BiggerPockets Money Podcast - The Portfolio that Supports a 5% Safe Withdrawal Rate | Frank Vasquez

Episode Date: July 15, 2025

In this episode of the BiggerPockets Money Podcast, hosts Mindy Jensen and Scott Trench are joined by Frank Vasquez, host of the Risk Parity Radio Podcast. Frank introduces the concept of a risk parity portfolio. Rather than relying on traditional stock-heavy portfolios, Frank reveals how strategic diversification across asset classes can potentially support higher withdrawal rates while actually reducing your risk of running out of money. The conversation covers the nuances of structuring a portfolio with equities, bonds, and alternative assets like gold and managed futures. They also explore the implications of real estate investments and the timing of transitioning from an accumulation to a decumulation strategy. Frank shares insights on the importance of balanced withdrawals, the challenges of adhering to conventional investment philosophies, and the need to move towards a holistic view of financial independence that includes well-being and responsible spending. We Discuss:  Why the standard 60/40 portfolio may be failing FIRE investors Optimal allocation strategies across equities, bonds, and alternative assets The critical timing of portfolio transitions as retirement approaches Strategic withdrawal approaches that prioritize longevity over accumulation The psychological shift from wealth accumulation to wealth optimization And SO much more! Learn more about your ad choices. Visit megaphone.fm/adchoices

You've heard it over and over, the 4% rule, but what if you could safely withdraw 5% instead and not run out of money? Hello and welcome to the Bigger Pockets Money podcast. My name is Mindy Jensen and with me as always is my cash flowing co-host, Scott Trench. Mindy, it's been great to accumulate a large amount of financial knowledge and then decumulate that with our audience over these last six, seven years. And today we are super excited to be joined by Frank Vassel. Asquez, host of the Risk Parity podcast and a former lawyer-turned retirement strategist.

Frank challenges conventional wisdom, and today he's going to walk us through how a portfolio designed for risk parity might support a higher withdrawal rate without increasing your chances of failure, failure defined as running out of money at any point in your life. Frank, welcome to the show. Thank you. It's good to be here. Frank, first, you say that the average retiree, the fire community, can really spend up to 5% with the right portfolio. What is that? Second, I would like to ask you about a couple of

contradictions I observe in the fire community, right? One is an observance, almost a religious adherence to the Boglehead philosophy of investing in low fee index funds with 100% of the portfolio. And the incongruity of that, again, I'm using the word religious adherence to this philosophy with withdrawing at something higher than the 4% even the 4% rule or higher. The second one would be in our world at bigger pockets with real estate investing. It's a little harder wrap my head around at least the idea of selling off my rental properties and harvesting that equity to spend, whereas it's not a challenge at all to spend a reasonable approximation of the cash flow generated by those portfolios, which could be

four or five even a little bit higher from a percentage point perspective. And that's one of the reasons why I made some changes in my portfolio towards real estate. So could you answer those three concepts or address those three concepts in the next few minutes? One, what is that portfolio? Are there these incongruities in the fire community that you're observing? And how does real estate play in? What is the portfolio? The portfolio needs to be more diversified.

And here's some general guidelines as to a portfolio with the highest safe withdrawal rates. This portfolio will have somewhere between about 40% and 70% in equities. Bill Bangen says 55% is a sweet spot, but it's somewhere in that range. If you go to 35 or 75, you're getting kind of outside of the range. What does equities mean? Stock funds. These are U.S.-based, domestic, international. How do you think about that?

Could be any. You want to divide those into half growth and half value, and whether they're international or domestic half growth and half value. So you need at least two funds. Does a market cap weighted index fund like a VT SACS or VTI address that? That holding can be your growth holding though. Okay. You could either use like a total market fund or S&P 500 fund or like a large cap growth fund for that. And what would be an example of that value component? You could have a small cap value one or a like VIOV. or A-V-U-V or you could even go large-cap value.

You could hold something like SCHD, which is actually labeled as a dividend fund from Schwab that's popular, but it's a large-cap value fund is what it is. And you could hold something like that. You can hold more than two things, but I would divide them into growth and value because what you will find is that when the market crashes, like it did in 2022.

The growth thing may be down 30%, 40%, something like that. The value thing may be up or it may be down less than 10%. It gives you a chance to rebalance those two things. They work really well in tandem like that. And so if you think about that division most prominently, the only thing you should stay away from on the stock side of things is small cap growth. So if you were going to hold small cap. funds, you are better off holding small cap value than, say, total small cap or small cap blend.

Because you really don't want the small cap growth stuff. It has a much higher variance, even though it could potentially have a higher return. I got this all from Paul Merriman, so it's, you know, his boys have beaten this to death. But that's, so that's where you are in the stocks. 40 to 70 percent divided into growth. in value. So what's next after the stock component, the equity component? Bonds. Okay, bonds. So you need to decide what kind of bonds do you want to hold. What you were trying to do with these bonds, and that's where people get confused about bonds is they don't know why they're holding them. Somebody said, I should hold some bonds. Or they get fixated on the returns that bonds generate the

interest rate paid. That's not a reason to hold bond in a well-diversified portfolio. Your stocks are really the return drivers of the portfolio. So what is the purpose of the bonds in this portfolio? The purpose of the bonds is to be a recession insurance, essentially. You want some bonds that will go up in capital value when there's a recession, when there's a 2020, when there's a 2008. Those bonds are treasury bonds, and you're typically looking at intermediate and long-term treasury bonds.

So you want between 15 and 30% of the portfolio in intermediate and or long-term treasury bonds. Fortunately, Vanguard has nice funds that are right there for you. VGIT is Vanguard's intermediate treasury bond fund. VGLT is Vanguard's long-term treasury bond fund. They're cheap, they're easy. Anybody can buy them. What you do want to, the common thing that people would use, though, is a total bond fund. You don't want to use that if you're trying to maximize your safe withdrawal rate because you don't want any corporate bonds.

And you don't want to be having to hold 40% in bonds. You want to keep this amount. Basically, how much insurance do you, how much a recession insurance do you need? Because that's what this is doing. It's not there for returns. It's not there for any other purpose. It's there. So when you get 2008, your long-term treasury bonds go up 20% in capital value.

Your stocks go into the toilet. You get out the brush. Then you sell the bonds. You buy the stocks. Perfect. Sell high. Buy low. That's what you do with those.

You're giving ranges here. But if I take the midpoint of the two ranges you gave us, right, 55%, that's between 40 and 70% and the equity component. And then I take another 2250. at what is that, 77 and a half percent, right? So what is the remaining chunk of the portfolio built on after we've addressed the stock and bond portfolios? You want alternative assets that are between 10 and 25 percent of the portfolio. And those can be gold managed futures, something that is uncorrelated to both stocks and bonds. That is the definition of an alternative

asset we're using here. What is your answer to those alternatives? I use both of gold and managed futures. What does managed futures mean? It is a type of fund that it follows trends, but it will follow, it would typically, a broad-based managed futures fund will have an exposure to commodities in it, an exposure to currencies in it, an exposure to interest rates in it, and an exposure to stock markets around the world. But it is set up, typically a mechanical strategy where it picks up a trend. So in a, you, year like 2022, there was a huge trend in interest rates when the Fed started raising its rates. And a typical managed futures fund was up 20 to 30 percent in a year like that.

And that is why you're holding one of those things. It tends to perform well in weird environments that are either higher inflation or deflation. It's very well uncorrelated with both stocks and bonds. And how much of a portfolio are you saying one might consider allocating to a managed futures funds like this. It depends on what else you have. If you're going to hold gold, usually between 10 and 15% would be allocated to that. And then you might hold 10% in managed futures if you wanted to hold those.

There are other things you could use in that spot, including things like REITs or utilities funds or some kinds of international stocks. If they're sufficiently diversified from both stocks and bonds is really what you're talking about with respect to that. So there's a lot of flexibility in this part of the portfolio, but you're really trying to get something that has a chance of a good performance in years like 2022. Okay. So that's the answer to that, and there's a lot more depth clearly that we can get into on this

topic. There's one more feature. And we've known this since the 1990s when Bill banging into his first studies. You need to keep the cash amount. And I'm talking short term bonds that are a year or less. or savings accounts or CDs or whatever, that should be 10% or less. If it goes above 10%, you're going to start deteriorating

or detracting from your safe withdrawal rate because it becomes a cash drag in the long term. And this is probably the number one thing that people do that detracts from their safe withdrawal rate. But is that true during periods specifically where the yield curve is inverted? So I think one of the problems that people have buying bond funds right now of any type,

especially longer duration ones, is they get a higher yield in their money market account than what you can get on the long-term bond fund. So that's a really interesting insurance policy, I think, for folks in today's environment on it. But can you convince folks why they need to make that shift? Yeah, because you're not holding these things for their returns, Scott.

You're just not. You're not holding them for returns. You're not holding bonds for returns. If you're going to hold something for higher returns long term, you would hold more stocks. And so holding, we're not thinking about, you know, a two-year period here. We're thinking about decades. So the holding too much in cash over decades detracts from your long-term safe withdrawal rate.

I completely agree. And we're not market timing here either. We're not jumping up and down the yield curve. There's an odd feature that amateur investors who recognize they can't time the stock market, all think they're experts in timing the bond market. Oh, I can predict interest rates. I know when they're going to go up. I know when they're going to go down.

I'm just going to jump up and down the yield curve. No, you're not. If you could time interest rates, really time them. You'd be fabulously wealthy within a few years. You just trade it on leverage and futures contracts. You can't do that. So stop trying to do it. This is one thing that I see over and over again.

Oh, I'm going to hold it in money markets now because, aren't paying as much. And when did you become an expert in timing interest rates? Recognize that you don't have that skill. And stop with it. Because you're not improving your returns in any meaningful manner. That is not why you're holding those things. The only reason you're holding cash is for liquidity that you need to have some cash to spend.

The only question is, how much do you want a hold of it? The more you hold, the lower your overall returns are going to be and the lower your overall safe withdrawal rate is going to be. Because while cash has a zero correlation to stocks or anything else that's denominated in, it doesn't, it will not go up in value like a bond will in a recession. It's not going to outperform ever. Perfect. I completely agree with that. And that's why I hold long-term bonds. I need to maybe shift some of my holdings based on this conversation out of my, you know, I'm in a broad-based, broad market bond fund.

So I will actually reconsider part of that portion of my portfolio specifically as a part of this conversation here. I would probably reduce the number you're holding and then just only hold the ones you want to hold for. Because it is possible to hold bonds for other reasons. You could hold them to generate income. But that is not a typical DIYer doesn't. need or desire to do that. Those are advanced strategies that, you know, are done by professionals

and hedge funds and insurance companies. I hold bonds exactly as you say, right, as insurance against the next deflationary recession. Tax season is one of the only times all year when most people actually look at their full financial picture, including income, spending, savings, investments, the whole thing. And if you're like most folks, it can be a little eye-opening. That's why I like Monarch. It helps you see exactly where your money is going and and more importantly, where your taxed refund can make the biggest impact. Because the goal isn't just to look backward, it's to actually make progress. Simplify your finances with Monarch.

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indispensable for me over over 10 years. Kickstart your well-being journey with your first audiobook free when you sign up for a free 30-day trial at audible.com slash BP money. I have a question about your portfolio. So 40 to 70 in equities, 15 to 30 in bonds, the remaining in alternative assets, at what age or how far from retirement should you be moving towards this portfolio? Whether it's this retirement portfolio or someone other retirement portfolio, It's all about how close are you to your FI number.

Okay. Once you are, you know, get to be like 80% there, I would start thinking about moving it, depending on what your timing is for retiring. You don't want to get in a situation where you're holding your accumulation portfolio all the way up to the end because that's what you're really worried about is having a big crash right at the end. From William Bernstein, he says, once you've won the game, you're supposed to stop playing. In this context, it means once you've won the accumulation game, you actually have accumulated enough.

You need to define what that number is. Then you can transition your portfolio or at least that part of the portfolio that you expect to be your retirement portfolio. Because it's possible you're going to keep working and keep accumulating. And maybe you want to take some more risk with that. Maybe you want to put it in cash and take a big vacation. But whatever you feel like you need for your... retirement portfolio once you get to around 80% that's when I'd start thinking about moving it usually this is also within about five years of retirement because the other thing you also want to

do is you want to make your transition when your current portfolio is at or near an all-time high so you like this year you right now would be a good time if you're you're close to getting there and the stock market is at or near an all-time high and you've been riding stocks, this is a good time to transition. What you don't want to happen is there's a crash and then you say, oh, I should have made my move earlier.

Because unfortunately, that's frequently what happens. People get greedy. They want to ride that pony and keep riding it. And so they have a hard time making the transition knowing you're going to a portfolio that is going to have a lower rate of return over the very long term, but a lot less volatility. And so you'll be able to spend more out of it. But when your current portfolio is at or near an all-time high and when you are getting close to your fine number, that's when you can and should transition. And it doesn't have anything to do with your age, really.

I completely agree with that and empathize very strongly with what you're suggesting here for a variety of reasons. On this topic, the Boglehead community, right, this concept of invest in low-cost, broad-based S&P 500 largely, but there's also a smattering of E.T. Sachs or broad-based total market index funds. That is, is that still the right answer for this accumulation phase to go essentially 100% in a portfolio like that until we reach? that 80% of the way towards this retirement goal. And then there's a switch that needs to happen at some point right around that 80% or five-year out mark. Is that how we should think about it? Yeah, yeah.

The best portfolio to hold for accumulation would be 100% equities. The only issue is if you have trouble stomaching it. Because you have to know yourself enough to know, am I going to panic if this thing drops 50% like it could and sell out? Because that's the, that's the, The worst case scenario is you hold something that is too risky for your personality.

It drops 50%. You panic and sell it at the wrong time. So that kind of person would be better off not holding 100% equities in the first place. But assuming you don't have that issue, assuming you're just ready to ride it up, yeah, just hold 100% equities. And whether that's in one fund, you can do it with one to four funds. I think people obsess too much about what is the best combination of index funds to hold. If you want to hold something simple that you could transition to a retirement portfolio easily with,

you would hold a total stock market fund or a large-cap growth fund and a small-cap value fund, because that would make it easier for you to transition when you get there, as opposed to having to sell all of this large cap and large cap growth stuff when you get to retirement and you need to diversify the stock portion of your portfolio. So if you're thinking ahead, you can basically hold something similar to what you plan to hold as your stock portion in retirement as your accumulation portfolio, whatever you think that needs to be. I'm trying to mentally wrap my head around this switch, right? The goal is, or the plan, the recommendation, the theory here is I'm going to accumulate for a dozen, two dozen years. And I'm going to build a portfolio, the midpoint for the fire number or the bigger pockets money audience is two and a half million. So I'm going to build my $2.5 million dollar fire portfolio, which is essentially going to be 100% concentrated in broad-based index funds.

This is going to have an enormous amount of capital gains associated with it because I'm going to, make that reallocation five years out or 80% of the way there at the peak valuation, at the then peak valuation of those holdings. Mechanically, what should I be thinking through at this point in time when I make that switch? How do I, for example, how does tax strategy come into play as I make this pivot from an accumulation

to a fire portfolio? Well, you do most of it in your retirement accounts. There are no tax consequences there, there's no capital gains, there's no issue there. So what's you're talking about? talking now about is, but that is one of the reasons why I would suggest that if that you think about, you think about your retirement portfolio in advance and at least the stock portion of that, if you start accumulating in that, then you'll have less transactions to do later.

But when it comes to retirement and building out what you call tax location, putting the right assets and the right accounts to minimize your taxes, generally you're just leaving that that brokerage account alone for the most part, trying not to sell too many things out of it, making most of your transaction in your IRAs and Roths and creating the, because you're looking at this as one big portfolio. That's one thing you do not want to do is make each account a version of the portfolio because that's very, it's very inefficient as you can, as you can tell. So we've talked about the portfolio, which I'm going to rehire. hash here as there are four pieces to this fire portfolio that you think has the best risk parity,

right? That allows you to withdraw at the 5%. There's the highest safe withdrawal rate is what we're talking about. And that's going to have the big chunk being stocks with value and growth components. There's going to be the next big chunk in bonds, the next big chunk in some alternative like gold, the next big chunk in managed futures or some other alt could be REITs or real estate. I'm inferring from this conversation. Or you might just have one alternative. I mean, you could just have stocks and some bonds and one alternative.

And the Bogleheads are completely correct in the sense that that's a great way to accumulate wealth that's just invest in broad-based, 100% equity, stock market index funds that are low fee and passively managed. And that's a great accumulation phase bet. And then they're right until they're not, which is it's not the best play anymore if you actually want to spend. Correct. Those portfolios do not have the highest safe withdrawal rates.

Perfect. And that's partially what Bill Bangan's new book is about. It's coming out next month that hold a better portfolio and you can have a better safe withdrawal rate. For whatever reason, there's a lot of resistance from people who don't want to accept that. I don't know where that all comes from. I think there's a religion behind the boglehead.

Yes, I agree. It's a club. There's a ferocity for, against challenges to the component. And we're here saying, that's a great, it's a great approach. It's one of the best ways to accumulate wealth. It's not the best way to spend your wealth. The other thing is the boggads don't spend their money.

They're hoarders. They're underspenders. That is part of that philosophy is they're not spending their money. Of course they can keep holding whatever it is. Because if they're spending less than 3%, that's fine. What you find is they have so much money, they're all, you know, constructing 30-year tips ladders on the side just to, you know, to flex. It's a hoarder flex.

Anybody that's got a 30-year tips letter, they have too much money. Let's talk about one other component here because we're bigger pockets, right? A third of the people listening to this show own rental real estate that they directly own and operate. So how does that fit in to the theory and the portfolio construction here, if that's you? I would consider that as a business, first of all. so it doesn't necessarily need to be real estate. It's a business and it has some cash flows coming out of it. So the easiest way to account for it, just on a simplistic basis, is assuming you're not going to sell the business or sell pieces of the business, you are just looking at the cash flows, taking that off your gross expenses every year, and then your portfolio needs to cover a much lesser amount or a much lesser part of something.

The real questions have to do is, well, what is going to be the future of your real estate business? I mean, are you going to keep it forever? Are you going to sell a part of it? Are you going to get rid of the whole thing? That's more personal preferences than anything else because some people really enjoy having real estate and probably a lot of your listeners do. We have one rental property and I would never have another one because I don't like dealing with the. And the tenant is fine and he's been there for like eight years. But that becomes a personal preference about whether you want to continue to run that kind of a business or not.

It's obviously very helpful to have it because it's like a pension. It decreases the amount you need to cover with a portfolio. But yeah, there's no specific rule about how to deal with that other than the easiest way to account for it is simply to treat it like another cash flow coming in unless or until, you decide you want to start selling pieces of that because then it becomes liquid and can go into the portfolio in some respect. I think there's a whole other episode here where I'd like to dive into that. For example, what if I'm using leverage? I'm not getting cash flow on that portfolio right now, but it will drive a lot of cash flows in several years. How do I think about that as part of the portfolio,

bridging from the accumulation to the decumulation phase? But there's a number of components on that. But at the highest level, that's how I treat it with my paid off portion of my portfolio is exactly as you say. If the business requires you to put money into it, it's an expense at that point. That's how I would treat it. If you're getting negative cash flow off of your real estate investment, it is an expense as far as the rest of your life is concerned. And so that needs to be covered by your portfolio as long as you want to hold that business. I think a good chunk of the people listening will say, I've got a rental.

Sure, it cash flows, but I can't really count on those cash flows, at least not yet. to actually fuel my lifestyle. That day is coming down the road. I've built equity. I'm not putting cash in. Maybe I'm technically getting a few thousand bucks of cash flow out a year. But it's not a reliable income stream

with the current leverage position. I think a lot of people are stuck in that situation right now. I don't know that much about investing in real estate, but I do know that, you know, it's a learning curve. And some people do very well with it. And some people don't, depending on the kind of risks they took

or the knowledge they had when they were going into it. And you guys do real well with it. Another issue here on real estate. I've got a home here, right? How do I think about my home equity in the context of this 5% withdrawal rate on your portfolio? It's not, you can't live off that. That's an expense. That's not, when I'm talking about the 5% safe withdrawal rate or any safe withdrawal rate,

that is out of your invested assets available to, live on as long as your primary reference primary residence is illiquid and you're not planning on selling it it ends up just being an expense and not an asset once you decide you're going to sell it then you may have some extra money that you could count if you're going to downsize for example or something like that but yeah you you certainly anything that is an illiquid asset that cannot be used immediately for living on should not be included as part of your retirement pot of money. Love that answer. I get an A.

A plus. It's net worth versus fire number is how we would describe it, right? There's your net worth. You include your home in. And then there's your fire number, your fire portfolio, which you don't include your home. You don't include your cars. Those are two different things. Your invested portfolio is your source of paying your annual expenses.

and if it's not available, it's not liquid. And that is the, when you're thinking about your assets in retirement, I mean, liquidity is key because if you have an illiquid asset, like a rental property, you want that thing to be generating positive cash flow. If you have, or you just have liquid assets like a portfolio, but if you have an illiquid asset not generating cash flow, like your residence, it's more of an expense and a burden than it is an asset. for the purpose of living on, because it creates a dollar expense that has to be covered,

whether it's your taxes, insurance, maintenance, whatever it is. Tax season is one of the only times all year when most people actually look at their full financial picture, including income, spending, savings, investments, the whole thing. And if you're like most folks, it can be a little eye-opening. That's why I like Monarch. It helps you see exactly where your money is going, and more importantly, where your taxed refund can make the biggest impact. Because the goal isn't just to look backward.

it's to actually make progress. Simplify your finances with Monarch. Monarch is the all-in-one personal finance tool designed to make your life easier. It brings your entire financial life, including budgeting, accounts and investments, net worth, and future planning together in one dashboard on your phone or your laptop. Feel aware and in control of your finances this tax season and get 50% off your Monarch subscription with the code pockets. What I personally like is that Monarch keeps you focused on achieving, not just tracking. You can see your budgets, debt payoff, savings goals, and net worth all in one place. So every decision actually moves the needle. Achieve your financial goals for good with Monarch, the all-in-one tool that makes money management simple.

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sell your data and all services are handled in-house because privacy by default is their pledge to all customers visit northwest registered agent.com slash money-free and start building something amazing. Get more with Northwest Registered Agent at Northwest Registered Agent.com slash money-free. Two other topics I'd like to cover here are one, we have the theory. How often do you spot the people following a theory like this in the wild as part of the fire community? and how do we get more people to embrace this theory and actually make these portfolio changes to spend at that level? What is that one-two punch there? The people that listen to my podcast don't have any trouble.

That's why they're there. They want to spend more money in retirement. I do think that there is what Morgan Housel calls frugality inertia in a person is also a problem in a community of people. there is a lot of resistance in the fire community or portions of the fire community to actually spending money or wanting to spend money or thinking it's a good thing. There are significant people, a number of people who think that not spending much money is the way to go. Underspending their portfolio is the way to go. And I don't know if you're going to be able to convince them that that's not the right thing. I do find that people often justify that by way.

wagging their finger at people that are spending more money or telling them they can't do it, or coming up with the, it only works for 30 years. Anytime you hear somebody say, oh, it only works for 30 years, they're either, they're either just completely unfamiliar with the math and the calculations, or they are really defending hoarding is what they're doing. That's what, a lot of times is going on, the objections that are continually raised, can be solved if you actually went off and did the calculation or looked at some research or tried to solve the problem. A lot of people are not trying, not looking, not knowing. It's a form of what

psychologists call learned helplessness. That, yes, if you want to, if you want to be fearful of something, you can make up all reasons, all kinds of reasons to do that. And also, assiduously, avoid learning about how to solve the problem. And I think that that is what is a lot of times going on in communities of people. Because if you ask somebody who's an underspending, an underspender, what they do, and they explain it to you. And then if you ask them, well, couldn't you just spend more money, they would come back with you with, oh, well, you know, more than 30 years. And I don't know what's going to happen. and the the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, I always have a, the, the, I always have a question, well, do you actually want to spend more money or not? Because I think a lot of people don't.

Can I ask another question? This is, this is the, this is the second part of the question here, and this is a challenge I want to do very respectfully on this. But the way, the way that you kind of, uh, present this, I'm guilty of this plenty of times here, it's almost like, it's almost like an attack. It's almost like these people who don't want to spend 3% or less or want to spend less and accumulate wealth, have an inferior mindset. I don't think that's what you're intending, but that's, that's kind of how sometimes I'm like, ooh, am I in that group? How am I feeling about that on that component? Is, do you believe that it's a, it's a problem to that extent? Or should it be, like, how am I doing? Am I, am I, am I, I don't think that's your intent, but is that how it's sometimes people say it comes across to you?

I'm sure it does. I mean, I'm a lawyer by training. I'm not hearing that, Scott. So if I'm going to go after ID, I'm going to load up and go after it. To me, it's just, it's just arguing. It's not that I don't place any personal feelings in the arguments itself. I do think, I mean, a couple of things. I don't mind people not wanting to spend money.

What I do mind is people who don't want to spend money telling other people they can't. That I think is great. Yeah. That's what I object to, is this people making up reasons to not spend money that are often spurious, whether it's the 30-year thing or something about valuations or something about whatever panic thing they've got going on that is a reason not to spend money. often or a refusal to look at any kind of portfolio other than a two or a three fund portfolio. That's another, that's another red flag to me. Well, I have to hold this portfolio, therefore I can't spend more money.

It's like, well, you don't have to hold that if you don't want to. Do you really want to or not? But I don't mind if when people don't want to spend money. What I mind, because I think it's misinformation to be telling people that they can't. That this, that, and to me that is the exact opposite of the fire movement that I grew up in. I'm really old in this. I go back to 2009. But the little community we had there were a bunch of creative misfits.

We were not about to let people tell us what we could and could not do and that we couldn't solve problems. Yes, we can solve these problems. What I'm fighting against is this kind of learned helplessness where let's make up reasons why we can't spend money as opposed to looking for solutions. And that, to me, that is antithetical to what fire is all about. I completely agree. And you know, I follow a lot of your stuff and completely respect the way you think about all these types of things. I just wanted to ask that. And maybe I'm maybe I wasn't, I wanted to phrase that very carefully.

because I think it's an important issue. I'm abrasive. I'm abrasive, Scott. I know that. Me too. Me too. But I'm getting to the age. See this gray hair where?

I want to show a quick data set here. And sorry if this played in the background when I was pulling it up on it. But, you know, we ask, this is the fire community, right? I mean, and yes, we have folks that in real estate are slightly different than the traditional, you know, outlets out there like choose FI. But the goal is 55 percent Tuesday. right? And if you're, if you say this is your top goal, right? What is your overarching financial goal? Why do you listen to or watch baby money? It's Tuesday. I want to spend Tuesdays doing exactly what I want. The answer to how much you should spend is much more like what Frank is talking about and much less like

a bogelehead portfolio or philosophy there. It may or may not involve real estate or other assets. But, you know, this is, but I think that there's nuance here because about 11% of the people here want to get real rich. About 12% want to pass. on a large estate and about 22% just want to get started going and building some financial, healthy financial habits. And I don't think, you know, this, this isn't like a weighted item here, but I imagine that even the people who are in these buckets who say Tuesday, they also have some desire to do these other items here, like leave on a large estate. And I think all of those things are conflicting emotions that we feel in this community

about what we want our money to do for us. Yeah, we want fire. that's really important is make sure that I'm set and that I'm not going to be a burden on my children or, you know, create, create problems on there. I'm not going to be, you know, and really there's that fear component that you love to talk about very rightfully. So, but there's also this hope and, hmm, you know, what can I do downstream? And I think that those are all emotions that people go through as they're building these portfolios, which lead to more to nuanced answers. These are conflicting goals. And if you look at those two, those two in the middle, I want to get seriously rich and I want to pass on a large estate. Those are traditional retirement goals that I would associate more with people in Bogleheads. If you went to a convention and they're mostly like 60s and 70s now, those are some of the goals that they have. And that's fine if that's, if you're consciously thought through that and that's what you want to do, that's, that's fine. But it does conflict with spending more money now. And then another question arises as to,

what are we trying to maximize in this second half of life? And I would like, in my hardest of hearts, that the fire community would move towards this more expansive idea of let's maximize life and not maximize money after we've got enough money. And how do you do you do? do that. I mean, that's where we start reading books like Daniel Crosby's Soul of Wealth, which is sitting on my floor right here, right now. Oh, I listened to your last podcast,

and you're like, well, if you don't want to change any of these things and you don't listen to these books in six months, what do you do it? You listed off like five books. I'm like, okay, well, I got some, I got some reading to do here. Yeah, well, sometimes people say they want to change, but they don't want to put any effort. To change a mindset or a habit, it takes some effort. And but I think at some point you need to stop reading more books about personal finance, the numbers and the savings and stuff, and start reading books about well-being. You know, how do we live our best life? I mean, I would start with the five regrets of the dying because that's where I started, Brony Ware's famous book. That in order, if you want to live your best life, you just invert that.

You do a Charlie Munger on that. Well, how do I avoid having the five regrets of the die? And they don't relate to money or careers. They relate to relationships and self-expression is what they relate to. So then the question becomes, well, how can I convert now the money I've accumulated into this kind of better living, better relationships, better experiences, work avoidance, not having to clean the house. And frankly, giving the money away. And one of the, I mean, there are basically three ways to give money away.

And I, the one is give it to your errors. They're going to get some of it anyway. It would be better if they got some of it along the way while you are alive and you can teach them to manage it, than getting a big pile of money when they're 60 years old because that is what's happening in this country. People are not communicating with their adult children about their money, hoarding it, and then leaving this big pot of money to some 58-year-old or 60-year-old who doesn't know what to do with it, and then they get taken by some variable annuity salesman or something like that. It's really sad that if you have sufficient money that you think you're going to leave an inheritance,

and start giving that to your adult children, especially along the way. And for us, the easiest thing to do is fund their Roth IRAs because it encourages them to work, encourages them to make money. And then you get to teach them how to invest using small amounts of money to begin with. You can also spend it on, you know, weddings, trips, other things that will make your family life better when you have grandchildren, spend it on them. All that sort of stuff is a good. way to spend money. The next one is traditional charities. I'm on the board of a charity called the Father McKenna Center that supports hungry and homeless people in Washington, D.C.

I use my podcast to raise money for that. And the, and that, but that gives me a whole another set of relationships with people that are not hoarders and that grounds me very well in the world outside of by land, which I think. think is important to do. And then you can just spend it on friends and family. I support my parents. And so, but I, you know, in my druthers, I would like every five, every five person to be thinking about spending one percent on giving money away in some way or another, whether it's spending it on their children, airs, giving it away to a charity or some other mechanism. To me, that would be an expression of abundance, if you will.

Because that's kind of where we are. If we look at all of our spending, we're spending about 5% of invested assets. About 1% of that is essentially spent on other people or charities. And that's a great place to be too, because obviously if we did have a problem, we could cut back on that. It's like, yeah, you kids, we're not giving you any IRA money this year.

I've got to spend it on this water heater. I love it. And I think that comes down to what ought the goal to be. And I think that this journey needs to begin far in advance of fire. I don't think a lot of people start it until they're way past fire hitting that 3% rule. You know, 3% distribution rate with a very low spending on a huge portfolio. But it's, I also do think we've observed this in the past. There's a little bit of a privilege here in once folks achieve fire or build wealth, then, in the ability to really invest yourself in figuring out this philosophy does seem to emerge. And that's a great thing to do. It's what you ought to do. And it's the privilege that you build towards all those years of grinding it out and accumulating this wealth in the first place is to be able to be able to have to develop this philosophical sense. I'm at the very beginning stages of that journey. And you're very, you are a master clearly at this. You list all, all, I read some of the books you cite and not others in there. It's clear you're just a well-read autodidact,

autodidactic individual with a tremendous amount of mental frameworks on there. And it's awesome. I aspire to be like that one day. Well, I mean, it's important to remember we are very privileged as people sitting around this thing here. Even just in other things. I have two disabled siblings. Well, one's not no longer alive, but they didn't get to have careers.

There are a lot of people that do not get the opportunity to even have this experience. And so if you are capable of becoming fire, you know, maybe you should be thinking about what can I do with this in an expansive way as opposed to, I got mine. Now I'm going to sit here and wag my finger at other people about spending money. The, but that's, and this also does go to, you know, picking good role models for retirement. whenever and I mentioned this, maybe on that podcast you listen to, if you want to spot a hoarder, ask them who their retirement role model is. If they say Warren Buffett, they're a hoarder. Because that is not a good role model for retirement unless you, unless your idea is to keep working forever, but you are not going to acquire Warren Buffett's talents by adopting Warren Buffett's habits.

And if you read that book Snowball, you know his interpersonal, relationships are not that great or not they're not desirable or worth emulating. And you but you look at somebody like who is Warren Buffett's hero is a guy named Chuck Feeney who died recently. He accumulated several billion dollars over the first half of his life and then gave it all away in the second half of his life. And so it's you know funding hospitals and all sorts of other charitable endeavors. And he was very frugal. He used to, you know, carry around his stuff in a, you know, in a shopping bag. But, but that's, you know, That's what I think about is, well, you know, who are good role models to have?

And I think a lot of people haven't really thought about that, that your retirement role model is probably not somebody who's good at accumulating. It's probably not somebody who is out of the world of personal finance or finance itself. It's going to be somebody else who knows how to sort of maximize life. I love that. Whenever I talk to you, Frank, on our Facebook chats, you give me an unbiased. believable amount of homework. And the same thing is true on your podcast. It's like, oh, hey, if you're interested in this topic, here's this two-hour video and four more things that you

should read as well. So it's awesome. I love all of those things. I get excited about this stuff. That, you know, that question on how do we live our best life? Money is only one part of it. You become five. You've solved the money part. Now what about the rest of it? At your suggestion, I read Snowball, and it's exactly as you say. brilliant, wonderful, talented, uh, uh, capitalist in Warren Buffett, parts of it and not the life I want to emulate. Yeah. I mean, is that the family life you want to have? Probably not. Not the goal there. And there's nobody perfect on this. A better example, perhaps of a retirement is Ben Franklin's journey, if you view it through that lens and how he, you know, gave half his company away and

let them, let him run that and then went on and invented electricity. Well, he's engaged in all kinds of endeavors, including, you know, one of the most interesting one to be is founding the first, like, real modern prison. There are certain things that you do not, you do not admire about Ben Franklin in a historical No, you can take tours of it. It's an interesting place because it's closed. It's in Philadelphia. And Al Capone was a resident there at one point.

But no, he was involved in all kinds of community endeavors. later in life or throughout his life. And I think that that is a good role model for something to emulate or aspire to. That he certainly wasn't, he was about, you know, earning money early in his life and he gave that kind of advice. But later in life, you know,

he's doing all kinds of things and lives to what a ripe old age of 90 or something, which was very rare then. but part of the reason he lived that long and so successfully is because he did have all these interests and endeavors. I have a 94-year-old and who still works two days a week. On this note of homework, though, there's some homework. I think that folks listening to this should consider. The first is where can we go to learn more about the portfolio you just shared and really immerse ourselves in that?

Well, thankfully, Paula Pant did my work for me. She created this kind of cheat sheet or blueprint describing this portfolio. And I will give you the link to that podcast. You could listen to that. But she created the thing. You can also come to my website and my podcast. I've been, I'm up to like episode 436 now. If you're going to start listening to my podcast, I would start at the beginning,

listen to episodes 13, 5, 7, and 9, because these days I'm mostly just answering lots and lots of questions from listeners. And it's kind of like walking into a dive bar where the patrons have been standing around talking about something for three or six months and you just showed up. So, I mean, that is a little daunting there.

One of my listeners is helping me revamp the website too. I'm famously lazy about creating resources or resource pages. I always people say, why don't you do this? And I'm like, you know, I don't think I'd like another job.

From office space. But so, yeah, I would get that resource that I, that Paul had just created. I would, you know, start listening to my podcast. Start with 13, 5, 7, and 9 if you, if you want to listen to those things.

Um, but then, you know, I, I did, uh, I did provide a list of books in that last, um, in the show notes for my last podcast, number 436, which are about these kind of well-being books. I mean, because people have been writing these books for many years now, um, that, you know, sort of the second half of life idea. Um, and for fire people, it's, it's still the same thing, but you're starting earlier. Or you just, you may have a multi, you may have a multi-year. chapter life. But either way, it's sort of like at some point, you do kind of have to go back and reset and look at the habits that you've created for your past life and decide which ones of those are worth continuing and which ones do I want to change moving into my next stage of life. So, yeah, books like The Soul of Wealth by Daniel Crosby. I'm hoping that we get more fire people reading books like that. And at least when they get to fire and putting down the

how do you accumulate stuff and how do you invest and all of those sorts of things that that I think I think those horses have been largely beaten to death. And what we should be talking about is what do we do in our next life beyond just continuing to accumulate more money. We will link to a variety of these in the show notes, including the resource that Paula developed for this. Each of the five books you referenced on episode 436 of the Risk Parity Radio podcast, which is a great one to go check out. The first time I got introduced to that. Frank was like, yeah, you should listen to episodes. 132, 164.

I was like, I'm going to go down. I'm going to get two or three hours, a good stuff because there's so much out there. that you do, just you do, that's great on there. But to go check those out. And I think it sounds like the priority would be this resource that Paula just created and the soul of money would be the first two places you'd recommend to go check out, as well as 436, episode 436. Yeah, yeah.

That's a great place to start because, yeah, I mean, I was laughing at Paul. I said, yeah, Tom Sawyer did you. I got you to paint the fence for me. Frank, thank you so much for coming on. Thank you for addressing some really hard issues, really good challenges. This was really fun. I learn a lot from you all the time around Facebook groups. Again, various episodes of your podcast.

It's definitely one that's highest up on my list that I go and check out. And thank you for coming on today and talking about this with us. Well, you're quite welcome. Nice to see you, Mindy. Nice to see you too, Frank. And we'll talk to you soon. All right, that was Frank Vasquez. And that was a really, really fun conversation to be part of.

Scott, what did you think of Frank? I love everything that Frank does. I think his philosophy is fantastic. I think that Frank has really embraced fire for a very long period of time and used a lot of that time to really hone his philosophy, the way he thinks about life and money, to an elite degree. And he's just such a master. Again, he's really somebody who's philosophical depth I would like to emulate over the years.

It's going to take me many years a study and lots of additional. books to get to that point. But I really respected and liked it. I do need to digest or think through how his philosophy and his approach works with a rental property portfolio, which I think certainly ought to be a major part of my personal portfolio construction. And that for many investors who are listening to Bigger Pockets who have experience in real estate, I've really enjoyed the episode. I look forward to next week, or I guess Friday's episode. Yeah, that'll be a lot of fun where we construct the portfolio. I am really excited to jump into some of these books that Frank rattled off that I had never heard of before. Most pressing is Soul of Wealth by Daniel Crosby.

That one is already in my Amazon box on its way to my house. That one sounds like a really interesting and really helpful for me personally learning how to spend the money that I have accumulated now. I felt very seen during this conversation with Frank. I think that is one more point for us to just touch on very briefly here as we close up this episode, which is what is the goal? And I think that Frank's theory, Frank's philosophy and his portfolio construction map really well to this goal of spend at a much higher level, spend that portfolio that this wealth that you've accumulated. And I think that is highly congruent with a lot of people's goals, but I think that there's a lot of people who also may want that portfolio to continue to grow, and they do want to leave

a large nest egg to their errors. And I think there's a balancing act here between I want to be a billionaire at the time of death. And I would like my portfolio to definitely grow pretty substantially between now and then while supporting a strong lifestyle. And I think a lot of fire people who experience one more year syndrome may actually have that option. And I don't know if there's anything wrong with that goal. And I don't know how that changes the ideal portfolio construction and latest this discussion. What do you think, Mindy? I think having a real conversation with yourself, Frank brought up, what is your goal to have the most money you can possibly accumulate to?

be able to live off of your portfolio and draw it down over the course of the rest of your life. I think a lot of people aren't really honest with themselves with what their true goal is. Carl quit his job and he now is living his best life. I am still a real estate agent and I foresee myself selling real estate in some capacity for the rest of my life. It's something that I really enjoy. It doesn't feel like a job. So I think that if your goal is to just amass the most money that you can, that's a valid goal. That's your goal. Frank said personal finance is first finance, but it's also personal. And if that is your goal, then just be honest with yourself what your actual goal is. And I think that a lot of people come into the fire community and think this will be

great, but then they don't actually ever retire. And if you're not planning on retiring, then that's fine too. I think a lot of people don't know what the goal is, to your point. I think that poll I showed during our conversation with Frank, I don't think it's binary. I don't think people have the goal of Tuesday and do not have the other goals. I think that there are components of all of those that people really want. And few are all binary in one category. Few people want to say, yes, I want to die with the maximum possible amount of net worth. And few people say, I want to leave nothing to my errors. And I think that there's going to be a lot of room in the middle. And I think that's totally okay. Just be clear you can get on your goals. The more you can document them, the easier all this will be.

Exactly. Just write down your goals. And if they change, they change. That's okay too. I don't think that people need to be beholden to the goal that they set 10 years ago. Your life has changed in 10 years. Maybe your goals have two. But as your goals change, update them on your goal sheet so that you are currently working towards the goal that you have in mind. Well, great. Let's get out of here, Mindy. All right. That wraps up this episode of the Bigger Pockets Money podcast. He is Scott Trench. I am Mindy Jensen saying I'm out, Trout.