forced to record it. So you have successfully mitigated your tax problem caused by this income. Which is a lot better than all these bucketeering strategies I see people dealing with. Putting large piles of cash and tips ladders and all sorts of other things in taxable accounts, as if that's a good idea. So what should retirement planners be focused on that is not income? That is what you really want.

Voices [16:16]

Are you listening, man?

Mostly Uncle Frank [16:19]

What you really want is not called income. It's called liquidity. Get that through your head. The name of the thing you want is liquidity, not income. Roadhouse. Because if you have liquidity, that means you have the available resources to spend on whatever you want in the time that you need to spend it.

Voices [16:41]

That is the straight stuff, oh funkmaster.

Mostly Uncle Frank [16:45]

Now, generating income is one way of having liquidity, but it's not the only way, and it's not the preferred way. The preferred way is just having assets that are liquid that you can just sell whenever you need, and keeping the cash amount low enough so it's not dragging down your portfolio.

Voices [17:08]

Did you see the memo about this?

Mostly Uncle Frank [17:11]

And that is one of the advantages we have today in the 2020s, is that we have no fee trading and fractional shares. So it's easy to get liquidity at no cost out of just a regular portfolio. You just get on your phone and sell something and send the money to yourself. It's like ordering an Uber.

Voices [17:32]

And we have the tools, we have the talent.

Mostly Uncle Frank [17:35]

Or if you have a line of credit, a margin account at a place like Interactive Brokers. That is another way of having liquidity. Did you get that memo? This is also the problem that you have if you have most of your assets locked up in real estate, like your primary residence in particular, or in some of these newfangled private equity and private credit or debt instruments, because they often have liquidity restrictions. And anything with a liquidity restriction should get a black mark as far as retirement planning is concerned.

Voices [18:12]

Yeah. Didn't you get that memo?

Mostly Uncle Frank [18:15]

Because a lack of liquidity is a problem that needs to be managed. Income is a problem that needs to be managed. It's not a desired thing, it's a problem that needs to be managed because the first word after income is taxes. Roadhouse. So you want to focus your planning around having sufficient liquidity, not income. Income is only one source of liquidity and it's not a good one. And uh, I'll go ahead and make sure you get another copy of that memo. Okay. So, as for what to do with your municipal bonds, you can keep them if you want them, but if you need to use that to fill out your portfolio, I would do that first. I would make that a priority. Because it's possible that your retirement portfolio is enough as set up with a certain amount, and then you have this excess amount. If you want to put that in municipal bonds, that's fine. If you want to put it in cash or put it in anything, depending on what your ultimate purpose of it is. If you're not sure what the purpose is, maybe it just sits in municipal bonds for now, but is available for spending on something or reinvesting in something at some point. I would treat it kind of as a buffer. So if you need to sell some to fill out your portfolio plans, I would do that first, and then the remainder can either sit there or be put in the portfolio, or you can do something else with it. So hopefully that answers that. And you enjoyed that little mini rant about taxes.

Voices [19:53]

And his name is John C.

Mostly Uncle Frank [20:00]

I don't complain about taxes that much, but what I do complain about is people adopting strategies that generate unnecessary taxes.

Voices [20:09]

Are you crazy? Or just plain stupid.

Mostly Uncle Frank [20:13]

Because of these words like retirement income paycheck. Stupid as stupid does, Miss Blue.

Voices [20:21]

I guess.

Mostly Uncle Frank [20:23]

And yes, that's classic level two thinking terminology and marketing going on there.

Voices [20:29]

Sitting out there waiting to give you their money. Are you gonna take it?

Market Timing And Naive Diversification

Mostly Uncle Frank [20:33]

It's good psychology for nervous people, but it's often and usually bad finance.

Voices [20:40]

Forget about it.

Mostly Uncle Frank [20:42]

And then finally, looking at this email response from Bill Bangin. I did see a response there, but it looks like pretty much exactly what's in his book. So it's not really adding anything there. The one thing you should also recognize, though, and we're doing a little Bruce Lee here, take what is useful, discard what is useless, add something uniquely your own. Is that a lot of your favorite gurus, and they don't like to talk about this, but they are market timers. Bill Bangin is one of those people. Paul Merriman is one of those people. And Bill Beggan actually subscribes to a service that does this for him. I don't think it's actually helped him. It's kept him underinvested because I've been following what he's been doing since about 2020. But the type of market timing we're talking about here is essentially using a variation of the four quadrant model to try to guess or determine what quadrant we're in, and therefore what kinds of allocations we should have to take advantage of that. And I what I mean by that is it's based on some reading of macroeconomic factors in the economy.

Voices [21:51]

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

Mostly Uncle Frank [21:55]

And this is what hedge funds and people that sell newsletters and all sorts of other things. This is what they spend most of their time doing. Anybody who's talking about macroeconomics and investing is doing some kind of market timing in a way that is related to the four quadrant model. And the truth is, most of them are unsuccessful, or their success is no better than some kind of buy and hold strategy. And the other problem is it's generally not replicable. So this is where I put up the simplicity principle and say it's probably not worth most of us doing. And certainly, from my perspective, I want to be able to teach something to our children that is replicable and does not require them to be thinking about these things. Basically just coming up with a portfolio in some set allocations and sticking with it. However, if that kind of investing excites you, you have a gambling problem. I suggest you go over to Hedgeye, who is another one of these places that does it on a more short-term basis. And I'm talking daily and weekly trading, but you can get a sense of how macro allocations and a four-quadrant model are applied in that circumstance if you watch what they do over there. Therefore, that is why our portfolios are structured as what you would call naive diversification. And that means you come up with a setup with macro allocations in specific quantities with a commitment to be sticking to that and rebalancing into it periodically. So we're not changing the allocations based on some reading of macroeconomic factors, which is what Bill Bangin is doing and what Paul Merriman is doing in part of his portfolio that is still managed by his old firm.

Voices [23:53]

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

Mostly Uncle Frank [24:02]

So no, I'm not saying that you shouldn't do this kind of market timing if you really want to, but it will be more work, and it may actually cause you more problems than the problems it is supposedly fixing.

Voices [24:16]

Place it over a candle. And it's through the candle that you will see the images into the crystal.

Mostly Uncle Frank [24:26]

But I think that's enough on that.

Voices [24:28]

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

Mostly Uncle Frank [24:32]

So hopefully that helps. Thank you for being a donor to Fairfax Casa, and thank you for thinking about volunteering for your local casa. Mary's found that very rewarding, and a lot of people do. And thank you for your email.

Voices [24:52]

Second off.

Mostly Uncle Frank [24:54]

Second off an email from Optimus Bill.

Voices [25:00]

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

Mostly Uncle Frank [25:04]

And Optimus Bill, right?

Mostly Queen Mary [25:07]

Dear Queen Mary and Uncle Frank. First off, ladies first, Proud Mary, could you please tell all of us another poignant bedtime story with all the feelings of another inspirational Fairfax Casa's success against all odds?

Voices [25:21]

The women of this country learned long ago. Those without swords can still die upon them. I fear neither death nor pain.

Mostly Queen Mary [25:28]

Clip links are provided, Frank, because I know you are a fragile and lazy retiree, don't need another job, and just don't care.

Voices [25:36]

Looks like you've been missing a lot of work lately. I wouldn't say I've been missing it, Bob. Good one. Oh, that's terrific beards.

Mostly Queen Mary [25:46]

Second off, as one of the band of brothers, I have a few and proud questions for you, Uncle Frank. Oh sensei my sensei, keeper of the golden ratio and Jedi Master of the Risk Parody Metaverse.

Voices [25:59]

Everything is proceeding as I have foreseen.

Mostly Queen Mary [26:09]

One, a debate over Social Security and when to take it is raging in the FI space lately. Links to recent articles by Mr. Monty Mustache, Jesse Kramer, and Sean Mullaney are provided here.

Voices [26:23]

This is pretty much the worst video ever made.

Mostly Queen Mary [26:27]

Given that your oversized brain has the unique ability to digest an infinite plethora of noisy, conflicting information and distill it into a signal as pure as the driven snow of data-driven common sense. How say you are the primary factors in order of operations for making individual decisions on when to claim social security? I bet you love the structure of that mouthful of a sentence, Mary. I wrote it intentionally just for you. Q nails on a chalkboard. Is the fervor over this topic, like an addiction to safe withdrawal rates, just beating a dead horse and more rabid over optimization in the FI community? 2. The four-quadrant market weather model is fundamental to the tenets of risk parity principles of portfolio construction. I was interested in how much market time is spent in each quadrant over the last 125 years. Surprisingly, Google maintained that roughly 25% of this time period has been spent in each quadrant. Granted, it can spend a long, unpredictable portion of each market cycle in largely one quadrant if as we have seen many times in history. If this is true, ever-loving critical base rate of this reference class, shouldn't we consider constructing a risk parity portfolio that equally weights assets that operate best in class largely in each individual quadrant? This could give us, for example, a model portfolio of 12.5% gold and 12.5% managed futures in the upper left, 25% long-term treasuries in the lower left, 25% large cap growth in the lower right, and 25% small cap value in the upper right. I personally use an 80-20 US international split in the two right equity growth quadrants. Cash, who needs cash in a total return world? However, since it sits at the intersection of all four quadrants, if we wanted a cash equivalent allocation, we could take it prorata from each of the assets that live in their optimal market weather quadrants. Oddly enough, when I roughly do this and add a 3% cash plus 2% Bitcoin allocation, I come up with my precious Optimus Prime portfolio. I do take a little from gold and manage futures to boost long-term treasury recession insurance in backtesting and add a little Bitcoin for unpredictable fund volatility. Is this an accident? What say you? LCG allocation 19% VUG, 5% IDMO, SVC allocation, 19% AVUV, 5% AVDV, gold allocation, 11% IAUM. Managed Futures allocation, 11% DBMF. Long-term treasuries allocation, 25% VGLT, Cash BOXX 1.5 or 3. Bitcoin 2% IBIT. This gives me a harmonious 50-50 equity, fixed income, and alternative split. It ain't the golden ratio, but it's all mine, mine, mine. Cue the Bruce Lee principle. Cheers, Optimus Bill.

Voices [29:59]

I employed some Chiara Scuro shading. I'll improve on your methods. What? That's not an improvement. Truckdoor strikes again.

Mostly Uncle Frank [30:12]

Alright, thank you also for being a donor to Fairfax Casa. And being a good friend. Let's get straight to your questions. So, social security. I'm not sure why people write and debate about this so much. It's really not that interesting, honestly.

Voices [30:31]

Gosh!

Mostly Uncle Frank [30:32]

But I guess because it's a familiar topic, it's something that attracts attention and that people want to hear about. I think the problem with these kind of questions about when should you take social security is that this is more dependent on your other situation in life than some kind of financial calculation. So about 40% of the elderly in the United States live pretty much exclusively on Social Security. And so their life circumstance basically dictates that they need to take it as soon as they lose their job or can't work anymore because they needed to pay their bills. So that's not really a financial question at all, except to the extent of the fact they didn't save enough money to live without living on Social Security. But there's no optimizing going on there other than you need to eat, so you need the Social Security money, so you take it. The next category are people that are reliant on Social Security for a large part of their retirement spending. And they are generally also constrained to take it at a certain time and often cannot wait. So they may have a situation where they can say, Well, I can retire at 64 or 65 if I start my Social Security, but if I don't start my Social Security, I need to keep working until, say, age 70. Again, that's really not much of a financial question, is more of a life planning question about whether they actually want to keep working or not. I mean, they have a choice because they have a job. But again, this is focused more on short-term needs than any kind of long-term planning or anything like that. And then we have the third category of people, which is usually what people end up talking about here is what if you actually don't need to take the Social Security for lifestyle reasons, but have the option of taking it at any time. And then that leads to these kind of financial calculations about what would be optimal in those circumstances. And the way most people do this in my mind suggests that they don't understand principles of valuation. I spent decades with valuation experts, talking with them about various methods of valuation and various methods of valuation for various purposes. And I will tell you that most people in personal finance, including most financial advisors, have a Dunning Kruger problem when it comes to valuation, because they believe that the only way of actually doing a valuation is to do some kind of discounted cash flow analysis or a net present value calculation. And that's why they fixate on that sort of thing. And then it comes down to what kind of discount rate are you putting into that calculation and people arguing about that, because that's the key variable in those kinds of calculations and those kinds of valuations. That's also why you hear people say things like, I only invest in stocks and bonds because they have a cash flow, because I can't value something if it doesn't have a cash flow. That is a false statement, actually. That's the Dunning Krueger problem.

Voices [33:38]

At times you may feel that you have found the correct answer. I assure you that this is a total delusion on your part.

Mostly Uncle Frank [33:47]

If you think that you need to have a cash flow to do a valuation, you don't know how to do valuations. You've never studied it, you haven't read any books.

Voices [33:56]

You come in here with a skull full of mush.

Mostly Uncle Frank [33:59]

You're wrong.

Voices [34:01]

Wrong!

Mostly Uncle Frank [34:02]

You're ignorant.

Voices [34:04]

Ha ha, you fool! You fell victim to one of the classic blunders.

Mostly Uncle Frank [34:08]

Now, you may like that. That may be a preference for you to have something with a cash flow that you can do a discounted cash flow analysis or net present value analysis to do evaluation with. But to say that's the only way to do evaluation is stupid and it's wrong.

Voices [34:24]

Hello! Hello, anybody home? Think McFly, think.

Mostly Uncle Frank [34:29]

And you don't know what you're talking about if you're saying things like that. So get over yourself. If you really want to study it, go read the books about valuation. I'm talking about textbooks written by people like Oswad the Motoran. Okay, what is the best way to do a valuation of something like Social Security? Have you ever really thought about this? It is actually similar to the way you buy property, which is you look and see whether there's a market price for the thing. And so in this case, because there is a market for things called annuities, and you can go to immediateannuities.com, you can price this kind of a cash flow as an annuity. And how much would it cost you to buy that cash flow if you were to buy it on the open market? And that is the best way of doing a valuation of something like this. If it already has a market value, you can rely on the market to value it, and then you're not doing a discounted cash flow analysis or a net present value analysis to do a valuation. Inconceivable. Now, somebody who does this professionally would do the valuation in more than one way. In fact, they would do it in every way possible and then try to figure out which one would be the best one or the most appropriate one. Or hopefully they come up with similar numbers. But here, if I were trying to value Social Security, I would go and price it as an annuity as best I could, because you're not going to find annuities with CPI inflation adjustments to them. You will find them though with escalators, and you can model them that way. So I would just get rid of most of these things that people are talking about. And unfortunately, the thing that Mr. Money Mustache did is completely dunning. Kruger don't understand valuation. That is also true of anybody that's doing this break-even analysis. That is not a method of valuation. That is also an ignorant way of doing things. Okay, but let's get to the bigger problem, which is I don't think doing valuations of Social Security is that useful for retirement planning anyway. Because it's just a cash flow. You can just model it as a cash flow, subtract it from your gross expenses, and then you have a net expense number that needs to be covered by your portfolio or something else. That makes more sense for modeling purposes. And then you could put in whatever that cash flow would be at various ages and do different kinds of plans and models and things like that. And that's what a good retirement planner is going to do. They're not going to be sitting around doing net present values of Social Security or doing break-even analysis. So where do we come out? Well, I go back to personal situations because I do think this ultimately is a personal decision. And for us, Mary and I know that we both have longevity in the family. My father just turned 97. She had an aunt that lived to 104. In those circumstances where you think you were going to far out live, or there's a good chance you're going to far outlive your actuarial table death, that financial choice is pretty easy, which is just to delay it as long as possible. And this is also true if you're talking about Social Security for a married couple versus social security for an individual. Those are actually two completely different animals. Because one is essentially a joint life annuity and the other one's a single life annuity. And a joint life annuity is always much more valuable than a single life annuity. So it's almost a no-brainer that if you're married and one of you has a chance of living into their 90s, that you're generally better off delaying social security if you can. So that's what we'll do, and then we'll use a nice calculator like open socialsecurity.com to calculate when Mary should take hers since she was the low earner and I'm the high earner as far as Social Security benefits are concerned. So mine definitely gets delayed until age 70. When we take hers, we need to run it through that calculator and we'll just take whatever it says. And that'll be good enough for us because it's actually not a major part of our retirement planning. But Bill, there's also a good example from another friend of ours that takes an opposite approach based on personal preference, and that's your co-host, Jackie Cummings Koskey, who I believe plans on taking Social Security at age 62, essentially so she can go party with the money. And honestly, I really like that choice because she is choosing to maximize life and life plans and not looking at the decision as mostly financial. And I would encourage people to think about it more in those circumstances because if you're already financially independent without Social Security or with a little bit of it, then you don't need to be making this choice based on finances at all. And it makes a whole lot more sense to make it based on life choices and maximizing your life, avoiding the five regrets of the dying, than it does to be making any kind of financial calculation with it whatsoever. It's essentially an inheritance or the equivalent of an inheritance or a windfall that you can use any way you want. Heck, she may also use it to fund a $529 for her new grandchild. Think about how that would enhance relationships and score more points in the life game, even if it's not scoring particular points in the discounted cash flow analysis or net present value analysis game. Alright, now moving to your second question. I think we've already talked about your portfolio enough, and I'll talk to you more about that offline, but basically that looks fine. Put that coffee down.

Voices [40:20]

Coffee's for closes only.

Mostly Uncle Frank [40:24]

What I wanted to talk about was your answer from Google, which I think is incorrect actually, that if you look at those four quadrants, do we spend equal time in the four quadrants of the four quadrant model? This has actually changed over time historically, which is why trying to use that model as a prediction of how much you're going to need or make allocations based solely on that is generally a mistake. That you should be making your choices based on what your goals are for the portfolio overall, and not based on this kind of attempted market timing using the four quadrant model, which we actually just talked about with the last question. And the idea that you can just divide up the four quadrants and pick one asset for each quadrant is actually the original idea that Harry Brown had for the permanent portfolio. This is back in the 1970s and early 1980s. But as we recount the history in the first few episodes of this podcast, that was just kind of a primitive stab at creating a portfolio that would work well. And it really didn't work that well, other than being extremely conservative and having too much cash in it. So as we'll talk in a little bit, you really need to focus on making sure the portfolio is actually performing the way you want it to, in terms of either returns or a high safe withdrawal rate, or whatever it is you're actually trying to do, and not trying to just conform to four quadrants and thinking that's going to solve all your problems and be the be-all end-all of all portfolios. But now getting to this history. So as you know, I'm a very curious child. So I've actually read a lot of financial history going back to the 19th century. A book like 50 Years in Wall Street by Henry Clues is published in 1907. I would read that if you're interested in this. Lords of Finance, which is about central bankers in the 1920s. I'd read that. I'd read a biography of Hedy Howland Green, who is the best investor of the Warren Buffett of her era, which is the late 19th century. And of course, reminiscence of a stock operator, which is every trader's Bible, and describes the life of Jesse Livermore, except for his unfortunate suicide after he went bankrupt for the third or fourth time. He had a gambling problem.

Voices [42:47]

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 [43:03]

So what you learn from all that stuff and other stuff, you can also read Barry Eichengreen's History of Great Depression, is that recessions were just as common as inflationary periods back in the 19th century. This is when there was no central bank and we were on a complete gold standard. So everything was just kind of left to the winds, if you will, or how much gold was being discovered and whether we were using silver or not as money, which is a major political argument in the late 19th century.

Voices [43:37]

We reply that instead of having a gold standard because England has, we will restore biometalism, and then let England have biomedalism because the United States has. If they dare to come out in the open field and defend the gold standard as a good thing, we will fight them to the uttermost, having behind us the producing masses of this nation. And the world, supported by the commercial interests, the laboring interests, and the farmers everywhere, we will answer the demand for a gold standard by saying to them, you shall not press down upon the bow of labor this crown of thorn. You shall not crucify mankind upon a cross of gold.

Mostly Uncle Frank [44:23]

So there was no central bank, and there was no central bank trying to manage the economy in any way, which really didn't start happening until the 1920s. And then they screwed it up in the late 1920s and did things that actually made things worse and led to a worse depression than we probably would have had it had they known what they were doing at the time. So basically, you have a monetary era before there was a central bank that segues into having a central bank and then one that's actually trying to do something in some constructive way, but you're still under a gold standard until you get to the 1970s, and then you have a different era. And the overall exposure to quadrants did change throughout those eras. That is why recessions are more and more rare than they used to be. Because instead of having a system that could have equally likely inflation or deflation, our system is designed to inflate. That's why there's a 2% inflation target and not a 0% inflation target. Because it's generally recognized that deflation is so undesirable that you really don't want it at all. And you'd rather have a little inflation because that also supports growth generally. And that's why we tend to have quadrants that are positive inflation. And also the central bank and the government are trying to encourage growth as well, and will often stimulate the economy by putting money into it to stimulate growth that way. So there are thumbs on the scale, if you will, to encourage positive inflation and positive growth. And you see more periods like that now than you did in the past, due to the structure of our money system and the behaviors of the governmental and central bank actors in the system. But that's also why I would not just look at the quadrants and think you can do allocations based on those quadrants, because I don't think it'll work very well. You're much better just using the shorthand that I talked about last time, which is 70% of the time the stock market's going up, 30% of the time it's going down. This is after adjusting for inflation, and half of those going down times are recessions. If you know that, do some backtesting. You're much better off doing it that way than trying to suss out meaningful allocations and strategies from just looking at the four quadrant model itself. And this is also the nature of complex adaptive systems, which is what finance is, in that you cannot look at the components of the system or pieces of the system and understand how the whole thing is going to perform when you put it together. You have to put it together and look at the performance of the whole portfolio in the environments that you're concerned about and not try to determine anything just looking at these quadrants and components like that. So hopefully that answers that. Finally, just one footnote that I thought of. Because I've read these economic histories, it's funny when I hear people talking fake histories, and a group of people that talks fake histories these days are the Bitcoiners. They have this idea that gold was once chosen as money by the market or some imaginary godlike force. That gold was always chosen as money by the authorities involved by a government. In the US case, there was an act passed in 1873 that chose gold as the monetary standard for the country and promptly resulted in a long depression.

Voices [48:03]

This is gold, Mr. Bond. I think you've made your point, Goldfinger. Thank you for the demonstration. Do you expect me to talk? No, Mr. Bond, I expect you to die.

Mostly Uncle Frank [48:16]

And that's why there's no basis for thinking that Bitcoin or some other digital asset is going to be magically chosen as the people's money by these magical forces. Because that wasn't true in the past, so there's no reason to believe it would be true in the future. But most of these Bitcoin books now have this kind of fake history embedded into it. If you actually read the real history as I have, you know that they're full of something.

Voices [48:41]

That and a nickel, get your hot cup a jack squat!

Mostly Uncle Frank [48:47]

Anyway, that's another tangent. I'm feeling kind of ranty today, and am I not?

Voices [48:52]

Sir, I need another $1.25. Is that right? Keep the change.

Mostly Uncle Frank [49:00]

Roadhouse. So, hopefully, at least some of that helps. We really go off on some frolicking detours with you, Mr. Bill.

Voices [49:12]

Hey, what's going on here? Why are you taking all my furniture? Well, all that coke you bought last night was real expensive. You're broke. Sorry, Mr. Bill, but we'll have to sell the house.

Mostly Uncle Frank [49:28]

But thank you for being a donor to both the Father McKenna Center and Fairfax Casa. Thank you for being a good friend, and thank you for your email. I think.

Voices [49:39]

You are the bouncers, I am the cooler. All you have to do is watch my back and each other's. Take out the trash.

Mostly Uncle Frank [49:49]

Last off. Last off of an email from Steve.

Mostly Queen Mary [49:55]

Steve!

Mostly Uncle Frank [49:56]

And Steve writes.

Mostly Queen Mary [49:58]

Dear Frank and Mary, congratulations on episode 500 and all the positive work at Fairfax Casa and the Father McKenna Center. I am happy to have made a donation to Fairfax Casa.

Voices [50:10]

Really, Tom Drawer.

Mostly Queen Mary [50:13]

On the April 20th episode of Animal Spirits, Ben Carlson and Michael Batnick interview a manager running an auto-callable ETF from Calamos with Ticker C A G E.

Voices [50:25]

You know, whenever I see an opportunity now, I charge it like a bull. Ned the bull, that's me now.

Mostly Queen Mary [50:31]

It seems like this product would provide higher expected returns compared to a standard S P 500 index fund. You have a gambling problem. But but due to the complexity of the fund structure, I don't quite understand the downside risk. Specifically, how would this ETF perform during a prolonged bear market with the SP down more than 50%?

Voices [50:56]

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

Mostly Queen Mary [51:04]

Finally, for a long-term buy and hold investor in the accumulation phase, how would you compare and contrast this fund to UPRO? Would the volatility-induced decay of UPRO over time mean that CAGE would be the superior way to achieve amplified SP exposure? With ongoing gratitude for your work on the podcast and in life, Steve.

Voices [51:27]

I'll get you A Steve if it's the last thing I'll do.

Mostly Uncle Frank [51:33]

Well, Steve, or I should say A Steve, thank you for being intervened at Fairfax Casa and asking this interesting question. Actually, this goes to sort of a whole direction that you see fund providers going to, at least the more sophisticated ones. So what is this thing cage? Well, essentially it is a fund that invests in synthetic options, which are essentially just contracts, swaps contracts, really, is how I would describe them, to simulate the long-term returns of the SP 500. Now, I did look up the counterparty. Who's on the other side of these contracts? It is JP Morgan for the most part. So the fund has contracts with JP Morgan that are essentially going to pay it a fee based on this index if the SP 500 goes up, and I'm sure it goes the other way if the SP 500 goes down. And I'm sure JP Morgan's making a pretty penny out of it somewhere. Otherwise, they wouldn't do it.

Voices [52:31]

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

Mostly Uncle Frank [52:34]

So it's an interesting product. I'm not sure it's that useful, but we don't know yet. What the problem that it's trying to solve is this is that most of the levered funds that exist are designed for short-term trading. They're not designed for long-term holdings. I'm talking about things like UPRO and TMF. And yes, people do use them long-term, but they're not really designed for that. Something like this is designed for a longer-term holding because it's essentially got longer-term options the way it's structured. So that's the purpose of it is to get another way of adding leverage to something in an efficient manner. Here, the SP 500. Now, in terms of whether it's comparable to UPRO, the answer is no. If you look at the fund page, you see that it's projected to have a beta of 1.3, which is essentially adding 30% leverage. That the idea of if the SP 500 goes up the equivalent of $100, this will go up the equivalent of 130. And the same thing on the downside. It will go up or down 30% more than the SP 500. At least that's the way it's designed, and I'm sure that is how the contracts are structured with JP Morgan. So will it actually work that way? And is it worth the 85 basis point fee? I don't know. I'm kind of skeptical that if it's only 30% leverage and it's got an 85 basis point fee, and that's kind of iffy. You'd actually want more leverage in it to make it more interesting, and then you can hold less of it to get the same result, in theory at least. You can't handle the gambling problem. And it's brand new, so I don't know. Some of these things are going to be useful. Most of them are going to fall into the category of what is called ETF slop, which is something that Ben Felix came up with as a moniker for all kinds of these funds that are essentially based on indexes or stocks and have all kinds of options or other dude ads or buffers floating around them to generate different kinds of returns out of the same thing. They're all going to be correlated to the stock market, so there's not a whole lot of diversification value there. You'd actually use this instead of your SP 500 fund or other large cap fund in a portfolio. And it would probably go in some kind of return stacked style portfolio. So I wouldn't do anything with it now. I might watch it for a few years and see whether it turns out to be useful. It's interesting, there's another fund on the bond side that may be more useful than this one. And what it is trying to do is essentially replicate TMF, but on a long-term basis. This one comes from Simplify. The ticker is RFIX RFIX. And it basically just holds long-term options on long-term treasury bonds. With the idea that it's going to be three times as volatile or potent than something like TLT or VGLT. I don't know if that's going to work either. But I do find it interesting that a number of fund providers are now putting things out like this because there must be some demand for them. There's always a demand for taking leverage in various things in various ways. It's just a lot easier to do these days since they changed the SEC rules back in around 2018 or 2019. This wouldn't have been possible before that. So I wouldn't put any money in these things right now. I would just watch them for a few years and see whether they work as advertised or not. It'll become pretty clear within a few years, and hopefully if there are some dislocations or big moves in the stock market, both up and down, you'll be able to see whether the thing tracks like it's supposed to or not. Honestly, from a marketing perspective, I don't think it has enough leverage in it to be that interesting, really. But we'll see. So, hopefully that'll help with your gambling problem. And thank you for your email.

Weekly Portfolio Performance Review

Voices [56:23]

You got to know when to hold, know when to fold up, know when to walk away, and know when to run. Now we're going to do something extremely fun.

Mostly Uncle Frank [56:39]

And the extremely fun thing we get to do now is our weekly portfolio reviews of the eight sample portfolios you can find at www.riskperirator.com on the portfolios page.

Voices [56:49]

I'm putting you to sleep.

Mostly Uncle Frank [56:51]

And not really much happened last week, so I think we can just kind of buzz through this relatively quickly since this is getting to be a long podcast. So looking at the markets themselves, the SP 500 represented by VOO is now up 5.01% for the year so far. The Nasdaq 100, represented by QQQ, is up 8.2% for the year so far. Small cap value, represented by the fund VIOV, continues to be one of the big leaders. It's up 13.44% for the year so far. Gold has calmed down, but it's still doing just fine. Representative fund GLDM is up 9.34% for the year.

Voices [57:35]

I love gold.

Mostly Uncle Frank [57:39]

Long-term treasuries represented by VGLT are up 0.46% for the year. REITs represented by the fund REET are up 8.83%. Commodities continue to lead the way. Representative fund PDBC is up 34.26% for the year so far.

Voices [58:08]

The perfect milkshake.

Mostly Uncle Frank [58:20]

Representative fund DBMF is up 9.16% for the year so far. So the small cap value and alternatives continue to lead the way in 2026.

Voices [58:31]

Guess what? I got a fever. And the only prescription is small cowbell.

Mostly Uncle Frank [58:38]

Moving to these sample portfolios, first one's this reference portfolio of the all seasons. It's only 30% in stocks and a total stock market fund, 55% in intermediate and long-term treasury bonds, and the remaining 15% in golden commodities. It's up 3.41% from the month of April. It's up 5.09% year to date, and up 29.55% since inception in July 2020. Moving to these bread and butter kind of portfolios, first one's golden butterflies. This one is 40% in stocks divided into a total stock market fund and a small cap value fund. 40% in treasury bonds divided into long and short, and the remaining 20% in gold, GLDM. It's up 3.91% for the month of April. It's up 6.10% year to date, and up 69.28% since inception in July 2020. Next one's golden ratio. This one's 42% in stocks divided into a large cap growth fund and a small cap value fund. 26% in long-term treasury bonds, 16% in gold, 10% in managed futures, and 6% in cash and a money market fund. It's up 5.00% for the month of April, it's up 6.23% year to date, and up 64.02% since inception in July 2020. Next one's a risk parity ultimate, our kitchen sink. I'm not going to go through all 12 of these funds, but it's up 5.35% for the month of April, it's up 5.85% year to date, and up 47.92% since inception in July 2020. Moving to these experimental portfolios.

Voices [1:00:15]

Tony Stark was able to build this in a cave with a bunch of scraps.

Mostly Uncle Frank [1:00:23]

These all involve leveraged funds, so they're very volatile.

Voices [1:00:28]

Well, you have a gambling problem.

Mostly Uncle Frank [1:00:31]

First one's the accelerated permanent portfolio. This one is 25% in UPRO, a levered stock fund, 27.5% in TMF, a levered bond fund, 25% in PFFV, a preferred shares fund, and 22.5% in gold, GilDM. It's up 7.93% for the month of April. It's up 5.19% year to date, and up 29.84% since inception in July 2020. Next one's the Aggressive 5050. This is the least diversified and most levered of these portfolios and worst performer by far. It's one-third in a leverage stock fund, UPRO 1-3rd and TMF a levered bond fund. The remaining third divided into a preferred shares fund and an intermediate treasury bond fund is ballast. But it is up 9.97% for the month of April. It's up 2.98% year to date and up 1.22% since inception July 2020. It just goes up and down a lot.

Voices [1:01:29]

And it's gone. Poof.

Mostly Uncle Frank [1:01:32]

Moving to the next one, the levered golden ratio. This is a year younger than the first six. It is 35% in NTSX, that's a composite SP 500 and Treasury Bond Fund, levered up 1.5 to 1. 15% in AVDV, that's an international small cap value fund. 20% in gold and GLDM, 10% in KMLM, it's a managed futures fund. 10% in TMF, that is a levered bond fund, and the remaining 10% divided into UDOW and UTSL, which are levered funds based on a Dow index and a utilities index. It's up 5.21% for the month of April. It's up 7.46% year to date, and up 28.81% since inception in July 2021. Moving to our last one and newest one, the Opter Portfolio. One portfolio to rule them all. And it is ruling them all. This is a return stack style portfolio. Taken after the kind of things that Corey Hofstein and they do it resolve asset management. So it's 16% in UPRO, that's a levered stock fund, a levered SP 500 fund, more specifically. 24% in AVG, which is a worldwide value tilted fund, it's a fund of funds. 24% in GOVZ, it's a Treasury Strips fund. The remaining 36% divided into gold and a managed futures fund. It's up 6.95% for the month of April. It's up 8.79% year-to-date and up 40.33% since inception in July 2024. And that concludes our weekly portfolio reviews. Next week, we'll get to do some monthly distributions. And won't that be exciting?

Voices [1:03:17]

Oh no!

Wrap Up And Listener Calls

Mostly Uncle Frank [1:03:20]

We'll all be waiting with bated breath for that. But now I see our signal is beginning to fade. If you have comments or questions for me, please send them to Frank at RiskPurdyRadio.com. Then email us frank at riskpartyradio.com. Or you can go to the website www.riskpartyradio.com. Put your message into the contact form and I'll get it all 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 [1:04:00]

And somewhere in the darkness, the gambler, he broke even. But in his final words, I found an ace that I could keep. You got no when to hold. No when to fold up. No when to walk away. No when to run. You never win the table. When it's time, you got no window. No window list. No windows. You never can be done. You got the phone. No window. No end of all the way. No wind run.

Mostly Queen Mary [1:05:21]

The Risk Parody Radio Show is hosted by Frank Vasquez. The content provided is for entertainment and informational purposes only and does not constitute financial investment, tax, or legal advice. Please consult with your own advisors before taking any actions based on any information you have heard here, making sure to take into account your own personal circumstances.