Jared Dillian — "It's not because commodities are terrible. It's because commodities have negative carry"

0:00 The whole programme is a reaction to one number: 50% of his own net worth

• The cold open is the origin, stated as a personal rule rather than a theory: "in 2008, I experienced the crash. I worked at Lehman. I had a bunch of Lehman stock that went to zero and I basically took a 50% drawdown of my own net worth and I said I never want to do that again."
• What it redirected: "all my work since then has revolved around not so much being a hedge fund but really working hard especially to minimize drawdowns but also to have an efficient use of risk."
• And the false start he admits to — the complicated version came first: "up until 2019 when I discovered the Awesome Portfolio, I was building these portfolios with options and international stocks and EM local currency debt and all this exotic stuff and I got something that returned about the same as the S&P but with a lot less volatility." The five-sleeve version reaches the same place: "you just have to invest in five simple things."

5:13 The aha moment was a modelling session, not an insight

• The subscriber is the same one as in the other interviews, and the method is spelled out further here: "we were trading models, like different portfolios — okay, this is what a 60/40 looks like and this is what it looks like if you had gold and it has the Sharpe and the Sortino and all that stuff and this is what happens if you had real estate."
• It was iterative, not derived: "after we did a couple of iterations of this we ended up with what the Awesome Portfolio was and I was like that's the aha moment. That's it."
• The Sortino ratio appears alongside the Sharpe here — the same return-per-unit-risk idea, but counting only downside volatility, which is closer to what the whole book is optimising for.

6:13 Nick Maggiulli's optimizer lands on the same answer, minus the cash

• The external corroboration he puts at the very end of the book: "he did a linear optimization to find actually what the optimal portfolio was in terms of the most efficient use of risk and with the exception of cash it's basically the Awesome Portfolio."
• The claim that comes with it: "it's got a much higher Sharpe than the S&P 500, the drawdowns are minimal."
• Worth noting what the exception implies — the cash sleeve is the one an optimizer will not produce, because its justification (optionality, no forced selling) is behavioural and does not appear in the return series.

9:10 The advertised returns are real; almost nobody receives them

• The setup: "if you go to the Vanguard website and if you look up the one-year, three-year, five-year, ten-year returns of the S&P 500, they're amazing… The thing is that nobody realizes those returns."
• The thought experiment that isolates the cause: "imagine this imaginary fund, ETF, that gave you 11% annually with no volatility… that is impossible to screw up. If you're not experiencing volatility, you're not going to sell it. It just grows."
• The loop he is trying to break: "you're happy, you're sad, you're happy, you're sad, and eventually you get to the point you might get really sad and you might liquidate your holdings, which is the worst thing to do because then you stop compounding… and then the market recovers the high watermark and it puts in new highs and then you feel good again and then you invest on the highs."

10:51 A 16-vol index holding the nation's savings — and only this nation's

• The index quantified: "generally it's about 16 vol, which means it moves about 1% a day. And in the United States… we put our entire life savings into something that moves around 1% a day." In the April tariff episode "it was moving around eight or nine% a day."
• The comparison he keeps returning to: "the Europeans don't do it. The Japanese don't do it… This really started in the late 1990s."
• The index-share numbers as he states them here: "in the late 1990s, 2% of AUM was index. Now it's 56%."

11:56 Advisor alpha — Vanguard's own answer, and why he thinks it is not enough

• The finding, as he tells it: Vanguard "discovered that if you added a third party, a financial adviser or somebody like that, they created what was called advisor alpha… if you just had somebody as sort of a referee to just point at you and say stop trading your funds and buy and hold, then people's returns increased by 3%. They measured this."
• The obvious objection to his whole book, which he raises against himself: "a lot of people say to me, why don't you just invest in index funds and have an advisor to tell you not to do anything stupid?"
• The rebuttal is that an advisor changes conduct but not experience: "even if you have an advisor, if you take a 50% drawdown, you're still going to be stressed. You're still going to feel those negative emotions. With the Awesome Portfolio, you never do."

12:52 The drawdown ladder — 12, 9, then about 1 — and why pod shops exist

• Stated as a ladder rather than a table of years: "worst drawdown in the history of the Awesome Portfolio, 12%. The second worst, 9%, which was the year of the financial crisis. The third, fourth and fifth worst, 1%. It rarely has a drawdown."
• The institutional proof of the same preference, which is new against the other interviews: "this is why we have the hedge fund industry… you have places like Millennium and Exodus Point and Balyasny where the drawdowns, if you have them at all, are very very small… these multi-strategy firms don't really beat the index by all that much. Sometimes they don't, but what they offer is not much in the way of drawdowns."
• The implication he leaves standing: the most sophisticated allocators in the world already pay a large fee for exactly the trade he is offering retail for free — less return, far smaller drawdowns.

14:45 The read on today's tape: average vol, very low correlation

• Asked whether passive flows have raised volatility, he corrects the diagnosis: "volatility right now is probably about average. But correlation is very low… what you're seeing is you have big moves in individual stocks, but it doesn't have a whole lot of effect on the index."
• The precedent, offered with the caveat attached: "the last time this happened was the dot-com bubble, is when correlation got very low. This regime that we're living in right now, there's differences but it does have a lot in common with the dot-com bubble."
• He fences it immediately: "I'm not saying this to be a perma bear… I'm not saying that the market's going to crash, but this feature of high single stock volatility with low correlation, we've had this in the past."

16:02 The Magellan gap — a 29% fund whose average holder did far worse

• The host raises Peter Lynch and Dillian supplies the fund: "the Magellan Fund… He returned, I want to say, 29% annually for a period of like 10 or 15 years and the average shareholder did much much worse because they traded his fund."
• Neither will pin the shareholder number — "I thought it was single digits. Somebody can look it up" — and the honesty is worth keeping: the anecdote is used as direction, not as a statistic.
• The conclusion is the book's whole premise restated by the host: "it shows you how hard it is to hold on even to a successful strategy that worked really well for a long period of time."

16:42 The life hedge, and the admission that it does not exist

• Still "the most important chapter in the book," and the mechanism is the same Nozzles, Inc. arc: raises and promotions and a rising market arrive together, then the data turns, "sales drop off. Next thing you know, you get laid off… but now the market is down 30, 40, 50%."
• The framing in one line: "by investing in the stock market you made your life just more procyclical… the amplitude of these waves in your life just gets really really big."
• The ideal asset is defined precisely and then withdrawn: something that "goes up over time but was negatively correlated to your life… There's nothing in the world that does that. Gold maybe comes the closest… The closest thing is really the Awesome Portfolio."

19:46 Risk of ruin is a wealth-level behaviour, not a knowledge gap

• The generalisation he is willing to make flatly: "wealthy people think about the risk of ruin and middle class people don't. Wealthy people are very careful with their wealth and middle class people are very careless with their wealth."
• The Powerball test: with $300 million, "would you just put it all in the S&P 500? Now if you did that, over time you would be a billionaire… but nobody does that. What they do is they take it and put it in T-bills and they get 4.5% a year and they live off 13.5 million a year."
• The other side of the same coin: "somebody who works at the nozzle factory who has 400,000 in his 401k, he's not too concerned with the risk of ruin. He wants to grow it to 800, 1.6, 3.2… He wants to double and triple."
• Why the concern faded: "people were thinking about it 2010, 2011, 2012 when the financial crisis was still pretty fresh… coming up on 20 years later people have totally forgotten."

22:15 The ETF love/hate — once-a-day pricing is a feature

• His standing: "I used to be an ETF trader, so I was getting high off my own supply. I was an ETF trader when there were only about 300 ETFs in existence." He still calls them "one of the best financial innovations of all time" and is scathing about the older structure's plumbing — "if somebody came up with the idea of open-end mutual funds today, the SEC would probably not approve them."
• Then the inversion: "the one nice thing about them is that you only get one price per day. You get the NAV at the end of the day and that's it."
• The contrast is drawn on the same underlying index — VOO against Vanguard's S&P 500 mutual fund: "you can look at your phone every 5 seconds and see where it's trading throughout the day. And that's bad… the more information you're getting on price, the more it affects your decision making and it causes you to do stupid things."
• Which is a real product preference, not a rhetorical one: "if I had the ability to implement the Awesome Portfolio using open-end funds, I would. But you can't because there's nothing that has gold… there's no open-end mutual fund for physical gold."

24:39 "The word you're looking for is reflexive" — indexing changes what it measures

• The host's framing is the physics one: "the benchmark that was supposed to be an independent way to observe a phenomenon… the observer and the observed get affected." Dillian names it: "I think the word you're looking for is reflexive."
• The arithmetic underneath: "the top seven stocks make up 35% of the index. So if you want to buy the index, you have to proportionally buy the top seven stocks and they get bigger, which is one of the reasons that most large cap managers underperform."
• The trap that leaves active managers in: "the only ones that are outperforming are the ones who disproportionately own the top seven stocks, which is insanity because if you own the top seven stocks in an even higher proportion, you're just a maniac. But those are the people who have beat the index over time."
• He is careful about the attribution and about his own depth: "Michael Green obviously has done a lot more work on the flaws of indexing than I have. I kind of have a primitive understanding of it."

27:16 "Instant diversification" was true — until everyone bought the same thing

• What he was reading in 1997: "the one thing that I was consistently reading over and over again was it's instant diversification. You buy this mutual fund and you have 500 stocks, you're instantly diversified. Which was true. But when everybody does the same thing, they're all in the same trade."
• The one episode he treats as the demonstration: "what you saw during the pandemic when the market was down 35% was a mass liquidation of index funds, and it happened very quickly."
• The exit-door problem, sized: "if you want to turn it into cash, there's 150 million people who are doing the same thing."

28:29 60/40 is incomplete, not wrong — and it actually beats him by 40bp

• The concession first, and it is a real one: "the 60/40 portfolio is pretty good. Honestly, it's not bad. It actually outperforms the Awesome Portfolio by a little bit, by about 40 basis points."
• Its historical case: "from 1929 to 1932, stocks went down 89% but bonds were up 15%. So if you had the 60/40 portfolio, it wasn't the end of the world."
• Its failure mode, and the reason the fifth sleeve exists: "the problem… as people discovered in 2022 is that it's very interest rate sensitive. If you have a period where interest rates are rising rapidly, that hurts stocks and it hurts bonds both at the same time. So the 60/40 portfolio got killed in 2022. It was down about 20%."
• The structural diagnosis: "you only own financial assets. You don't own real assets. Stocks and bonds are paper, but what you need in addition to paper is exposure to real things."

30:18 Why gold and not a commodity index — negative carry and contango

• This is the sleeve-selection reasoning the other interviews skip. He wanted commodities, tested them, and the numbers were poor: "I experimented with some of the commodity indices and the returns were not that great, and basically the reason is it's not because commodities are terrible, it's because commodities have negative carry because you have to pay for storage generally."
• Named properly: "in a futures curve you're looking at contango which is the cost of storage, so that can get really expensive. With gold it's very minimal."
• And the empirical part that makes the substitution work: "what I found was that gold mimics the commodity indices over time. The cost of carry is negligible and what it does is it gives you a lot of exposure to inflation, whereas bonds and stocks, you have negative exposure to inflation."
• Stocks and bonds are the growth and income sleeves — "that's basically your 60/40" — so gold and real estate are there to carry the inflation exposure the paper assets are short.

32:00 How to actually hold real estate — your house counts, otherwise a REIT ETF

• The return admission comes first: "real estate is not as good as stocks. Stocks over the last 100 years have returned about 10%, real estate has returned about 5%."
• The home-equity rule: "if you own a home, the equity in that house could be considered your real estate allocation. It's not ideal because it's one house in this idiosyncratic geographic area." The instrument he wants does not exist — "ideally you would have a mutual fund that gives you some proportional interest in a bunch of houses all over the country."
• The fallback is named as a category, not a fund: "if you don't have a house, then you can simply buy a REIT ETF. And REITs have apartments, offices, malls. They also have some other weird stuff like data centers and cell phone towers… by and large, it's a pretty good proxy for all real estate."
• The evidence base he is drawing on: "the real estate indices have been around since 1972, so we have a lot of data on how they performed. And what's interesting is that when you add real estate to the rest of the Awesome Portfolio, the returns go up and the Sharpe goes up by quite a bit… it's not super correlated with anything else."

33:43 Asked which sleeve to drop, he refuses — and drops into Harry Browne

• "I wouldn't drop any of them… You really can't drop any of the classes from this."
• The one hypothetical he will run is the historical one: "if you dropped real estate, then what you would have is Harry Browne's permanent portfolio, which is also good. Harry Browne ran for president as a libertarian… stocks, bonds, gold, and cash, 25% each."
• His verdict on the ancestor, and on the fund that exists for it: "the Awesome Portfolio is a vast improvement over that in returns also and in risk… I think there's actually an open-end mutual fund. You can invest in the permanent portfolio. But it's a little bit of a dog. The returns are worse."

35:19 The cash sleeve — and a rare disclosure that he is not running it himself

• The complaint he got when he first published it at zero rates: "you're telling me I should have 20% of my money that yields nothing." His two answers: "it's not going to yield nothing forever" — "if you go back to the late 70s and you had the Awesome Portfolio, cash was your best performing asset class" — and today "it yields 4%."
• The real reason is optionality: "the real reason to own cash is it's an opportunity to buy something cheaper in the future," plus the forced-selling problem — an unplanned $200,000 down payment otherwise means "you're selling stocks and you have a tax liability… big pain in the butt."
• The line he ends on: "there is nothing more powerful in this world than liquidity, liquid net worth, the ability to just write a check and pay for something."
• Then the disclosure, which is unusually candid: "personally, I'm a little light on cash right now. I'm actually very light on cash right now because I have debt on my house and I'm very busy trying to pay off the mortgage… I'm not comfortable with that."

37:51 Gold's correlation to stocks is zero — and the 20% objection comes from 80%-stock people

• The number: "gold has a correlation of zero to stocks. Zero. And if you go back 25 years ago, it was actually negative, which made it even better."
• The pushback he gets, and the asymmetry in it: "the pushback I usually get on gold is that I have too much of it. 20%. That's too big. And usually the people who tell me that are people who have 80% in stocks and they don't see any problems with that."
• The host adds the mechanism that makes zero-correlation valuable exactly when it matters: correlation on down days "is much higher than it is on an average day. So people are selling everything sometimes for no reason. And these are the days when our convictions get tested."

39:55 Rebalancing: not optimised, on purpose

• Stated as a limitation he accepts: "I did not optimize it. I did not run a backtest and see what the optimal rebalancing period was. Maybe I should have."
• Why not: "if I had backtested it and said the optimal rebalancing period is 267 days, then that would get way too complicated and people wouldn't do it." Simplicity is the competing product's advantage and he is deliberately matching it.
• The live example: "in 2025, gold went up a lot. It basically doubled." (Here he says doubled; on 2026-SEP-08 he says up 60% — treat it as "a very large year," not a precise figure.)
• The single failure mode of the whole design: "it's really the one thing that people can screw up, is that they can forget to rebalance."

41:41 Crypto raised the Sharpe — and is still excluded

• The strongest version of the argument against him, which he grants: people said "it increases the Sharpe, because the returns were so good. Which was true. In 2019, if you included Bitcoin, it increased the Sharpe of the portfolio."
• He excludes it anyway, on an axis the Sharpe ratio does not measure: "guess which one you're going to be staring at every day? You're going to be staring at the Bitcoin. Even if it was only 2% of the portfolio."
• The general rule: "if you include something that's like an 80-vol in the portfolio, it's going to increase your stress even if it's a tiny part of the portfolio."

43:34 Peak-to-trough, not calendar year: the S&P's real 2007–09 number is 57%

• 2022 restated: "down 12%. Stocks, bonds, and gold were down and cash was up a lot because rates were going up and real estate did fine."
• The measurement correction, which is the sharpest new point in this interview: "this gets kind of lost in the annual numbers, you don't really see it, but the total drawdown from the summer of 2007 to March of 2009 was 57%" — against the −38% the calendar year 2008 shows. And "the S&P 500, it's 89% if you go back to 1929."
• The vulnerability, named again and confirmed by events: "when I put this together 7 years ago, I knew that was the case. I said this is pretty much a bulletproof portfolio except if interest rates go up very quickly, it'll get hurt. And that's exactly what happened."

45:37 FOMO — the years you win are the years everyone else is being destroyed

• He concedes it is the design's weak point: "if there's a psychological shortcoming to the Awesome Portfolio, that is it."
• The two tables in the book: years underperforming the S&P by 10%+ ("it's a lot"), and years outperforming by 10%+ — "and inevitably it's all the big crashes. So 2008, 2000, 1973."
• The advice is not analytical: "you're going to feel terrible because you're up 8% and they're up 22%. And I'm like, you are just on your own path and you have to stick with the plan."
• The host's addition is the honest part — the asymmetry does not net out emotionally: "somehow the feeling is different when the market is up a lot and you're up less than when the market is down a lot and you're down less."

47:46 The scenario that breaks all five — he cannot construct one

• Asked what keeps him up at night: "you would be shocked at how much time I've spent thinking about this. What is the vulnerability? Is there any scenario in the world where everything goes to hell at the same time? I cannot think of it. Maybe I just don't have a big enough imagination."
• The only named threat stays the same: "the one threat is rising interest rates."
• The worked tail: "let's say there's a nuclear war. Stocks will go down a lot. Bonds will go up. Gold will go up. Real estate will probably go down… you can think of any natural or man-made disaster and inevitably one part or two parts of the portfolio are going to be working."

48:51 His most contrarian belief is about publishing: books sell when they confirm

• Asked for the conviction most people would call crazy, he answers sideways: "books succeed when they tell people things they already believe."
• The control case is The Millionaire Next Door — austerity, the beater car, the cheap suit — and the reader reaction: "yeah, I already believe that. That's how I thought you get to be a millionaire. It confirmed my beliefs. This is a great book."
• Applied to his own launch: "this is going to cause a lot of cognitive dissonance… it's probably not going to be a best-selling book, because what people believe now is that they just put all their money in index funds and dollar cost average and buy and hold."
• He does not soften the claim itself: "I think the book is an airtight case… And if you do come to another conclusion, if you say, 'No, I like my index funds. I'm just going to ride out the volatility.' Knock yourself out. But this is the better way."
• And the next one is dated and titled: "it's called Super Investors, the 20 traits of successful investors," due next year (52:01).