Opening Quotes And Welcome

Voices [0:00]

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

Mostly Queen Mary [0:18]

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

Mostly Uncle Frank [0:36]

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.

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 move, right?

Voices [1:46]

I'll take it.

Mostly Uncle Frank [1:48]

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

Voices [1:53]

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

Mostly Uncle Frank [1:55]

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

Mostly Queen Mary [2:03]

Top drawer. Really top drawer.

Mostly Uncle Frank [2:07]

Along with a host named after a hot dog.

Voices [2:10]

Lighten up Francis.

Mostly Uncle Frank [2:14]

But now onward,

A Personal Loss And Gratitude

Mostly Uncle Frank [2:15]

episode 527. Today on Risk Play Radio, we're just gonna do what we do best here, which is get back to your emails. But before we get to that, I did want to tell you all what's been going on in our lives.

Voices [2:28]

Let's talk about something important.

Mostly Uncle Frank [2:31]

As I mentioned in the last podcast, at the end, my mother had been hospitalized with heart failure at the time of that recording or at the end of that recording. And as things turned out, she did pass away on July thirteenth. She was ninety-two years old, and she and my father had just moved to assisted living in April. They live in Missoula, Montana, and we were all able to get there prior to her passing to say goodbye. I don't want to say too much more about it at this point, but I am very grateful for all of the support that our family has received. And all the kind messages I've received from you listeners as well. We did have a little memorial for her last Wednesday, which we wanted to do right away for the benefit of our father. And we did broadcast it on Zoom to a lot of friends and family, and then I've put it up on YouTube actually. And so rather than say too much more about my mom right now, I will direct you to that and link to it in the show notes. And you'll be able to get a good sense of what mom meant to me and to my siblings and the rest of our family. So please check that out when you have time. But now let's get on with our

A Test Drawdown Portfolio For Fun

Mostly Uncle Frank [3:42]

show.

Voices [3:42]

And without further ado Here I go once again with the email.

Mostly Uncle Frank [3:48]

And first off First off, an email from the Nameless One.

Voices [3:54]

Got a name, do you? I have no name.

Mostly Uncle Frank [3:59]

Well, that right there may be the reason you had difficulty finding game for employment. And the Nameless One writes.

Mostly Queen Mary [4:07]

Sailing around the sun is so very fun. I might be a poet, but if I was, then I wouldn't know it. A little nonsense now and then.

Voices [4:15]

It's a lot of nonsense.

Mostly Queen Mary [4:17]

A little nonsense now and then is relished by the wisest men. I am glad to see the top of the t-shirt running again this year with even more matching funds in play. I have merrily donated $5,321.10 again this year to the worthy cause via my donor-advised fund.

Voices [4:38]

The Golden Bracio.

Mostly Queen Mary [4:41]

I wanted to pass along that I, like several others, have created a small drawdown portfolio to learn from and enjoy while sailing along in my accumulation phase. And we have the tools, we have the talent. Here are the details, aka the Deeds. I created a $10,000 drawdown portfolio in a brand new brokerage account. The portfolio is allocated into the same asset classes as my main portfolio. I use my main portfolio as an accumulation portfolio and will continue to use it unchanged as a drawdown portfolio. My portfolio is 26% total stock market index, 26% small cap value, 26% long-term treasury bonds, 14% gold, 8% cash equivalents, short-term treasury notes. The rules around this drawdown portfolio are as follows. 1. Rebalance annually, ensuring gains and losses are taken as long-term gains and losses. 2. Take 5% of the original investment out of the portfolio annually as the annual distribution. 3. The annual distribution must be sent like a windfall splurge and it cannot be saved.

Voices [5:55]

Yeah, baby, yeah!

Mostly Queen Mary [5:58]

4. The annual distribution amount must be increased each year by the previous year's CPI. So for this year, the first distribution is 5% of the initial $10,000 investment, which is $500. Next year, the distribution will be $500 plus whatever 500 times the 2026 CPA turns out to be. I expect that to result in a distribution around $515. Coming up on year one, the portfolio is up more than 15%, so taking $500 out of the $1,500 plus of gains feels very comfortable and fun.

Voices [6:33]

What is this, Luncan? Some kind of fun house. Why, having fun?

Mostly Queen Mary [6:37]

My plan is to use the money on a luxurious experience for my nameless partner and I. Likely a nice hotel stay and fancy dinner. All the best and thanks so much for all you do, the Nameless One.

Voices [6:50]

You work for the railroad, Grandpa. I wag for no man.

Mostly Uncle Frank [6:56]

Well, first off, thank you for being a donor to the Father McKenna Center. As most of you know, we do not have any sponsors on this program. We do have a couple of charities we support. My charity is the Father McKenna Center, and Mary's is Fairfax Casa. Right now we are running a promotion for the Father McKenna Center called the Top of the T-shirt campaign, which I talked about in detail in episode 518. But what we're trying to do is match the $25,000 put up by two of our listeners, Matthew 63 and 4J. All of our best listeners are anonymous. Does that make you different than most everybody else?

Voices [7:35]

And the answer's yes.

Mostly Uncle Frank [7:37]

You can give to the Father McKenna Center a couple of ways. First, you can just check out the link in the show notes, and that'll link you directly to the donation page there. Or you can give through Patreon, and you can do that through our support page at www.riskparty.com. Either way, you get to go to the front of the email line. And I always have to move the nameless one to the front of the front of the email line due to his creative donations. If you didn't pick up on it, his donation is the first part of the Fibonacci sequence in reverse. And the first part of the Fibonacci sequence is 11235. And so that gets you to five thousand three hundred and twenty-one dollars and ten cents.

Voices [8:22]

Excellent!

Mostly Uncle Frank [8:24]

You know, it was interesting. We were also cleaning out the house where my parents used to live before they went to assisted living because Mary and I own that house and we need to sell it now. And one of the things I found there that my mother had was a little book called Divine Proportions. And it's all about the golden ratio or the golden section.

Voices [8:45]

A number so perfect. Perfect. You find it everywhere, everywhere. Sacred geometry.

Mostly Uncle Frank [8:53]

Now she was an artist, and so it is kind of a miniature coffee table book with lots and lots of illustrations in it, focused mostly on how the golden ratio has been used in our work and in architecture, as well as in nature, but there is a chapter on mathematics and the Fibonacci sequence as well.

Voices [9:13]

A mathematical property hardwired into nature.

Mostly Uncle Frank [9:20]

And so I'll be keeping that book as a nice little remembrance on our coffee table now. Which means your donation was very serendipitous. The Golden Ratio. The Golden Ratio. So what the Nameless One has done here is set up a little test portfolio. And this seems to be a popular pastime these days, and I do applaud it. I probably should have thought of it in the first place, but it really came up when I went on Bigger Pockets Money last year and helped Mindy Jensen set up her own kind of test portfolio, which you can do easily now at a place like Fidelity since we have fractional share trading. And there is a video there on YouTube showing exactly how we did that. I think a lot of people have found this process pretty useful. And so I'm glad you're taking advantage of it because I think people are most worried about getting to retirement and just not being comfortable with managing the portfolio, but there's no reason you can't just practice on this in advance. And once you've done it for a few months, you'll see it's just not very complicated.

Voices [10:29]

Rex Quando, we use the buddy system. No more flying solo. You need somebody watching your back at all times.

Mostly Uncle Frank [10:37]

And this portfolio you've created is squarely in the kinds of portfolios that tend to have high safe withdrawal rates, which I described on another podcast, the Afford Anything podcast with Paula Pant, and she actually created a risk parity portfolio blueprint, which would be basic guidelines for constructing a portfolio like this that's likely to have a high safe withdrawal rate. And those kind of portfolios tend to have between 40 and 70 percent ish in stocks in them divided into growth and value, between 15 and 30 percent in intermediate and long-term treasury bonds, between 10 and 25% in alternative assets like golden managed futures, and less than 10% in cash and cash equivalents. And so your portfolio falls squarely within all of those guidelines, and it's no surprise when I plopped it into portfolio charts. It compares quite favorably to things like the Golden Ratio portfolio.

Voices [11:34]

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

Mostly Uncle Frank [11:38]

And so I'm glad you're taking advantage of all we have to offer here, and hopefully you will enjoy spending that money on a fabulous meal. Thank you so much for your donations to the Father McKenna Center since this is not the first one. Hopefully, you're enjoying your little experiment, and thank you for your email.

Voices [12:06]

I cannot tell you how long this road shall be, but fear not the obstacles in your path. For fate has vouchsafe your reward. Do the road meanwhile. Yeah, you hear grow weary, still shall ye follow the way, even unto your salvation.

Pension Cash Hoard And Inflation Risk

Voices [12:45]

Second off.

Mostly Uncle Frank [12:47]

Second off of an email from Gebenezer.

Voices [12:50]

Are there no prisons? Are there no workhouses? Are there no prisons? Are there no workhouses? Are there no prisons? Are there no workhouses?

Mostly Queen Mary [13:03]

And Gebenezer writes Uncle Frank and Queen Mary, thanks for all you do for our little investing community and for your community through the Father McKenna Center and Fairfax Coss Up. I have attached the receipt for my donation to the Father McKenna Center Top of the T-shirt campaign. Groovy baby! I have two questions regarding my current situation. I'm 51 and one year away from eligibility for retirement in my pension system. At that time, I plan to take advantage of a deferred retirement option where I can continue working and have my pension payment deposited into a tax-deferred account paying a flat 4% per year. I may do this for as long as the eight years allowed by the program, or when my wife is eligible to retire in about three years. My question is how to treat these funds in our overall portfolio. We have about $2 million safe for retirement, transitioning to a risk parity-style portfolio currently allocated as follows 30% large cap blend, 15% small cap value, 15% international stock, 11% long-term treasuries, 11% intermediate treasuries, 6% gold, 6% managed futures, and 6% cash. My pension will be about $90,000, so after 8 years this would exceed $700,000 plus the interest payments, which is a significant amount of our overall portfolio. Does it make sense to adjust our portfolio allocation to account for these funds, which would act something like a large cash position with no liquidity? Conversely, should I just treat it as a windfall when retirement actually happens and invest the funds in the risk parity portfolio at that time? Second, between my wife's pension and mine, we should receive about $120,000 per year, which covers a majority of our planned spending of $200,000 per year. Our pension payments only grow by about 1% per year combined, so the portion covered by investments will grow over the years. My largest concern for the long term is to protect against higher than expected inflation. Not looking at any crystal balls, but rather considering our largest vulnerability since our pensions give us great flexibility to adjust withdrawals should we get a bad sequence of returns early in retirement.

Voices [15:51]

I'm not a smart man.

Mostly Queen Mary [15:53]

If I stay the entire eight years, we will probably be way oversaved, but we'll adjust our spending and giving accordingly.

Voices [16:01]

Oh, there it is! Winner winner dinner.

Mostly Queen Mary [16:08]

I already changed from a high stress position to a lower-paying, lower-risk one. I enjoy what I do and have good flexibility in what my wife calls my semi-retirement gig already. Apologies to Mary for the wordy email. Thanks again, Geminizer. I don't know what to do.

Voices [16:29]

I'm as light as a pillow. I'm as happy as a I'm as happy as an angel. I'm as merry as a schoolboy. I'm as giddy, I'm as giddy as a drunken man.

Mostly Uncle Frank [16:40]

Well, first off, thank you also for being a donor to the Father McKenna Center and a Fairfax Casa. That has also moved you to the front of these email lines. You have a very peculiar situation indeed, I would say. I'm not sure I've seen a situation where somebody was essentially forced to put money into cash for eight years right at the end of their working life. But yes, the answer is effectively you would be taking more risk or being more aggressive with the rest of the portfolio because as this part of the portfolio grows, I would treat it as if it is part of the portfolio, in which case you have this cash allocation that keeps growing. You wouldn't want to hold any other cash for certain in this sort of thing. I probably would not hold any intermediate treasury bonds either, because that is the other low volatility, low return asset you've got here. I would treat the cash essentially as a short-term bond allocation, so it's part of a larger bond allocation, and then adjust the other assets in the portfolio to increase them essentially. Because, yes, what you will do once you get to the end is take that cash out and then be buying more kinds of bonds or alternatives. So while this cash is growing, you treat the rest of your portfolio like it's on some kind of reverse glide path, if you will. This is really kind of an application of the macro allocation principle for the most part, because it looks like you want to have essentially 60% in stocks, and so you would be increasing the stock portion mostly in this portfolio as you treat the building cash as another part of the portfolio in another allocation. And that's what I'd be most focused on is trying to keep the macro allocations of stocks, bonds, including the cash and alternatives, in the same kinds of proportions that you ultimately want to have. And then when that cash actually becomes available, yeah, you would carve off the first one or two years that you're just going to spend out of it and then reinvest the rest of it in the rest of the portfolio. Getting to your second question, then it looks like the portfolio only needs to cover about $80,000 a year if your pensions are covering $120 out of $200 expected in spending. And by that time, eight years down the road, you may have something like four million dollars in this portfolio to cover $80,000 in spending, which is going to be something like a 2% withdrawal rate. If you have a 2% withdrawal rate, that means you can hold just about anything you want to hold based on personal preferences. So certainly a 50% equity, 28% treasuries, 12% gold, and 10% managed futures is going to suit you just fine. Now, if you're particularly worried about inflation, the way to deal with that is to tilt the portfolio towards the things that do well in inflation. And those two things in your portfolio are stocks, particularly the value-tilted stocks. And if you want a particular thing to invest in, it would be property and casualty insurance companies. So either the fund KBWP or the companies in that individually. These are companies like Travelers and Chubb and Allstate. That fund was up about 10% in 2022 for a reference point. And that would be part of your value allocation. Other value stocks do pretty well there too. But really the thing that does the best in an inflationary environment is going to be managed futures, particularly the part of the managed futures that is invested in commodities. Because if you look at a year like 2022, in managed futures, those funds were up 20 or 30 percent. Now the things that do the worst in inflation are going to be the treasury bonds. They're just bonds. No bonds do well in inflation.

Voices [20:52]

That's not how it works.

Mostly Uncle Frank [20:54]

So I'd probably reduce your exposure to treasuries in favor of managed futures or more equities, particularly the kinds of equities that we were talking about. But as I said before, with the kind of withdrawal rate you're likely to require out of this part of the portfolio or this portfolio, you could hold virtually anything you would really want to hold. What I would probably consider doing is increasing your spending. Although that may be difficult right now given the requirement of putting all of this money into this deferred pension thing. And in case you're wondering about gold, yes, gold does keep up with inflation over long periods of time, but it is not nearly as responsive to inflation immediately like managed futures are, or even like some of these value tilted stocks, particularly anything that is involved in things like energy or commodities or those property and casualty insurance companies. Do you have life insurance, Phil? Because if you do, you could always use a little more, right? I mean, who couldn't? Anyway, you're in really good. Shape here, and yes, you do have lots of flexibility, other than that requirement of accumulating a cash hoard, which is one of the strangest things I've heard. But it is what it is. I think you're gonna be fine anyway you go here. So, hopefully that helps. Thank you for being a donor to the Father McKenna Center and a Fairfax Casa. And thank you for your email.

Voices [22:29]

Scrooge was better than his word. He became as good a friend, as good a master, and as good a man as the good old city ever knew. Or any other good old city, town, or borough in the good old world. And to Tiny Tim, who lived and got well again, he became a second father. And it was always said that he knew how to keep Christmas well. Minimalism possessed the moment. May this be the truly said of us and all of us. And simple as tiny times bless us. Everyone.

Golden Ratio Contributions Without Tax Pain

Mostly Queen Mary [23:28]

No way.

Mostly Uncle Frank [23:30]

And CM rights?

Mostly Queen Mary [23:32]

Hey Frank, I don't have a question, but I just donated to the top of the t-shirt campaign. I think I flagged it on the donation site, but I'm not entirely sure. This mesh is mostly to ensure that my small donation, $50, gets credited appropriately. I recently learned about financial independence and have been consuming a lot of content and learned about your podcast. Admittedly, it took me a while to get used to your format, but I've adapted. And I admire your goal of sharing knowledge for free or donations to charity rather than selling ads. This is more of a thank you for the knowledge you've shared.

Voices [24:13]

Wow, is that very nice?

Mostly Queen Mary [24:16]

I'm 44 and my invested assets are 73% US, including 8% VTMSX that I bought years ago for reasons unknown to me, and 21% international. I'm 50% 401k and 50% brokerage, which happened because I read somewhere while in grad school to open a Vanguard account. I put all my savings for my summer job in the account in 2007, and well, you know what happened next. Thankfully, I didn't sell in 2008. Honestly, I don't think I knew how to. I just stopped checking the account for many years after.

Voices [24:52]

You better check yourself before you wreck your son.

Mostly Queen Mary [24:57]

Now that I've learned about financial independence, I've also learned that I'm in the accumulation stage, so there's little to do as everything is on autopilot.

Voices [25:05]

Time is money, boy!

Mostly Queen Mary [25:07]

I've decided to use the golden ratio for midterm savings, car, home repairs, etc., to better understand how to apply it to my whole portfolio when I retire in another 10 years or so. Your bigger pockets episode was very helpful. I guess one small question is: assuming I can deposit $1,500 monthly into this golden ratio portfolio, do I top up each asset to ensure that all the percentages are as they began? Or do I just put that in the lowest performing asset that month? All my best to you and Mary.

Mostly Uncle Frank [26:02]

Or are at least tolerating it. This is pretty much the worst video ever made. And yes, this podcast is kind of like a dive bar of misfit toys sometimes. And you find all kinds of quirky people in here.

Voices [26:17]

But I don't need anybody. I'm I'm independent. Yeah? Me too. I'm w whatever he said. Independent. Hey, what do you say we both be independent together, huh? You wouldn't mind my red nose? Not if you don't mind me being a dentist. It's a deal.

Mostly Uncle Frank [26:49]

When I was out in Montana, I also met with one of our longtime listeners, Chuck, who has a pension for very long bike trips with camping involved, and also a small dog that rides in the basket in the front. And he had just completed a thousand mile excursion in Canada, starting in Vancouver and finishing somewhere east of the Canadian Rockies. But that's how we roll around here. And just so other listeners know what that is, it's something that our adult children do. That instead of saving for things like house down payments or vacations or something that requires you to save for, say, at least three years, but not more than like eight. These kinds of risk parity portfolios are very good for that because they tend to have the characteristic of not being down for more than about three or four years maximum. And when you're accumulating in them for an intermediate goal, their downtime is even less. So in answer to your question, the principle here you're applying is trying to avoid having to rebalance a portfolio and pay taxes on the rebalancing until you're ready to actually use it. And so, yes, anything that you put into the portfolio, you use it to true up the thing that is the lowest, which I mean is below the percentage, the target percentage you want it to be at. And I would not necessarily pay attention to how the assets have performed in the past month because they can go on for many months of underperformance or overperformance. I would just try to minimize the number of transactions you have to make, which means just adding to whatever's low on the totem pole. So hopefully that helps. Thank you for being a donor to the Father McKenna Center. And thank you for your email.

Travel Plans Rebalancing And How To Reach Us

Voices [29:18]

Check yourself, Q. Check yourself.

Mostly Uncle Frank [29:21]

But now I see her signal is beginning to fade. Just a couple of announcements. There will not be a podcast this weekend. I'm going to Pittsburgh to meet some old childhood friends to go to some baseball games and otherwise screw around. I had planned this trip in advance, but the timing could not be better, since these guys are kind of like a second family to me. And they all knew my mom and they all watched the uh memorial service on Zoom. And in memory of my mom, I think we'll also end this podcast with a little bit of Morning Has Broken, which is one of her favorite songs. And when we come back next week, we'll be doing our annual rebalancing episode. I'm actually rebalancing the portfolio today on Tuesday. I should say I'm rebalancing the first four portfolios because they are in an annual rebalancing cycle. And so that will be the last episode in season six. And then I do have more donor emails to get to in connection with the top of the t-shirt campaign. So we'll get to everything eventually here. In the meantime, if you have comments or questions for me, please send them to Frank at RiskPardyRadio.com. That email is frank at riskparty radio.com. Or you can go to the website www.riskparty radio.com. Put your message into the contact form and I'll get it that way. If you haven't had a chance to do it, please go to your favorite podcast provider and like, subscribe, give me some stars, a follow, a review. That would be great. Okay. Thank you once again for tuning in. This is Frank Vasquez with Risk Party Radio. Signing off.

Voices [31:02]

Morning has broken. Like a small three.

Mostly Queen Mary [31:56]

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.