Episode 448: The Problem With Simulated Crystal Balls, Cleveland Rocks, And Portfolio Reviews As Of August 22, 2025
Aug 24, 2025
Dive into the fascinating world of investments as the hosts unravel the importance of historical data over simulated predictions. They tackle questions about managing inherited IRAs and 529 plans, highlighting key tax implications. Get ready for a nod to Cleveland’s Rock & Roll Hall of Fame and the joy of iconic music moments. They also review various portfolios, revealing promising trends in the current market. Expect engaging insights sprinkled with humor and a glimpse of exciting changes ahead!
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volunteer_activism ADVICE
Keep Bonds In Tax-Deferred Accounts
Keep low-growth, ordinary-income assets inside tax-deferred accounts like IRAs to minimize tax drag.
Use asset swaps across accounts: reinvest distributions into stocks taxable, and shift bonds into traditional accounts like a TSP.
volunteer_activism ADVICE
Plan Distributions Toward Retirement Allocation
Plan your inherited-IRA distributions with your target retirement allocation in mind and build toward your intended retirement portfolio.
Use available account rollovers (e.g., roll TSP to IRA at retirement) to rebalance into preferred holdings later.
volunteer_activism ADVICE
Use 529s For Tax Benefits And Predictability
Use 529 plans primarily for state tax benefits and a predictable chunk of college funding, not as the sole savings vehicle.
Keep most college savings in taxable or flexible accounts and shift 529s to conservative assets as college approaches.
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In this episode we answer emails from Dave, Mike, and Andy. We discuss an inherited IRA, 529s, how historical data provides more reliable investment guidance than simulated data based on crystal balls, particularly when considering economic environments and asset correlations, and the Rock & Roll Hall of Fame. Cleveland Rocks!
And THEN we our go through our weekly portfolio reviews of the eight sample portfolios you can find at Portfolios | Risk Parity Radio.
What happens when you try to predict market outcomes using simulated data rather than historical performance? Frank tackles this profound question by explaining why many investment simulations fail to capture the fundamental reality of how assets behave in different economic environments.
Using a brilliant weather metaphor, Frank demonstrates why you "cannot have a drought and rainstorms at the same time" – just as you cannot simultaneously experience a recession and inflation. This insight explains why historical data, which shows how assets perform in specific economic conditions, provides more reliable guidance than simulations that treat each asset class as an independent variable.
The episode also addresses practical financial concerns, including strategies for managing inherited IRAs subject to the 10-year distribution rule and approaches to college savings that balance tax advantages with flexibility. Frank shares his personal approach of using 529 plans primarily for state tax benefits while maintaining additional education funds in more accessible accounts.
Weekly portfolio reviews reveal nearly all asset classes in positive territory this year, with gold shining brightest at +28.47% YTD. This unusual pattern reflects a weakening dollar, demonstrating how macroeconomic conditions influence asset performance across the board. The episode's exploration of base rates in forecasting also explains why predictions based on historical probabilities typically outperform crystal ball prognostications that assign outsized probabilities to possibilities rather than focusing on known patterns.
For investors seeking to build robust portfolios for uncertain times, this episode offers invaluable perspective on understanding economic environments, recognizing asset correlations, and using historical data to prepare for different market conditions. Listen now to discover why the lessons of market history may be your most reliable investment guide.
Risk Parity Radio