Voices [0:01]

A foolish consistency, is the hobgoblin of little minds, adored by little statesmen and philosophers and divines.

Mostly Mary [0:10]

If a man does not keep pace with his companions. Perhaps it is because he hears a different drummer. 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.

Voices [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 to episode 440. Today on Risk Parity Radio. Yes, it is our first episode of Season 6. And also, on a sad note, it is the passing of Ozzy Osbourne, a non-conformist who captures a lot of the spirit of what we do around here. So you say it's sad, it's something that I enjoy, and what we'll be doing around here today is attending to your emails All aboard.

Voices [2:36]

I, I, I, I, I, I, I, I, I, I, I, I, I, I, I, I, I, I, I, I, I, I, I, I, I, I, I, I, I, I, I, I, I, I, I, I, I, I, I, I, I, I, I, I.

Mostly Uncle Frank [2:42]

I. But before we get to that, got some nice comments from many of you about the state of our alternative website. We are in rebuilding mode.

Voices [2:54]

Can we fix it? Yes, we can.

Mostly Uncle Frank [2:59]

If you'd like to take a look at that, go to the website at wwwriskparitybroadcastcom, and if you click on the alt site at the top of the page on the right, it'll take you to our demo of the site we are working on. Well, my top man, luke, is working on it.

Voices [3:16]

It has to be researched and it will be, I assure you, dr Brody, dr Jones we have top men working on it right now.

Voices [3:28]

Who Top?

Mostly Uncle Frank [3:32]

men and I want to thank you all who have already made some comments. If you've got some other comments, please get them in here by the end of the month and then Luke and I will sit down and look at them and implement the alternative website as the new spanking new website.

Voices [3:49]

Let's go, Jerry go.

Mostly Uncle Frank [3:51]

But now without further ado.

Voices [3:53]

Here I go once again with the email.

Mostly Uncle Frank [3:57]

And first off. First off, we have an email from Iron Tony. Off, we have an email from Iron Tony, and Iron Tony writes Hi Uncle Frank and Aunt Mary.

Mostly Mary [4:23]

I'm a huge fan of your work to educate us DIYers Over these many years. I always look forward to listening to every podcast and all those great sound clips.

Voices [4:33]

Shirley, you can't be serious. I am serious, and don't call me Shirley.

Mostly Mary [4:37]

I also appreciate Mary's silky smooth voice as she reads through the sometimes very lengthy emails.

Voices [4:47]

She's a real professional and very kind to help us all out no-transcript.

Mostly Uncle Frank [5:03]

That's what I'm talking about.

Mostly Mary [5:05]

I noticed there are a lot of charts and plots for each of the portfolios describing the historic and anticipated behaviors, like the equalizer target, accuracy, heat map and others. Would you kindly provide a brief rundown of the different charts describing what they show, why they may or may not be useful and their importance? I want to be sure I'm not missing something as I build my own unique portfolio. I like the golden ratio, so I'll likely use this as a jumping off point to create my own unique mix of assets using the tools, talent, monte Carlo simulations and a box of scraps in my cave. It's impossible.

Voices [5:43]

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

Mostly Mary [5:52]

My wife and I are two years from launching into full retirement mode and have mostly transitioned our portfolio into something better than 100% equities. Time to ease up on the gas pedal.

Voices [6:04]

Down the quarter mile of death in their 7,000 horsepower nitro burning suicide machines.

Mostly Mary [6:09]

as they shake hands with the devil, Having worked for the civilian government for many decades and also retired from the US Navy Reserves, I will have pensions that cover our minimum dignity floor, so our portfolio assets will help fund our bright and beautiful future, making distribution amounts very flexible based on need and market volatility. When I visit family in Washington DC, I gladly tell them that I donate to the Father McKenna Center and listen to Uncle Frank and Aunt Mary on Risk Parity Radio, as they should do too. Thank you again, Iron Tony.

Voices [6:51]

Is he blind? Can he walk at all? Or if he moves, will he fall.

Mostly Uncle Frank [7:12]

Well, first off, I did not pick this email out due to Ozzy Osbourne's passing. It had been picked out before I knew that, so maybe it was meant to be Aye, aye, aye, aye, aye, aye, aye, aye, aye, aye, aye, aye, aye, aye, aye, aye, aye, aye, aye, aye, aye, aye, aye, aye, aye, aye, aye, aye, aye, aye, aye. The reason I picked it out is because Iron Tony is a donor to the Father McKenna Center, and if you donate to the Father McKenna Center, you get to go to the front of the email line. As most of you know, we do not have any sponsors on this program. We do have a charity we support. It's called the Father McKenna Center and it supports hungry and homeless people in Washington DC. Full disclosure I am the board of the charity and I'm the current treasurer. We are in the midst of a matching campaign called the Top of the T-Shirt Campaign that we rolled out in episode 426, and we'll be continuing with that until the end of the month. So get your donations in show me the money.

Voices [8:11]

I need to feel you, jerry. Show me the money. Jerry, you better yell.

Mostly Uncle Frank [8:15]

Show me the money you can do that by going to the father mckenna website itself in the donation page, or if you go to the support page at wwwriskparityradiocom. There are links there to become a patron on Patreon of the show, and all that money does go to the Father McKenna Center. Either way, make sure you note in your email when you send it that you are a donor and I will duly move you to the front of the line. Now, getting to your email, you want to talk about the charts at Portfolio Charts. Well, there's a lot of good charts there.

Voices [8:51]

The best, Jerry the best.

Mostly Uncle Frank [8:53]

I'll just rattle them off. They are annual returns drawdowns, the equalizer chart, financial independence, global withdrawal rates, the heat map, long-term returns, the optimizer, portfolio growth, retirement spending, rolling returns, savings rates, start date, sensitivity, target accuracy and withdrawal rates. I'll link to the charts page in the show notes, but no, I'm not going to talk about all of these charts.

Voices [9:24]

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

Mostly Uncle Frank [9:26]

That would take too long. These charts, I don't think I'd like another job. That would take too long. I will talk about a few of them that I find most interesting for what we are trying to do here, which is to have portfolios that have high safe withdrawal rates and would be good in retirement. First, if you want to see all the charts in one place, just go to one of the portfolios, like Golden Butterfly or Golden Ratio from their portfolios page and they will show you all the charts for that particular portfolio and then you can go to each chart individually after that and put in your own portfolio and get the results out of it. So two of the charts I like the most are the withdrawal rates chart and the drawdowns chart.

Mostly Uncle Frank [10:05]

Now, the withdrawal rates chart is just showing you safe withdrawal rates for a portfolio, but it's got them lined out so you can see it from a zero-year time frame out to a 45-year time frame, and it gives you three alternative measurements, one being a safe withdrawal rate you're not going to run out of money. One being a perpetual withdrawal rate that you at least end up with the same amount of money and not have your portfolio go below that. And then what is called a long-term withdrawal rate, and all three of these things are described in the notes for it. But it does give you a good sense of not only what a 30-year withdrawal rate would look like for a particular portfolio, but basically going out to forever, because you can see how it becomes asymptotic as you go out there. And this is a really good tool for comparing portfolios because it really shows you that if you have just a simple traditional portfolio like a 60-40 or something like that, it's going to have a mediocre performance. If you have something that's like 100% stocks, it's going to have a bad safe withdrawal rate I mean less than 4%. But then if you add the assets that we usually add into this, you're going to get 30-year withdrawal rates of 6%. Now, mind you, the data is only back to 1970. So you would still reduce it a little bit for that. But the point of it is to show you which portfolios are better than other ones on this particular metric.

Mostly Uncle Frank [11:31]

Now, very much related to safe withdrawal rates is this drawdowns chart, and this is a really interesting chart. What it shows is, for any portfolio you put in there, how far has this been down in terms of maximum drawdowns and then how long has it been down in terms of maximum years underwater, and you can really see a very strong correlation between portfolios with lower maximum drawdowns and shorter maximum drawdowns and portfolios with high safe withdrawal rates. And so when you're looking at portfolios like the Golden Butterfly or Golden Ratio, you're seeing portfolios that are only down a max of 20% or less and have drawdowns that only last three or four years, whereas if you took some either all-stock portfolio or some simple stock bond portfolio, that's going to have a drawdown of up to 13 years and up to 40%. So what this gives you a really good feel for is well, how bad could this get?

Mostly Uncle Frank [12:34]

If I adopted this and this is also how I recognize that using a risk parity style portfolio was also a good way for you to save for intermediate goals in terms of saving for a house or a car in five years or something that was kind of amorphous that this kind of portfolio, since it's not going to be down for more than three or four years ever, essentially it makes a great intermediate term portfolio, in addition to being good retirement portfolio that is the straight stuff, oh master.

Mostly Uncle Frank [13:07]

This also gets to some very interesting theoretical parameters as to what you are trying to actually maximize when you're trying to construct a portfolio with a higher safe withdrawal rate.

Mostly Uncle Frank [13:18]

And there is a paper by Jim Sandage that I will link to again in the show notes I haven't linked to this for a while and also a presentation by Dana Anspach, who's a well-known financial advisor, about this very issue that really, in retirement, what you are trying to maximize in terms of a portfolio is not the highest Sharpe ratio or the highest overall returns, but what is called a mini-max. Basically, what does the best in the worst environments, what is the best of the worst. And that kind of portfolio is the kind of portfolio that has a higher safe withdrawal rate and works as a better retirement portfolio. She also analogizes this kind of portfolio to being the SUV or Jeep of the portfolios. Whereas your all-stock portfolio is more like a race car, something like a simple 60-40 portfolio might be like a minivan or something, but what you really want to take into retirement in my mind is a Toyota 4Runner.

Mostly Uncle Frank [14:20]

It's all the same to you, I'll drive that tanker that has things like four-wheel drive and fog lights. But you're not going to have that unless you have some alternative assets in your portfolio.

Voices [14:35]

I love gold.

Mostly Uncle Frank [14:39]

Anyway, check out the Sandage paper. It is applying chaos theory to this whole concept of retirement portfolios and it's very astute. It brings together a lot of meta thoughts, if you will, and really goes well with this drawdown chart in terms of thinking about what are the best kind of portfolios to hold in retirement. All right, getting to another couple interesting charts here. One is the annual returns chart, which is nice. It gives you a histogram of little bar graphs showing how often the portfolio is negative in terms of annual returns and then what the spread is in terms of the annual returns, and you'll see that good portfolios for retirement tend to have negative returns only about 20% of the time. Mind you, this is inflation adjusted. Ordinary portfolios that are just highly total stock market or S&P 500 based tend to have positive years 70% of the time after you account for inflation, and it's that one year out of 10. That makes all the difference, in addition to not having a huge variance on the distribution of returns over time that these risk parity style portfolios tend to have a pretty tight distribution in the middle and don't vary too much from their overall return profiles, whereas other portfolios are all over the place. Another nice chart to look at is the heat map, and this also shows you a nice illustration of how long a particular portfolio has been down if you started retirement any particular year since 1970. And so the positive years are all blue, the neutral years are white and the bad years are pink or red. And you will see lots of pink or red for traditional portfolios but hardly any for risk parity style portfolios, which again goes with this idea. Sure, they can be down, but they're not going to be down for very long or very many years in a row.

Mostly Uncle Frank [16:40]

Another calculator I really like playing around with is the retirement spending calculator, and what is unique about this calculator in this set of calculators is that it allows you to effectively model variable spending plans, like the Geithner-Klinger or the Kitsis-Ratchett or many other ones, and it tells you in the write-up what those look like. But you can model portfolios that are reducing spending at a certain point, if the market goes down, or the portfolio goes down, or increasing spending at a certain point and seeing what that looks like. And I don't really know of any other provider that provides a calculator like this that is easy to use. And the other calculators are very good for various things, so I would check them out too for various things. So I would check them out too.

Mostly Uncle Frank [17:29]

The only other calculator I'm going to mention specifically is called the Portfolio Matrix Calculator, which allows you to compare a whole slew of portfolios all of the sample portfolios against one that you put in yourself. The drawback to this is you have to be a member of the site to get access to it, but it's cheap. It's only five bucks a month. If you're interested in it, if you want to see what it looks like, I'll link to an article about the Golden Ratio portfolio, where the portfolio matrix is displayed, showing the comparison with the other sample portfolios, and it goes through a variety of metrics, including safe withdrawal rates and total returns and standard deviations and things like that, and so you can see in one place a comparison of all kinds of different kind of portfolios that you might hold or not hold.

Mostly Uncle Frank [18:16]

But that's probably my favorite one actually. Wow, it's very nice, and there are a number of other benefits to becoming a member, as listed on the site. There are a number of other benefits to becoming a member, as listed on the site, including getting all the calculators on one page for your portfolio, or even modifying the data or uploading your own data to do analyses with these calculators. Anyway, I'm hoping you're enjoying your life in a cave with a box of scraps.

Voices [18:43]

You need somebody watching your back at all times.

Mostly Uncle Frank [18:47]

Seems to be suiting you pretty well. Thank you for your donation to the Father McKenna Center and thank you for your very interesting email.

Voices [18:57]

Has he lost his mind? Can he see or is he blind? Can he walk at all? Or if he moves, will he fall.

Mostly Uncle Frank [19:17]

Second off. Second off we have an email from Ben and ben writes frank, thank you for your excellent show.

Mostly Mary [19:43]

I made a donation to the father mckenna center. It's very impressive how much good you've done via your hobby. I'm 42, want to retire in 10 to 15 years and I'm about halfway to my target portfolio value. When I realized I need just a 5% return from here on, I transitioned from VTSAX and CHILL to a levered golden ratio portfolio. Transition from VTSAX and CHILL to a levered golden ratio portfolio it has a similar volatility too, and a lower best case return than VTSAX, in exchange for a higher worst case return estimated via portfolio charts, thus minimizing the probability I'll miss my target. My question my grandfather created a trust where my father receives the dividends and interest and when he passes away, probably in 20 years, I receive the principal Lucky Mini rant. It is a blessing to receive any inheritance, but the structure is a minor nightmare. It was created in the mid-80s exploiting all the fashionable tax loopholes.

Voices [20:44]

What a guy in a suit.

Voices [20:45]

No, it's a tax collector Hide us SpongeBob.

Mostly Mary [20:51]

But changes to the tax code mean a significant portion has in fact been taxed away. Plus 40 years of legal and investment fees have taken a compounding toll. That's not an improvement. Further thinking of dividends and interest separately from principal misaligns the incentives of my father and me. He wants corporate bonds to collect a yield. I want equities for capital gains. Welcome to another edition of Thunderdome. The worst part we are required to employ a wealth manager as co-trustee to drink our milkshake.

Voices [21:25]

I drink your milkshake, I drink it up.

Mostly Mary [21:33]

This probably made sense in the 80s, but paying any management fee today kills me. My great-grandfather said he didn't want us to forget him.

Voices [21:41]

Death stalks you at every turn.

Mostly Mary [21:45]

But I also can't forget how much he squandered through this scheme. The point is again I am very thankful for my resources. However, I urge everyone to keep their estates as simple as possible to avoid taxes, fees and family problems.

Voices [22:01]

You fell victim to one of the classic blunders.

Mostly Mary [22:04]

You cannot anticipate how the investing environment will change or what will be best for your beneficiaries after you die. For example, if I had received the money when I was buying my first home, it would have been life-changing. Instead, when I receive it in my 60s, I'll probably just hoard it.

Voices [22:21]

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

Mostly Mary [22:29]

Alternately, your plan to spend or give away your money before you die avoids some of these problems.

Voices [22:35]

You are correct, sir. Yes.

Mostly Mary [22:38]

All that said, the trust holds 50% blue chip stocks, 30% corporate bonds and 20 percent cash. My question how would you think about managing this with the rest of a levered golden portfolio, given I have minimal control over rebalancing or other changes and the dividends and interest are extracted? The current value is about a quarter of my portfolio, so it's a meaningful chunk, but not the main event.

Voices [23:18]

Thanks again, Ben.

Mostly Uncle Frank [23:21]

Well, Ben also gets to go to the front of the email line because he's also a donor to the Father McKenna Center. I wouldn't say it's very impressive how much good I've done with my hobby. What's more impressive is how much good you all have done with my hobby.

Voices [23:36]

That's the fact, Jack. That's the fact, Jack.

Mostly Uncle Frank [23:40]

Because I certainly did not set out to create or ever imagine that this could be such a great fundraising vehicle for the Father McKenna Center. And it is really all due to you and your inspiration and generosity.

Voices [23:59]

And I want to thank you again for it.

Mostly Uncle Frank [24:10]

Today, I consider myself the luckiest man on the face of the earth. Now, getting to your question yeah, this is kind of a crazy situation.

Voices [24:24]

I'm going off the rails on a crazy train. I'm going off the rails on a crazy train I'm going up.

Mostly Uncle Frank [24:32]

the rail got a crazy train, but it is kind of a law of unintended consequences, if you will, and a philosophical, financial and legal problem of trying to leave funds that essentially last forever or a very long time after you pass. I'm not sure you can really count this as anything right now. It's a very odd asset. What I might look at is the history of the fund itself to see how much growth it has had, because it is likely to keep growing at the same long-term rates, and then you might be able to project what those results would be over a long period of time. It's going to take some work with either a spreadsheet or a calculator, because you have to subtract out whatever's being paid to your father, in addition to dealing with the growth prospects of it and all the fees and everything else bits and doozy so that would, in theory at least, give you a curve of potential outcomes in a potential future, now, of course.

Mostly Uncle Frank [25:37]

Then the other issue is and this is the morbid one you don't know when your father's gonna pass if you don't start making more sense, we're gonna have to put you in a home.

Voices [25:48]

You already put me in a home, then we'll put you in the crooked home.

Mostly Uncle Frank [25:52]

It's on 60 minutes, I'll be good and if it's not anytime soon, all of a sudden this doesn't look like much of anything you can count on because, believe it or not, as both get older, there is a chance that you would pre-decease him, among other things. And then I wonder what would happen there under the will or the terms of the trust, whether it's supposed to go to your surviving family or how it works. But I'm sure there's a lawyer there that could answer that question. So, even though you can do those calculations, I'm not sure I would really count it as anything in particular at this point. You didn't mention whether you had children or not or how old they were. But it might be a good idea just to earmark that money for somebody else's tuitions or weddings or some other big thing that you might want to do in the future. But you don't know exactly how you're going to pay for it, and I am wondering what the taxation is going to be like on it, although I'm sure you can ask some lawyers and tax accountants about what the status is and what it's going to be like when you actually inherit it, because that could be some kind of a tax bomb, depending on how it's constructed. But I'm really glad you brought this to our attention, because I really think this is something to learn from that.

Mostly Uncle Frank [27:12]

A couple things. I think there is a desire in a lot of men in particular to try to essentially live forever with these structures that are going to be created or they have created, before you pass on. But recognize that unless that is really simple, you may be causing more problems than you're solving, and particularly when something's supposed to go on for generation after generation, that probably actually is not a good idea. It's likely to get squandered eventually, like the Vanderbilt money it's the most famous one of those. These tend to work best if they are the start of some foundation or actual charity, because that is much easier for someone to manage, and then maybe the charity issues grants or has some other structure. That's more of a familiar way of doing things and the idea there would be.

Mostly Uncle Frank [28:06]

Instead of putting all this money in this thing that's supposed to preserve your memory when you're dead, why don't you just give the money to the people while you're alive, at least the ones that are going to be your heirs, and try to give most of that to them, or a significant amount of that to them, and then the rest of this can be that charity money. One thing I've realized over the past five years of retirement is that we do tend to give away about 1% every year. Out of the approximately 5% we're spending, about 1% of it gets spent on advances to our children as advances on their inheritances, supporting family members and giving it to charities such as the Father McKenna Center, and I honestly think that's a pretty good goal for a lot of people that when you retire, if you are giving away 1% and living on the 4% you have a lot of flexibility, that, yes, if we had horrible years we could not give away money that year or not give away as much that year.

Mostly Uncle Frank [29:21]

But having a goal like that does give us some urgency and some purpose for the money. So it's just not stacking up for some weird trust that our great-grandchildren are going to inherit someday. Not going to do it Wouldn't be prudent at this juncture. If you really want to leave some kind of a legacy, I would think more about just doing things like that. Or if you want something creative write a book or paint or create something, a monument somewhere perhaps. But this not dispersing money while you're alive so you can have this giant thing when you're dead does not seem to me to be a desirable or efficient way of approaching this.

Voices [30:03]

But what about your grandfather's work, sir? My grandfather's work was doo-doo. I am not interested in death.

Mostly Uncle Frank [30:12]

The only thing that concerns me is the preservation of life that concerns me is the preservation of life, and it may actually cause a lot of unwanted family drama and bad feelings, depending on how various people are treated in this trust arrangement, because it's almost like the more you leave to a group of people, the more there's going to be fighting about it. I can tell you that.

Voices [30:34]

Listen on. This is the truth of it. Fighting leads to killing and killing gets to warring, and that was damn near the death of us all. Look at us now busted up and everyone talking about hard rain. But we've learned by the dust of them. All barter towns learned.

Mostly Uncle Frank [30:57]

Now, when men get to fighting, it happens here and it finishes here two men enter, one man leaves so I'm really glad you're thinking about these things and have brought them to our attention, because it is something that we should all be thinking about if we've accumulated some significant amount of wealth.

Voices [31:20]

I wonder how that crazy duck ever made out with that genie. Hey, what do you know? A poil.

Voices [31:27]

It's mine, understand Mine, mine, all mine, go, go, go, mine. Do you hear me?

Voices [31:31]

Oh, oh, oh Mine mine, mine, oh brother, only enough for me. Oh sesame, I'm rich, I'm a happy miser.

Voices [31:44]

So thank you for being a donor and thank you for your email. Baby, it's not too late To learn how to love and forget how to hate.

Mostly Uncle Frank [32:00]

Last off, last off, an email from Robin. Right now you care. Right now you care. Right now you care, right now you care, and Robin writes your alternative website is about 10,000 times better.

Mostly Mary [32:27]

I believe I emailed you twice before because I couldn't figure out how to work the website. I thought that was the only way to get it to do anything. Of course it did not do anything, but now it is very user-friendly. Plus, I have donated to the Father McKenna Center.

Voices [32:42]

Groovy baby.

Mostly Mary [32:44]

I love all the crazy, funny sound effects Do not ask him for mercy.

Voices [32:49]

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

Mostly Mary [32:53]

In fact, one time I saw that the market had had a very bad day, so I checked my brokerage website and, lo and behold, I was up due to my gold. I immediately heard I love gold. Yes, I am a nut too, but in a good way.

Voices [33:07]

You're insane gold member and that's the way I like it. Okay, see you in the sunshine bud.

Mostly Mary [33:16]

I cannot begin to tell you how much I have learned from listening to your podcast. It has been about three or four months since I started listening, but I really, really love it and always look forward to your new episodes. I'm still working my way through older episodes. The cheat sheet podcast topic list that's now available on the website is wonderful.

Mostly Mary [33:35]

I was using a golden butterfly portfolio but have switched to my own risk parity portfolio 25% TSM, 25% SCV, 25% GLDM, 15% BIL and 10% long-term treasury, tlt and VGLT. I have run this portfolio through portfolio charts and sometimes it beats both the golden ratio and golden butterfly in certain categories. As you can tell from my allocations, I am not keen on long-term treasury bonds, but I have come to realize that they are the only thing that is negatively correlated and they act as insurance. I have two questions. Question one please convince me or give me reasons for including long-term treasuries, and question two I previously only have TLT based on the book recommended on portfolio chart for doing Golden Butterfly. The title of the book is the Permanent Portfolio Harry Brown Long-Term Investment Strategy by Craig Rowland and JM Lawson.

Mostly Mary [34:35]

I'm sure you're familiar with it and I noticed on your website you recommend VGLT and on paper it seems that VGLT pays a similar or higher interest rate, but also has a lower expense ratio. So my question is what's the catch as in? When was the last time 30-year treasury bonds acted as insurance, and did VGLT perform as well as TLT? Thanks again for all you do. I really appreciate it. Say hi to Mary Sincerely, robin.

Voices [35:28]

Well, I'm glad you're enjoying the podcast and are learning some things and are at the links that I put attached to the episodes.

Mostly Uncle Frank [35:43]

Of course, a lot of the older ones probably don't work anymore and no, I'm not going to fix them.

Voices [35:50]

It's not that I'm lazy, it's that I just don't care.

Mostly Uncle Frank [35:54]

But I think things like that sandage paper I just mentioned today are really enlightening and whenever I've linked to a Michael Kitsis article in the past, it's definitely worth reading. Now you mentioned the Permanent Portfolio and Harry Brown and then the book by Craig Rowland. Yes, I have read those, including the one from about 1980-something by Harry Brown which I have in hardback. It's interesting all the machinations you had to do to invest in gold in those days, because you were literally talking about buying Krugerrands and gold in physical form. There were no ETFs and it's difficult to do things just by futures contracts. Those early stabs at a really well-diversified portfolio are part of the history of this whole topic and I believe that's in episode three or five, so check those out if you haven't. I know the golden butterfly portfolio is largely based on that original idea.

Mostly Uncle Frank [36:57]

Harry Brown was also a famous libertarian and wrote a book that is more famous. It's called how I Found Freedom in an Unfree World. I believe it was written in the 1960s and is kind of a follow-up on some ideas from Emerson and Thoreau and is good in some ways and not so good in others, but that is one of the threads or roots that led to the modern FI movement, although it's not nearly as prominent or popular as it was, say, around 2009. But a lot of people pursue financial independence just so they can be left alone, and there's certainly a lot of merit to that in many circumstances. All right, getting to your portfolio. Yes, the reason you put treasury bonds in these kind of portfolios intermediate or long-term treasury bonds is essentially as recession insurance, so that when you have your 2020 or 2008 or 2001 to 2003, your experience is not nearly as bad as if you didn't have them. And this would be a good thing to run through that drawdowns calculator to see how that varies depending on what you put in the portfolio or don't put in the portfolio. So I can tell you that in terms of what you got, it should work fine.

Mostly Uncle Frank [38:17]

If you just want to tweak it a little bit, I would move 5% of what you have in T-bills over to the long-term treasuries, because typically you do not want more than 10% in short-term instruments like that in any portfolio if you want to have a higher safe withdrawal rate. We've known that since the original Bill Bengen research in the 1990s and it's never really been contradicted. If you're talking about things that are less than one year in duration or are just like savings accounts. Having more than about 10% is not going to make your portfolio better. One of the other kind of rules of thumb is that you probably need between 15% and 30% in intermediate and long-term treasuries in order to get the higher safe withdrawal rates, and you could have some intermediate ones too if you really wanted them. That would be.

Mostly Uncle Frank [39:07]

Vgit is the Vanguard fund for that. As far as the funds are concerned, tlt and VGLT are essentially almost the same fund, except VGLT is cheaper. I'll link to a test folio analysis of the two of them. You can see they track together. So the reason that you would use VGLT is because it's cheaper.

Mostly Uncle Frank [39:28]

The reason you would model with TLT is because it has a longer history. But you can find even longer histories of long-term treasury bonds that go back 100 years. They just don't have ticker symbols, and if you're going to hold 25% in gold in a portfolio, that is actually a lot, and you should recognize that gold can have very long drawdowns or bad times when it's not doing much of anything, up to a decade or more, just like any of these other assets. So just because it's been the best performer, say this century doesn't guarantee that that's always going to be the case. So I would make sure you model that in the 80s and 90s in particular, when you would much rather have been holding long-term treasury bonds than probably anything else and certainly would prefer that over gold in that period. But that's why we hold a variety of things, because we don't know what's going to perform best and we don't know which asset's going to have the bad decade next or when their bad five years or decade, or whatever it is, is actually going to end.

Voices [40:28]

We don't know. What do we know? You don't know, I don't know, nobody knows.

Mostly Uncle Frank [40:35]

I'm glad you're enjoying working with the charts. Make sure that you work with more than one set of them to get the best results for comparison purposes, because whatever portfolio you pick, you really want it to be better than portfolio B or some alternative. In all of these long-term charts that you can find I'm talking about portfolio charts, portfolio visualizer, whatever you could run a test folio and then, if you're up for it, download the toolbox at early retirement now, because that'll give you a lot of data. That goes back to 1926. It is a spreadsheet so it takes a little bit of wrangling to get results out of it, but basically what that shows is that dividing your stocks into growth and value helps your portfolio a lot, as well as holding 10 to 15 percent in gold. Gold really becomes more relevant after 1970 because that's when the dollar went off the gold standard and you were allowed to own it again in the United States.

Voices [41:32]

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

Mostly Uncle Frank [41:45]

Anyway, I'm glad you're enjoying everything we have to offer here. Thank you for being a donor to the Father McKenna Center 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 riskparityradarcom. That email is frank at riskparityradarcom. Or you can go to the website, wwwriskparityradarcom. 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 Pretty Radio.

Voices [42:53]

Signing off. Times have changed and times are strange. Here I come, but I ain't the same. Hey, mama, I'm coming home, I'm coming home, I'm home.

Mostly Mary [43:31]

Thank you.