Risk Parity: The Secret to a 5% Safe Withdrawal Rate! | Frank Vasquez

Was this an epiphany for anyone other than me? Does this Risk Parity portfolio research/simulation change anything in your retirement planning?🤷‍♀

great video and guest as always ! ... your show is one of my favorites ... i watch a TON of financial podcasts/videos and yours is in my top 5 for sure ... very impressive for such a new show ! ... i realize the "stop playing the game if youve already won" thing and the other famous quote i cant remember who said it but it goes something like "i may not make or have as much as you , but i have something you'll never have , enough" ... those both ring in my head ... im def much more risky with my portfolio than most being about 90% stock and 10% MM , CD , and cash , but my wife still works and will for about 6.5 more years until shes 62 by choice ... she said she may work even longer part time after 62 depending on how she feels , but her SS at 62 will be plenty of spending money for her , on top of our portfolio which covers all of our expenses alone ... her income now can cover our expenses if we chose to use it for that ... in my 20's i told all my friends and family that i would not be working in my 50's , and they thought i was crazy ... but i retired last year at 49 and have been debt free since i was 43 ... im not super wealthy , but we have a low cost of living and could live lean on 2% of our portfolio currently ... so when we both turn on SS at 62 we can very easily never touch our portfolio if we wanted ... my wife and i married later in life , when id already funded my retirement for the most part and was debt free ... shes frugal and good with money which is a big help , but shes never wanted to retire early and cares nothing about it really ... shes happy just knowing she COULD retire and chooses to work knowing she can do whatever she wants ... i say all that to say , i take alot of risk with my portfolio because i can and it'll most likely be going to our kids ... best of luck to you all in whatever you choose !

Frank Vasquez is great, I've been following his podcast since it first came out and using his concepts to maximize safe withdrawal rate!

I simulated 65% Stocks, 20% Bonds, and 15% Gold; in the best case, you’d slightly increase your SWR to 4%. Not 5%. See part 34 of my series. The more exotic portfolios like Permanent and All-Weather would have done worse than even a plain 75/25 portfolio. So did the Golden butterfly without Small-Cap-Value (SCV). With SCV, you would have done OK in historical simulations (SWR=4.01%, still not 5%, of course), but that’s solely based on the SCV part, not the Risk Parity. And I doubt that SCV will ever outperform the S&P 500 the way it did between 1926 and 1980.

Also, on Frank’s own webpage, the various RP portfolio return series look awful. I calculated some return stats (8/2020 to 7/2024). These are atrocious stats. You would have done significantly better with a 75/25 portfolio.

All Seasons
CAGR 1.52%
Risk (p.a.) 10.97%
Worst Drawdown -21.40%

Golden Butterfly
CAGR 5.94%
Risk (p.a.) 10.72%
Worst Drawdown -17.91%

Golden Ratio
CAGR 5.21%
Risk (p.a.) 12.63%
Worst Drawdown -22.69%

RP Ultimate
CAGR 3.46%
Risk (p.a.) 13.28%
Worst Drawdown -26.46%

Accelerated PP
CAGR -1.19%
Risk (p.a.) 25.18%
Worst Drawdown -46.95%

Aggressive 50-50
CAGR -3.89%
Risk (p.a.) 29.90%
Worst Drawdown -57.10%

For comparison: 75% IVV + 25% IEF (S&P 500 plus intermediate Tresury)
CAGR 10.63%
Risk (p.a.) 14.05%
Worst Drawdown -21.78%



Net-Net: I’ve seen many “solutions” to the Sequence Risk problem. Many of them are ineffective, i.e., they don’t help you but wouldn’t hurt you much either: dividend strategies, Bucket Strategies, etc. Risk Parity, however, is different. In most cases, Risk Parity will consistently make your retirement worse. RP will lower your sustainable withdrawal rate because a) you still have a lot of volatility in the short term, and b) you replace the high expected equity returns with low expected returns in commodity ETFs with high expense ratios. That’s true for some of the historical simulations with 100+ years of data and the more recent period. I discourage folks from using this approach in the strongest terms.

Great episode! Frank is great! We met years ago at a local Choose FI event. I have been listening to Frank's podcast since it came out. We follow risk parity and even have taught and shared it with others. Highly recommend listening and reading up on it especially Tyler's website Portfolio charts. Doing the analysis works really well and is so easy to do. 👍

Great interview on interesting deaccumulation portfolio structures. Hard to think that more allocations to treasuries, gold and commodities in some of these portfolios increase the safe withdrawal rate but it sounds like a lot of testing of the correlations have been done. I thought that I heard Ray Dalio disavowed the all weather portfolio a few years ago when bond rates were lower. Frank is very impressive and a very intelligent fellow with a lot of knowledge on these parity portfolios and portfolio construction. Definitely food for thought.

I love Risk Parity Radio and have been listening since the very beginning.

Great episode, and I really like Frank’s perspective. I gave Frank’s podcast a try, but sadly found it unlistenable given the overuse of sound bites for comedic effect.

I Love listening Frank’s podcast. It was life changing for me. I feel so much more confident with my investments after learning the fundamentals from Frank. I can’t believe how so many people who have a good understanding about investing have not heard of Risk Parity, and don’t understand what being truly “Diversified” looks like.