Risk Parity Radio

Episode 435: Catching Up To Risk Parity And Fun With Forex And A Vanguard Market Neutral Fund

• Frank Vasquez • Season 5 • Episode 435

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In this episode we answer emails from Tracy, Mike and "Some Call Me" Tim.  We discuss the speculations and gambles of Forex, portfolio transitions, the Vanguard Market Neutral Fund and moving overseas.  And we have a mystery guest reader!

Links:

Father McKenna Center Donation Page:  Donate - Father McKenna Center

Catching Up To FI Website:  Financial Independence - Catching up to FI

VMNFX Testfolio Comparative Analysis:  https://testfol.io/analysis?s=eFgblWT8SJO

VMNFX Home Page:  VMNFX-Vanguard Market Neutral Fund Investor Shares | Vanguard

Morningstar VMNFX:  VMNFX – Vanguard Market Neutral Inv Fund Stock Price | Morningstar

Breathless Unedited AI-Bot Summary:

Navigating the complex world of personal finance often means confronting tough questions about investments we don't fully understand, partners who approach money differently, and life transitions that demand portfolio adjustments. This episode dives deep into three listener questions that illuminate these challenges.

When Tracy's husband becomes deeply invested in forex trading despite a significant loss, she makes the bold decision to split their investment portfolios. This raises fascinating questions about marriage, money, and risk tolerance. Frank unpacks the reality of forex trading, explaining why it's neither an investment nor typically suitable for most individual investors. Drawing from his own trading experience in the 1990s, he distinguishes between disciplined speculation and outright gambling, offering clarity for anyone tempted by the allure of currency trading. As Tracy approaches her financial independence number, Frank provides thoughtful guidance on transitioning from an accumulation portfolio to a more conservative allocation while markets remain strong—wisdom applicable to anyone approaching their financial goals.

The exploration continues with an analysis of Vanguard's Market Neutral Fund, revealing how even traditional investment companies offer alternative strategies that many investors overlook. While this long-short fund provides impressive diversification benefits, its lackluster returns highlight the trade-offs investors must consider when pursuing uncorrelated assets. For listeners curious about expanding beyond conventional index funds, this segment offers valuable perspective on evaluating alternative investments.

Finally, for those contemplating international moves while managing US retirement accounts, Frank provides practical advice that cuts through confusion. By focusing on investment fundamentals rather than geographical considerations, he reminds us that solid financial principles transcend borders. Whether you're wrestling with a spouse's different investment philosophy, considering alternative assets, or planning an international life change, this episode delivers insights to help navigate your financial journey with confidence and clarity.


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Mostly Bill:

A foolish consistency, is the hobgoblin of little minds, adored by little statesmen and philosophers and divines. If a man does not keep pace with his companions, perhaps it is because he hears a different drummer.

Mostly Uncle Frank:

A different drummer.

Voices:

And now, coming to you from dead center on your dial, welcome to Risk Parity Radio, where we explore alternatives and asset allocations for the do-it-yourself investor, Broadcasting to you now from the comfort of his easy chair. Here is your host, Frank Vasquez.

Mostly Uncle Frank:

Thank you, Mary, and welcome to Risk Parity Radio. If you are new here and wonder what we are talking about, you may wish to go back and listen to some of the foundational episodes for this program.

Voices:

Yeah, baby, yeah.

Mostly Uncle Frank:

And the basic foundational episodes are episodes 1, 3, 5, 7, and 9. Some of our listeners, including Karen and Chris, have identified additional episodes that you may consider foundational, and those are episodes 12, 14, 16, 19, 21, 56, 82, and 184. And you probably should check those out too, because we have the finest podcast audience available.

Voices:

Top drawer, really top drawer.

Mostly Uncle Frank:

Along with a host named after a hot dog.

Voices:

Lighten up Francis.

Mostly Uncle Frank:

But now onward to episode 435. Today, on Risk Parity Radio, we're just going to do what we do best here, which is attend to your emails. But before we get to that, I wanted to remind you all that we are working on a revamp of the website with my good friend Luke from Quebec.

Voices:

We have top men working on it right now.

Voices:

Who.

Mostly Uncle Frank:

Top men and he's created a demo site. So if you go to wwwriskparityradarcom and click on the alt site button at the top, you'll go to that site and it's in demo form, so not everything works there, but we are interested in knowing your reactions to it. We've gotten some great comments so far, but we'd like to collect a few more and then we will put everything together and hopefully roll out a revamped site in August or September.

Voices:

Inconceivable.

Mostly Uncle Frank:

So you too can be one of our top men working on it.

Voices:

You keep using the word. I don't think it means what you think it means.

Mostly Uncle Frank:

If you have comments on that, please send them to me in an email, not on the website. Send it to frank at riskparityradarcom, and we will put it in the stack with the other ones that we've received so far, and thank you for your participation in that effort. We're putting the band back together.

Voices:

You were the backbone, the nerve center of a great rhythm and blues band. You can make that live, breathe and jump again.

Voices:

Jake ain't lying, though we had a band powerful enough to turn goat piss into gasoline.

Mostly Uncle Frank:

But now without further ado.

Voices:

Here I go once again with the email.

Mostly Uncle Frank:

First off. First off, we have an email from Tracy.

Voices:

Dr Tracy speaking. Dr Tracy speaking.

Mostly Uncle Frank:

And Tracy writes.

Mostly Bill:

Hi Frank. Thank you for your valuable content and inspirational lessons on giving. I have donated to the Father McKenna Center to show my support.

Voices:

Yeah, baby, yeah.

Mostly Bill:

I have sent this email on 4-28-2025 and I'm now resending it.

Voices:

I'm gonna pin it on you. See, I'm gonna pin it on you. I has been into forex trading for about 10 years.

Mostly Bill:

He took the time to understand it and is still very deep into it, despite a huge loss in 2015 that we are still recovering from.

Voices:

That's not an improvement.

Mostly Bill:

It is a big part of his portfolio. He knows stocks, bonds and index funds well, but for some reason he is still choosing to invest his time and energy into Forex. He believes in it so strongly that he even wanted to teach our kids about Forex when they grow up. Why? What have children ever done for me? We split up our investment portfolio last year since I started to learn about investing through the Choose Fi podcast and started to dabble with bonds and other macro asset classes from your podcast.

Mostly Bill:

I don't understand Forex and I don't want to invest in what I don't understand. We split up our investment portfolio but we're still making equal contributions to support our household with young children. I don't understand Forex and I don't want it in my portfolio. That's why my husband and I split up our investment portfolio. My husband is financially sound into Forex, knows the FI stuff, but doesn't calculate how much his life costs Mostly the same as mine, except for higher income, having Forex and family's rental property Nor calculate his FI number, at least not yet. So I want to continue with my own investment portfolio and trajectory with the goal to continue my equal share to support our household. To continue my equal share to support our household.

Mostly Bill:

My accumulation portfolio was 100% total stock market index funds. As of May 2025, it's 75% total stock market index funds, 24% VGLT, 1% cash with a 401k rollover to an IRA. I am now 75% to my FI number using a 4% safe withdrawal rate, or 89% to FI if using Bangan's latest 4.7 safe withdrawal rate with a diversified portfolio. I have two questions for you. Number one what is your thought on Forex? Is it an investment, speculation or gamble? Number two at 75% of my FI number, should I start making the transition to a portfolio like the golden ratio? Thanks, tracy.

Voices:

A trapdoor, no doubt Very ingenious. The Tracy is too smart for a trick like that. I shall ring the bell from here.

Mostly Uncle Frank:

So, as I promised last time, we do have a guest reader and a guest in our home.

Voices:

Yeah, hi, it's Bill Lumber. Yeah.

Mostly Uncle Frank:

What's happening. He's Bill Yount from the Catching Up to Five podcast. We took a picture of him in the easy chair just as a little souvenir of his visit here. Maybe you can get one someday too.

Mostly Bill:

My name is Bill Yount.

Voices:

And I'm an alcoholic. This is a Girl Scout meeting, is it or is it that you girls can't admit.

Mostly Bill:

You have a problem and I believe I'm the first one to appear on Frank's Risk Party Radio or another voice. I'm sitting in the easy chair and I am honored. Lucky For Mary to give up her position and allow another person to do it is just fantastic. I hope you too once get a chance to sit in the easy chair and read some emails.

Voices:

Yes, well it does sound like fun. I can't wait to start pawing through my garbage like some starving raccoon.

Mostly Uncle Frank:

I tried to get his wife, karen to read too, but was not successful, at least not this time, or at least not yet.

Voices:

Don't be saucy with me, Bernays.

Mostly Uncle Frank:

Hopefully you enjoy his renditions and you appreciate that Mary needs a break sometimes. Mary, mary, I need your huggin' Well. First off, thank you for being a donor to the Father McKenna Center. As most of you know here, we do not have any sponsors on this podcast. We do have a charity we support. It's called the Father McKenna Center. It supports hungry and homeless people in Washington DC. And full disclosure. I am the board of the charity and I'm the current treasurer. We are currently running a matching campaign. It's called the Top of the charity and I'm the current treasurer. We are currently running a matching campaign. It's called the Top of the T-Shirt Campaign. I'll have to go back to episode 426 to get the details on that.

Voices:

Show me the money, jerry, you better yell. Show me the money, show me the money.

Mostly Uncle Frank:

But if you do donate you get to go to the front of the email line, as Tracy has done here, and it's a pretty long line. So it's worth something these days.

Voices:

That is the straight stuff. Oh funk master.

Mostly Uncle Frank:

And there are two ways to donate. You can go to the support page at wwwriskprioritycomcom and there's a link to Patreon there and you can become a monthly donor on Patreon. Or you can go directly to the Father McKenna website, which I will link to in the show notes, go to their donation page and donate there. Please mention Risk Parity Radio in your commentary when you make your donation. There's a little box for dedications or comments, and then you too might go to the front of the email line yes but now getting to your questions.

Mostly Uncle Frank:

So you're having fun with forex. For those who don't know what that is, forex stands for foreign exchange. It's generally the trading of futures contracts usually options and futures and your first question is is that an investment, a speculation or a gamble? Well, it's certainly not an investment, because it does not have a return, like investing in a company or a fixed income instrument. So the question is really whether it's a speculation or a gamble and it could be either, depending on how you're approaching it.

Mostly Uncle Frank:

Obviously, what your husband did in 2015 was a gamble, because you should not be losing a whole lot of money doing this. One of the ways that you trade properly in this area is by sizing your trades to make sure that you do not lose a lot of money, because it's very easy to lose a lot of money in something like this because it's very highly leveraged. So a good trader uses something like a Kelly criterion. I know I'm not going to explain what that is, but it is basically the amount you should be betting, if you will, or allocating to a particular trade, so you do not face gambler's ruin and run out of money.

Mostly Bill:

This is the grandson of the 17th richest man in California.

Voices:

Does he drink?

Mostly Bill:

What he wants is money, because he doesn't know when to say that's it. I'm two million ahead, I have a car and a house and a family and it's all paid for.

Mostly Uncle Frank:

I mean, even I did that. So in order to approach this as a speculation and not a gamble, you need to have a defined system. Usually it's a trend following system with something like this, although it could be a swing trading kind of system. You need to have a disciplined system that is being followed and then size the individual investments appropriately so you do not go bust. Oftentimes the best traders are using options, spreads and things like that. This is a lot of work to do properly. I have done this kind of trading back in the 1990s, before the Internet. We did it on the phone. This kind of trading back in the 1990s, before the internet.

Voices:

We did it on the phone.

Mostly Uncle Frank:

But you have to have charts, you have to update your charts and you have to be patient with it in order for it to work, and don't expect to be making great gobs of money doing it.

Mostly Uncle Frank:

One of the reasons I quit is because it was too much work for what we were really making on it, which was similar to stock market returns. If you are not approaching it that way, it's probably a gamble, and I would say, particularly if you are trying to trade Forex on a fundamental basis, as in reading news reports about what is going on in the world and trying to trade off that that is really a form of gambling, because you are at an extreme information disadvantage as an individual trader in this area. The big banks and big central banks are the ones with all the information you don't have that you can't trade at their level on a fundamental basis, so you shouldn't really try, because that's frequently where people get into trouble and a lot of scams are frankly run like this, where you get hot tips about various currencies or central banks or other things that are supposed to help you make money and usually they just generally lose you a lot of money. We'll reinvest the earnings into foreign currency accounts with compounding interest and it's gone.

Voices:

Uh, what it's gone? It's all gone. What's all gone? The money in your account? It didn't do too well, it's gone.

Mostly Uncle Frank:

Now, since we live in the golden era of investing, it's also possible to get exposure to currencies through ETFs, and there are many ones that will go long or short a currency, usually against the dollar. But you can also get exposure to this by investing in managed futures contracts. To this by investing in managed futures contracts. So that fund DBMF that I frequently use has an exposure to currency contracts, but it also has exposures to interest rates and to commodities generally and stock indices. So if you just want an exposure to this area as a diversifier, without really getting involved with it, that's the way I would approach it and that's the way I do in fact approach it, because I don't want another job. It's not that I'm lazy, it's that I just don't care. Anyway, I understand why your husband likes this, if he likes it as a hobby or another job, but I also understand why you have no interest in it, because it is a big learning curve and it is another job, at least if you're going to do it properly. And if you're not doing it properly, chances are you will lose money, because most people who invest in that do lose money. And it's gone, because it's not as easy as it looks. Poof. All right. Your next question At 75% of your FI number, should you start making the transition to a portfolio like the Golden Ratio or, I assume, a retirement portfolio generally? And the answer is probably yes at this point. You didn't say exactly what your timing was. I assume you're still a few years away, but it sounds like you were going to get there one way or the other. The advantage of doing it now is that the stock market is at or near an all-time high, and that is when you want to be making these kinds of transitions, because you don't want to wait until you have a stock market that looks like the one we had in April and then all of a sudden be trying to make these transitions. You want to have this all lined up so that when you do retire, it's already been set up and is working. It will continue to grow. It will not grow as fast as an accumulation portfolio, but when you're that close it doesn't have to grow that fast anymore. So I would take some steps to do those kind of conversions, but make sure you're doing it in a tax-efficient manner. It sounds like most of it's going to be happening in IRAs, so that makes it easy, but be mindful of that as you make the changes here.

Mostly Uncle Frank:

When we were doing our transitions, we really started them about 2015 or 2016, even though I did not retire until 2020. But we were all lined up and ready to go before retirement day actually came. I guess the one thing I'm thinking is that maybe you don't want to put any managed futures in your version of the golden ratio portfolio, since your husband's got all of that exposure already. But, as I've said in the past many times, there are many ways to structure that portfolio. Particularly the smaller allocations to the 6% or the 10% can be flexibly allocated into many different things, and that could include the managed futures, or some REITs, or some utilities, or perhaps some international stocks that are well diversified from the other things that you're already holding, or maybe some short-term bonds or something like that, if you're going to be really conservative about it. Anyway, hopefully all that helps. Thank you for being a donor to the Father McKenna Center and thank you for your email.

Voices:

Snake eyes, pda teeth.

Voices:

Hammerhead. Oh no, pussycat, pussycat puss. Batman, doubleheader, picklepuss.

Voices:

Pumpkinhead Neon noodle Jukebox. Jaw Wolfman, you're all under arrest.

Mostly Uncle Frank:

Second off. Second off we have an email from Mike.

Voices:

Let's get Mikey. Yeah, he hates everything.

Mostly Bill:

And Mike writes Hi Frank, thanks for an engaging podcast and being so many people's companion in their way to financial independence.

Voices:

That's what's so funny. I switched glasses when your back was turned, you fool.

Mostly Bill:

I recently discovered Vanguard's market neutral fund and thought it might be up your alley, but I can't recall hearing about it on your podcast. Do you have any thoughts? Thanks, Mike.

Voices:

Looks like I picked the wrong week to quit amphetamines.

Mostly Uncle Frank:

Well, here's an interesting question the Vanguard Market Neutral Fund. Its ticker symbol is VMNFX MN, as in market neutral. It's been around since 1998. It does have a $50,000 minimum at least this version of it does and it's interesting. Vanguard has this reputation for being the index fund leader and having the low-cost index funds and things like that. If you look at Vanguard's complete suite of funds, there are a lot of interesting things in there that are anything but a plain vanilla index fund, and this is one of those things. What this fund is is a long short fund, so it goes long some stocks and short others, and that's what they mean when they say market neutral. So overall it is neutral versus the market. So it is similar to the fund BTAL that we've discussed on this podcast in the past and that was in episode 114,. If you're looking for that Now, what would you use this?

Mostly Uncle Frank:

As in a risk parity style portfolio, you would use it as an alternative asset class, so it would be something like managed futures in terms of its purpose in the portfolio, and its purpose in a portfolio is to simply have as much diversification as possible from everything else in the portfolio. It's not there to drive substantial returns, because it won't Forget about it. I ran it through the analyzer at Testfolio and compared it with stocks, bonds, managed futures, gold, just to see how it lined up and how the correlations looked. It has a very low correlation to all of those things, so from that perspective it's a reasonable addition to put in a portfolio. However, it does not perform very well. It has recently.

Mostly Uncle Frank:

I would say it has recently over its history, since 1998, though it has a return of about 2%, and since that is less than bonds and less than managed futures, I probably would not choose this over a managed futures fund, for example, because the other thing I'm not certain about is there is no such thing as like an index for long short funds.

Mostly Uncle Frank:

They are all individually managed, they all have their own idiosyncrasies and they are all based on the management of the fund, so there's no way to really model this very well as an asset class. It simply exists out there. If I was really looking for a long short fund, I would probably look at a number of them, because there are a lot more ETFs out now that do this sort of thing and I would bet you could find one that is better or cheaper, or some combination thereof than this one. So where I come down is yes, you could use something like this in a portfolio. I probably would not use this version of this given its limitations, but it is interesting all the same, and I will put a couple more links in the show notes from Morningstar and Vanguard so you can check it out at your leisure.

Voices:

Well, you haven't got the knack of being idly rich. You see, you should do like me just snooze and dream, dream and snooze.

Mostly Uncle Frank:

The pleasures are unlimited. Hopefully that helps and thank you for your email.

Voices:

He likes it. Hey, Mikey.

Mostly Uncle Frank:

Last off. Last off, we have an email from Tim. Actually, he says his name is Some call me Tim.

Voices:

What manner of man are you that can summon up fire without flint or tinder? I Am an enchanter. By what Name are you known? There are some who call me Tim and some call me Tim.

Mostly Uncle Frank:

And some call me Tim Reitz.

Mostly Bill:

Hi Frank and Mary, thanks for all. You do. Love the podcast, love the soundbites.

Voices:

You are talking about the nonsensical ravings of a lunatic mind.

Mostly Bill:

I'm planning on moving overseas in the next four years. As a 40-year-old with an IRA and 401k in the accumulation stage, should I start changing to a risk parity portfolio to exit the US market or leave it alone to keep money in US funds until I reach retirement age in the US and then transfer that overseas? Many thanks, Tim.

Voices:

All your strength. Come no further, for death awaits you all with nasty, big, pointy teeth. What an eccentric performance.

Mostly Uncle Frank:

All right, so you're moving overseas, but it sounds like you're still in the accumulation phase and will continue to be in the accumulation phase, accumulation phase and will continue to be in the accumulation phase, in which case I would leave those things alone, although I would consider rolling the 401k into an IRA if it doesn't have the kinds of things you want to invest in it, because those are still US retirement accounts. They're still subject to US retirement rules, regardless of where you are, and so in order to get the money out of those, you would need to use something like 72T or a Roth ladder or something like that, and where you happen to be physically in the world actually should not be the determinant on your investments, or at least not the primary determinant. So I think I would just leave them alone, and if you have a regular brokerage account, you might consider moving that or opening it at Interactive Brokers, because that is a brokerage that is designed to work all over the world. Other than that, I probably would not change a thing at this stage of the game. Just make sure that those are invested in equities, or mostly in equities, because you do want them to grow and avoid things like target date funds, four of the reasons stated in episode 333,.

Mostly Uncle Frank:

If you haven't listened to that, I hope you find working overseas to be interesting. I did a lot of that, although I was never stationed outside of the US. I would just go places and camp out for weeks at a time.

Voices:

What a filthy job. Could be worse? How Could be raining?

Mostly Uncle Frank:

I'm glad you're enjoying the sound bites and I take it you're a Monty Python fan.

Voices:

Is uh, is your wife a goer? Eh, know what I mean. Know what I mean, nudge, nudge. Know what I mean. Say no more. Beg your pardon, your wife does she go? Eh, know what I mean. Know what I mean. Does she go? Eh, she sometimes goes, and thank you for your email.

Mostly Uncle Frank:

But now I see our signal is beginning to fade. There may or may not be a podcast this weekend. We've got some stuff going on here.

Voices:

That's good, that's good may or may not be a podcast this weekend. I've got some stuff going on here. I'm afraid I don't quite follow you. Follow me. Follow me. That's good, that's good. A nod's as good as a wink to a blind bat.

Mostly Uncle Frank:

Including a visiting Labrador retriever named Vader.

Voices:

Vader, how's my favorite Sith?

Mostly Uncle Frank:

I'd have to say he's not exactly the most menacing animal.

Voices:

I'm gonna tell, tell everyone what a whiny bitch you were, about Potamame or Panda Bear or whatever that name is.

Mostly Uncle Frank:

But in the meantime, if you have comments or questions for me, please send them to frank at riskparityradarcom. That email is frank at riskparityradarcom. Or you can go to the website, wwwriskparityradarcom. Put your message into the contact form form and I'll get it that way. If you haven't had a chance to do it, please go to your favorite podcast provider and like subscribe. Give me some stars, a follow, a review that would be great. Okay, thank you once again for tuning in. This is Frank Vasquez, with Risk Party Radio Signing off, and now it's time for the gin and tonics, your wife interested in photography, eh, photographs, eh, he asked him knowingly.

Voices:

Photography, snap, snap, grin, grin, wink, wink, nudge, nudge, say no more. Holiday stamps Could be, could be taking on holiday, could be Swimming costumes Nudge, nudge, candid, candid photography. No, I'm afraid we don't have a camera. Oh, still, oh, eh, eh, oh, look, are you trying to insinuate something? No, no, no, no, no, no, no, yes, well, well, I mean, you're a man of the world, aren't you? I mean, you know, you've been around, you've been there. What do you mean? Well, I mean, like you've done it with a lady, You've slept with a lady. Yes, what's it like?

Voices:

The Risk Parody Radio Show is hosted by Frank Vasquez. The content provided is for entertainment and informational purposes only and does not constitute financial, investment tax or legal advice. Please consult with your own advisors before taking any actions based on any information you have heard here, making sure to take into account your own personal circumstances.

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