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, a different drummer.

Mostly Mary [0:19]

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 447. Today, on Risk Parity Radio, we're just going to do what we do best here, which is attend to your emails.

Voices [1:47]

I could have told you that.

Mostly Uncle Frank [1:49]

And so without further ado.

Voices [1:52]

Here I go once again with the email.

Mostly Uncle Frank [1:55]

And First off. First off, we have an email from Evan After a series of staggering defeats.

Voices [2:03]

Blue Oyster Cult assembled in the recording studio in late 1976 for a session with famed producer Bruce Dickinson and luckily for us, the cameras were rolling.

Mostly Uncle Frank [2:16]

And Evan writes.

Mostly Mary [2:18]

Dear Frank and Mary, guess what? I've got a fever and the only prescription is more Frank and Mary. I've got a fever and the only prescription is more Frank and Mary. My wife Jill and I live in the city of Cleveland and attend exhibits regularly at the Rock and Roll Hall of Fame due to a generous donor who allows all city residents unlimited and complimentary access to the Rock Hall.

Voices [2:37]

Yeah, baby, yeah.

Mostly Mary [2:39]

As such, we were excited to come this past weekend to attend the opening of the new SNL Ladies and Gentlemen 50 Years of Music exhibit.

Voices [2:48]

Babies. Before we're done here, y'all be wearing gold-plated diapers.

Mostly Mary [2:54]

The presentation, artifacts and music performance were all really top drawer, really top drawer, top drawer. But what immediately caught my eye as we walked into the secondary room was a glass case displaying Will Ferrell's hilarious outfit and props from one of the most famous performances in Saturday Night Live history, the legendary Moore Cowbell sketch.

Voices [3:16]

Gene yeah, really explore the studio space. This time you got it, bruce. I mean really yeah, explore the space, okay this time you got it, bruce.

Mostly Mary [3:27]

I mean really. Yeah, explore the space, okay. Then, to my surprise, blaring out of the speakers and on screen, came that familiar phrase uttered by none other than Christopher Walken, and I just lost it.

Voices [3:37]

Guess what? I got a fever and the only prescription is more cowbell.

Mostly Mary [3:42]

Please enjoy the attached pictures I took while inside the venue, hoping you get the chance to visit our fair city and enjoy these sights and sounds for yourselves. On with the show.

Voices [3:53]

Convince ourselves.

Voices [3:54]

Gene, can I just say one thing? Yeah, baby, just say it. I'm staring here, staring at rock legend Bruce Dickinson. I'm a cock and a walk baby, and if Bruce Dickinson wants more cowbell, we should probably give him more cowbell. Say it, baby. And Bobby, you are right, I am being selfish, but the last time I checked we don't have a whole lot of songs that feature the cowbell. I gotta have more cowbell.

Mostly Mary [4:19]

By the way, our older daughter lives in DC and of course we visit regularly. Would love the chance to meet up and share a beverage, meal etc together at some point. I love your work and have been following you for about a year now. Jill and I are fast approaching early retirement and I'm working on adjusting our financial lives for a Risk Parity Radio style portfolio to ease the transition. Thanks for all you do. Warmest regards, evan.

Mostly Uncle Frank [5:00]

Well, Evan, thank you for these pictures. They were very amusing to look at. Evan sent me a bunch of pictures of the things he described in his email and I'm glad you're enjoying the podcast, because we are enjoying our podcast listeners.

Voices [5:14]

Yes.

Mostly Uncle Frank [5:16]

Who appreciate some of the silliness that we have around here.

Voices [5:23]

It's a lot of nonsense. A little nonsense now and then is relished by the wisest man.

Mostly Uncle Frank [5:30]

I do not get to Cleveland very much. I do have an aunt who lives nearby. She was living in Kirtland, she's in a nursing facility now, and so the last time I went there we didn't go downtown, but we did go to Lorain, ohio, because I wanted to see the world's largest Easter basket, which is in a park near the lake, and also the largest meat counter in the United States.

Mostly Uncle Frank [5:54]

You can tell where my priorities are you are talking about the nonsensical ravings of a lunatic mind and we would be pleased to meet you in the flesh if and when you do come to DC. I've met several of our listeners that way, and a lot of people do end up coming here for conventions or just to visit with family for other reasons. So make sure you email us and tell us when you might be here, and then we can figure out whether we can meet up.

Voices [6:23]

Yeah, you want to get that meal, don't you? How about Mendy's? Ooh ever been there? No, I haven't. Ah, you're going to love it. I'll meet you there around 7.

Mostly Uncle Frank [6:32]

All right, Good luck with making your portfolio adjustments. Send us in any questions you may have for the show.

Voices [6:41]

Why do they call it Oval Team? The mug is round, the jar is round. They they call it oval team. The mug is round, the jar is round. They should call it round team.

Mostly Uncle Frank [6:50]

Hope to see you at some point and thank you for your email.

Voices [6:55]

I could have used a little more cowbell.

Mostly Uncle Frank [6:58]

Second off. Second off, we have an email from James.

Voices [7:03]

Hey Jim baby, I see you brought up reinforcements Woo.

Mostly Mary [7:08]

And James writes he is back, see link James.

Voices [7:14]

He didn't fall.

Voices [7:16]

Inconceivable.

Mostly Uncle Frank [7:18]

Well, that's awfully cryptic of you, james. The link that James put in his email is to Early Retirement, now Safe Withdrawal Rate Series, part 62, which I guess is the last one that karsten wrote over there. As fortune may have it, I do not have to do a lot of work to respond to this, because tyler, over at portfolio charts, wrote a very long critique and I will send you all to read that, because it's better for you to read that and to listen to me.

Voices [7:53]

Essentially, read that to you it's not that I'm lazy, it's that I just don't care.

Mostly Uncle Frank [7:59]

Don't don't care, it's a problem of motivation all right, and this email was written in early june, so this has been out for a while. But essentially what carson's saying, that is, that he believes that markets will perform differently in the future, and he's got several crystal balls that he's relying on.

Voices [8:18]

My name's Sonia. I'm going to be showing you the crystal ball and how to use it, or how I use it.

Mostly Uncle Frank [8:25]

One that he constructed, an academic one, and then something he pulled from Vanguard.

Voices [8:31]

As you can see, I've got several here, a really big one here, which is huge. This is the one that I tend to use more often. I have a calcite ball and I have a black obsidian one here.

Mostly Uncle Frank [8:49]

But let's talk about the broader issue here. I view these kind of posts as an admission of being wrong about something, and we'll talk about what that something is in a minute, because there's no reason anybody would have had to write this post if the data actually supported their primary proposition. Primary proposition we're talking about is Karsten claims that a 75% S&P 500 and 25% intermediate treasury bond portfolio is the absolute best portfolio that anyone could hold for a safe withdrawal rate, for withdrawing down on Surely you can't be serious.

Mostly Uncle Frank [9:28]

I am serious and don't call me Shirley and the problem he's got is that's obviously not true. It has really never been true, at least if you're looking at the last hundred years of data and looking at a sufficient time frame. And so there are all kinds of portfolios that perform better than that for the purpose of drawing down upon, and you can go over to portfolio charts and look at all the ones that Tyler's got there, and you can go over to portfolio charts and look at all the ones that Tyler's got there, not only the ones we talk about here, but all kinds of other ones from Vogelheads or Larry Suedro or Rick Ferry and obviously this is something we talk about all the time here and now. We can also see this in Bill Bengen's new book that came out this month, which is called A Richer Retirement Supercharging the 4% Rule to Spend More and Enjoy More. I like that idea spending more and enjoying more.

Voices [10:16]

Did you see the memo about that? Didn't you get that memo?

Mostly Uncle Frank [10:22]

But anyway, in chapter eight of this book, bill Bangan summarizes some research that has actually been around for at least the past seven years or so, and he's constructed a portfolio that has US large company stocks, us small company stocks, US mid-size company stocks, us micro-cap stocks and international stocks, in addition to some treasury bonds and T-bills, and he also comes up with a portfolio that has a higher safe withdrawal rate In his case, this one is 4.7% with the baseline assumptions and this is all based on the last 100 years of historical data, which everybody's relying upon, unless they want to use a crystal ball, because you can use the historical data, do Monte Carlos with it and other things, or you can pull out your crystal balls and make predictions.

Voices [11:08]

Now the crystal ball has been used since ancient times. It's used for scrying, healing and meditation.

Mostly Uncle Frank [11:17]

And this is also true when you look at the toolbox that Early Retirement now has on their site and you can download as a spreadsheet. It starts you with a 75-25 portfolio in that and calculates safe withdrawal rates for various time periods. And that and calculate safe withdrawal rates for various time periods. But if you just tweak the calculator a little bit, you'll find out that the 75-25 is really not that good a portfolio to hold for this purpose.

Mostly Uncle Frank [11:40]

The easiest way to see this is there is a little box there that's called fail safe around five prominent market peaks, and so it's looking at what would happen if you started your retirement in 1929 or 1964 to 69 or 72, to 73 or 1909, to 2000 or 2008 and 2009.

Mostly Uncle Frank [12:02]

And so it basically covers all of the worst case scenarios that we all worry about and is the reason the 4% rule is the 4% rule and not some other higher number. 4% rule is the 4% rule and not some other higher number. So, anyway, if you just go to the value part of the calculator and change that from zero to some number, that's like half of what your stock allocation is. So if you're going to leave it at 75, you can change it to 30 or 35 or even more if you'd like. But anyway, when you make that small change and then look at these fail safes, you'll see that the safe withdrawal rate has suddenly popped up. And the same thing if you tweak the size factor item. And you'll see the same thing if you do what Carson suggests in safe withdrawal rate series number 34, which is to replace some of the stocks and bonds with an allocation to gold of 10 to 15 percent.

Voices [12:53]

I love gold.

Mostly Uncle Frank [12:57]

And so if you simply take the 75-25 portfolio, make it into 65 percent S&P 500, 20 percent intermediate treasury bonds, 15 percent in gold, and then you put in something like 30 percent on the value thing, all of a sudden the safe withdrawal rate goes up by about a percent. For all of these worst case scenarios.

Voices [13:18]

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

Mostly Uncle Frank [13:23]

And there's kind of no way around that for him, because it's obvious that the 75-25 portfolio has not been the best kind of portfolio to hold, based on his own data and calculators.

Voices [13:34]

That is the straight stuff. Oh funk master.

Mostly Uncle Frank [13:37]

So I'm not sure why he insists on sticking with that. The only use I can see it does have is that, since he's trying to also modify safe withdrawal rates based on CAPE ratios, if you are not in fact holding the S&P 500 or holding some other mix of stocks, the CAPE ratio for the S&P 500 doesn't apply to that portfolio, and so that kind of goes out the window and it's gone poof, but the whole thing does kind of go out the window because the solution is not monitoring CAPE ratios, it's simply holding more of a value allocation in your stock holdings.

Mostly Uncle Frank [14:13]

And so when you looked at periods like starting in the 1960s and the 1990s, in particular around the year 2000,. The years after that were really horrible for growth stocks and weren't so bad for value stocks, which is why holding a allocation to value stocks actually ameliorates the volatility of the portfolio and also allows for rebalancing in years like the early 2000s or in years like 2022. Even so, at this point he's kind of backed into a corner that everybody else who's investigated this has found that a 75-25 portfolio is not the best kind of portfolio to hold in retirement. A 75-25 portfolio is not the best kind of portfolio to hold in retirement. His own data and calculators indicate that's also true, and so in order for it to be true, he has to modify the data or make up things that say that the future is going to be different than the last hundred years in significant ways.

Voices [15:08]

A crystal ball can help you, it can guide you.

Mostly Uncle Frank [15:12]

And so that's what this article is doing. It's cherry-picking and modifying data to make a point, but anybody can do that. If you know what your conclusion is, yes, you can go make up some data that supports your conclusion.

Mostly Mary [15:26]

That's not an improvement.

Mostly Uncle Frank [15:28]

It doesn't make your argument any better. In fact, it makes your argument a whole lot worse. Ah, and this was the same problem we noticed in episode 401 when we reviewed another one of these posts, where he had cherry-picked some data about small-cap value in the past 19 years but failed to analyze more relevant data which goes back to that 1999 date that he has identified as one of the key market peaks, and actually small-cap value has outperformed the S&P 500, depending on which index you look at. But if you want to go back and look at that, it's in episode 401. In the show notes there's a link to a comparison analysis. So I think we can stop beating this dead horse now. Rip it good. Now. What a 75-25 portfolio is really good for is to use as a kind of conservative accumulation portfolio, and so it might be something you might consider using if your goal was to not spend much money and die with as much money possible.

Voices [16:35]

Oh boy, I'm rich, I'm wealthy, I'm independent, I'm socially secure.

Mostly Uncle Frank [16:41]

Which is really the way he runs his retirement portfolio. He spends well under 3%, has never sold any of his stocks, and so this approach suits him well, but only because he's not spending much money relative to his assets, and if you're spending under 3% of your portfolio, you can hold whatever you want. He'd probably be better off in this circumstance using the Warren Buffett portfolio, where you have 90% in S&P 500 and 10% in T-bills, which is what Warren Buffett would recommend his family do when he's gone, so they don't have to analyze and pick companies. But again, that's for somebody who's not spending much of their wealth and wants it to grow as much as possible by the time they're dead.

Mostly Mary [17:22]

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

Mostly Uncle Frank [17:28]

We're really more in Bill Bengen's camp here, where the idea should be to spend more and enjoy more, as it says on the cover of his book, and I do recommend that everybody pick up this book who's interested in this topic, because I think this will be the starting point for discussions going forward and not the bengen research that was done all the way back in the 1990s, because obviously there's 30 more years of thought that has gone into this book, and he addresses not only alternative asset allocations for improving the safe withdrawal rate but also things like analyzing inflation, variable withdrawal rate strategies and the rising glide path idea.

Mostly Uncle Frank [18:08]

That was first pioneered by Michael Kitsis and I think we might be adding to our mix of tools next year, but I'm hoping to actually talk to him first about it at some point, because this is the first research that I've seen that suggests that the rising glide path idea works with many different kinds of portfolios and not just the simple one that Michael Kitsis was analyzing in his original work. Anyway, bill Bengen says that the current safe withdrawal rate, using a diversified portfolio and considering the current level of inflation, should be somewhere between five and five and a half percent, and that makes a lot of sense to me, even if I got there by slightly different means.

Voices [18:47]

And you won't be angry. I will not be angry.

Mostly Uncle Frank [18:52]

So please do check out the new book, even if you're not going to check out the dueling blog posts from Karsten and Tyler.

Voices [18:59]

Even if you're not going to check out the dueling blog posts from Karsten and Tyler. Now, when men get to fighting, it happens here.

Voices [19:07]

And it finishes here Two men enter one man leaves.

Mostly Uncle Frank [19:12]

I'll link to it all in the show notes and thank you for your email.

Voices [19:27]

Two men enter, one man leaves. Two men enter, one man leaves your email.

Voices [19:40]

And right now I've got two men, Two men with a gut full of fear.

Voices [19:50]

Cool Fire, fire, fire fire.

Mostly Uncle Frank [19:57]

Last off. Last off, we have an email from Brandy.

Voices [20:03]

They say, they say Brandy, you're a fine girl.

Voices [20:08]

What a good wife you would be. Yeah, your eyes could steal a sailor from the sea.

Mostly Uncle Frank [20:20]

And Brandi writes.

Mostly Mary [20:28]

Hi Frank, I found this talk to be both interesting and concerning. I'd love to get your thoughts on it. Also, it seems that Bitcoin is less correlated to the QQQ recently. A correlation coefficient of 0.5 per portfolio visualizer. Do you think Bitcoin's future as a diversifying asset in an investment portfolio is promising and perhaps with significantly more upside potential?

Voices [20:53]

than gold. Thank you, Brandy. She works laying whiskey down. They say brandy, fetch another round. She serves them whiskey and wine.

Mostly Uncle Frank [21:06]

Well, that's an interesting video you linked to. It is by Lynn Alden and, if you're not familiar with her, she is a former engineer who has gone into personal finance and has a blog and is well respected for her analytical research, particularly involving alternatives like bitcoin, and I do, at least skim her blog posts whenever they come out, because I do view her as a reliable source of information and analysis. That being said, there is kind of a non-sequitur going in that video presentation, and it was to a Bitcoin conference and what she was saying is that look at all these problems with the US national debt and all the things people have been talking about for years and years and years, and is there going to be a demise of the dollar and those sorts of things, and then relating that to the success or potential success of Bitcoin in the future, I don't think that Bitcoin's success is necessarily caused by what is going on with the US dollar. Rather, I think Bitcoin could succeed or fail regardless of what happens to the US dollar, because there are too many other factors involved. We're talking about a complex adaptive system, since it's financial markets, and with Bitcoin in particular. Now what has been going on is adoption by sovereign governments, including the US government, and obviously that is going to help Adoption by the financial services industry is going to help. Adoption by people with lots of money that invest in lots of tech things has helped. None of those things are necessarily related or connected with what is going on with the US dollar or US sovereign debt. So it's interesting, but not definitive or determinative.

Mostly Uncle Frank [22:53]

Now you say that Bitcoin is less correlated to QQQ recently. I'm not sure I agree with that. It depends on what you define as recently, because the problem of using the whole data set for Bitcoin, depending on what data set you're using, is that the further you go back, the less correlated it is. It's become more correlated more recently precisely because of its adoption by the financial services industry, writ large and seems to have a high correlation to large cap growth and tech stocks these days. What you would really want to see is it having a correlation of close to zero, like gold, and that's why it does not right now make a great diversifying asset, because it is more like another kind of levered equity fund. And, going back to the Lynn Alden video, gold is also more likely to respond to the concerns she raised about US sovereign debt and so on and so forth, simply because the actors in that space are large central banks and they are not out there buying Bitcoin to ameliorate that problem. They are out there buying gold.

Voices [24:04]

This is gold, Mr Bond.

Voices [24:08]

I think you've made your point, goldfinger. Thank you for the demonstration, do you?

Voices [24:11]

expect me to talk. No, Mr Bond, I expect you to die.

Mostly Uncle Frank [24:22]

I expect you to die. And so until there is some international adoption amongst central banks of something like Bitcoin, you could not say that Bitcoin is likely to be the new gold which could occur. But it hasn't yet and I do not see, for instance, the Chinese central bank having any real interest in Bitcoin, since I believe they've banned a lot of its use in their country. But other people are working on incorporating this idea that you suggest here, including Corey Hofstein and the people over there creating the return-stacked funds. In particular, there's a brand new fund called RSSX they've created, and what it is is a combination of the S&P 500 or US stocks, is a combination of the S&P 500 or US stocks, gold and Bitcoin, and they are specifically changing the allocations to the gold and Bitcoin based on the current volatility of both of them. So that's RSSX and you can check it out over at their website if you're interested in that.

Mostly Uncle Frank [25:17]

Now you asked another question whether I cared about Bitcoin because it would have more upside potential than gold, and that's not why I would hold Bitcoin or gold or any commodity, because I'm not really interested in the potential upside. If I want upside, if I want growth, I'm going to be investing in companies, in stocks. These other assets are not there to drive returns. They are there to diversify the portfolio. So the key attribute there is the correlation, and gold has zero and Bitcoin has a positive one right now, so Bitcoin is not as good for that with respect to diversifying against stocks, and then returns are secondary, but I don't expect either one of those things actually to outperform companies in the very long term.

Mostly Uncle Frank [26:04]

It is interesting, though, that Bitcoin is now part of companies, companies like the former MicroStrategy, which is now called Strategy, which is basically a Bitcoin holding company. I'm not sure how that idea is going to end up playing out long term. I'm not sure how that idea is going to end up playing out long term, but the fact of the matter is that that's now part of the S&P 500. And so if you're in the S&P 500, you have an indirect exposure to Bitcoin, and I expect that kind of trend to continue, with not only that, but all kinds of alternative assets. But the more popular those kind of companies become, the more correlated Bitcoin is going to be with the stock market indexes. In the end, I feel like this is for much younger people with longer time horizons.

Voices [26:47]

Death stalks you at every turn.

Mostly Uncle Frank [26:51]

Or those who actually enjoy the volatility.

Voices [26:54]

You have a gambling problem.

Mostly Uncle Frank [26:56]

In addition to the potential outsized returns. Well, you have a gambling problem. In addition to the potential outsized returns.

Voices [27:00]

Well, you have a gambling problem.

Mostly Uncle Frank [27:04]

But go check out this new ETF, RSSX. They also have another one over there called BTGD, which combines gold and Bitcoin. Forget about it. That's the kind of world we live in. You can find just about anything you'd want to buy in ETF form.

Voices [27:24]

You need somebody watching your back at all times.

Mostly Uncle Frank [27:28]

And hopefully that helps, 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 riskpartyradarcom. That email is frank at riskpartyradarcom. Or you can go to the website wwwriskpartyradarcom. 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 [28:14]

One night when the bars closed down, brandy walks through a silent town and loves a man who's not around. She still can't hear him say.

Voices [28:43]

She hears him say Brandy, you're a fine girl, what a good wife you would be. The.

Mostly Mary [29:02]

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.