Opening Quotes And Welcome

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. 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.

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.

Voices [2:04]

Really top drawer.

Mostly Uncle Frank [2:07]

Along with a host named after a hot dog.

Voices [2:10]

Light in the French.

Mostly Uncle Frank [2:14]

But now onward, episode 525. Today's party radio, we're just gonna do what we do best here, which is attend to your emails. And so without further ado.

Voices [2:28]

Here I go once again with the email. And first off.

A Teacher Couple’s FI Game Plan

Mostly Uncle Frank [2:34]

First off, we have an email from Ethan.

Voices [2:37]

Young America, yes sir.

Mostly Uncle Frank [2:39]

A really long email from Ethan.

Voices [2:44]

Why you bugging?

Mostly Uncle Frank [2:46]

And Ethan writes.

Mostly Queen Mary [2:48]

Uncle Frank, it's been a few hundred episodes since I last sent you an email a few years ago about using a golden ratio portfolio to save up for a down payment on a house. Thanks to your teaching, we've squeezed an extra $5,000 out of that lemon. Aside from the down payment goal, my significant other and I have set up and continued contributing to a golden ratio portfolio for these next 5 to 10 year type of savings goals.

Voices [3:28]

Yes!

Mostly Queen Mary [3:29]

It's been such a worthwhile exercise to get used to holding a portfolio like this, while it is just small peanuts, tens of thousands. And I imagine we'll be a little more prepared to drive the seven-figure portfolio a couple decades from now, thanks to this trial run. My questions today have to do with the tax bucket slash early financial independence optimization game. We are both teachers in our mid to late 20s with four and six years of teaching under our belts, respectively, fifth grade and high school math. I hope we continue to enjoy teaching, but we're also working to reach financial independence early enough so that we won't have to do it if it ever becomes less fulfilling or too taxing. We don't have kids yet, so the future expenses are impossible to predict, but I know we can at least prioritize our contributions accordingly to support some financial independence years before we reach 59 and a half years old. I know our specifics are probably not broadly applicable to the rest of the listeners, but hopefully some of it will be relatable to your younger listeners or educators and public employees with special 457B powers.

Voices [4:41]

Young America, yes sir.

Mostly Queen Mary [4:43]

Ever since I wrapped my head around asset swapping, I've been splitting up our savings projections by individual account to see if we might have a problem a couple decades down the road in terms of which investment accounts are accessible pre-59 and a half and which asset classes are available in each one. Apologies in advance, Mary, but here is a rough snapshot of our current situation. 1. Roth IRAs 127,500 contributing 15,000 yearly currently. 2. Regular brokerage accounts 162,500 contributing only about 5200 per year. 3. Workplace 401 plan mandatory through our employer, 22,500 contributing the minimum of 5%, which comes to about $7,700 a year. 4. 457Bs, $36,000 contributing 10% or about $15,400 per year. 5 HSAs, $11,000 contributing about $4,500 a year. 6. HRAs. I'm less familiar with this one, but our employer contributes some odd amounts occasionally throughout the year. 7,000-ish contributing about $1,600 a year, all contributed by our employer. Overall retirement portfolio, $366,500, contributing a total of $49,400 per year.

Voices [6:12]

Excellent. Everything is going as planned.

Mostly Queen Mary [6:17]

I know my forecasting methodology is wrong to enter an 8-10% rate of return, a 5% increase on our income and workplace contributions, and throw in an inflation assumption on top of that. And I know our annual expenses down the road will be wildly different than they are now while we are without kids and living pretty frugally. However, I'm estimating that it will take around 15 more years before we could reach financial independence, maybe 12 to 20 years as a reasonable range of outcomes. Our current annual expenses are around $57,000 a year. And that 15-year estimate assumes that our cost of living will end up closer to $100,000 a year with a kid or two in the picture. By then, we're somewhere between 40 and 47 years of age. Anyhow, only the 457B, the regular brokerage accounts, Roth contributions, and the HFAs for health expenses only will be available for those first 10 to 20 years of any financial independence living we might enjoy. The 457B has a great large cap and small cap value index funds, but no solid bond or alternative funds. Similarly for the HSA. When we separate from employment, we could roll the 401A into a traditional IRA and open up the alternative asset class options for asset swap balancing. We could also do some Roth conversions, but I don't want to hang my head on that as a cornerstone of the plan as legislation could change on that rule. And I don't know what our income slash expenses will look like with any reasonable degree of certainty. We also may only have $500,000 or so in the 457Bs and another $500,000 or so in the regular brokerage accounts at that point in time. The potential issues I'm wondering about, and probably overanalyzing here, one, are there any pitfalls to be aware of if we are frequently, constantly asset swapping out of the 457Bs for 10 to 20 years whenever we want to sell long-term treasuries, gold, REITs, or manage futures that are held in the IRAs before we reach 59.5? 2. If we're shooting for an overall 5% safe withdrawal rate, but taking all of it out of the 457Bs and brokerage accounts, which might be close to 10% of the balances in those accounts, are we going to risk depleting the available funds in those accounts before we can access the Roth and traditional IRAs? Too large of a leak out of those buckets and flower pots? Uh what?

Voices [8:51]

It's gone. It's all gone.

Mostly Queen Mary [8:53]

Only about 50 to 55% of the pie cake will be in those two accessible account types. Looking at these possibilities, I'm also wondering if we've reached a point where the Roth contributions we've diligently stuck with are no longer as valuable to our future selves. We could instead max out our two HSAs for maximum tax efficiency with about 4,300 of that 15,000 we're putting into the Roths, and then do another 10,700 or 11,000 into the 457Bs, or some into the 457Bs and some into the regular brokerage accounts. We're only in the 22% federal tax bracket, so the tax savings might only be 3,300 or so if we divert those Roth contributions. Unless the world comes crumbling down in the next 30 years, we'll probably end up with 1 to 2 million in our Roths by the time we reach 59 and a half, even if we stop contributing. But that's a garbage-in, garbage out calculation. There was this sound like a garbage truck dropped off the Empire State Building. Any thoughts for entertainment and informational purposes would be greatly appreciated, even if it's just to get over the analysis paralysis and just do something. On another note, while I'm a shameful non-donor to the Father McKenna Center currently, I am donating an hour and a half of my time per week to a group of about 15 high school juniors and seniors that share my interest in personal finance. I've been tossing some financial independence ideas their way, and most recently we've been discussing the principles of risk parity for the nerdiest in the group that would rather learn more about investing and asset allocation than budgeting, taxes, insurance loans, and the more broadly applicable personal finance topics. I'm even running a small matching campaign for our high school's biggest philanthropy project of the year. If any of the coordinators, some of whom are in this little personal finance cub we have going, can stop by at a local coffee shop this Saturday and give me a summary of what they've learned about investing and risk parity over the last few weeks, I'll buy their coffee and match that as a donation for their fundraiser. The funds then go to a local nonprofit that helps support families that have children with disabilities. One of these days I'll get off my frugal horse and make a contribution to your noble cause. So, while I have yet to give to your noble cause at the Father McKenna Center, I've been inspired to give a bit more in my local community, especially to the high school students I interact with each day. Thank you so much for all the time and energy you've put into this amazing podcast project. Patiently waiting from the back of the email line, Ethan.

Charity Match And T-Shirt Campaign

Mostly Uncle Frank [11:49]

Well, you know, Ethan, now would be a very good time to give a little something to the Father McKenna Center.

Voices [11:57]

Yeah. Everybody getting something. Everybody getting something.

Mostly Uncle Frank [12:04]

Because we are in the midst of our top of the t-shirt campaign, the second round of that.

Voices [12:10]

Part du.

Mostly Uncle Frank [12:11]

As most of you know, we don't have any sponsors on this program. We do support a couple of charities, including the Father McKenna Center, which supports hungry and homeless people in Washington, D.C. Full disclosure, I am on the board and am actually the chairman of the board of that charity right now. We describe the top of the t-shirt campaign back in episode 518 in detail, so I won't go through all of that again. But it is suffice it to say that we have two listeners, Matthew 63 and 4J, who have put up a total of $25,000 in matching funds, to encourage you to match their generosity. That's what I'm talking about. And if you do that, even in a small amount, you will get to go to the front of the email line. As Ethan has missed his chance here.

Voices [12:59]

Are you stupid or something?

Mostly Uncle Frank [13:02]

But I will put the link in the show notes, and I am very grateful for everyone who has donated so far. We salute you. But now getting to your email.

457(b) Access And Roth Flexibility

Mostly Uncle Frank [13:20]

You are definitely one of our younger listeners. And are really between the ages of our eldest and our middle child, Frank and Tom.

Voices [13:34]

Can you take hats in a dignified and sophisticated manner? You mean like a weenie? Okay, may I take your hats? May I take your hats? May I take I've heard enough. You've got the job.

Mostly Uncle Frank [13:49]

Who resembled Squidward and Patrick Starr. Here's how things work.

Voices [13:56]

I order the food, you cook the food, then the customer gets the food. We do that for 40 years and then we die.

Mostly Uncle Frank [14:06]

And I'm glad you've been able to use that golden ratio portfolio as your intermediate accumulation vehicle. Our eldest son has quite a large one now, which makes for a very nice slush fund for his endeavors. Another day, another migraine.

Voices [14:23]

Squidward, still botting to work on a machine, I see. Don't say anything, Squidward. Remember your karma.

Mostly Uncle Frank [14:36]

And he's well on his way to financial independence in his 30s. Too bad that didn't kill me.

Voices [14:42]

No, Squidward, I meant good for your soul. Oh, police! I have no soul.

Mostly Uncle Frank [14:53]

And it looks like you guys are too, actually. Of course, depending on how many children you decide to have.

Voices [15:00]

Why? What have children ever done for me?

Mostly Uncle Frank [15:03]

But with already having $366,500 in a retirement portfolio, and this was as of February of this year, and contributing nearly $50,000 a year, I think you will get there much quicker than you think. Just make sure you're putting that pedal to the metal right now and really hammering it all into index funds other than your emergency fund and intermediate accumulation portfolio, because really contributing $50,000 a year to something that's at $366,000, your contributions are still going to be more than your returns most years. Now you are in the interesting position of having $457s. And just to inform everyone here, a $457 is a special kind of retirement account that is usually used in educational settings and a few other settings. But they have a special feature in that when you leave employment, you can take money out of them immediately without paying any penalty. So there's no requirement of reaching 59.5 or anything like that. They're like a regular 401k or IRA with no 59 and a half age barrier in terms of a penalty. Now there is an odd restriction that you cannot roll one of those over and maintain that status. So if you were ever to roll a 457 into an IRA, you lose that status and all of a sudden you're dealing with that 59 and a half rule again. So typically you don't want to do that.

Voices [16:34]

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

Mostly Uncle Frank [16:37]

The other requirement generally is that you have to separate from your employment. I don't know if you've listened to it, but you should go back into the Choose FI podcast archives and look for something where they were talking to somebody who called himself the Millionaire Educator. I forget exactly what his name was, but that was all about this situation because they would go from job to job essentially, accumulating 457s, which got them to financial independence very quickly in the way they were doing it. So it's an interesting position to be in. So that's going to be very advantageous for you because once one of you separates from employment, that 457 money becomes available without any penalty and without having to do a 72T or anything like that. Now it looks like you have enough money to contribute to your Roth IRAs and then also have money to go into a taxable brokerage account. And in those circumstances, I would continue to put the money into the Roth IRAs as opposed to putting it in the taxable brokerage account, because I'm not sure you recognize that you can withdraw the contributions to the Roth IRAs if necessary without penalty, even before you get to 59 and a half. So that means you kind of might as well put the money in there as opposed to putting it into a taxable brokerage account because it's essentially going to be kind of the same thing with a minor restriction on withdrawals, but I don't think you're ever going to get there. The truth is you have so many different accounts that you're gonna have a lot of flexibility once you get there and you're taking money out of these accounts. There are going to be many different ways to manage this, and that's why I wouldn't even try to think about the best way to do it or set yourself up at this point in time because there's too much uncertainty in the returns themselves, your job situation, your future tax rates, all of that stuff is completely uncertain. So there honestly is no point in really planning too much or too closely or wasting a lot of mental bandwidth on that. Right now, it's basically just accumulate any which way you can, wait until you get there, and then at that point in time is how you decide what you're going to pull from and how that's going to work. And what makes this even more uncertain is not knowing how many children you're going to have and what your life is going to cost at that point in time.

Voices [19:09]

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

Mostly Uncle Frank [19:14]

Which means you just need to keep plowing through here, and things will get clearer as you get closer and start having children.

Voices [19:22]

Having my baby. What a lovely way of saying how much you love me.

Mostly Uncle Frank [19:32]

So I'd continue to do pretty much what you're doing and maybe modify it as you go forward, depending on what your tax situation is in a given year. The one other thing I'm wondering at this point is whether there are decent bond funds in the 457 or what other things you have access to in there. Because you're in this odd situation where you would ordinarily want to put all of your bonds in there when you get there and have your Roth and taxable accounts be mostly stocks. But it all needs to be stocks right now, so I'm probably overthinking this myself. I'm not a smart man. Just remember that you do have access to the Roth contributions you put in there long before fifty-nine and a half. So that's going to give you all the flexibility you'll probably ever need with this, if you need any additional flexibility. But like our adult children, you are well on your way to financial independence. And we'll get there on a reasonable time frame. Probably sooner than you think. I also commend you on your charitable and volunteer activities, which I think you will come to enjoy more and more as you go forward. Although you'll probably have to scale them back when you have children. Or at least be working on activities that also involve them. For me, that was Boy Scouts. Spent a lot of years being an adult leader for up to a hundred children at Boy Scout Camps. Now that was an ordeal.

Voices [21:09]

Let's face it, you can't talk them out of anything.

Mostly Uncle Frank [21:13]

Finally, I note the subject line in this is hoses, flower pots, and pie cakes, which you also mentioned in the text of the email. It just reminded me. Have you checked out the price of a pie cake these days? What is it?

Voices [21:28]

It's a pie machine, you idiot. Chickens go in, pies come out. Ooh, what kind of pies? Apple. My favorite chicken pies, you great lummocks.

Mostly Uncle Frank [21:42]

I was just listening to the missives from the pie cake factory recently.

Voices [21:53]

Now let that be a lesson to the left of you! No chicken escapes from Tweety's farm!

Mostly Uncle Frank [22:00]

But anyway, the price of a pie cake these days ranges from about $17,500 a year up to $50,000 a year. So most of these pie cakes are being sold for $30,000 a year or more.

Voices [22:16]

I don't want to be a pie. Don't like gravy.

Mostly Uncle Frank [22:21]

And that's some serious milkshake drinking going on over there.

Voices [22:26]

I drink your milkshake. I drink it up every day. I drink it up. I drink it up.

Mostly Uncle Frank [22:39]

Especially when these pie cake portfolios are about six ETFs in a giant pile of cash serving as filler.

Voices [22:50]

I drink it up. Don't buy sniveling. Don't you not?

Mostly Uncle Frank [23:02]

So they're not the most nutritious things either. I recommend you stay away from pie cake factories.

Voices [23:09]

What what's what's all this then? This is our future, Mr. Tweedy. No more wasting time with patty egg collection and minuscule profits. No more eggs! We've always been egg farmers. My father and his father and all their fathers. They was always poor. Well, nothing. But all that's about to change. This will take Tweedy's Farm out of the Dark Ages and into full-scale automated production. Milita Tweedy won't be poor no longer.

Mostly Uncle Frank [23:47]

Save your money and hopefully give some of it to charity.

Voices [23:50]

No chicken escapes from Tweedy's Farm! You've got to get out of here.

Mostly Uncle Frank [23:57]

So hopefully some of this helps. Congratulations on the progress you've made so far. You're well on the way, and I don't think you're gonna have any trouble in getting to financial independence in a reasonable period of time. Thank you for stopping in, and thank you for your email.

The ARVA Spending Rule Critique

Mostly Uncle Frank [24:59]

Second off, we have an email from Joe.

Voices [25:02]

Joseph? Yeah, Joseph, Joseph. Well, it's a nice name, but the kids are gonna call him Joe Blow. I mean, as long as you know that, or sloppy Joe, you know, how are Mr. and Mrs. Schmo.

Mostly Uncle Frank [25:14]

And Joe Wright.

Mostly Queen Mary [25:16]

Hi, Frank. My continuation and fascination of retirement drawdown strategies most recently led me to a published article by Stefan Sharkansky. Tips and Arva-based approach. Have you read this article? Did you see the memo about this? Any podcast that I missed? Thoughts? Full article, the only other spending rule article you will ever need. Have a great weekend, Joe.

Voices [25:45]

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

Mostly Uncle Frank [25:52]

Alright, I took a look at this Sharansky article that you've linked to, and I will put that in the show notes. It's called The Only Other Spending Rule Article You Will Ever Need.

Voices [26:03]

I guess you could say things are getting pretty serious.

Mostly Uncle Frank [26:07]

And I did read through it, and this is just one of those articles that's academically interesting to a few people, mainly the people who cite each other who write these articles. But practically, this is pretty useless, honestly.

Voices [26:22]

Don't be jealous that I've been chatting online with babes all day.

Mostly Uncle Frank [26:27]

And we'll do the same thing here that we usually do with expert materials.

Voices [26:32]

Unlike any schooling you've ever been through before.

Mostly Uncle Frank [26:37]

Which is put on my lawyer cross-examination hat.

Voices [26:41]

We use the Socratic method here.

Mostly Uncle Frank [26:44]

And go through this, looking first at the assumptions, because if the assumptions are not very useful or not very practical, then the rest of it's not very useful or very practical either.

Voices [26:57]

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

Mostly Uncle Frank [27:02]

Anyway, it's 25 pages long, but it comes down to being a comparison between basically two things. One thing is a simple stock bond portfolio that is S P 500 and 10-year treasuries, with a Geiten Klinger variable withdrawal strategy applied to that. And they use a 65, 35 split and an 80-20 split for these two base portfolios that they're using for comparison purposes. And then what they are comparing them to and what they are touting here is a portfolio that has a similar amount of stocks in it, but instead of having the bonds, it has a 30-year tips ladder. So, under the assumptions they were using the base portfolio, using the Guiten Klinger guide rails, had a safe withdrawal rate of between 5.2% and 5.6%. And they showed that their ARVA strategy did slightly better than that over a 30-year period. However, the withdrawals that these portfolios were using, both the base case and the ARVAS strategy, had variations of between $40,000 a year and $160,000 a year. At least according to figure six here. So we're talking about extremely variable withdrawals the way they're running this thing. So when I read what I just told you, my reaction to this is, well, why would anybody bother with this?

Voices [28:36]

Forget about it.

Mostly Uncle Frank [28:37]

Why would anybody bother with this when you're comparing it to this straw man portfolio that is just the SP 500 and bonds? There's no reason anybody needs to be holding that kind of portfolio in the 2020s. Bill Bangin doesn't do it, Paul Merriman doesn't do it, Rick Ferry doesn't do it, I don't do it. Most advisors don't do that. So what is the point in comparing this thing to some stupid straw man that nobody uses?

Voices [29:05]

Are you crazy? Or just plain stupid. Stupid is stupid does, Ms. Blue. I guess.

Mostly Uncle Frank [29:13]

If you look at portfolio charts, the withdrawal rates for a risk parity style portfolio are in excess of 6% on a 30-year basis, and 5% on a basically a forever basis. And that's not even accounting for variable withdrawal strategies. What I'm using as the base case is the fixed withdrawal strategy, which only involves increasing for inflation and never decreasing the withdrawals. Now, in practice, I do use a variable withdrawal strategy, but it's not based on any firm requirements from Geiten Klinger or Arva or otherwise. Simply spending what I need to spend, and if it doesn't go over 6%, I'm not worried about it. And in fact, we are spending 6% for the first six months of this year, mostly due to home renovations. But it doesn't concern me because I started with a better portfolio than the ones that are being modeled here.

Voices [30:10]

Come around to my thing.

Mostly Uncle Frank [30:34]

When we can already do better on our own. So you better not still be alive if you're going to be using this Arva strategy. Death stocks you at

Why TIPS Ladders Backfire

Mostly Uncle Frank [31:06]

every turn. And that is the stupid thing about these TIPS ladders. Unless you're already well into your 70s, in which case your safe withdrawal rate should be a lot higher anyway, with any kind of portfolio, you do risk running out of your ladder before your life ends. That is the worst idea I've ever heard in my life, Tom. Yes.

Voices [31:27]

Yes, it's horrible, this idea.

Mostly Uncle Frank [31:30]

What's a person who retired at 55 like we did supposed to do? Plan on croaking when you're 85?

Voices [31:39]

There it is!

Mostly Uncle Frank [31:40]

Death And they try to account for that later in the article with some hand waving about adding more money at the end in some way, shape, or fashion. But that's not what they analyzed here. They analyzed it as a 30-year and you're done tips ladder, which also makes the comparison with the other portfolio inapt because that portfolio isn't running out of money at 30 years. And of course, if you're planning on running out of money on your tips ladder in 30 years, you can spend more by definition. Duh.

Voices [32:14]

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

Mostly Uncle Frank [32:18]

So when I read things like this that have little or no practical use, it just makes me wonder why would anybody write one of these things? And the reason for that is actually obvious. It's to be in this club of people that write these kind of articles. Because that's how you build up your reputation as some kind of expert in this area, even if what you're writing about is practically useless nonsense.

Voices [32:41]

What you just said is one of the most insanely idiotic things I have ever heard.

Mostly Uncle Frank [32:48]

Which oddly enough makes these things more and more complicated in many ways. Reminds me of that Cedarberg paper where you have people jumping from country to country.

Voices [32:59]

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

Mostly Uncle Frank [33:03]

Which always makes me laugh because when you talk to these people, what you hear out of the other side of their mouth is, oh, we need to keep things simple. Well, if you're trying to keep things simple, why are you constructing 30-year tips ladders?

Voices [33:15]

That's not an improvement.

Mostly Uncle Frank [33:17]

Those are very complicated to construct, they're very complicated to manage, they have all kinds of horrible tax consequences unless you put them in an IRA, but then guess what happens when you stick them in your IRA and you get to age 85 and you got these giant RMDs to deal with. All of a sudden your whole thing breaks down because you need to take more out of the IRA than you are supposed to under the TIPS ladder rules. In the end, I agree with Michael Kitsus on this. If you have enough money that a tip ladder could make sense in your circumstance, a 30-year tip ladder, you're just oversaved. And you could hold all stocks or just about anything else you wanted. And that is the truth here. Anybody in real life that is holding a 30-year tips ladder is somebody who is a hoarder who is grossly oversaved. I've never run into anybody with a 30-year tip ladder who is not just hoarding money and they got this other pile of money that they're, oh, I'm investing that for my heirs of the future. Why don't you just give them the money now? Why does everybody have to wait for you to croak at age 104 or however your long your tips ladder runs?

Voices [34:28]

If you don't start making more sense, we're gonna have to put you in a home. You're already put me in a home, and we'll put you in the crooked homey saw in 60 minutes. I'll be good.

Mostly Uncle Frank [34:38]

You would have been better off laddering some annuities and using some QLACs or other devices. The real reason that people hold things like tips ladders has nothing to do with finances and has everything to do with ego. A tip ladder is the way a hoarder flexes. They don't buy a boat, they don't buy a vacation house, they don't buy a Ferrari, instead they hoard all their money in a 30-year tips ladder with another pile of money that they're never planning on touching. And they're aptly described in Morgan Housel's new book, The Art of Spending Money, where it talks about how to be miserable spending your money, and one of the ways to do that is to be an accumulator with an accounting hobby. A tips ladder is just a hobby, and it's not a very good one.

Voices [35:26]

Forget about it.

Mostly Uncle Frank [35:28]

Calling it Arvar, Marvar, Barva, or Barfa isn't gonna make it more desirable. And articles like this only reinforce my belief that these are just a big waste of time. So count me in the camp with Michael Kitsus on this. And don't waste your time with articles like this. And if you are looking at articles like this, make sure you're looking at the assumptions and what they are comparing it to to see whether we're just dealing with straw men or practicalities that don't exist in the real world. Because that's what is going on in most of these articles.

Voices [36:18]

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

Mostly Uncle Frank [36:22]

So if we go Bruce Lee on this, take what is useful. There's nothing useful here. Discard what is useless. Yep, we can toss the whole thing out because we can do better already without having to deal with tips ladders or guitenklinger strategies or any of that. Add something uniquely your own? Yeah, let's just use a better portfolio to begin with. And then if you want to add guidenkling strategies on top of that, maybe you can take out seven percent. But I'll just leave it at that. Hopefully that helps. And thank you for your email.

Voices [36:59]

You come in here with a skull full of mush and you leave thinking like a lawyer. Last off.

Mostly Uncle Frank [37:09]

Last off? We have an email from Jim.

Catastrophe Bonds And The ILS ETF

Voices [37:12]

Well, I'm waiting for you, Jimmy Boy.

Mostly Uncle Frank [37:15]

And Jim Wright.

Mostly Queen Mary [37:17]

Hi, Frank. I just learned that there is a cat bond ETF. Brookmont Catastrophic Bond ETF. Symbol ILS. As an uncorrelated asset, it seems like a natural topic for your show. Would love to hear your thoughts. Thanks, Jim.

Mostly Uncle Frank [37:46]

Yes, I've been hearing about these investments in catastrophe bonds probably for the past year to 18 months, I think. This is something that somebody like Larry Swedro invests in. I know I've heard it discussed on the Meb Faber show and other shows. So, what is a catastrophe bond? It's actually a form of reinsurance. So we're talking about catastrophes like hurricanes as the archetypal type of disaster scenario. So insurance companies will sell hurricane insurance to people in those areas and they want to throw off some of that risk to a reinsurance vehicle. This is one of the reinsurance vehicles they can use. What they do is they sell bonds to people like you, rather more like institutions. And those bonds pay a relatively high yield. But here's the thing: if the bond is triggered, if the catastrophe actually happens within the time frame specified in the bond, then the bondholders are going to lose some or all of their principal. If the catastrophe does not happen, then they get paid out. This just spreads the risk out as far as the insurance companies are concerned, but it also provides an attractive return to people buying these bonds. So why would these bonds be attractive to individual investors or institutional investors in a portfolio setting? The reason they're attractive is the same reason that managed futures are attractive, they have a reasonable rate of return and they have zero correlation to both stocks and bonds because their trigger is based on some random event in the weather or an earthquake or something that is not related to either stocks going up or down or bonds going up or down or interest rates themselves. So they do fit that profile of being a good alternative asset. Zero correlation to both stocks and bonds with a reasonable rate of return. But the real problem for average investors is availability or has been availability, because typically these things can only be bought through large funds with very high minimums or limited partnerships or things that are really marketed to institutions as investments and are not marketed to retail investors such as ourselves. So this ETF you mentioned, the Brookmont Catastrophic Bond ETF symbol ILS, looks like it's an attempt to fill that gap or enter that space and market these things to regular ETF buyers. Unfortunately, it does not look like a very attractive fund. It has a very high expense ratio of like 1.58%. And if you look at what its returns are this year, they're less than a percent. I don't know why its returns are so low, what's going on there. And so while I like the concept, I would not be buying this fund. And maybe it will perform better in the future. I don't know. We can sit and watch it. Hopefully, somebody will offer something that's more attractive for us to consider. But right now it's just a non-starter. And so I would stick with something like managed futures or gold as your alternative assets and not be going off into ILS Brookemont catastrophic bond land. At least not at this point in time. So interesting development. We can keep an eye on it, which is what we do with a lot of these things. And thank you for your email.

Email Address And Final Requests

Mostly Uncle Frank [41:28]

But now I see our signal is beginning to fade. If you have comments or questions for me, please send them to Frank at RiskPartyRarear.com. That email is frank at riskpartyrade.com. Or you can go to the website www.riskpartyradew.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.

Mostly Queen Mary [42:42]

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