Risk Parity Radio

Episode 406: REITs, Vacant Land, Bitcoin Today And Eh, Steve!

• Frank Vasquez • Season 5 • Episode 406

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In this episode, we answer emails from Spencer, Ko and Steve.  We discuss REITs as a portfolio allocation, why vacant land is probably not a good investment for most people, "talking your book" with bitcoin for fun and profit and how it looks today in a portfolio, law school education and that infamous Cederburg paper (again but only briefly). 

Links:

Father McKenna Center Donation Page:  Donate - Father McKenna Center

NAREIT -- Types of REITs:  Learn about Investing and Market REIT Sectors Today

Weird Portfolio:  Weird Portfolio – Portfolio Charts

Ko's Michael Saylor Video:  Michael Saylor’s Big Bitcoin Prediction | Relai Bitcoin Podcast #90

Amusing Unedited AI-Bot Summary:

Ever caught yourself obsessing over a particular asset class? In this engaging episode of Risk Parity Radio, Frank Vasquez tackles three fascinating investment topics that challenge conventional wisdom while providing practical guidance for DIY investors.

We begin with an exploration of REIT allocations beyond the standard 10% recommendation. Frank breaks down why correlation with broader markets matters more than yield history, why individual REITs often outperform REIT index funds for diversification purposes, and why these investments belong in retirement accounts rather than taxable brokerage accounts. A listener's cautionary tale about vacant land investing serves as a powerful reminder that illiquid, non-income-producing assets can become financial quicksand rather than solid foundations for retirement.

The conversation shifts to Bitcoin's evolving role in investment portfolios. Frank cuts through the promotional noise from crypto evangelists, explaining how Bitcoin's behavior has transformed from a true diversifier to essentially "a three times leveraged QQQ fund" highly correlated with tech stocks. This critical insight helps investors properly categorize crypto within their asset allocation rather than viewing it as a separate diversifying asset class.

Finally, we examine the controversial academic paper promoting 100% equity portfolios for retirees. Frank exposes the significant limitations of this research, demonstrating why seemingly groundbreaking financial theories often collapse under real-world scrutiny. Throughout the episode, Frank's pragmatic approach reminds us that successful investing requires looking beyond popular headlines and understanding the fundamental characteristics of what we own.

Whether you're rethinking your REIT strategy, curious about crypto's place in your portfolio, or questioning conventional retirement wisdom, this episode offers clarity amidst the noise of financial media. Share your own investment questions at frank@riskparityradio.com and join our growing community of thoughtful DIY investors.


Support the show

Voices:

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

Voices:

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

Mostly Mary:

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:

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:

Yeah, baby, yeah.

Mostly Uncle Frank:

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:

Top drawer, really top drawer.

Mostly Uncle Frank:

Along with a host named after a hot dog.

Voices:

Lighten up Francis.

Mostly Uncle Frank:

But now onward, episode 406. Today, on Risk Parity Radio, we're just going to get back to doing what we do best here, which is answer your emails, and my voice is in a little better shape than it was for the last episode, so hopefully it will hold up, and so, without further ado, here I go once again with the email. And First off. First off, we have an email from Spencer. My name is Igor, I run Profsport. How can I help you? And Spencer writes Good morning Frank.

Mostly Mary:

I have an unhealthy obsession with REITs. No matter how hard I try, they keep creeping above the recommended 10% allocation. In my golden ratio style portfolio I mostly hold O, but also dabble with others like PSA, iron Mountain, bld, glpi, bxmt, etc. I've listened to your early episodes on how to analyze REITs and identify good ones to incorporate into a risk parity style portfolio. I know important criteria is how correlated each individual REIT is to US equities. My question is what are other factors to consider? Current yield, yield history, historical returns? If you could feed my addiction, that would be splendid.

Voices:

You are splendid. You are splendid. You Look around. I'm not leaving until you buy something Splendid.

Mostly Mary:

A quick word of warning to listeners who are interested in all things real estate investing Avoid vacant land investing at all costs. It's more like land speculating at best or straight up gambling.

Voices:

You have a gambling problem.

Mostly Mary:

I was turned on to this by someone I trusted a few years ago and it has been my biggest financial mistake by far. I'm stuck with three useless tracts of land in southwest Colorado and at this point would be thrilled just to break even and move on with my life, but I digress. Finally, I donated to the Father McKenna Center as a thank you for educating me on all things risk parity. A million times thank you. Although I haven't written in a while, I am still a loyal listener and enjoy the show, especially the drops Splendid. And enjoy the show, especially the drops Splendid. Respectfully submitted Spencer S managing attorney at Igor Gregor and Timar Law Firm.

Voices:

Why is it you all look alike and you have or on the end of your name?

Voices:

I am not related to anyone.

Mostly Uncle Frank:

Well, first off, it looks like I owe you an apology, sorry.

Voices:

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

Mostly Uncle Frank:

Spencer is not only one of our loyal listeners and multiple-time emailers, he's also a donor to the Father McKenna Center, as he has written, and I was supposed to answer his question when I got it and move it to the front of the line in early January and for some reason I missed it and I'm sorry. I did that, spencer.

Voices:

I'm as stupid as a stupid does.

Mostly Uncle Frank:

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 on the board of the charity and am the current treasurer, and so if you donate to the center, you are supposed to be put to the front of the email line.

Voices:

Yes.

Mostly Uncle Frank:

And I usually do that and I'm sorry I missed you this time. But if you are interested in donating to the center, you can do it in two ways. One you can go to our support page at wwwriskparadrivercom and join us as one of the patrons on Patreon, or you can go directly to the Father McKenna website and go to their donation page, which I will put in the show notes. Either way, if you mention it in your email, I'm supposed to move you to the front of the line and I'll try to do better with that in the future. I award you no points and may God have mercy on your soul. Now getting to your email REITs, reits, reits.

Mostly Uncle Frank:

We first talked about these in a comprehensive manner in episodes 19 and 21. And REITs are something you could use as the stock portion of your portfolio or as an addition to your portfolio. It's almost like a separate allocation because they are stocks, but they do behave differently than the overall stock market, so they do make a pretty good diversifier even from the overall stock market. As an example, reits have actually done okay this year. They're mostly up, unlike the stock market, and that's because a lot of REITs are also interest rate sensitive and so, as interest rates have been declining or people think they're going to decline more, reits have done well in that kind of environment. If you are using REITs in a risk parity style portfolio, I think the most important characteristic is going to be their correlation or hopefully lack thereof with the overall market, as we talked about in episodes 19 and 21, and as you appear to be doing, it is probably better to use individual REITs than the overall REIT funds, because if you look at what's in those REIT funds like VNQ, they are highly concentrated in things like cell towers and data centers and things like that. And so if you wanted, for example, more traditional real estate, you're not going to get as much traditional real estate in a REIT index fund these days as you would maybe in the past.

Mostly Uncle Frank:

Now, other than correlations, I think the next thing to be looking at is well, what part of the REIT universe do you want to invest in? Because there are many varied kinds of REITs now, and so if you take one like O, which is a good choice because it holds leases on something like 10,000 strip malls and pharmacies and 7-Elevens and things like that, that's a very traditional real estate kind of play. If you're investing in something like Iron Mountain, which used to be just kind of data storage-ish type stuff but has also got an artificial intelligence component to it now. Unless you really want to analyze these one at a time which you might want to do if you're that interested in them I would first look to what is the largest one, or dominant one in each kind of category. I did have a link in one of those original episodes I'll put it in the show notes to the NARREIT website which slices these up into what kinds of REITs they are, and you can also just look at the contents of a fund like VNQ and see what the largest ones are and then cross-index that to what kind you want and maybe you just pick the largest one in every category you're interested in.

Mostly Uncle Frank:

I probably would not focus on yield at all or yield history, because you're really interested in the total returns of these and the fact that they throw out all these ordinary dividends is actually a drawback to them and not some benefit to them. You would wish they'd be able to retain those earnings, but then they wouldn't be REITs and you could look at their histories. But I think that's also encapsulated in just kind of how big they are and what they're investing in. Now you asked. An interesting part of your question was whether it would be appropriate to hold more than 10% of an allocation to REITs, and I think the answer is probably yes.

Voices:

That is the straight stuff. Oh funk master.

Mostly Uncle Frank:

You just have to balance that out with whatever else you're holding and that is probably going to take more up of the stock portion of your holdings. But you will find some risk. Parity style portfolios have up to 20% in REITs in them, including the weird portfolio, for example. I would just make sure you're allocating or locating those in a tax-efficient manner. Because of those ordinary dividends they pay, you really want them in a retirement account and not in an ordinary brokerage account. And now, as to your vacant land ownership experience Three useless tracts of land reminds me of a Monty Python scene.

Voices:

But I don't want any of that. I'd rather Rather what. I'd rather just Sing. Stop that, stop that. You're not going to do a song while I'm here Now. Listen, lad, in 20 minutes You're not going to do a song while I'm here Now. Listen, lad, in 20 minutes you're getting married to a girl whose father owns the biggest tracts of open land in Britain. But I don't want land. Listen, alice Herbert. We live on a bloody swamp. We need all the land we can get, but I don't like her. Don't like her. What's wrong with her? She's beautiful, she's rich, she's got huge tracts of land.

Mostly Uncle Frank:

I think, the main problem with those sorts of things. Well, there are two problems with them. First, they are illiquid, and so they are difficult to get rid of when you want to sell them. And second, they are illiquid and so they are difficult to get rid of when you want to sell them. And second, they are purely speculative because they're not generating any kind of income.

Mostly Uncle Frank:

In general, and specifically when you are retired, if you have illiquid assets like real estate that you cannot easily sell on some kind of exchange for low transaction fees and that's really what illiquidity means in this context Then you really want those things to be generating some income or paying some income. Things that are both illiquid and non-income generating are really stuff that you want to generally avoid when you are constructing a retirement portfolio, because they will make your life much more difficult from a management perspective. And you really would only want to hold such a thing if you were not actually reliant on it for retirement purposes and you were just planning on leaving it to an heir or doing something else with it, or it was for entertainment purposes only. It's all fun and games until it's not fun and games. That's what the problem is, but your experience is useful to note and I think we can all learn a little something from it, so thank you for sharing it.

Voices:

Father, Shut your noise. You Get that suit on. I'm no singing and again.

Mostly Uncle Frank:

I'm sorry I didn't get to your email much earlier, but thank you for your support and thank you for your email.

Voices:

I take this as a personal affront, but I want to pay you back because I feel bad. Let me let you in on a little secret. Down the street Is the best pet store in Los Angeles Timon. Who owns this pet store? Bulvor. Are you related to Gregor, the concierge at the Concordia Hotel? No. What about Igor the antique dealer? No, no. What about Igor the antique dealer? No, hmm, I don't know Igor, gregor or Bulvor no relation.

Mostly Uncle Frank:

Let's go talk to Gregor. Second off. Second off we have an email from Coe, and Coe writes Hi Frank, I've been going down the Bitcoin rabbit hole recently.

Mostly Mary:

What does Matt Damon say on that Bitcoin commercial Fortune favors the brave. I came across this interesting interview with Michael Saylor, chairman and founder of MicroStrategy. I thought you'd appreciate his comment at the eight minute mark. In a recent report, blackrock indicated that interested investors consider allocating up to 2% of their portfolio to Bitcoin. Not sure if such a measly percentage will move the needle much For someone with a longer investment horizon and a strong stomach for volatility. What are your thoughts on a 5-10% portfolio allocation to Bitcoin? Do I have a gambling problem? You are correct, sir. Yes, thank you, coe. My dad said he listened to.

Voices:

Matt Damon and lost all his money.

Voices:

Yes, everyone did, but they were brave in doing so.

Mostly Uncle Frank:

Well, just so everybody knows, without having to go listen to this Michael Saylor video, what he says at the eight minute mark is in fact the quote from the beginning of this podcast from Ralph Waldo Emerson that a foolish consistency is the hobgoblin of little minds.

Voices:

Adored by little statesmen and philosophers and divines.

Mostly Uncle Frank:

Anyway, he really seems to have reinvented himself with the new crypto version of Michael Saylor. I think I kind of have a love-hate relationship with Michael Saylor, since I've known about him for well over 25 years, going back to the 1990s and Internet 1.0 with the original MicroStrategy MicroStrategy. The headquarters of MicroStrategy I guess it's called Strategy now are actually only a couple of miles from my house, and so I see that building basically every time I get off the closest exit from the freeway to our house. I think you need to recognize that what he is doing, and, to an extent, what BlackRock is doing when they're now recommending Bitcoin, is what is called talking your book in the financial services world, and it is essentially salesmanship. That's why they call a part of what Wall Street does the sell side as opposed to the buy side. The sell side creates products and things and is out there trying to get people to buy them, participate or whatever. A, b.

Voices:

C, a, always B, b, C, closing, always be closing, always be closing.

Mostly Uncle Frank:

Michael Saylor is a consummate salesperson.

Voices:

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

Mostly Uncle Frank:

And, in this case, what BlackRock is really promoting is now that they have one of the most popular Bitcoin funds, an ETF. Of course, they want people to start using it, because if you're going to invest in Bitcoin and they are putting this out basically to the financial advisor community to recommend to their clients One of the easiest ways of doing that is to buy the BlackRock ETF.

Voices:

They're sitting out there waiting to give you their money. Are you going to take it?

Mostly Uncle Frank:

So, regardless of what these people have to say, you have to realize that most of what comes out of the financial services industry as information is, in fact, a form of marketing.

Voices:

Am I right or am I right, or am I right, right, right, right.

Mostly Uncle Frank:

Which doesn't mean it's not true, but it means that the purpose of it is to get somebody to buy something or allocate money in a certain way, and it is not to spread the gospel truth.

Mostly Uncle Frank:

Bing again in a certain way, and it is not to spread the gospel truth Now, talking about Bitcoin as a investment in a portfolio and what kind of position it might occupy. We first talked about this back in episode 29, believe it or not and I think we concluded that, yeah, you could use a small allocation to this, but at that time, bitcoin was about 10 times more volatile than the stock market, so you really did want to keep it down to 1% or 2%. Otherwise, it tends to dominate the performance of the overall portfolio, which is not something you want. It creates a very volatile portfolio, and at that time, it did seem to be pretty uncorrelated with most other assets. Now, two things have changed since then.

Mostly Uncle Frank:

This was several years ago as it's become more popular. First, the volatility has gone down. It's now more like three times the stock market, and that's helpful for using it in a portfolio. What is not very helpful is that it has become highly correlated with tech stocks, in particular the NASDAQ, and so now it tends to behave like a three times leveraged QQQ kind of fund, like TQQQ, which is interesting but not very helpful if you're looking for diversification in a portfolio. So you see today that the price of Bitcoin seems to follow the rest of the tech sector up and down, where something like gold is off doing its own thing and looks truly diversified from the rest of what you have in a portfolio what you have in a portfolio. So the way you would look at this today is that you would have to look at it as kind of a tech stock allocation with leverage in it and include that as part of whatever your overall stock allocation is going to be, because until it starts behaving much differently from tech stocks, it's really not a diversifier in the great sense that you want it to be. So if you are going to put 5% to 10% in Bitcoin in your portfolio, that is like putting 15% to 30% of QQQ in your portfolio.

Mostly Uncle Frank:

I don't think most people would want to do that, but if you were doing that, for whatever reason, that would take up a large portion of what you would otherwise allocate to equities For mere mortals who simply want an exposure to it.

Mostly Uncle Frank:

I think two or three percent is probably all you would need or want to something like this right now, and you might not want any at all or, as in my case, I hold a trivial amount of this more as a curiosity than anything else. You know, like nunchuck skills, bow hunting skills, computer hacking skills, because to me it still looks like something that you would want to actively trade, not knowing exactly where it's going, but knowing that it goes up and down in great volumes. And the last time we bought a bunch of it was when it had gone below half of its peak, and this is when it was down at about $20,000 or something like that, when it got up to where it is right now. We've sold most of it and I'd be happy to watch it crash again and then buy some more and sell it again. But again, that is for entertainment purposes only. That is not part of our strategy of investing and withdrawing from this.

Voices:

Well, you have a gambling problem.

Mostly Uncle Frank:

So we hadn't talked about this in a while, but thank you for bringing it up. I hope you do well with it and don't lose your shirt. No more flying solo.

Voices:

You need somebody watching your back at all times and thank you for your email Last off.

Mostly Uncle Frank:

Last off, an email from Steve.

Voices:

Hey Steve.

Mostly Mary:

And Steve writes Frank, not so much a question this time as sharing an interesting article from MarketWatch I came across this morning. Attached are the article and the study paper it references. Basically, this is talking about using a 100% equity portfolio in retirement versus other methods. Also, I'm Adam's dad, who asked you about my son in law school back a while ago and you did a show about law school. He survived his first semester and still seems fairly normal.

Voices:

Would you mind telling me?

Voices:

whose brain I did put in.

Mostly Mary:

I think he did well, but he had not received any grades last time it was discussed. Greatly enjoy your podcast, Steve.

Voices:

I'll get you, eh, Steve, if it's the last thing I do Well.

Mostly Uncle Frank:

it's good to hear from you again, Steve, and I'm glad Adam is doing well in law school and hopefully he's enjoying it at least a little.

Voices:

The study of law is something new and unfamiliar to most of you, unlike any schooling you've ever been through before.

Mostly Uncle Frank:

We use the Socratic method here. Our second son's girlfriend is also in law school now We've been answering a lot of questions from her about interviewing and clerkships and internships and other things like that, and Mary and I enjoy being able to help people out like that.

Voices:

At times you may feel that you have found the correct answer. I assure you that this is a total delusion on your part. You teach yourselves the law, but I train your mind. You come in here with a skull full of mush and you leave thinking like a lawyer.

Mostly Uncle Frank:

As to this article, this is the infamous Scott Cederberg article. I say infamous because it's been criticized up and down by just about everybody, except for the people at Rational Reminder, and I still don't know why they think this is the bee's knees, because it's really of limited use and mostly only academic use. Anyway, we have talked about this paper ad nauseum in episodes 306, 307, 319, 320, 323, 341, and 388, and published a lot of critiques from everyone, from Cliff Asness to Karsten Jesko over early retirement. Now, because there are actually a lot of problems with it Now, the overall conclusion that it makes that life cycle funds and target date funds are probably not a good way to invest, at least over a lifetime. We agree with that.

Mostly Uncle Frank:

A lot of the other conclusions about holding 100% equity portfolio in retirement really don't actually make that much sense, because if you look at what they were actually modeling there, they were only using stock and bond portfolios and frequently the bonds they were using were from countries denominated in essentially speculative currencies that you probably would not want to hold at all anyway. So it turns out not to be a very real-world analysis or comparison, which is why I say it's academically interesting, but other than that, not really that interesting. The fact that it has appeared on MarketWatch now doesn't surprise me, because places like MarketWatch are very lazy about this stuff and they basically troll for ideas. Come up with something like this. It's like oh, this is popular now and people are talking about it, let's throw up a little article about it. So always be careful with the popular broad-based financial media sources, because usually they are a bit lazy and promotional and are just looking for something to attract the clicks and eyeballs.

Voices:

That is the straight stuff. Oh funk master.

Mostly Uncle Frank:

If you are interested in it more, I would definitely go back and listen to the other episodes and look at the critiques in the show notes, because there are myriad critiques that we've linked to in the past, but it's always very nice to hear from you, steve, and thank you for your email. Class is dismissed.

Mostly Uncle Frank:

But now I see our signal is beginning to fade. Just one little announcement as I had mentioned in a couple of episodes before, we are going to be attending the Economy Conference, not this weekend but the following weekend, and, given the popular listener demand, I've come up with a list, an email list, so that we can have a little meetup, probably on Friday afternoon, of listeners to this program. There are about a dozen people on the list so far and hopefully it will remain relatively small. But if you are interested, please send an email to frank at riskparityradiocom and I can put you on this other little email list In the meantime. 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 all 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.

Voices:

That would be great.

Mostly Uncle Frank:

Okay, thank you once again for tuning in. This is Frank Vasquez with Risk Priority Radio.

Mostly Mary:

Signing off, bring me the normal, thank you. 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.

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