Episode 532: SBLOCs Vs. Margin Accounts, Jumping The Shark, And A Variable Withdrawal Strategy

In this episode we answer emails from Optimus Bill, Pete, and Andy.  We discuss SBLOCs vs margin accounts for liquidity in retirement, what "jumping the shark" looks like in blog form and why its a bad idea for all involved, and a listener's endowment-inspired variable withdrawal strategy (that should work just find).

Links:

Father McKenna Center Donation Page (please mention Risk Parity Radio in the comment section with your donation):  Donate - Father McKenna Center

Interactive Brokers Margin Rates:  Margin Rates and Financing | Interactive Brokers LLC

Pete's "Firefly"  Link:  #firefly #serenity #malcolmreynolds #nathanfillion #captain #captainma... | TikTok

Fonzie Jumps The Shark:  Fonzie Jumps Shark

Simpsons Jump The Shark:  The Simpsons Jump the Shark

Referenced SEC Disclosure:  SPY2026/06/05 - ADV Form 2A - Google Docs

Bonus Video On The Patterns of Deception of Shark Jumpers:  Episode 532 Bonus: Biased Skepticism and Patterns of Deception In the FI Blogosphere

Breathless Unedited AI-Bot Summary:

Borrowing against your portfolio can feel like a magic trick: you keep your investments, skip selling, and still get cash when you need it. The trick only works, though, if you understand the rules. We break down a listener question on S-block loans (securities-backed lines of credit) versus margin loans, including how these products are structured, how SOFR-based rates show up in real pricing, and why brokers like Interactive Brokers can look dramatically cheaper than the big-name platforms.

Then we dig into the detail that can flip the whole decision: taxes. Margin interest is often treated as investment interest and shows up on Form 4952, potentially landing as a Schedule A deduction. That can change your effective borrowing cost in a big way, especially in higher tax brackets. But does the same deduction apply to an S-block that is set up as a separate loan product? We talk through what we know, what we do not, and the exact question to take to your tax professional so you are not optimizing the wrong thing.

From there, the conversation pivots to retirement planning, sequence of returns risk, and why a small allocation to gold keeps popping up in safe withdrawal rate research. We also share a candid take on what happens when personal finance commentary drifts from useful analysis into sensational accusations, and why that shift can be harmful to audiences trying to make calm, long-term decisions.

We close by critiquing an endowment-style withdrawal rule designed to smooth spending while still responding to market performance, plus the real-life challenge every retiree faces: spending is not a straight line. If you want more episodes like this, subscribe, share the show with a friend who is nearing retirement, and leave a review with what question you want answered next.

Transcript

Welcome And Foundational Resources

Voices 0:01

A foolish consistency is the hobgoblin of little mind, ignored 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. A different drummer.

Mostly Queen Mary 0:18

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 0:37

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. And the basic foundational episodes are episodes one, three, five, seven, and nine. Yes, it is still in my memory, thanks. We have also created an additional resource, a collection of additional foundational episodes and other popular episodes.

Voices 1:07

We have top men working on it right now.

Mostly Uncle Frank 1:14

Top men. And you can find those on the episode guide page at www.riskparty radio.com. Inconceivable! All thanks to our friend Luke, our volunteer in Quebec. Saca. We'd be helpless without him.

Voices 1:36

I have always depended on the kindness of strangers.

Mostly Uncle Frank 1:41

Because other than him, it's just me and Marion here. I'll give you the move, all right?

Voices 1:46

I'll take it.

Mostly Uncle Frank 1:48

We have no sponsors, we have no guests, and we have no expansion plans.

Voices 1:53

I don't think I'd like another job.

Mostly Uncle Frank 1:55

Over the years, our podcast has become very audience focused. And I must say, we do have the finest podcast audience available.

Voices 2:03

Top drawer. Really top drawer.

Mostly Uncle Frank 2:07

Along with a host named after a hot dog.

Voices 2:10

Light in the French.

Mostly Uncle Frank 2:14

But now onward, episode 532. Which is answer your email. And so without further ado.

Voices 2:30

And first off.

Mostly Uncle Frank 2:33

First off, we have an email from Bill. Optimus Bill. I am Optimus Bill. And Optimus Bill rights.

Mostly Queen Mary 2:44

Frank, we haven't established an S block with altruist partner bank collateralized by our joint brokerage. The rates seem quite competitive with interactive brokers. IBKR uses margin loans for access to liquidity. Interested in your thoughts. Is there much difference between an S block and a margin loan?

Voices 3:04

We are autonomous robotic organisms from the planet Cybertron.

Mostly Uncle Frank 3:09

Well, Bill, this email was a lot shorter than some of your past missives. And Mary thanks you for that. And also for the fact that it's comprehensible. On the first reading.

Charity Match And Donor Perk

Mostly Uncle Frank 3:30

But before we get to your email, I did want to thank you for being a donor to the Father McKenna Center and a Fairfax Casa. As most of you know, we do not have any sponsors on this program. We do have two charities we support. My charity is the Father McKenna Center, which supports hungry and homeless people in Washington, D.C. And Mary's charity is Fairfax Court-Appointed Special Advocates, which works with children in the adoption and foster system. As I mentioned in the last episode, we are in the midst of the top of the t-shirt campaign for the Father McKenna Center. And we had two listeners who put up $25,000 in matching funds, which we have already matched, but we could use a little bit more. Because if you do, you could always use a little more. Am I right or am I right or am I right? So everything you donate to the Father McKenna Center now will go to the top of the t-shirt campaign. And we'll be having our walk with those t-shirts at the end of September. And I will post pictures of them to the website because I think we will again be at the top of the t-shirt. I can't guarantee it, but uh it's looking pretty good right now. But your prize for donating to either of the charities is to go to the front of the email line, as Bill has done here. And so I've duly moved him to the front of the line. Wow, he's very nice. So this is a very nice question that I know is applicable to a lot of different

S-Block Vs Margin Loan Explained

Mostly Uncle Frank 4:55

people. Just so the audience understands what we're talking about. An S block is a loan that you get from a bank or a place like Fidelity. And it is essentially a loan collateralized on an investment account, a taxable brokerage account. But it is done kind of as a separate unit or transaction from the account itself. So it's almost more like a HELOC. And what we are comparing that to is a margin account, which is just an account that is used to take loans on a regular brokerage account at a brokerage, usually to buy more shares or something for investment purposes, but it can also be used just to have more money for liquidity purposes. So the purpose of both of these in this case, I think, is liquidity, that you want to be able to have access to a lot of cash, which is can be very convenient without actually having to hold lots and lots of cash, which is also convenient because it reduces the overall cash drag you'll have with your investments.

Voices 5:57

That is the straight stuff, oh funk master.

Mostly Uncle Frank 6:00

So if you were to look at the margin rates of most brokerages, you would find that they're very high compared to the S block. They're like 10% versus 6%. And so the S block that you have has an interest rate of SOFR plus 2.5%. And SOFR is just one of these benchmark rates that banks use. It stands for secured overnight financing rate. So if you were comparing this to a margin account at a place like Schwab or Fidelity, this would be the better choice hands down. Now, if you go to a place like Interactive Brokers, and I know Robinhood has lower rates now too. I don't know how they compare because my accounts are at Interactive Brokers. So Interactive Brokers has extraordinarily low margin rates as well. And they have two types of account there: one that is called the IBKR Pro and one that is called the IBKR Lite. And so if you look at the margin rates for those accounts, the margin rate for the IBKR Pro is definitely less. It's the benchmark, and they use something similar to SOFR plus 1.5%, not 2.5%. The margin rate for the IBKR Lite account is actually SOFR plus 2.5%. So those are comparable. And then for both the S Block and at least the IBKR Pro account, the interest rate goes down if you're borrowing more money. Like not just $100,000, but like a million dollars or something like that. So Interactive Brokers wins on this score, at least for this round, but you'd have to compare it against whatever other S blocks that you might be offered. And here's another issue that you need to look at that I don't know the answer to. I know the answer for Interactive Brokers because it's our tax forms. I don't know what the answer is going to be for the S block. So when you file your taxes and you've paid margin interest that year, that gets reported on Form 4952 as investment interest. And that interest is deductible against the interest or income, other income paid in that account for that year, or you can carry it over if you have more than the income in the account. And then that ends up landing on Schedule A. So it's a very valuable deduction, particularly if you're in higher tax brackets, because it just wipes out a whole lot of income. And it's pretty much the most efficient way I have found to borrow money, because in most cases, you cannot deduct interest you pay on loans unless they're business loans. This is an exception to that regarding investments. What I don't know is whether that counts for an S block as well. Because technically the S block is not being used to fund the investments like a margin account that it's directly attached to it. It's a standalone thing. In this case, you even have a different provider. So I don't know whether that can be reported on 4952 and deducted from Schedule A or not. You will need to ask a tax professional whether that's the case. Assuming it's the case, then this is a wash either way for each side of the account. If that's not the case, then that heavily favors the margin account, especially if you're in a higher tax bracket. As always, this is not tax advice, and your mileage may vary.

Voices 9:27

Surely there must be something you can do. I'm doing everything I can. Stop calling me Shirley.

Mostly Uncle Frank 9:33

But those are some things that I would suggest you look at with your tax professional as I have done with mine. And hopefully that helps. And thank you for your email.

Using Gold For Sequence Risk

Voices 9:53

Second off.

Mostly Uncle Frank 9:55

Second off of an email from our old friend Pete.

Voices 9:59

How many lumps do you want? Oh, two five.

Mostly Uncle Frank 10:05

And Pete writes.

Mostly Queen Mary 10:07

Dear Frank and Mary, I've slowly been spreading the good word of your podcast to other families getting ready to retire.

Voices 10:14

Yeah, baby, yeah.

Mostly Queen Mary 10:16

Risk Parity Radio was something I thought of as ideally suited for self-education and financial enlightenment. Unfortunately, they're all lazy heathens. Instead, my selflessness has been rewarded with a second job as I now have to guide these mouth breathers to water. So are you gonna get another job?

Voices 10:34

I don't think I'd like another job.

Mostly Queen Mary 10:37

As I was combing your website for resources, I searched sequence of return risks and fell over laughing as no less than 10 episodes came up all citing Big Earns using gold as a hedge against Sequence Risk. SWR series part 34, Early Retirement Now. There's something delightfully insurgent about using Big Earn's own research as evidence to further your argument, even as he rails against your methodology. I imagine he would find it infuriating that you give him credit. This tickles me. The movement reminded me of my favorite Western-style space cowboy, Captain Malcolm Reynolds of the Firefly TV show and subsequent Serenity movie, who bests a scoundrel in a duel, lectures him on morality, and then proceeds to wound him twice further, attached as the clip in question. I hope you find joy in the little things, albeit in a less petty way than I do. De Oppreso Lieber, Pete.

Voices 11:33

Mercy is the mark of a great man. Guess I'm just a good man. Oh, I'm all right.

Mostly Uncle Frank 11:44

Well, Pete has also moved to the front of the email line. As an old hand here in a longtime donor.

Voices 11:54

A whole lot of lumps.

Mostly Uncle Frank 11:57

So, yes, Pete, I do try to find joy in little things. It's kind of what half of this podcast is about, isn't it?

Voices 12:07

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

Mostly Uncle Frank 12:13

I mean, that's what people complain about, me finding joy in little things.

Voices 12:18

This is pretty much the worst video ever made.

Mostly Uncle Frank 12:22

But I will put your little link in the show notes so people can check that out. Now, getting to your comment about Big Ern and early retirement now, I've always just tried to apply the Bruce Lee principle to his work. And we know the Bruce Lee principle is to take what is useful, discard what is useless, and add something uniquely your own. So I have found a lot of what he's got there on that blog, particularly the first four or five years, to be very interesting and very useful, including that part 34 of the early retirement now blog, where he ran a hundred-year test on the effect of gold in a portfolio on the safe withdrawal rate, and found that it raised the safe withdrawal rate, and the good spot to be using, at least by his testing, was about 10 to 15 percent. So I referenced that all the way back, I think, episode 40. And we also agree on a number of other things, including bucket strategies. We would both say they're not really worth doing and don't really do anything for you, other than psychological comfort. And things like the Cedarberg paper, which neither one of us thinks is really applicable to anything in real life and is just an academic exercise. But I know we've talked about that ad nauseum in the past and don't need to go there again.

Voices 13:39

Forget about it.

Mostly Uncle Frank 13:41

But I have to tell you that things have gotten a little weird recently and a little creepy, in fact. I didn't have much reason to comment on anything he was doing or his blog in the first few years of this podcast because people weren't asking me and I wasn't really looking at it. But the past couple years, it's just become, frankly, a lot more sensational and a lot less about providing original research or commentary and a lot more about commenting on what other people are doing and accusing them of being liars and things like that. And so we went after Paul Merriman in one of his blog posts, and somebody asked me about that. That's in episode 401, and then he went after Tyler at Portfolio Charts. Somebody asked me about that, and it's in episode 447. And there are a couple other things that came up. To me, what it really looks like there

When Personal Finance Content Turns Toxic

Mostly Uncle Frank 14:30

is that blog has done what we call jumping the shark. The blog has jumped the shark. That is an American idiom, so let me explain what that means. It refers to a long-running sitcom called Happy Days that ran in in the 1970s in the United States, with Ron Howard first as the main character and then Henry Winkler kind of took over as the character Fonsey. But towards the end of the run of that series, it kind of ran out of plot lines and things to say and started becoming sensational just to attract attention and came up with goofy plot lines. One of those plot lines was having Fonzie go and waterski, but they literally had his character jump over a shark on the waterskis. And people viewed that as a low point in the series and a reason it ought to be canceled. And so, ever since then, whenever some media, whether it's a television show or some other presentation, these days it's applied to everything a podcast, a blog, anything you can think of, every time it seems to have worn out its ideas and starts doing things that are sensational just to attract attention and the content deteriorates, that is referred to as jumping the shark. And that's really what I think has happened to that blog over the past few years. So a couple of weeks ago, kind of in the pattern that has been established there, he posted a blog post on me and Risk Parity Radio, just kind of in this sensationalist formula with lots of misrepresentations. And it got even weirder than that because a day or two after he posted it, all of a sudden there was an imposter version of me that made a comment on the blog that I was not aware of because I had not even seen the blog post. Somebody mentioned I had commented on the blog, and I said, What are you talking about? They sent me a link to it, and I thought, this is this is ridiculous, and did correct the record there that it wasn't me, and I had not read the blog post. And if I had anything to say about it, I wouldn't be doing it right then and there, but we'll be doing sometime in the future. So I told Mary about it and she read it too, and she wasn't happy with it either. Because here's the problem with this kind of thing. If you start accusing other people of lying, but you are making misrepresentations to accuse them of lying, I mean you're lying about their their lying, that starts getting into the territory of defamation. And it also can end up in one of two ways. Neither of one is actually very good. In many, if not most circumstances, it just turns off the readers and listeners and they stop paying attention to it. Because it's just damaging the reputation of the blogger or speaker. In the second scenario, if something like that does gain traction, it often ends up in lawsuits and bankruptcies. That's what happened to Alex Jones and the whole Sandy Hook thing. So basically nothing good can come from it. And here's the thing, I don't think his problem is really with me or risk parity radio. We're pretty small potatoes here. His real problem is that these two ideas he came up with way back when, six, eight, ten years ago, regarding using CAPE ratios to predict and adjust safe withdrawal rates, and also the idea that the best portfolio to hold in retirement is a simple two-fund portfolio featuring the SP 500 and some bonds. Both of those have been rejected by the personal finance community in general. And we know that from the book that Bill Bengen published last year, which is called A Richer Retirement Supercharging the 4% Rule to Spend More and Enjoy More. And that summarizes essentially the last 25 years of his research and updates it from what he was doing in the 1990s. And pretty much every important voice in popular personal finance has endorsed this book. I mean, it's right there in the book. Starting with Bill Bernstein, who writes, A richer retirement is the most complete, detailed, and readable exposition of retirement spending I have seen. If Bill's marvelous book doesn't cover it, it's not worth worrying about. And there are similar glowing recommendations from people like Christine Benz at Morningstar, Michael Finca, Wade Pfau, Larry Swedrow, David Blanchett, Michael Kitsis, Scott Burns. They didn't ask me for a recommendation.

Voices 19:09

I've officially amounted to check you squat.

Mostly Uncle Frank 19:15

But somehow Optimus Bill got in here as well. He's not on the lower end of the recommendations, though. So that's all the people that Karsten is actually taking issue with now and taking pot shots at me or anyone else is not productive. You know, one wonders, is he gonna go after Christine Benz next with Morningstar? Because last year Morningstar put in their report that they thought that the small cap value premium over large cap for the next 30 years was going to be not just 2%, but 4%. You can see how this is just turning into a never-ending spiral of Karsten against the world. That is really unnecessary and isn't helping anybody.

Voices 20:01

I'll show them. I'll show them all.

Mostly Uncle Frank 20:05

And that's the thing. If he were to consult with a business coach or a life coach, they would say something like, You're really wasting your time, and it's time to pivot and move on, because he's got bigger fish to fry, actually. He's got this option strategy that he's been working on and now has opened a financial advisory practice and has registered with the SEC for that. And according to their most recent disclosure, they've already got $24 million under management and are charging a 0.8% AUM fee on it.

Voices 20:38

Well, that's a really big straw.

Mostly Uncle Frank 20:40

So he's got some milkshake drinking to do there.

Voices 20:43

Milkshake! I drink it up every day. I drink it up.

Mostly Uncle Frank 20:48

And I can't see how making defamatory posts on a blog is in any way going to assist that business in growing and may actually restrain or harm it. And that's the other thing. He's never really used any of this safe withdrawal rate research that he's done in his own life. His actual strategy since he retired is to just grossly underspend the portfolio so he's not even selling anything. He's just living off dividends and interest and then adding a side hustle to that. And if you're only spending about 2% of your invested assets, you really don't need a safe withdrawal rate strategy or any big analysis to do that. And in fact, according to him, his assets have more than doubled since he retired. His expenses have not more than doubled. Which isn't really surprising either, given how little he's spending relative to how much he has. So there seems little point in continuing to fight on based on ideas that somebody had eight or ten years ago when you're not using them and you have better things to do. Or one would hope you have better things to do. So maybe he'll get some business advice on that or figure it out for himself. We'll see. In the meantime, a number of you have already emailed or messaged me about this blog post, and some of you had comments or analysis to point to or share with me. And I've decided I'm not gonna read any of those messages or emails on the podcast itself. So what I will do is collect them. So if you have any more comments about this, send them to me sometime in the next month or so, so we can kind of crowdsource this, if you will. And then I'll basically just do one podcast dealing with all that in one go, maybe in late September, but more likely in October. Because I really don't view it as a priority, but I know a lot of people are interested in it. And we are a listener-driven podcast, so I try to address what my audience would like me to do to address as best I can. And then we'll see what happens, but hopefully it'll be very anticlimactic.

Voices 23:02

Are you not entertained? Are you not entertained? Is this not why you are here?

Mostly Uncle Frank 23:14

So thank you for all you do for us, Pete, and for your lazy heathens.

Voices 23:23

I'd say in a given week, I probably only do about 15 minutes of real actual work.

Mostly Uncle Frank 23:30

Sorry for the bit of the ramble here. Thank you for being a donor to our charities, and thank you for your email.

Endowment-Style Withdrawals And Real Spending

Mostly Uncle Frank 24:04

Last off, we have an email from Andy.

Mostly Queen Mary 24:21

I've been listening to every episode since last month, and I'm currently on episode 40, so apologies if this has already been covered. I'm approaching retirement with a relatively modest portfolio, and sometimes it feels like I'm the only listener who is undersaved, at least judging by the emails you read on the show.

Voices 24:39

Rex Quando, we use the buddy system. No more flying solo.

Mostly Queen Mary 24:43

Because of that, I've been thinking a lot about withdrawal stability and sequence risk. I'm considering an endowment-style spending rule and would love your critique. Given your reputation for questioning everything, here it is. Sorry, Mary. Withdrawal T equals 0.70 times withdrawal T minus 1 plus 0.30 times 0.45% times portfolio, where 70% represents spending stability, 30% represents responsiveness to portfolio changes, 4.5% reflects a long-run sustainable spending rate. The goal is to smooth spending while still adjusting gradually to market performance. I'm curious whether you see this as a sensible approach or if there are flaws or risks I may be overlooking. Thanks again for the show. I learned a lot already. Best regards, Andy.

Mostly Uncle Frank 25:56

And then as you go forward, you are using the withdrawal rate in year one to calculate the withdrawal rate in year two by saying, let's take 70% of that withdrawal and add 30% times 4.5% of the portfolio value. At least that's what I get out of this.

Voices 26:15

You are correct, sir. Yes!

Mostly Uncle Frank 26:18

So as a practical matter, yeah, that should work just fine. You're basically taking a 4.5% withdrawal rate and then adding a variable withdrawal strategy on top of it. And as long as you have some kind of reasonable portfolio, even if it's not a risk parity style portfolio, Bill Bangin would say that portfolio is likely to survive just fine and support its withdrawals. The real question is going to be whether this actually fits into your lifestyle. And you mentioned you have a relatively modest portfolio, so I'm kind of assuming that most of your lifestyle is covered by something like Social Security or a pension or something, in which case this portfolio is more covering discretionary expenses than mandatory expenses. But I don't know that, and that's one of the big questions here. And that's really the drawback on these kind of rigid calculated portfolio strategies, is they all sound good and work good in theory, but the reality is when you get to retirement, your spending tends to vary. And so, for instance, this year we're spending more like 6% of our portfolio, whereas last year we were spending more like 4% of our portfolio. And if you stick rigidly to a formula like this, you may have too much money in some years and not enough money in other years. So I would be thinking in the back of my head, well, I can vary it based on my actual expenses over time, as long as we're reasonable about it. But I'm also glad to see you thinking out of the box, because ultimately you have to be satisfied with your own plan. And looking at endowment models, I think, is a very useful exercise, and is something I did way back when.

Voices 28:02

Yeah, that's smart. Let me put it this way. Have you ever heard of Plato, Aristotle, Socrates?

Mostly Uncle Frank 28:08

But the real difference between a real endowment and a retiree is the endowment typically is doing some kind of very fixed withdrawal or limited withdrawal that they can put on a formula. Oftentimes it's just 5% a year. Whereas in real life, actual retirees just have more varied spending year on year. And if you want to know more about how we actually manage this from the expense side, we use what I like to call the 311 model, which we talked about at length in episodes 334, 338, and 341, but you'll also find it in many other episodes. So I would go to the podcast page at the website, www.riskperivor.com, and search three-one-one, both in the show notes and in the transcripts, and you'll find a lot of references to that. And that will clarify how we separate mandatory and discretionary expenses. But I'm glad you're enjoying the podcast. I think you are on the right track here. And thank you for your email.

How To Reach Us And Closing

Mostly Uncle Frank 29:13

But now I see our signals beginning to fade. If you have comments or questions for me, please send them to Frank at RiskPardyRader.com. Email is Frank at RiskPardyRader.com. Or you can go to the website www.riskpartyrador.com. Put your message into the contact 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 the first time.

Mostly Queen Mary 30:59

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.