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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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.

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.

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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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.

Links:

Father McKenna Center Donation Page: Donate - Father McKenna Center

Stacking Benjamins YouTube Live Stream Roundtable: Decumulational Strategies: The Special Retirement Spend Down Strategy Roundtable

Listen Notes Link: Risk Parity Radio (podcast) - Frank Vasquez | Listen Notes

Interview of Bob Elliot on the Compound Podcast: The Blue Chips of Junk | TCAF 175

Morningstar AVUQ: AVUQ – Avantis U.S. Quality ETF – ETF Stock Quote | Morningstar

Breathless Unedited AI-Bot Summary:

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.

Don't forget our ongoing campaign supporting the Father McKenna Center for hungry and homeless people in Washington DC. Your donation not only helps those in need but also moves you to the front of our email response line. As we explore these complex investment topics together, we remain committed to freely sharing knowledge rather than hiding it behind paywalls—continuing the spirit of open collaboration that defined the early FIRE movement.

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