Mostly 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 Mary [0:18]

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

Mostly Uncle Frank [0:37]

Thank you, Mary, and welcome to episode 97 of Risk Parity Radio. Today on Risk Parity Radio, we're going to work through our pile of emails and see how far we can get. But first off, there were a couple of interesting things I saw on the internet. interwebs this week that I thought I'd like to alert you all to because I think they're useful and interesting. The first is an interview of Bill Bengen, the founder of the 4% rule, and that is in the FI show with Cody and Justin. It's episode 126, and I'll link to it in the show notes. He said a few interesting things. One that I liked was that when he first started in the financial services industry, he had been a engineer from MIT and then run a family business. And when he first started, there was no analysis of safe withdrawal rates. And so he did one. And for his trouble, he got lots of hate mail from lots of people saying, well, I've been 20 years in the business and I know better than you do. Obviously, they were wrong because they weren't using data. But to me, it's like, well, yeah, that's, that's the way we should be doing it and not the old way of the 20th century. But now he's been working even more on figuring out what is the best way to structure portfolios and what are safe withdrawal rates using a much more robust set of data. And so he talked about what he's been doing and this will be published evidently later this year, hopefully. And what he's discovered is a few things. First, he says that a safe withdrawal rate for a reasonable portfolio ought to be about 5%. 4.5% if you are conservative. But he also said that what's really important here is to diversify your portfolio more. So in his latest work, he not only looked at simple stock bond portfolios, but also added things like commodities and precious metals. And he found that when he went from three asset classes to six asset classes, Just doing that changed or improved the safe withdrawal rate of the portfolios he was analyzing from 4.5% to 4.9%. And I think this is really indicative of what I call the age of steel that we're moving into.

Mostly Voices [3:08]

Yes!

Mostly Uncle Frank [3:12]

That we are going to have much more opportunities to diversify our portfolios in reasonable, inexpensive ways with ETFs.

Mostly Voices [3:19]

We had the tools, we had the talent.

Mostly Uncle Frank [3:23]

And so we will be able to do what was not possible for do-it-yourself investors in the past. We won't be hamstrung by what we call the bronze age, is where they developed the 60/40 portfolio, but you had to have fund managers and pay them lots of money and all kinds of loads and awful things. And then we moved into the age of iron in the 1990s, and that was when we had indexing. began to become popular and then took over most of the sphere. And now we are moving into what I call the age of steel, where we have not only indexing, but lots of different ETFs focused on lots of different asset classes, so we can use them to construct portfolios ourselves that are much better than those portfolios from the 20th century. We have been charged by God with a sacred quest.

Mostly Voices [4:16]

And I'm really looking forward to that work.

Mostly Uncle Frank [4:20]

So I suggest you have a listen to that podcast because it was really interesting. It came out today or yesterday, I believe. Real wrath of God type stuff.

Mostly Voices [4:28]

All right, then the other interesting thing on the interwebs is

Mostly Uncle Frank [4:32]

Choose FI has put together a bunch of M1 Pis from various people. And those people include JL Collins, Paul Merriman, Paula Pant, Gillian Johns' rude and yours truly. And so you'll see three portfolios up there that were suggested by me in addition to about 10 others suggested by the others. Now all of those portfolios are good portfolios and are useful portfolios, but they have a podcast about it and I'll link to the page in the show notes so you can check those out. Be aware that some of the portfolios including a couple of the ones I suggested only go back three years instead of five years. on their back testing because, foolish me, I gave them two portfolios with a Gold Fund GLDM that's only been in existence since 2018. I probably should have given them one like GLD that's been around longer for a better comparison. But you could also take a look at those if you're an M1 user, change those into your own pies. But I think that will be a interesting experiment going forward and they've got a podcast they released on Monday that goes with that whole experiment. Yeah, baby, yeah! Do I feel lucky? Do I feel lucky? But now let's proceed to a few emails here. Here I go once again with the email.

Mostly Voices [5:55]

First one is from Matt R.

Mostly Uncle Frank [5:59]

And Matt R writes, hi Frank, I fell behind on episodes and I'm catching up again. I recently listened to the episode where you played clips from Homestar Runner characters. You made my day. I hadn't thought about them for years, but I love the Strong Bad emails episodes. Thanks for taking me down memory lane. Also, congratulations on the success of your podcast. It is well deserved. Regards, Matt. Well, thank you, Matt. Yes, it's interesting how my family got involved in it, but those are something that we bandied about when my children were growing up. We first encountered it when we started playing Guitar Hero. and on Guitar Hero 2, one of the songs on there is the Trogdor song. And I didn't know where that came from, but a cousin of ours that was living with us told us about Homestar Runner and Strong Bad, and all of a sudden we were watching all the cartoons there that were on that website. This was like pre-YouTube when these things were coming out. And so we adopted all of those phrases from the various characters in that episode, including Strong Bad, I'll improve on your methods, his brother Strong Sad. That's not an improvement, Coach Z. Take a look there. I think she's looking pretty good, the Homestar Runner character himself.

Mostly Voices [7:16]

I do what I'm told, and Ace Steve in Bugs. Hey, Steve. I'll get you, Ace Steve, if it's the last thing I do.

Mostly Uncle Frank [7:28]

for a few. And so as you're aware from the listening to the show, I can't get them out of my head and still think they're very amusing. Thank you for the email. All right, the next one comes from Craig D and Craig D writes, Frank, thank you for educating us all about the risk parity universe through your podcast. What a treasure. Who knew that there was so much to learn about that universe? Fat, drunk, and stupid is no way to go through life, son. I have migrated over to the Risk Parity Golden Ratio portfolio and doing so I sold my Vanguard 60 VTI 40 BND funds along with their super low expense ratios. However, I do notice the move to the Golden Ratio means higher expense ratios for the suggested funds in this risk parity strategy. Have you been able to calculate the trade-off in total returns of the risk parity portfolio with higher expense ratios? When compared with the total returns of portfolios with significantly lower expense ratios such as those enjoyed in more traditional portfolios such as the 60 VTI 40 BND. When do fund expense ratios play a significant part in risk parity portfolio strategy? How much should expense ratios influence our risk parity portfolio decisions? All right, they really don't play much of a role. They're so small to begin with now. I mean, if they were over 1%, they would start playing a role. The way you can tell this is simply by doing analyses on portfolio visualizer and swapping in the higher expense ratio funds for the lower expense ratio funds, because that calculator accounts for expense ratio and reinvesting dividends. So it's all built in there. So if you have a question about how this one fund would affect the portfolio versus another fund, you can check that out. You'll find it's extremely insignificant and getting more insignificant as time goes on. So for instance, TLT is the fund that we use in the sample portfolios, but that doesn't mean the one you have to use. There is now a Vanguard alternative that hasn't been around as long called VGLT, which has an expense ratio of 0.05% compared to say BND, which is at 0.04%. That's not a significant difference. I think I've improved on your methods a bit too. So I really wouldn't worry about them too much. Forget about it. I would take them into account, look for the lowest expense ratio ETF that fills the bill. In most cases, you have several different ETFs to consider now, but also make sure that it is relatively liquid so that you can buy and sell it easily. And that usually is not a problem when you're talking about Vanguard Schwab or iShares related funds. So I would say that expense ratios are another tale that you don't want to wag the dog along with tax considerations. Forget about it. Alright, the next email comes from Andrew L and Andrew L writes, Subject：Question for Uncle Frank. Hello Frank, thanks for a wonderful podcast. I've listened to every episode. I'm risk averse and have always tried to hedge my bets against market downturns with different asset classes. Now I know what to call my investing style. I also have a new favorite risk parity radio inspired activity. I put together three separate portfolios in my accounts, the Golden Butterfly and two variations of my own, Risk Parity portfolios which I manage individually. Watching them compete is as exciting as it gets for this conservative investor. I have a who gets a cut question for you. When we see management fees on funds but pay no trade fees where and when and how does that money go? Is it basically a front load? Is it a monthly or annually dependent upon purchase date? Is it transferred from the account on that date as a Debit or skimmed off the available balance or through reduced dividends? I just don't see it. If the fee is taken out right away, would bouncing from fund to fund within a short time, e.g. deciding you like GLDM's expense ratio more than GLD's and moving over effectively cost you the maintenance fees twice? Thanks again and tell Mary that she does a great job too. I will be sure to do that as the first priority. That would be great. If you can dodge a wrench, you can dodge a ball.

Mostly Voices [12:05]

Signed, Drew L.

Mostly Uncle Frank [12:09]

Thank you, Drew. The answer is it comes out daily, believe it or not. I'll link to Investopedia article that describes how ETFs are managed, but they literally take that fraction of a percentage, which I guess is something like one over 262. I think that's the number of trading days. It might be 252 trading days in a year. And then multiply that times the expense ratio that they take out annually, and that is the expense ratio. So no, there is no advantage to trying to jump in and out of funds based on when they might take that out because it happens every day. Forget about it. But thank you again for that email. All right, next one comes from Jeff G. Jeff G, subject, can't trust the math. Jeff G writes, hi Frank, I was one of your early listeners and I'm so happy to see the growth of the podcast. Congratulations on all you have done. I had an interesting dilemma and wanted your opinion. In a recent episode, you mentioned that Portfolio Visualizer had a way to factor in changes to your finances in the future, such as lower expenses later in retirement or big expenses such as college tuition payments along with full drawdown schedules. Typically, the 4% rule had just one static number that never changed for 40 years, which isn't realistic. I plugged in numbers for me, which included Retiring in five years. This included major contributions to my retirement accounts for the next five years. When I added this to Portfolio Visualizer along with some future college expenses and a decrease in spending later in life due to Social Security, it showed a 100% success rate. I then changed the timing of it to retiring immediately, which meant five years less of building my wealth and five more years of drawdown. Surely this is a massive change in the outcome. Amazingly, the success rate changed from 100% to 99.1%. I realize that I am where I need to be, yet I can't seem to trust the math. All of these years I've trusted the math to get me where I am, but now that it showed that I am where I need to be, I'm very hesitant to believe it. Do you think this is a common occurrence? Your podcast opened my eyes to risk parity portfolios and now I realize the perpetual safe withdrawal rate is more important to me than just having the largest sum of money. I am wondering if this new understanding of having assets that are negatively correlated is my reason for not fully trusting the math. I keep thinking, what if something goes wrong with the market? But I guess with these type of portfolios you are pretty well insulated from that. Thanks for all that you do and sorry for the long message. One last thing, I wonder if in the future you could do a full episode guiding people through the Portfolio Visualizer site as there's so much good information that it can be a bit overwhelming. I was using it for a while before your podcast introduced me to some tools which really changed how I look at things. Regards, Jeff. Well thanks for that email Jeff. Yeah, I'm glad you're able to take a look at that and do some calculations using those tools. There are so many tools on there, I would probably have to go through one at a time on various episodes, but perhaps I could do that and introduce different calculators that might be a useful feature for me to deal with on an ad hoc basis.

Mostly Voices [15:31]

Ain't nothing wrong with that.

Mostly Uncle Frank [15:36]

As to your other question, which is more philosophical, yes, I think for people who have paid attention to the growth of their assets that it is difficult to start withdrawing down on them. It feels like you are doing the wrong thing or going backwards, if you will. And that's probably the difference between a do-it-yourself investor and somebody that relies on a financial advisor. Because a do-it-yourself investor is looking at it and handling it. A person that relies on a financial advisor is psychologically offloading that to the financial advisor. And so we'll just call them and ask them whether they have enough money or not, because they probably haven't been paying attention to it. For a while, anyway. I do what I'm told. I think psychologically you do get used to being in your drawdown phase after a while. Give it some time, I would say. One thing that you might find comforting to look at is if you go to portfolio charts and look at the annual performance chart, which has all of these little boxes for every year, and for every sequence of years going back for 50 years, you can look at that and feel kind of comfortable that the maximum drawdowns have been fairly low for these kind of portfolios compared to other portfolios and also that they've been relatively infrequent. So you're only seeing a drawdown, say in four or five out of 20 years, as opposed to a more standard portfolio where you might see drawdowns in a third of the years. So I would take a look at that to get an idea of your expectations for how many years you might be down with one of these sorts of portfolios. And hopefully that will assuage your feelings.

Mostly Voices [17:24]

What we do is if we need that extra push over the cliff, you know what we do? Put it up to 11. Exactly.

Mostly Uncle Frank [17:32]

All right, our next email, I think we'll just do one more today. This one is from Bill, and Bill writes. Message. A man has got to know his limitations. You could ask yourself a question. Do I feel lucky? Amazing educational podcast.

Mostly Voices [17:53]

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

Mostly Uncle Frank [18:01]

I've binge-listened to all the episodes and enjoyed them all, including the sound bites. especially Clint. Do you punk? Wanted to share a bit about who is listening to you and request something that will greatly benefit others too. I'm in my mid 50s and six years from retirement with a planned generous pension after 35 plus years which will cover my living expenses including health insurance. I am grateful but it was not without years of sacrifice and overseas deployment as a military reservist. I presently have over 1 million in equity investments, i.e. S&P 500, growth, NASDAQ, etc. Two-thirds of the assets are in IRAs, vast majority in traditional pre-tax, minority in Roth, and one-third in taxable Vanguard brokerage account. Everything is in low-cost mutuals and ETF equities/index funds. At some point in the next few years, I will either need to move my funds into a risk parity portfolio Or pay someone 1% a year to do it for me. Ugh, seems like a lot of money if I have to give 1% of my 4 to 5% yearly distribution. Highway robbery. They're sitting out there waiting to give you their money or you're gonna take it. DIY seems an attractive option if I can only get a proper education. I have been searching for over a year for good educational information regarding setting up a DIY retirement fund distribution portfolio. All I found is discussions of accumulation portfolios, nonsense self-promoting financial planner advertisement podcast.

Mostly Voices [19:35]

A, B, C, A always be be closing. Always be closing. Always be closing. Or Pierre Junk. Everyone in this room is now dumber for having listened to it.

Mostly Uncle Frank [19:53]

One author was arrested after writing his book.

Mostly Voices [19:57]

I award you no points and may God have mercy on your soul.

Mostly Uncle Frank [20:02]

No one to trust out there with this incredibly important life-changing financial task. What you have provided appears to be an easy to understand third-party verifiable practical discussion on how one might create a D-Y-Y retirement portfolio.

Mostly Voices [20:14]

Yes. Much appreciated.

Mostly Uncle Frank [20:17]

What I would also appreciate, as I assume others too, is a webpage of quality resources and references where we might educate ourselves and learn more about this fascinating topic. You will sometimes make a mention of an article, podcast, or website. Perhaps a quick list link may be helpful. I marvel at your depth of knowledge and your unselfish desire to help others with this life-changing topic. Kudos to you. Thank you, Bill. Well, thank you, Bill, for that email. It's very Nice of you.

Mostly Voices [20:49]

We few, we happy few, we band of brothers.

Mostly Uncle Frank [20:54]

You know, it's funny you mentioned a book of somebody went to jail. I have one of those on my shelf as well. It's called Wealth Without Risk from the 1990s. And I do kind of collect those things because if you do look through financial literature and books, it is pretty atrocious. A lot of those books are actually written as marketing materials and then they are sold to insurance agents and others who sell annuities and things to give to their prospects. So they are designed as marketing materials. Everyone in this room is now dumber for having listened to it. There is a whole industry that creates marketing materials for the sales people to sell you these financial products.

Mostly Voices [21:43]

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

Mostly Uncle Frank [21:50]

And it's really what we're all fighting against. I do conduct this podcast as a consumer. So I am interested in demanding more and better from the financial services industry and we have to keep whacking them over the head and telling what's wrong with them until they shape up.

Mostly Voices [22:10]

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

Mostly Uncle Frank [22:14]

There are a few good apples, but it's a pretty rotten barrel that you have to sort through. You need somebody watching your back at all times. What I think we need is something like an investor's bill of rights. But I'm not up to the task to taking all that on. I will stick to my knitting here and hopefully participate in this way. Man's got to know his limitations. As to your request, there are in the show notes I do link to just about all of the things that I talk about. And so I think the easiest way is to go to the podcast website. And if you search the podcast, you can look in the show notes and you'll find the links to Many, many articles, other podcasts, and other things.

Mostly Voices [23:04]

You are talking about the nonsensical ravings of a lunatic mind.

Mostly Uncle Frank [23:11]

I'm not sure I'm up to the task of putting together a whole webpage of quality resources. This is an amateur hobby for me, and you know what Clint Eastwood says. Man's got to know his limitations. You can't handle the truth. So while I will give that consideration, I am unlikely to expand my offerings too much given how much time it might take. I will do my best to direct you to other such lists though. And keep that in mind in the future.

Mostly Voices [23:46]

Bow to your sensei. Bow to your sensei. Lighten up, Francis.

Mostly Uncle Frank [23:53]

My experience is there are some well-meaning financial advisors out there, but they need to commit to fiduciary standards before you could really trust them. And I would only trust somebody that is essentially operating independently and is not part of some larger company or group, because all of those organizations and institutions have business models that are based fundamentally and primarily on sales.

Mostly Voices [24:25]

Get them to sign on the line which is dotted. They're sitting out there waiting to give you their money. Are you gonna take it? That and aggregating AUM, assets under management.

Mostly Uncle Frank [24:36]

And so the way they operate, at least the big retail ones, is your financial advisor's job is to buddy buddy up to you.

Mostly Voices [24:44]

Rex Quandt, we use the buddy system.

Mostly Uncle Frank [24:48]

and then get your money under management, and the fees are taken out in the back room, and they want you to know as little as possible and just feel good about their services, and that you are taken care of.

Mostly Voices [25:06]

We can put that check in a money market mutual fund, then we'll reinvest the earnings into foreign currency accounts with compounding interest, and it's gone. What? It's gone. It's all gone. What's all gone? The money in your account. It didn't do too well. It's gone.

Mostly Uncle Frank [25:21]

I think we need to leave those things back in the 20th century, but it's going to be a long process before that evolves, although it is evolving slowly but surely. But now I see our signal is beginning to fade. I believe we'll be picking up this weekend with our weekly portfolio reviews and another whole host of emails. We are into early June as far as those are concerned, and so if you did send me one in May or earlier that I did not address, you may want to send it to me again and I apologize for missing it. The way to send me messages is to send them to frank@riskparityradio.com That email is frank@riskparityradio.com or you can go to the website www.riskparityradio.com and fill in the contact form and then I'll get your message that way. We have an exciting month coming up, at least for this kind of podcast. We will be doing a 10 question analysis of an interesting commodities fund called COM next week, I believe. And then as we get into July, it will be time for rebalancing some of our portfolios, the ones that are on that schedule. And we'll also have a new sample portfolio to debut at that time. If you haven't had a chance to do it, if you would go to Apple Podcasts and leave a five-star review and a nice comment, I would greatly appreciate that. That would be great. Thank you once again for tuning in. This is Frank Vasquez with Risk Parity Radio. Signing off.

Mostly Mary [27:08]

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