Risk Parity Radio

Episode 415: A Smorgasbord Of Annuities, TIP Ladders, Currency Speculations And Other Gambling Problems

• Frank Vasquez • Season 5 • Episode 415

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In this episode we answer emails from Corn Pop, Dustin and Jim.  We discuss annuities for elderly parents, TIPS ladders in retirement, REITs in small cap value funds, currency speculation, the GDE fund (again) and an aggressive portfolio construction.

Link:

Interview of Michael Kitces Re Problems With TIPS Ladders:  Michael Kitces: How Higher Yields Affect Asset Allocation and Retirement Planning | Morningstar


Breathless and Promotional AI-Bot Summary:

Dive into the mailbag as Frank tackles complex investment questions with his signature blend of expertise and pop culture references. This episode unpacks several critical financial planning dilemmas that challenge conventional wisdom.

First, Frank examines when annuities make sense for elderly parents, explaining how health prospects and longevity expectations should guide this decision. For those likely to outlive actuarial tables, annuities can provide financial value and simplify management—but they're far from universally beneficial. Frank introduces Qualified Longevity Annuity Contracts (QLACs) as a strategic option for those concerned about funding long-term care in their later years.

The conversation shifts to a provocative take on TIPS ladders, with Frank describing long-term ladders as "a flex for hoarders" rather than necessary financial tools. He argues these complicated structures work best for defined periods with specific purposes—like bridging to Social Security—not as decades-long income vehicles that will inevitably be either too long or too short for your actual lifespan.

Currency speculation, Bitcoin, and aggressive portfolio construction round out the episode's explorations. Frank explains how currency exposure already exists implicitly in international stocks and gold without dedicated speculation, evaluates an aggressive portfolio with substantial Bitcoin allocation, and questions whether dividend stocks belong in accumulation strategies.

Throughout, Frank balances technical analysis with practical wisdom, reminding listeners that personalized investment approaches must account for individual circumstances rather than following generic advice. Whether you're managing a retirement portfolio or building wealth, you'll gain valuable perspective on how the finest investment strategies align with your actual needs rather than theoretical ideals.

Want your questions answered on a future episode? Email frank@riskparityradar.com and don't forget to subscribe and leave a review!


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Voices:

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:

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.

Mostly Mary:

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 415. Today, on Risk Parity Radio, we're just going to try to do what we do best here, which is answer your emails, and so, without further ado, here I go once again with the email. And First off. First off, we have an email from Corn Pop.

Voices:

Ain't nothing wrong with that.

Mostly Mary:

And Corn Pop writes Howdy Frank and Mary ain't nothing wrong with that and corn pop rights. Howdy, frank and mary. I have listened to every episode, currently through 399 and can unequivocally state I have learned more about investing while listening to your podcast in the last six months than I have from any other source in the last 20 years combined you are talking about the nonsensical ravings of a lunatic mind.

Mostly Mary:

Risk. Parity Radio is an invaluable resource to the DIY investing community. Kudos for a job well done. My only complaint now is I have to wait for new episodes to be posted. Sigh.

Voices:

I don't understand. I made a reservation. Do you have my reservation?

Voices:

Yes, we do. Unfortunately, we ran out of cars.

Voices:

But the reservation keeps the car here. That's why you have the reservation.

Voices:

I know why we have reservations. I don't think you do.

Mostly Mary:

In the meantime, a few unrelated and related risk parity questions to throw your way First off. In past podcasts it was mentioned that it might be advantageous to consider an annuity later in life. I'm managing my healthy 78-year-old mother's retirement portfolio. Her RMDs and Social Security easily pay for her expenses. Is there some sort of Stein-esque methodology I could use to determine if an annuity would be beneficial for her? If not, maybe a Vasquez-esque one could be discussed. Second off, users in the popular online personal investment forum Hogelbads often and by often I mean always will eventually recommend using tips letters at some point during retirement.

Voices:

Forget about it.

Mostly Mary:

For the life of me, I can't figure out when. I understand letters can be used to bridge income gaps, but isn't that the purpose of saving for and using a retirement portfolio? You are correct, sir. Yes. Wouldn't the money from the portfolio be used to fund the latter Sounds like robbing Peter to pay Paul. At 59 and a half, I plan to start withdrawing 4% from our golden ratio portfolio. At that time my spouse may claim early Social Security, while I plan to wait till 70 to claim For the FOMO. Do I need a tips ladder? Forget about it. Second to last, last off, while assessing portfolio sector concentrations, I noticed VIOV holds 8 to 9 percent in REITs. Should I be adjusting the amount of my other REIT holdings to account for the REITs in VIOV? Last off, in a few episodes you argue the benefit, or lack thereof, of using international funds for diversification and point to currency speculation as the reason for the difference. Is there a way to integrate currency speculation into a portfolio? Thanks for all you do, corn Pop.

Mostly Uncle Frank:

Well, you've got several good and interesting questions here.

Voices:

No more flying solo. You need somebody watching your back at all times.

Mostly Uncle Frank:

Let's just take them in turn. First talking about your 78-year-old mother and whether she might benefit from an annuity.

Voices:

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

Mostly Uncle Frank:

Unfortunately, or maybe fortunately, there is no one kind of analysis that you would use to determine whether somebody would need an annuity or not, because it's very dependent on their individual circumstances and goals. But it's one of those things that it has to be fulfilling a specific goal and can't be chosen just as nice to have because they're not nice to have. You either have a specific goal for them or you don't.

Voices:

You know, I got friends of mine who live and die by the actuarial tables and I say, hey, it's all one big crapshoot. Anyhoo, tell me, have you ever heard of single premium life? Because I think that really could be the ticket for you.

Mostly Uncle Frank:

So when you're talking about somebody in their 70s, the first question has to do with their individual situation in terms of what is their health? Of what is their health? Because, financially, an annuity is a good deal if you are likely to outlive your actuarial death date. That's how they are priced. So if she is healthy and is likely to live well into her 90s, an annuity might be a good deal financially and it also reduces the burden of having finances to manage at an age like that.

Mostly Uncle Frank:

I was communicating with another listener who was thinking about this and had a family history of family members living well into their 90s and needing some form of long-term care at that point in time, and she was a little younger. But something that might make sense for somebody in that circumstance might be a QLAC, which is a deferred annuity that you can buy out of your IRA money, and typically the way that it's done is it's bought early in your 70s and it is designed to be turned on sometime between, say, ages 80 and 85, at which point it will spew out a large stream of cash that would be available for any kind of long-term care expenses at that point.

Voices:

Death stalks you at every turn.

Mostly Uncle Frank:

So the purpose of that would be to ameliorate long-term care costs for somebody who thought they were going to live a really long time.

Mostly Uncle Frank:

On the opposite side of things, if your mother's in poor health, then an annuity certainly does not make much sense at all. Now there is another sort of just convenience factor that if you could, for instance, evaluate what her total expenses are you said it's Social Security and her RMDs cover her expenses Could you substitute, say, an annuity for the part of expenses not covered by Social Security, which again simply just gives you an easy way of matching up a payment stream with a set of expected expenses. But that again is really only more of a convenience, having not to manage that portion of the portfolio much anymore. And then perhaps she can do something else with the rest of the portfolio, depending on how much there is and what other things she might like to do. But again, I would think they'll be highly dependent on her prospects of living a very long time if you don't start making more sense, we're gonna have to put you in a home.

Voices:

You already put me in a home. You already put me in a home. Then we'll put you in the crooked home. It's on 60 minutes.

Mostly Uncle Frank:

I'll be good If you go back to episode 184, I talked about this at length about what we are thinking about doing in terms of a process would be to wait until we were in our early 70s and then consider our health and other factors to determine whether we would want one or more simple annuities or deferred annuities at that point in time, such as the QLAC, because it is true that once you get into your 70s, the payout rates for these things get very large, and we're talking about 7, 8, 9 percent. So those are my thoughts. Sorry they weren't more organized.

Voices:

Hey, Grandpa, we need to know your first name.

Voices:

You're making my tombstone.

Voices:

No, we're just curious.

Voices:

All right, let's see First name. First name. Well, whenever I'm confused, I just check my underwear it holds the answer to all the important questions.

Voices:

Call me Abraham Simpson Grandpa how'd you take off your underwear without taking off your pants? I don't know.

Mostly Uncle Frank:

But let's move on to your next question. It's funny you mentioned you'd only gotten up to episode 399 in this email, which is from early February. If you listen to episode 401, I talk about this issue that it seems that a lot of over-saved people get fixated on complicated things like long-term tip slatters, science. It's like they heard that William Bernstein and Alan Roth were doing things like that, so they thought that they needed to get on the bandwagon.

Voices:

To me it's kind of a flex for hoarders, instead of buying fancy cars or boats or things they go off and buy complicated financial structures that they don't need, because it's my birthday and I want it.

Mostly Uncle Frank:

I think bond ladders, whether they be tips ladders or not, are best used for a defined finite period, such as a gap between retiring and Social Security or something of that nature, where you are filling a specific void, where an income is required to fulfill that specific void and you know that's going to end at a particular point, so that you can make your ladder exactly as long as it needs to be, because having ladders that are way too short or way too long is extremely inefficient and doesn't make much sense are you stupid or something stupid, as a stupid does?

Voices:

sir?

Mostly Uncle Frank:

and I cited an interview for michael kitsis by morningstar about this very topic and I'll link to that interview again and his point is the same one that I'm just making that if you can really afford to create a long-term tips ladder I'm talking about some 30-year thing you probably are just grossly over saved what's with you anyway?

Voices:

I can't help it. I'm a greedy slob, it's my hobby.

Mostly Uncle Frank:

Save me and you don't really need such a thing, because they are grossly inefficient. And the reason they are grossly inefficient is because they are the exact opposite of an annuity, in that an annuity is guaranteed to last for your life, but a 30-year tips ladder is either likely to be way too long or way too short, unless you know exactly when you're going to die or have plans for that in some way, and it's certainly not something you would want to leave around for your heirs to have to unravel.

Voices:

That's not an improvement.

Mostly Uncle Frank:

So when I hear people start talking about these things, I always ask them well, how are you going to balance that with the rest of your portfolio, or how is that going to all work out? And what you usually find from such a conversation is that they're just grossly oversaved.

Voices:

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

Mostly Uncle Frank:

And that they're planning on not spending the rest of their portfolio or something like that. So it really is something for people who want to hoard their money, to waste their time with and make themselves feel financially superior to the hoi polloi, I guess.

Voices:

Flare I think that's the last of it. Just a quick check to see if I missed anything. Hey, what's this?

Mostly Mary:

Hmm, well, polished up, it might bring another quick four bits on the open market.

Mostly Uncle Frank:

So, interestingly enough, you hit upon this just a week before I made a podcast about it, or at least talked about it in a podcast. A strange coincidence. Hey, you want to see something really scary.

Voices:

You bet.

Mostly Uncle Frank:

But go back and check that out and check out this article I'm going to link to in the show notes. All right. Your second to last off question was whether you should adjust your holdings in a small cap value fund like viov to account for the reits that are in it. I don't think so.

Voices:

I think that's trying to be too clever by half that and a nickel, get your hot cup a jack squat but if you have some reit holdings, that is obviously going to take up some space in your overall stock allocation.

Mostly Uncle Frank:

That's why I suppose I would account for it in looking at the overall portfolio allocations. But I would not be too concerned about the individual relationship between REIT holdings and a small cap value holding. And last off, you have a question here about using currency speculation as part of a portfolio.

Voices:

You have a gambling problem.

Mostly Uncle Frank:

And the answer is yeah. This is kind of implicit in a number of holdings. It's implicit if you're holding international stocks because they are likely to perform better than US stocks when the dollar is weak, as we see right now in this year so far, and not as well when the dollar is strong. If you are holding gold, that is partially a currency speculation because gold essentially functions like an alternative currency. It's held by central banks. Like, central banks hold all kinds of different currencies, usually mostly reserve currencies like the dollar, but they also hold gold and they hold it essentially like another currency. So when the dollar is weak, that also strengthens the hand for gold performance.

Voices:

This is gold, Mr Barton.

Mostly Uncle Frank:

Currency speculation is also part of what goes on in a managed futures fund, because typically they have allocations that are short or long, various currencies usually the dollar, the yen and the euro and they will pick up on trends with respect to those things. Now some of our listeners have also used currency-related ETFs, because you can also speculate in currencies just using ETFs.

Voices:

Well, you have a gambling problem.

Mostly Uncle Frank:

And if you go back to episode 222, you will hear a discussion of the dude's volatility-related portfolio, which includes a fund called EUO and another one called YCS, which are essentially short the yen and short the euro against the dollar.

Voices:

Yeah, well, the do the binds.

Mostly Uncle Frank:

Now that would have worked pretty well in the past, the past few years, given that in years like 2022, the dollar was strong and that hurt the performance of stocks and other things, and so those funds did well. It would not perform well in an era like we're in now, where the dollar is weaker and so those currencies are stronger. So I guess my final answer is that, yeah, you could integrate currency speculation into a portfolio, but I think it's going to be a little bit difficult to do outside of what kind of naturally occurs in connection with some of these other asset classes which have implicit currency speculations built into them. But I think that's a very interesting thing to think about, or at least to recognize, with respect to any particular asset that you might buy, as to whether there is an embedded currency speculation involved in buying that asset, and sometimes there is and sometimes there isn't Gosh. So thank you for all these interesting questions. Hopefully this is a little bit helpful, and thank you for your email.

Voices:

Second off.

Mostly Uncle Frank:

Second off, we have an email from Dustin.

Voices:

Mrs Robinson, you're trying to seduce me, aren't you?

Mostly Uncle Frank:

Actually, this is a follow-up email to the one that Dustin asked and we answered in episode 407.

Mostly Mary:

And Dustin writes I listened to episode 167 and 168, where you covered the GDE fund.

Voices:

Yes.

Mostly Mary:

Well done and thank you. Would GDE make sense to give some gold exposure in an accumulation portfolio so that it does not reduce the desired high stock exposure? Thanks, dustin.

Voices:

Would you like me to seduce you?

Mostly Uncle Frank:

Well, we're talking about GDE again, which is a fund that has an exposure to both gold and large cap equities. So it's got leverage built in, and I think my answer is if you're trying to build something like a return-stacked portfolio a la Corey Hofstein or Resolve Asset Management, yeah, you could use something like GDE to get a gold exposure on top of your stock exposures. My preference is still as I mentioned in episode 407, to keep stocks and non-stock assets separate in a portfolio, because it's easier to rebalance them then. But if you wanted to build an accumulation portfolio that essentially has some leverage built into it but is designed to have the same volatility characteristics as, say, a 100% stock portfolio, which is what most of these things are trying to do, then yeah, you could use something like this to do that. I'm not sure most people need to be doing things like that in their accumulation portfolio, but I know that some of you have a gambling problem.

Voices:

Remember when I got caught stealing all those watches from Sears but I know that some of you have a gambling problem. Remember when I got caught stealing all those watches from Sears Well, that's nothing because you have a gambling problem. And remember when I let that escaped lunatic in the house because he was dressed like Santa Claus.

Voices:

Well, you have a gambling problem, Homer. When you forgive someone, you can't throw a back at them like that.

Voices:

Oh, what a jip.

Mostly Uncle Frank:

And there are now a lot of new funds that allow you to do things like this at relatively low costs. But I'm going to be more interested to see how this plays out over the next decade or so, because it is kind of a newfangled way of approaching these things. I can smell the chemicals Science, the concepts are old, but the applications are new Grabbing speed, grabbing speed. So hopefully that helps, and thank you for your email. I'm going home now. I apologize for what I said.

Voices:

I hope you can forget it, but I'm going home right now.

Mostly Uncle Frank:

Last off.

Voices:

Last off, an email from Jim. Well, I'm waiting for you, Jimmy boy and Jim writes.

Mostly Mary:

Hi Frank, what are your thoughts on my current portfolio? I'm 49 and will not have a pension. I'm four years into building an insurance agency and take a salary of $42,000 currently and $5,000 to $10,000 in distributions each year. The past few years I've only managed to max out Roth due to lower income Fidelity. I have an HSA Roth and traditional with $100,000 in total 40% VUG, 35% VOO, 10% SCHD and 15% BTC. So I need to grow my nest egg Thoughts. Thanks, love your podcast.

Mostly Uncle Frank:

Well, jim, you've got a very aggressive portfolio there, so I hope you have at least a decade for this thing to grow. Just some notes on it. Vug and VOO have a large overlap to them. Vug is more aggressive than VOO, but if you wanted to pair VUG with something that was more different than VOO, I would probably go with something like a small cap value fund, which could be also an international value fund, or you could go with a international large cap growth fund, which we've talked about in some recent episodes.

Mostly Uncle Frank:

Go back to episode 394, which was in January, and then some of the ones from December. We had some questions about International Large Cap Growth Funds that might be of interest to you looking for a very aggressive portfolio. Now you have 10% in SCHD in here also. I'm not sure that belongs in this kind of portfolio if you're seeking to be the most aggressive, because that is essentially a large-cap value fund and so it's likely to have lower volatility but also lower returns than either something like a large-cap growth fund or a small-cap value fund. That's just the nature of those beasts. So something like that is something you would usually hold in your retirement portfolio and not in an accumulation portfolio. And then there's the Bitcoin. What can I tell you about the Bitcoin?

Voices:

Well, you have a gambling problem.

Mostly Uncle Frank:

In the past couple years, bitcoin has behaved like a levered large-cap technology fund, something like the Nasdaq levered up two or three times, and that's really been kind of the case since it's been adopted more widely by the financial services industry and any of these ETFs and things like that. Whether that's going to change or not, I don't know. I don't know what the future of Bitcoin is likely to be.

Voices:

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

Mostly Uncle Frank:

I would say it's likely to be volatile, but it actually may be less volatile now and going forward than it was, say, five years ago or before 2020. Its overall volatility has been decreasing over time as it's achieved more wide adoption. I would honestly be a bit hesitant to put so much of my money into such a thing, because remember, the idea of having these things is you're going to buy more of it when it goes down. And because you don't know whether it's going to stay down or how long it's going to stay down, because it's a speculative asset, it does kind of put you in a kind of a pickle. It's great if you know it's going to go up, then you just leave it alone and you're buying more of the other things. But if it collapses and drops you know, 80 percent, like it has historically then are you going to go in there and buy more, because that is what you're supposed to do when you have a portfolio like this.

Voices:

Then we'll reinvest the earnings into foreign currency accounts with compounding interest, and it's gone. What it's gone? It's all gone. What's all gone? The money in your account. It didn't do too well, it's gone.

Mostly Uncle Frank:

So I don't know if I'd feel comfortable with that kind of exposure to that kind of an asset, even in an accumulation portfolio. I'd probably reduce it to, say, 5% or less, but that's because I don't know what it's going to do.

Voices:

I don't know.

Mostly Uncle Frank:

So sorry I can't be more helpful on that one. Hopefully what I had to say about the other ones was helpful and thank you for your email.

Voices:

Bow to your sensei. Bow to your sensei.

Mostly Uncle Frank:

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. We are a couple months behind in the email, so it may take a while before we get to yours. And if you haven't had a chance to do it, please go to your favorite podcast provider and like, subscribe, give me some stars or follow or review. That would be great.

Mostly Mary:

Okay.

Mostly Uncle Frank:

Thank you once again for tuning in. This is Frank Baskett with Risk Priority Radio signing off. Thank you. The Risk Parody Radio Show is hosted by Frank Vasquez.

Mostly Mary:

The content provided is for entertainment and informational purposes only and does not constitute financial investment tax or legal advice. Thank you.

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