Voices [0:01]

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.

Mostly Mary [0:17]

A different drummer 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 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.

Voices [0:50]

Yeah, baby, yeah.

Mostly Uncle Frank [0:52]

And the basic foundational episodes are episodes 1, 3, 5, 7, and 9. Some of our listeners, including Karen and Chris, have identified additional episodes that you may consider foundational, and those are episodes 12, 14, 16, 19, 21, 56, 82, and 184. Whoa, and you probably should check those out too, because we have the finest podcast audience available.

Mostly Mary [1:26]

Top drawer, really top drawer.

Mostly Uncle Frank [1:31]

Along with a host named after a hot dog.

Voices [1:34]

Lighten up Francis.

Mostly Uncle Frank [1:37]

But now onward, episode 427. Today, on Risk Parity Radio, we're just going to do what we do best here, which is tend to your emails, and so, without further ado, here I go once again with the email. And first off. First off, we have an email from Katie she called for.

Voices [1:59]

Katie left me a new to ride.

Mostly Uncle Frank [2:04]

Katie left me and you to ride, and Katie writes.

Mostly Mary [2:11]

I love the podcast and have learned so much from you. Thank you for picking up this little hobby of yours.

Voices [2:17]

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

Mostly Mary [2:23]

I heard you mention the anonymous donor who is matching up to $15,000. I contributed $50 today and noted in the in honor of box that the donation was in honor of risk parity matching and in honor of my dad, who would have supported the center's work. Too Sweet. I am asking my company if they will also match, but that process takes a while. They are usually pretty generous and that is why I would not like another job.

Mostly Uncle Frank [2:49]

Looks like you've been missing a lot of work lately. I wouldn't say I've been missing it, Bob.

Mostly Mary [2:54]

So I think you will see another $50, and maybe your donor will match that too.

Mostly Uncle Frank [3:02]

Thanks again. I think you and Mary Mary are just awesome. Mary Mary, I awesome. Well, thank you so much, Katie, for stepping up to beat that drum.

Voices [3:15]

It's time for the grand unveiling of money.

Mostly Uncle Frank [3:20]

And for telling us about it so I could read it on the air. You had me at hello. As I just announced in the last episode, number 426, we are embarking on a matching campaign for the Father McKenna Center, which is the charity we support here.

Voices [3:38]

As we're adding a little something to this month's sales contest. As you all know, first prize is a Cadillac Eldorado. Anybody want to see second prize? Second prize is a Cadillac Eldorado. Anybody want to see second prize? Second prize is a set of steak knives.

Mostly Uncle Frank [3:52]

And our goal is to get to $15,000 through donations from our listeners. Now, $50 is great because if we have just 300 people out of 2,000 listeners give $50, we would make it to $15,000 pretty quickly.

Voices [4:10]

That is the straight stuff. Oh funk master.

Mostly Uncle Frank [4:13]

Now, if everybody gave $50, we'd have $100,000. Then wouldn't that be something.

Voices [4:19]

That's gold, Jerry Gold.

Mostly Uncle Frank [4:22]

But I know that's not going to happen, which is okay, because the people that do donate to the Father McKenna Center here are very generous. The best Jerry the best and I don't think we'll have that much trouble reaching our goal in the end, but I'd like to reach it sooner rather than later.

Mostly Uncle Frank [4:39]

I won't belabor this too much more at the moment, but if you want me to stop, stop talking about it, the easiest way to do that is to give money, like katie has done sooner rather than later, and uh I'll go ahead and make sure you get another copy of that memo okay, I'll provide that donation page link again in the show notes yes I'm glad you're enjoying the podcast. M Mary is too, and we thank you for your support. And thank you for your email.

Voices [5:07]

Show me the money, jerry, you better yell, show me the money.

Mostly Uncle Frank [5:14]

Second off. Second off we have an email from Sean Sean.

Voices [5:19]

Sean, sean, sorry, we're closed.

Mostly Uncle Frank [5:24]

Sean of the dead, and Sean writes.

Mostly Mary [5:28]

Hi Frank, your recent episode on asset location got me wondering do you have any opinion on Alpha Architect's BOXX ETF? For those unfamiliar, this asset packages a replication of short-term US treasuries one to three months in an ETF wrapper and, instead of throwing off regular dividends, which would be taxed as ordinary income, simply raises the ticker price of the ETF. In theory, this allows its owner to reap the benefits of US Treasuries while being taxed only at the lower long-term capital gains level, assuming they hold it for a year plus. As a recovering attorney, I'm wondering if you find this asset to be legally dubious. More importantly, do you think the downside risk in the event of an SEC and or IRS ruling against BOXX to be low enough that it could be worth the risk? Thanks, Sean.

Mostly Uncle Frank [6:23]

All right the box ETF.

Voices [6:25]

Real wrath of God type stuff.

Mostly Uncle Frank [6:27]

Yes, we've talked about it before, but I don't mind talking about it again, and you have described it accurately that it is a construction of options that pretty much replicates short-term T-bills, but it's taxed at a much more favorable rate. Now this is put out by Alpha Architect and that person behind that is named Wes Gray, who is a really smart guy, and there is a very nice interview done by Rick Ferry of Wes Gray on the Bogleheads podcast. It's number 70. I will link to it in the show notes. But he talks about this.

Mostly Uncle Frank [7:05]

He talks about some direct indexing and he talks about living in Puerto Rico. He's very good at creating things that reduce taxes. That's what you'll get out of that podcast. What I also hope you'll get out of that podcast is that he does represent what I'm talking about when I say that personal finance is an evolving technology, which is funny because the person interviewing him, rick Ferry, is somebody who is very much stuck in the past and hasn't really put out anything new since he wrote his books back in 2010. So he spends most of his time scolding people and telling them they're behaviorally incompetent to manage their own money or hold more than two or three funds.

Voices [7:44]

You can't handle the dogs and cats living together.

Mostly Uncle Frank [7:48]

And that may be true of some people, but it's certainly not true of a lot of do-it-yourself investors, and frankly, I find it kind of offensive sometimes. We're not that stupid. Sorry, we're closed. Well then, what are all these people doing here?

Voices [8:03]

Drinking and having a good time.

Mostly Uncle Frank [8:06]

Well, that's why we're here.

Voices [8:09]

You're too stupid to have a good time.

Mostly Uncle Frank [8:13]

So basically, it's like the Blackberry interviewing the iPhone dance around. What can be said by somebody who promotes a fund or has a fund under the disclosure rules that apply to this, which is basically he can't be in a position to actually be giving quote tax advice, unquote, and they talk about that regulation, so it's kind of tongue-in-cheek. But he does describe the fact that this strategy of using these options in this way is well known and has been going on for a very long time amongst hedge funds and people that manage very large pools of money. So the strategy itself is nothing new. All that is new here is putting it into the form of an ETF so it's more accessible to more people.

Mostly Uncle Frank [9:02]

Now, really, the only purpose of doing that obviously is to save on taxes. Otherwise, there would be no reason to have a construction like VOXX ETF just for fun, Because you could just buy a fund like TBIL or any number of other short-term T-bill kind of funds, or a money market fund even so, tax efficiency is in fact its reason for existing, or a money market fund even so, tax efficiency is in fact, its reason for existing. Now I've read some of the critiques of it, but frankly, most of them are along the lines of not, this is improper in an objective sense, but they're presented in a normative sense that we shouldn't allow people to do things like this. Well, that's all fine and good, but that's not how the law works. Just because you don't want something to work some way doesn't mean it doesn't work that way.

Mostly Mary [9:50]

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

Mostly Uncle Frank [9:55]

And I believe that if the hedge fund industry can protect a lot of their other favorable tax treatments, like carried interest, they're not going to have any trouble defending this one either. And it's very unlikely that this new administration is going to issue out more regulations when every day they talk about deregulating everything and cutting the IRS. So I think the chances of this going away anytime soon are very low. That being said, this probably is not worth pursuing or dealing with unless you're in the highest tax brackets, because that's where it really matters. But if you are in the highest tax bracket, it really matters a lot. Or it could really matter a lot If you were otherwise holding that short-term money in a money market fund or a CD or a savings account or any other short-term holding. This is going to be far superior in terms of the net amount you realize after taxes. So overall, I would say that the risks of this being a problem are extremely low and even if the rules are changed, they're probably going to be changed on a prospective basis and not a retrospective basis, because enforcing this backwards on thousands and thousands of taxpayers, it's not going to make anybody happy and it's not going to be fun work and it's not going to yield that much in additional revenue for the government anyway.

Mostly Uncle Frank [11:18]

But I do think the discussion about this is fascinating to me because it's more of a Rorschach test to me. It's more like to me that somebody finds a new and better way of doing something. There's always going to be a group of people who say, oh no, you can't do it that way. We have to do it the way we did in the past and we're not allowed to deviate from that. That's why it's funny to me that I hear Rick Ferry interviewing Wes Gray on this, since they do represent both sides of that Rorschach test on this, since they do represent both sides of that Rorschach test. But anyway, I think it's probably worth the risk. But don't hold me to it because, no, I have not studied the tax code. I'm just aware of this debate and I'm not giving you tax advice either.

Voices [11:55]

Forget about it.

Mostly Uncle Frank [11:57]

Hopefully that helps and thank you for your email.

Voices [12:03]

Next off, we have an email from Glenn.

Mostly Uncle Frank [12:13]

Giggity, giggity, giggity and Glenn writes.

Mostly Mary [12:18]

Hi Frank, I'd like to hear from you about direct indexing for people close to retirement and in retirement. Thanks, glenn, I like where this is going All right.

Mostly Uncle Frank [12:29]

another interesting question for something that might be appealing to high-income individuals or people with lots of assets in taxable accounts. So what is direct indexing? Well, it's kind of like a new fad that people like Fidelity are trying to get you to pay for.

Voices [12:45]

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

Mostly Uncle Frank [12:51]

But what it is is, instead of investing money in a fund, an index fund, you actually go out and buy the underlying securities, or enough of the underlying securities to essentially replicate what holding that fund is like. And a lot of these funds, which are cap weighted they are comprised mostly of just a few different stocks, so you can pretty much replicate the performance of the S&P 500 with probably less than 50 holdings. Now why would you want to do that? You'd want to do that because then you can do more tax loss harvesting, because you have all these things as individual holdings and some of them are going to yield losses while other ones are yielding gains, and so by managing them properly, you can do some tax loss harvesting and save some on taxes with that structure. This is also helpful if the fund you wanted to invest in was expensive and you just wanted to do this by yourself. Since we have no fee trading, which is another reason this has become popular you can actually buy all those holdings and not have to pay any transaction fees for that, because if you did have to pay transaction fees, it probably wouldn't be worthwhile just on that basis. Now there are advanced or ancillary benefits to something like this that Wes Gray also describes in that podcast, in which he's figured out a way for somebody with that strategy to then fold those holdings into an ETF. And no, I don't know the details of how that works, but that's what's going on out there these days with the most sophisticated fund handlers like Wes Gray, and you can listen to that podcast to get a little bit more on that.

Mostly Uncle Frank [14:34]

Otherwise, I don't think direct indexing is very valuable for most people because most people are in the 0% and 15% long-term capital gains tax brackets anyway and aren't really going to yield much tax benefits out of this.

Mostly Uncle Frank [14:50]

You really need to be in the highest tax brackets for direct indexing to make a lot of sense. With one exception I will give you, because I do some of this in our taxable account and in other accounts. Actually, because I do some of this in our taxable account and in other accounts actually Because, as I've mentioned before, as part of our value allocation to stocks, I have found that holding an allocation to property and casualty insurance companies is very helpful because they do mimic or outperform the stock market itself, but they have very nice diversification qualities to them, including being up in inflationary markets like in 2022. Now there is a fund for that. It's called KBWP, but I think it costs either 0.35 or 0.45 as an expense fee, and so I didn't want to pay that fee. The fund only has 20 companies in it to begin with, so what I've done is just simply buy the biggest 10 in there, which covers 80% of the holding anyway but saves me on that fee, and we're talking about companies like Travelers and Progressive and Chubb.

Mostly Mary [15:53]

That's what I'm talking about.

Mostly Uncle Frank [15:55]

And so, yes, that creates an extra complication in our management, and it certainly is not a necessary thing.

Voices [16:03]

Necessary. 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 [16:15]

But I personally don't mind that level of complication because for the most part, the shares just sit there and we watch them grow anyway, and something like Progressive is up nearly 300% in the past five years, so I don't mind just sitting there watching it and selling a little bit of it occasionally. I will say, though, I would never pay a financial advisor to do this. It's all one big crapshoot. Anywho, it is certainly a juice that's not worth the squeeze, and it is being heavily marketed by Fidelity and others as something people should be doing, and I would just say no to that A.

Voices [16:51]

B C A, always B B C. Closing, always be closing, always be closing.

Mostly Uncle Frank [17:01]

Because they're just trying to generate fees with it.

Voices [17:05]

If you have a milkshake and I have a straw, there it is. That's a straw. You see, watch it. My straw reaches across the room and starts to drink your milkshake. I drink your milkshake. I drink it up.

Mostly Uncle Frank [17:34]

So if you're going to do it, I think you should do it yourself. No one can stop me. Hopefully that helps and thank you for your email.

Voices [17:45]

Hey, hey, hey, Clap one more time. You're not coming to my birthday. Who did that?

Mostly Uncle Frank [17:52]

Next off, we have an email from somebody who did not provide a name.

Voices [17:57]

I have no name.

Mostly Mary [18:00]

Well, that right there may be the reason you've had difficulty finding gainful employment. And this no-name person writes Hi, the link to the Risk Parity Chronicles from the podcast page seems to go to a somewhat dodgy page here. I'm sure that is not right.

Voices [18:18]

You are correct, sir.

Mostly Uncle Frank [18:19]

yes, Okay, risk Parity Chronicles was the blog run by our good friend and listener, justin, and he did that for a few years, but he had other things he wanted to do in life and didn't really want another job.

Voices [18:35]

I just stare at my desk, but it looks like I'm working.

Mostly Uncle Frank [18:39]

So he has taken it down, at least for now, and you will not find it at that address anymore. You will still find, though, if you go to YouTube. He made some nice videos on things like asset swaps and other things like that that are very helpful, and I'll link to his little channel there in the show notes and you can go through some of those. I think you'll like them, but you will not find the blog on the interwebs, at least not right now. Hopefully that explains things, and thank you for your email.

Voices [19:10]

I work for no man Last off.

Mostly Uncle Frank [19:15]

Last off, an email from Kelly Kelly from Economy.

Mostly Mary [19:40]

And Kelly writes Thank you, I'm sorry I didn't listen to your materials and what you produced beforehand. I am just the wife, as I told you.

Voices [19:51]

I almost don't use social media, but I want to say thank you. It so shines. A good deed in a weary world.

Mostly Uncle Frank [20:00]

Well, first, thank you for coming to my presentation at Economy. The Economy Conference, which is held in Cincinnati in the spring of each year, is the only financial conference that Mary and I go to during the year, mostly because the person that runs it, diana Merriam, is a friend of mine, and so I also do some kind of little breakout session, which they hold in the afternoons, and there's more than one you can go to, so I'm always happy when my room is filled. And we were in the theater this year on the big screen, and now we bring you another page from the diary of the world's greatest actor, master Thespian.

Voices [20:42]

But when I Acting, I'll say Genius, thank you, no, thank you. Shut up.

Mostly Uncle Frank [20:51]

So the presentation I gave this year was mostly about the reasons that you should spend more money in retirement, and these are related to a lot of teachings and research by people like Arthur Brooks and Daniel Crosby, among others. But basically, once you've reached a level where you have enough money, you have enough power and you have enough fame, there's no reason to keep pursuing those things ad nauseum, and, in fact, it will make your life worse if you become obsessed about those things, and what you should really be doing is focusing on relationships in particular, and I'm not going to rehash that presentation here, at least not right now. I may be appearing on someone else's podcast where we will actually go through that, and so I'll wait to see whether that happens. But you certainly are correct and it's what I believe that just accumulating more money and hoarding it until you die is not a good use of your time or of the money, and that it really needs to serve a higher and better purpose, which is dealing with people, as you say.

Voices [21:56]

What's with? You anyway, I can't help it. I'm a greedy slob, it's my hobby. Save me.

Mostly Uncle Frank [22:04]

And to me, that is the real purpose of financial independence, or financial independence retire early, wherever you want to put it, and that's what I've been talking about with anyone who wants to listen since about 2009. And for me, in particular, this is also part of my family's tradition and historical fireperson that most people don't even know about, let alone talk about, at least in the financial context. So the person I'm talking about is a woman named Catherine Catherine Macaulay, who lived in Dublin, Ireland, in the late 18th and early 19th centuries, and I will link to a little video about the story of her life from YouTube. It's 20 minutes long. I suggest you watch it and it will describe her early life, but the long and the short of it is that she found herself at about 40 years old being financially independent, and she wasn't married, and so there was a big question for her is well, what's she going to do with this money? She decided that what she wanted to do with the money was to create a service organization that would serve poor people, hungry people in Dublin, but also was dedicated to educating young women, and she got a lot of blowback at the time because who was this unmarried woman running around organizing these things and asserting herself in society in that way. So she ran it for about 10 years as a secular organization but realized that if it was going to continue the best way to preserve it would be to turn it into a religious organization. And so it became the Sisters of Mercy and she went off and at the age of 50, did the studying necessary, took the vows, got all of the permissions to create this organization out of her original organization. But the Sisters of Mercy as an organization have always been about working directly with the people in their communities and also the efficient use of financial resources to get essentially the best bang for your buck, like I like to talk about with the Father McKenna Center.

Mostly Uncle Frank [24:07]

So what does that really have to do with me and why is it important? That comes through the family tradition. I have two aunts from Belize who are Sisters of Mercy, sister Sarita and Sister Francine. Sister Francine passed away about seven years ago, but Sister Sarita is still alive at age 94 and still works in a retreat center that she co-founded a couple days a week, and we went and visited her a couple of months ago because she still lives in the house where she grew up with my father, and another sister, sister Margaret, lives with her there too. Sister Francine also used to live there until she passed away, and what's interesting to me is they're actually very different people. Sister Sarita is an almost Dalai Lama-like person. She feels holy just being around her Now. Sister Francine was a firebrand and a hellraiser.

Voices [25:08]

No, no, I will not take your filthy, stolen money. You're such a disappointing pair. I prayed so hard for you. It saddens and hurts me that the two young men whom I raised to believe in the Ten Commandments have returned to me as two thieves with filthy mouths and bad attitudes. Get out and don't come back until you've redeemed yourselves.

Mostly Uncle Frank [25:47]

She ran a boys' school, or boys' schools, for most of her career as an educator and they were afraid of her. But she was known as the little general and someone who would always speak her mind and give a lot of people tongue lashings when she thought they needed it and then she would help them. She had no compunctions about shaming wealthy people into giving more money for the causes she served and after she stopped teaching and retired from that, she ran a soup kitchen. That was her retirement activity and along the way she took in stray people. She took in stray dogs. She was a constant presence in her community and acted as a surrogate mother and grandmother to many people. She also ran the finances of the household and would give little loans to people, but she would write that down in a book and you better repay that loan.

Voices [26:42]

Real wrath of God type stuff Fire and brimstone coming down from the skies.

Mostly Uncle Frank [26:47]

Anyway, when she died, the cathedral was full for her funeral service and people were crying over her casket Young people. She didn't have any money to her name, she didn't have a family, she wasn't famous, she didn't write a book, but I do think that she won life, and so that is why she is my primary retirement role model. What are you having there, francine?

Voices [27:15]

Margarita with tequila.

Mostly Uncle Frank [27:18]

And why I never hesitate to say what I think when I think it's important. Anyway, I thought you might be interested in hearing about that, Kelly, and how all of this fits together for me and what drives me to do the things I do and say the things I say.

Voices [27:35]

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

Mostly Uncle Frank [27:43]

Because Sister Francine also had a very sarcastic sense of humor and loved to laugh both with people and at them you fool.

Mostly Uncle Frank [27:53]

You fell victim to one of the classic blunders so thank you for paying attention to what I have to say and thank you for your email, but now I see our signal is beginning to fade. If you have comments or questions for me, please send them to frank at riskparityradiocom. That email is frank at riskparityradiocom. That email is frankatriskparityradiocom. Or you can go to the website, wwwriskparityradiocom. 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, maybe some stars. A follow a review? That would be great, okay. Thank. A follow a review. That would be great, okay. Thank you once again for tuning in. This is Frank Vasquez with Risk Parity Radio Signing off.

Voices [28:54]

She called me Katie. Let me amuse you back. Well, my baby called me Katie. Let me amuse you right, the train pulled out. I swam all the time, crazy about you, that hard-headed woman, hard-headed woman of mine, hey, hey, hey, hey, thank you.

Mostly Mary [30:10]

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.