April 20, 2025

Episode 416: The Tau Of El Yama, Accumulation Versus Decumulation Portfolios, Cracked CAPE Crystal Balls And Portfolio Reviews As Of April 18, 2025

43 minutes

In this episode we answer emails from El Yama, Graham, and James. We discuss using risk parity-style portfolios for intermediate term needs, the short-term bond allocation in the Golden Butterfly, accounting for child credit, rising equity glidepaths, the fundamental differences between 100% stock portfolios and diversified portfolios and why you want the latter for retirement unless your goal is to die with the most money, and a CAPE ratio critique from Meb Faber's podcast.

And THEN we our go through our weekly portfolio reviews of the eight sample portfolios you can find at Portfolios | Risk Parity Radio.

Additional links:

Kitces Article re Rising Glidepaths: The Benefits Of A Rising Equity Glidepath In Retirement

Kitces/Pfau Paper re Rising Glidepaths: Reducing Retirement Risk with a Rising Equity Glide-Path by Wade D. Pfau, Michael Kitces :: SSRN

Meb Faber Podcast with Brian Jacobs discussing problems with CAPE ratio predictions: A Century of No Return! The Truth About The Beloved Bonds (Brian Jacobs of Aptus Reveals)

Breathless Unedited AI-Bot Summary:

"A foolish consistency is the hobgoblin of little minds," begins this thought-provoking exploration of why most investors are trapped in accumulation-phase thinking even as they approach or enter retirement.

The question at the heart of this episode strikes at a surprising disconnect in personal finance: Why do so many investors intellectually understand they're investing to enjoy retirement, yet construct portfolios clearly designed to maximize wealth at death?

Through a series of illuminating listener emails, Frank unpacks how portfolios optimized for accumulation often fail spectacularly during the decumulation phase. One listener confesses he "always wondered why anyone would buy bonds when clearly stocks give a far greater return," before discovering through portfolio testing that a 100% equity portfolio would have "failed catastrophically" for someone retiring around 2000-2003.

This recognition—that diversification isn't about maximizing returns but enabling sustainable withdrawals—represents the fundamental insight many investors miss until too late. As Frank colorfully puts it, if your goal is to "die with the most money possible" in your "golden coffin," then by all means stick with 90-100% equities. But if you actually intend to enjoy your retirement by spending more than 3% of your portfolio annually, a properly diversified approach becomes essential.

The episode also addresses why attempts to use valuation metrics like CAPE ratios to predict market movements have largely failed, and why separating your portfolio into growth and value components offers a more reliable approach to capturing rebalancing bonuses without attempting market timing.

Make sure your investment behavior actually matches your stated goals. If you're planning to spend in retirement, construct a portfolio that optimizes for sustainable withdrawals, not maximum theoretical returns.