Episode 412: Market Turmoil, Guardrails Withdrawals, Useful UK Sites, Bonds, Small Caps And Portfolio Reviews As Of April 4, 2025
Apr 6, 2025
Market turmoil takes center stage as discussions reveal the value of diversification in turbulent times. Personal withdrawal strategies are highlighted, especially the innovative guardrails method. The show dives into the importance of bond allocation and assesses the pros and cons of small cap growth versus value stocks. A riveting story of recovery from homelessness ties back to community support and financial planning. Listeners gain insights through portfolio reviews and performance trends, emphasizing the adaptability of investment strategies.
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question_answer ANECDOTE
McKenna Man Portfolio
Frank Vasquez highlights Ron's creative support of the Father McKenna Center.
Ron created a portfolio with periodic distributions to the charity.
volunteer_activism ADVICE
Guardrails Strategy
Use a variable withdrawal strategy, like the Guyton-Klinger or Kitsis Ratchet, for retirement.
Model your parameters on Portfolio Charts to assess their potential benefits.
volunteer_activism ADVICE
Retirement Inflation
Base retirement inflation estimates on a lower rate than CPI, around 1-2% less.
Personal inflation varies significantly, so analyze your spending history.
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In this book, Daniel Kahneman takes readers on a tour of the mind, explaining how the two systems of thought shape our judgments and decisions. System 1 is fast, automatic, and emotional, while System 2 is slower, effortful, and logical. Kahneman discusses the impact of cognitive biases, the difficulties of predicting future happiness, and the effects of overconfidence on corporate strategies. He offers practical insights into how to guard against mental glitches and how to benefit from slow thinking in both personal and business life. The book also explores the distinction between the 'experiencing self' and the 'remembering self' and their roles in our perception of happiness.
In this episode we answer emails from Ron, Iain, an Anonymous Visitor and Mr. Data. We discuss Ron's generosity and his variable or guardrails withdrawal strategy, some helpful British website references, what we use bonds for in these portfolio and how the TSP G fund fits into that, and small cap growth vs. small cap value stocks. And some notes on recent market turmoil.
And THEN we our go through our weekly and monthly portfolio reviews of the eight sample portfolios you can find at Portfolios | Risk Parity Radio.
Market crashes reveal the true value of diversification. While Professor Jeremy Siegel called last week's events "the worst policy mistake in US economic history in the last 95 years," properly structured portfolios weathered the storm remarkably well.
The recent market plunge shows exactly why risk parity strategies work—the S&P 500 dropped 13.3%, NASDAQ fell 17.2%, but our All Seasons portfolio remained flat for the year. This divergence creates powerful rebalancing opportunities that can enhance long-term returns.
Looking at performance across asset classes reveals a classic recession pattern: falling stocks, rising treasury bonds, and initial panic selling followed by differentiated recoveries. Long-term Treasury bonds (VGLT) are up 7.2% for the year, demonstrating their crucial diversification role during market stress. Gold, despite some wobbles, remains up 15.7% year-to-date.
The mathematical principle behind this outperformance is what Claude Shannon described as "Shannon's Demon"—when assets perform differently at different times, periodic rebalancing allows the portfolio to outperform any individual component. This explains why we maintain exposure to both growth and value styles, rather than trying to predict which will outperform next.
For DIY investors, this market correction offers valuable lessons about portfolio construction. Understanding why you hold each asset—whether for stability, income, or diversification—is far more important than chasing yields. The Golden Butterfly portfolio, with its balanced approach across stocks, bonds, and gold, is only down 1.78% year-to-date while continuing to provide consistent distributions.
Want to learn more about building resilient portfolios? Visit riskparityradio.com for sample portfolios and detailed resources, or email your questions to frank@riskparityradio.com.
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