Episode 416: The Tau Of El Yama, Accumulation Versus Decumulation Portfolios, Cracked CAPE Crystal Balls And Portfolio Reviews As Of April 18, 2025
Apr 20, 2025
Listeners dive into the nuances of risk parity portfolios, especially for those nearing retirement. Topics include the significance of a diversified portfolio versus a 100% stock approach and critiques of the CAPE ratio's accuracy. The podcast also features lively portfolio reviews, discusses the impact of changing market trends on investments, and reflects on personal finance journeys that balance wealth and family values. Engaging interactions with audience emails add a fun twist to the insightful discussions.
43:01
forum Ask episode
web_stories AI Snips
view_agenda Chapters
auto_awesome Transcript
info_circle Episode notes
volunteer_activism ADVICE
Use Risk Parity for Intermediate Needs
Use risk parity-style portfolios like the Golden Ratio for intermediate-term spending needs.
They typically have shorter drawdown periods, making funds available when needed.
volunteer_activism ADVICE
Model Child Benefits as Expense Reductions
Model government child support payments as an annuity or reduce your expense assumptions.
It's easier and more practical to lower your portfolio expense needs than to add it to net worth.
volunteer_activism ADVICE
Use Slow Rising Equity Glidepaths
Increasing equity allocation gradually over decades is preferable to rapid rises.
Sharp rises over a few years haven't been modeled well and may not improve outcomes.
Get the Snipd Podcast app to discover more snips from this episode
In this episode we answer emails from El Yama, Graham, and James. We discuss using risk parity-style portfolios for intermediate term needs, the short-term bond allocation in the Golden Butterfly, accounting for child credit, rising equity glidepaths, the fundamental differences between 100% stock portfolios and diversified portfolios and why you want the latter for retirement unless your goal is to die with the most money, and a CAPE ratio critique from Meb Faber's podcast.
And THEN we our go through our weekly portfolio reviews of the eight sample portfolios you can find at Portfolios | Risk Parity Radio.
"A foolish consistency is the hobgoblin of little minds," begins this thought-provoking exploration of why most investors are trapped in accumulation-phase thinking even as they approach or enter retirement.
The question at the heart of this episode strikes at a surprising disconnect in personal finance: Why do so many investors intellectually understand they're investing to enjoy retirement, yet construct portfolios clearly designed to maximize wealth at death?
Through a series of illuminating listener emails, Frank unpacks how portfolios optimized for accumulation often fail spectacularly during the decumulation phase. One listener confesses he "always wondered why anyone would buy bonds when clearly stocks give a far greater return," before discovering through portfolio testing that a 100% equity portfolio would have "failed catastrophically" for someone retiring around 2000-2003.
This recognition—that diversification isn't about maximizing returns but enabling sustainable withdrawals—represents the fundamental insight many investors miss until too late. As Frank colorfully puts it, if your goal is to "die with the most money possible" in your "golden coffin," then by all means stick with 90-100% equities. But if you actually intend to enjoy your retirement by spending more than 3% of your portfolio annually, a properly diversified approach becomes essential.
The episode also addresses why attempts to use valuation metrics like CAPE ratios to predict market movements have largely failed, and why separating your portfolio into growth and value components offers a more reliable approach to capturing rebalancing bonuses without attempting market timing.
Make sure your investment behavior actually matches your stated goals. If you're planning to spend in retirement, construct a portfolio that optimizes for sustainable withdrawals, not maximum theoretical returns.
Risk Parity Radio