A (8:13)

Very close.

B (8:14)

Close enough. Very close. I would say Societe General CTA Index, equal weight popular managed futures strategies. From January 2000 through May of last year, it gained 4.8% annualized. That was a little more than a point behind a global stock market index. And it was a little less than a point above a global bond index. So somewhere in between stocks and bonds for that time period. Now, Bernie, you mentioned two particular funds and I want to address those. Qdsnx, that is Quiznos, Dology. It's a hot dog place. I don't know the NATO Alphabet, so most of my references are fast food restaurants. Let me mix it up. Saxophone, Nathaniel X Ray. Qds nx. That is the AQR Diversifying Strategies Fund. Basically, there's a company called AQR that has a bunch of liquid ALT strategies. And this fund that you mentioned has a mix of them. Their Multi Asset Fund, their Diversified Arbitrage Fund, their Macro Opportunities Fund, their Equity Market Neutral Fund, Manage Futures Strategy, HV Fund Style Premia Alternative Fund. And the fees. Just calculating the fees are a complicated discussion with a fund like that. But let's just say that Morningstar lists their adjusted expense ratio as a little over one and a half percent a year. And if you've held that fund over the past five years, you've made annualized 12%. That's not as good as the 20% plus you've made in stocks, but it's a heck of a lot better than the just shy of 1% a year you would have made on Schwab US Aggregate Bond ETF. How about DBMF? That is the. Here's the name of it. There's going to be some acronyms. That is the imgp, dbi, Manage Futures Strategy, etf. So iyk yk, which is how the Young people say if you know, you know, whoa. Yeah, I'm with it. I see. I mentioned trend following earlier. Think of this fund as trend following. The trend followers. It shoots for performance. That's kind of middle of the pack for the group, but with lower fees. The fees here are 0.85% a year. That's half what you could pay on a lot of these funds. And the performance, well, it's not as good as the other one that we talked about, but it's still in between stocks and bonds. Over the past five years, 6.5% a year as a total return. Again, that's versus 20% plus for stocks and just under a percent a year for bonds. So this is a good pitch. The pitch is 60:40 investing is dead. This idea that you put 60% of your money in stocks and 40% in bonds and you call it a day, that's the old fashioned way of doing it. The new fashioned way is you use managed futures to give you sort of stock like returns. But with bond like diversification of stocks. In fact, even better than bonds, they'll say, because there are years when bonds fall while stocks are falling. I really want to stress 2022. That year DBMF, it gained 23% and that was 40 points better than if you had a 6040 portfolio of stocks and bonds because both stocks and bonds did lousy that year. That's unusual, but it does sometimes happen. It was really at the end of that year that people talked about the death of 6040 investing. I always thought that that conversation was misplaced. The death of 6040 investing should have been when bonds yielded close to zero, which was at the beginning of that year. Remember, as bond prices fall, their yields mathematically rise. So by the end of that year, because bonds had tumbled in price, the yields were better at the end of 2022. That wasn't really the death of 60 40. If anything, it was the rebirth of 6040 because you could once again get some yield on your bonds. At the start of 2022, a 10 year treasury yielded 1.6%. Pitiful. At the end of 2022, it yielded 3.9%. Still not great, but better. The historical average 10 year treasury yield over the past half century, it's up in the 5 to 6% range. So yields are still lower than they have been historically, but they're better than they were. Anyhow, I mentioned that to say that if you've got a fund that's five or six years old and if its performance record includes the best possible year imaginable for these strategies. Not only did they make a ton of money, but a combined stock and bond portfolio had such an abysmal year that literally at the end of that year there was discussion about does investing still work? If you include a year like that for managed futures strategies, you're going to have handsome long term returns to talk about for many years to come. Right now your five year returns are excellent. Five years from now, your ten year returns will probably be excellent. As long as you're looking at a record that includes 2022, you're going to come out shining for a long time to come. But of course, when you're talking about returns, that has everything to do with the starting date. What if you had bought these funds and you held them this year? This year, Year to date, as I speak, Your S&P 500 fund is down about 4%. Not terrible. You've made 2% and change on your bond funds. So bonds are once again doing their job. They're helping to diversify the decline you've taken in your stock portfolio. The AQR fund that I mentioned, it's up a lot. You've made 5% and change so far this year. The other fund we've talked about, dbmf, that one's down. It looks more stock like it's down 2% and change this year. This is just a small time period, a few months, but it's just to say the promise of these funds. There's two words that you'll hear in connection with these funds. Crisis alpha. Think of alpha as an ability to beat the market. And funds that claim to produce crisis alpha say that when everything else is going kablooey, our fund is going to hold up well, okay. I don't know what the rest of the year will bring, whether this will be a kablooey year or not. So far this year, I'm not sure that one fund is earning its fees for investors. The other fund is up a lot. But with such a hodgepodge of strategies in there, we don't know why, whether it's reproducible, whether those are the kind of long term returns you can bank on if you're saving for the next 20, 30 years. So where do I come down on managed futures funds, Bernie? Like most things with plump fees that Wall street sells, I don't think you need them. But I do think it's a much more interesting conversation. If we go back to a world where bonds have punitive yields, we go back to a 1% and change 10 year Treasury. And people are once again bidding up the price of cartoon virtual ape faces online. That's non fungible tokens. It was a whole thing for a little while there. If we go back to that world where 6040 does look, if not dead, then maybe comatose for a while, I'd be more inclined to consider a fund like these. And when I say more inclined to consider them, I mean more inclined for you to consider them. I'm not buying them no matter what. Okay, that took longer than I thought, but it was complicated. I think that was the longest one. I think we got two real short ones and I think we've got a medium one coming up. Alexis, should we take a quick break right here? Let's do it. Yeah. We'll be right back.

A (16:03)

Vanguard's Jomana Selehin, head of Investment Strategy Group Europe and chief European economist, believes the 60:40 shouldn't be thought of in such a literal way.

C (16:12)

I think it's important to just say, what is 60 40? Because it actually means different things to different people. For some people, they actually use it as a shorthand for a broad index portfolio. It's not necessarily 60 40. You might think it's a target allocation. It could be 100%, could be 80% equity and the rest in bonds. This episode is sponsored by Morgan Stanley's Thoughts on the Market. Today's financial markets move fast. Morgan Stanley moves faster with their daily podcast, Thoughts on the Market. Thoughts on the Market covers daily trends across the global investment landscape with actionable insights from Morgan Stanley's leading economists and strategists. And with most episodes under five minutes long, staying informed has never been easier. Listen and subscribe to Thoughts on the Market wherever you get your podcasts.

B (17:07)

Welcome back. I promised you two short answers and a medium. Here's a short one. I think the question's about Bitcoin ETFs. And this is Brian from. Wait. Great Loop. Great, Great Loop. That's a name. It's a name. Is Brian on a boat? Because I'm looking here from the National Ocean Service. It says, what is the Great Loop? A continuous waterway that recreational mariners can travel that includes part of the Atlantic Gulf Intercoastal Waterways, the Great Lakes, Canadian Heritage Canals, and it goes on. There's a lot here. Anyhow, Brian. Ahoy, matey. That's the. What's the worst thing I've ever done on this podcast? I want to apologize to the boating community. Go ahead, Brian. My question for you involves Bitcoin ETFs. I did some coinbase trading of a small amount but found that the trading commissions were too steep. It seems to me that I can get the same results by buying Bitcoin ETFs. Am I missing something important or is this a good way to get exposure to Bitcoin for a small percentage of my portfolio? Thank you from Brian on my great loop journey. Thank you, Brian. Your question is are these ETFs a good way to get Bitcoin exposure for a small percentage of your portfolio? Your question is not should I get some Bitcoin exposure? It's, it's assuming you are going to do this or ETFs the way to go. And I say sure. The fees are low, they're easy. These have only been around, by the way since they were approved last year at the start of 2024. So you see a lot more choices out there. The fees do tend to be lower. They're easier, I think than buying Bitcoin directly. You don't have to worry about having a crypto wallet and so forth. I know that there's a community out there that's saying that's not the point. The point is you gotta get outta the regular banking system and into the blockchain and you have to have your thing that's disconnected. You have to do decentralized, whatever, whatever. Okay, if that's what you're into. But Brian just wants some exposure here for a small portion of his portfolio. He's on the great loop. He can't be bothered with things that are cumbersome for Brian. I think that ETFs are a fine choice. Let's do another. What I hope will be a shortish answer for me. Let's hear from. We have Kevin from Pennsylvania. We do now. Is he on any kind of a circuit? Is he. Brian was on the great loop. Is Kevin. Is he doing like a national parks thing? Is he climbing the highest peak in all 50 states? What's he up to? He just says he's from Pennsylvania. Well, that's enough. The Keystone State, that's enough, right? You don't need more than that. Go ahead, Kevin. Hi Jack. Quick question. If someone were interested in investing in private company debt, would they be better off buying shares in a business development corporation or One of the ETFs that have sprung up that hold this type of debt? Thanks so much. Thank you, Kevin. BDC stands for Business Development Company. These were created by Congress in 1980. The Small Business Investment act of 1980. And the idea was to help small and mid sized Companies gain access to capital. BDCs were once described to me, somewhat hilariously as a poor man's private credit. That is, I can assure you, a misunderstanding of what it is to be poor. As someone who was born into a poor family, I can promise you we did not spend our time thinking about the merits or lack thereof of private credit versus liquid alternatives. A BDC is more accurately described as a liquid alternative to private credit. You don't have to lock up your money for years in a fund. BDCs are basically closed end funds, but they do the same sort of investing. There's lending, there's equity investments, and there's mixes of the two. The deal with BDC is you can get high yields, higher than you could in quality bonds. There is easy to buy as stocks, but of course they come with risk. There's credit risk, meaning some of the companies might not pay back what they owe. There's the risk of interest rate fluctuations. It's not quite the same as bonds. BDCs have to raise money to lend money. They typically use a mix of fixed rate and floating rate loans. So it can become more expensive for them to borrow as rates rise. Do you need em as an investor? If you don't own BDCs, are you being negligent in your portfolio management? I don't think so, but I have no particular objections to investors who understand the risks and want to buy in. That wasn't your question, Kevin. Your question specifically was, if you're thinking about BDCs, would you be better off buying them inside an ETF, an exchange traded fund? I don't know if I'd say better, Kevin. If you're buying BDCs in the form of an ETF, you're buying a bundle of BDCs. And keep in mind that each one has a big basket of financing that it's provided, credit, equity and so on. So you're basically diversifying. And I guess the point there is to reduce your risk. But if minimizing risk is the goal, I'm not sure that BDCs are the thing for it to begin with. It's just another wrapper and another fee. And I guess my question in the end is what are you getting that is better than stocks or better than bonds, or that sufficiently improves your portfolio and does it reliably during times of crisis, which is when you really need it. I'm just not feeling the need and I'm not one of these 3% guys. I'm not a guy who says, you know, I think for 3% of your portfolio. It makes sense when people say that. I feel like they're trying to have it both ways. If the thing doesn't do well, they're going to say, that's why I stress the importance of minimizing your exposure to 3%. And if it does great, they're going to say, you see, my recommendation paid off. So neither better nor worse on the ETF structure versus buying individual BTCs. Just a bit of a different risk profile, a little more fees. Okay, Alexis, that's three questions down, one to go. We're in the home stretch. People are out there walking the dog right now, as many do when they listen to this podcast. They're saying, we're getting close. We're almost back home now. Marshmello did her business a few blocks back. They're saying, jack, are you going to land this thing on time? We'll keep your tray tables in the upright position. We're mixing metaphors and bringing this dog walk in for a landing. Let's hear from Javier from Alabama. Hi Jack, this is Javier from Alabama. I wanted to ask you what you thought about the concept of infinite banking. I've been pitched this idea as a way to kind of save money, create a life insurance policy and also take out personal loan from myself for other expenses, such as paying down student loans mostly. I'm just curious, you know, how you might use the concept of infinite banking as a savings or investment Strategy as a 26 year old about to graduate medical school. Always appreciate your thoughts. Thanks. Thank you, Javier. This is a tricky one. Well, actually it's not tricky at all. The answer is simple. The backlash is you hear from some angry folks who sell this stuff online. There's a lively community of social media people who sell insurance, typically with high fees. That's why they're so motivated to sell it. And they talk about it like they've invented something new. Infinite banking. This discussion has actually been around since I was a kid. I don't know about the particular strategy you've heard about, but basically there's a type of life insurance you can buy called whole life insurance. And it has an investment component and it protects you, like the name says, for your whole life. And you pay into it and you can make extra payments into it and really build up a cash value and you can use that cash value to borrow against. And I guess you could say you could be your own bank, you could provide your own credit to yourself. Borrow money when you need it. Now, I'm going to tell you two things. Maybe three. It's always a bad idea to give the number up front. I'm going to tell you an indeterminate number of things. Briefly. Number one, my first career type job was as a stockbroker. I've talked about this before. It was for a big wirehouse. We were paid on commission. I was terrible at selling things, but that's besides the point. I remember the fees. If you wanted to generate commissions. Stock trades did not really bring in the fees. Bonds were a little better, depending what you were selling. The real fees were in mutual funds. You could sell mutual funds with sales charges. They'd have front end loads or back end loads or level loads. Those would pay much more than stocks would. But the biggest money of all, the guys who were really swinging for the fences were guys who would go out and get their insurance licenses and they would sell annuities. An annuity is an insurance contract that has an investment component. And there's a lot going on there. You've got fees for the insurance, you've got fees for the investments. I'm not saying they're all bad. I'm not saying they're all high fee. I'm just saying it's easier to hide big fees in annuities than it is in most things. Certainly easier than in a stock or a bond or even a mutual fund. Okay, that's point one. Point two, insurance. People hate when I say this, but insurance is a losing proposition. I mean, that doesn't mean you should never buy it. You probably should buy some. But insurance is based on casino math, literally. We've talked about this in the past in this podcast. Probability math, the same math that determines the outcome of dice games. That's the math that you use to price life insurance contracts. You need a combination of probability math and highly accurate, detailed records for when and how people die over time. Once you know enough about when people are likely to die, you can use the dice math to sell those people bets on their death and you build in some profit for yourself. Just like the casino builds in profits on its bets. Which means that there's no such thing generally as a winning life insurance bet. Yes, you can buy a life insurance policy and you can keel over a couple of weeks from now. And financially, that policy would have paid off very well. But you can't know that at the outset. The point is they're priced against you. And because of that, you should view insurance in general as a penalty you pay for not having enough money to self insure. Don't be offended at that. Most people do not have enough money to self insure. You need many, many millions of dollars to do that. If you're a young worker and the key breadwinner for your family and you have small kids, you need life insurance. The way to get that insurance is probably to buy something called term life. Term life, unlike whole life, you buy it for a set time period, 10 or 20 years. It's usually a lot cheaper than whole life because you're not buying it for your whole life. And it doesn't have an investment component. There's nothing fancy about it. It's kind of a commodity product. So it's very competitive. It's easy to find term life insurance where the cost is reasonable. And you buy that for however long it's going to take for you to save up enough money to provide for your family yourself in the event of your death. If you're taking all that extra money you would've spent on a whole life policy and you're putting it in a basic mutual fund, maybe you're buying that inside a tax deferred account like an IRA or a 401k. Maybe you're just buying something and not selling for decades so you keep taxes low. You're going to get there over decades, you're going to save a lot in fees and you're going to accomplish the same thing you would with infinite banking or whatever it goes by. When you need money, you'll be able to use your savings, not turn to a bank for a loan. So is infinite banking a good idea? No, not the way they're describing it. With expensive whole life insurance, do your own infinite banking by buying cheap term insurance to protect your loved ones for as long as you need to. Meanwhile spending less than you earn and putting the difference in something that's going to earn you a good return over time with as low fees as possible. A cheap stock index fund is perfect for the job. You can put some in a cheap bond index fund for diversification. Do that for a couple of few decades and you'll become wealthy. Then teach your kids and grandkids how to handle money and they'll stay wealthy. And that's the best kind of infinite banking. Alexis, you poor thing. Under the weather. Do you feel better or worse after hearing about managed futures? Better, definitely. That's what people say. Tea with honey and a little liquid alt. Discussion. And that's it for me. We've covered a lot of ground here. Marshmallow. Had a great walk. Who's a good girl? Brian has added some nautical Miles. I want to thank him and Bernie and Javier and Kevin. If you have a question you'd like answered on the podcast, just make us a recording. Use the Voice Memo app on your phone. You can send it to Jack. How that's h o u g h@Barrons.com thank you all and we'll see you next week.

A (30:03)

The beacon of the 60:40 is achieving a balance between the ups and downs in the market so investors can stay the course. That balancing act is still relevant for portfolios, but adhering to a strict allocation may not serve all investors. Here again is Vanguard's Jomana Salehin to.

C (30:18)

Explain what we're talking about today is thinking about personalisation, thinking about where is the next frontier on balanced investing. It's talking about having capabilities to tilt your portfolio so that you can take advantage of your situation and the market situation. There may be some medium term changes out there on the horizon where you could actually benefit by tilting your portfolio.

A (30:44)

Get more insights from Vanguard on how you can navigate an uncertain market.

B (30:47)

@Vanguard.Com all investing is subject to risk, including the possible loss of the money you invest. Diversification does not ensure a profit or protect against a loss. Custom content from WSJ is a unit of the Wall Street Journal Advertising Department. The Wall Street Journal News Organization was not involved in the creation of this content.