Episode 431: Websites And Roundtables And A Couple New Funds And Gold vs. Bonds
Jun 11, 2025
Listeners dive into the psychological hurdles of risk parity investing, where lower returns during booms offer greater crash protection. The importance of sound forecasting techniques and the critiques of the CAPE ratio illustrate the challenges ahead. New investment vehicles, like the AVUQ ETF, spark discussions about quality growth companies. Finally, the debate on gold versus bonds for portfolio diversification adds a layer of intrigue, as hosts balance the pros and cons of spending versus saving.
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insights INSIGHT
Base Rates Beat CAPE Forecasts
The best forecasting relies on base rates, or long-term historical averages, rather than trying to predict market conditions with valuation metrics like CAPE ratios.
Using CAPE ratios to adjust safe withdrawal rates prospectively has been shown to be less accurate and more wrong than simply using historical averages.
insights INSIGHT
Beware Bad Forecasting Practices
Bad financial forecasting often stems from improper assumptions compounded over time in calculators.
Using historical data series reduces the error compared to overly optimistic or pessimistic predictions.
insights INSIGHT
Risk Parity's Psychological Challenge
Risk parity portfolios underperform during bull markets but offer superior protection in crashes, allowing more spending now rather than maximizing wealth at death.
The fundamental trade-off is accepting lower returns in good times for better downside risk management.
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Determining Withdrawal Rates Using Historical Data
Determining Withdrawal Rates Using Historical Data
Determining Withdrawal Rates Using Historical Data
Bill Bengen
Determining Withdrawal Rates Using Historical Data presents a comprehensive approach to safe withdrawal rates for retirees. Bengen analyzes historical market data to identify sustainable withdrawal strategies that can withstand various economic conditions. The book emphasizes the importance of considering inflation, investment returns, and portfolio composition when planning for retirement. Bengen offers practical guidance for developing personalized withdrawal plans that balance income needs with the preservation of capital. This is a valuable resource for financial advisors and retirees seeking a data-driven approach to retirement income planning.
Thinking, Fast and Slow
Daniel Kahneman
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.
The Art of Spending Money
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Morgan Housel
Morgan Housel's "The Art of Spending Money" delves into the psychology of financial decisions, exploring how our emotions and biases influence our spending habits. The book challenges conventional wisdom about saving and investing, emphasizing the importance of aligning our financial goals with our values and life experiences. Housel uses compelling narratives and real-world examples to illustrate the complexities of money management, offering practical insights for readers of all financial backgrounds. The book encourages readers to develop a more mindful and intentional approach to spending, helping them make choices that enhance their overall well-being. Ultimately, it aims to empower readers to make informed financial decisions that lead to a more fulfilling life.
Superforecasters
Superforecasters
The Art and Science of Prediction
Philip E. Tetlock
Philip Tetlock's "Superforecasters" delves into the world of prediction, exploring the factors that contribute to accurate forecasting. Tetlock's research challenges the notion that expert opinions are inherently superior, demonstrating that a combination of specific cognitive skills and methods can significantly improve predictive accuracy. The book highlights the importance of probabilistic thinking, updating beliefs based on new evidence, and recognizing the limitations of human judgment. Tetlock's study of "superforecasters," individuals who consistently outperform experts, reveals valuable insights into the art and science of prediction. The book offers practical strategies for improving our own forecasting abilities and making better decisions in uncertain environments.
Thinking in bets
Making Smarter Decisions When You Don't Have All the Facts
Annie Duke
In this book, Annie Duke teaches readers how to make better decisions by treating them as 'bets' on uncertain outcomes. She emphasizes the importance of distinguishing between the quality of a decision and its outcome, acknowledging the role of luck, and avoiding biases such as 'resulting' and hindsight bias. Duke draws on her experiences as a professional poker player and combines these with insights from cognitive psychology and other fields to provide tools for making more objective and thoughtful decisions. The book encourages readers to get comfortable with uncertainty, seek truth through diverse opinions, and learn from outcomes to improve future decision-making[1][3][5].
Risk savvy
Gerd Gigerenzer
In this episode we answer emails from Luc, Craig, Luke and Lucky. We discuss updating the website, my recent roundtable on the Stacking Benjamins podcast, Achilles heels, and the inherent problems with not using proper forecasting techniques applied to CAPE ratios and other things, new funds like AVUQ and FFUT, and gold versus bonds in a portfolio.
What's the real Achilles heel of risk parity investing? It's not what you might expect. While many point to historical data limitations, the true challenge is psychological—accepting lower returns during bull markets in exchange for better protection when everything crashes. This fundamental trade-off defines the strategy's purpose: enabling you to spend more money now rather than maximizing wealth at death.
The forecasting techniques that guide our investment decisions matter tremendously. Drawing from experts like Kahneman, Tetlock, Duke, and Gigerenzer, we explore why base rates (long-term historical averages) consistently outperform crystal ball approaches like CAPE ratios. When investment professionals try predicting market returns based on current valuations, they're often spectacularly wrong—more so than if they'd simply used historical averages. Remember: in forecasting, being less wrong beats being precisely incorrect.
The gold versus bonds debate continues to evolve. Bob Elliott, formerly of Bridgewater, suggests that since abandoning the gold standard in the 1970s, gold has performed as well as or better than bonds as a stock diversifier. While 30% gold allocation might seem excessive to some, it could make sense for those concerned about currency risks. Historical context shows both assets have experienced extended periods of outperformance, making a combined approach more resilient than trying to predict which will shine next.
We've entered a golden era for do-it-yourself investors, with new ETFs constantly emerging to fill specific niches. Avantis recently launched AVUQ for quality growth exposure, while Fidelity introduced FFUT for managed futures—both reflecting growing demand for sophisticated investment options previously unavailable to retail investors.
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