Perhaps the most dangerous assumption an investor can make is that the future will behave like the past they personally remember.
Rodrigo Gordillo learned that lesson early, and it became the foundation of his investment philosophy. Rather than trying to predict which asset or economic regime will dominate next, he argues for building around what we don’t know.
The result is a different way to think about diversification: not as a compromise that waters down returns, but as a way to remain resilient when familiar assumptions stop working.
Read the transcript below.
Transcript
Rodrigo Gordillo
My grandfathers retired with what would be the equivalent of around $1 million. Inflation went from 20% to 7,200% in 6 months without the commensurate increase in the savings rate in the banks. So the purchasing power went from $1 million to pennies. Whatever it was at the time, it was called the Inti. It went to zero and savers lost and the debtors won for sure.
The belief that a lot of people have up until recently, up until COVID, was that, look, if you don’t want to take any risks, you just go into cash. And then their purchasing power has gone down by 40%. They’re starting to realize, oh, well, maybe cash isn’t safe. You can’t depend on your experience. Your experience will burn you. You need to understand the mechanics. And so diversification done right is a return multiplier.
Monetary Metals
Welcome back to the Gold Exchange Podcast. My name is Ben Nadelstein of Monetary Metals. I am joined by Rodrigo Gordillo. Rodrigo is the president of ReSolve Asset Management and the co-founder of Return Stacked ETFs. He joins the podcast today to talk about all things gold, portfolio diversification, and of course, return stacking. Rodrigo, welcome to the show.
Rodrigo Gordillo
Thank you for having me, Ben. Been a long time coming.
How 7,200% inflation destroyed a family’s savings
Monetary Metals
Rodrigo, I want to ask you about your background. A lot of people say, oh, you know, tell me your background, how’d you get into gold? But you actually have a fascinating background in terms of basically every bad thing in a financial universe that could happen to you and your family happened to you and your family. So give our audience kind of an overview of how you got to where you got to today.
Rodrigo Gordillo
So I was born and raised in Lima, Peru. This is back in the ’80s, and I was lucky enough to be born into a family of a father who was a mathematician, a software developer. He was in the Peruvian Navy, studied in Monterey, California, did his master’s in operation research, which we still use today for our quantitative strategies. But, He was a quantitative guy, brought the first computer to Peru with the Navy and then developed a software company doing really well up until late ’80s. You know, during that period we had a military government that then turned into a democratic government that was far left and printed a bunch of money.
Around 1988, ’89, my grandfather’s retired with what would be the equivalent of around $1 million US. But in, when he was given, he was an accountant his whole life, sent a letter to the whole family saying, hey, listen, we are, we’re fine. This goes to show that hard work and savings pays off. But he took his money in domestic currency. And mind you, Peru is also rich in gold and silver and all those things. So we know about the value of that. But within 6 months with the government of Alan García, where he started giving out money to get votes, inflation went from 20% kind of steady state, which you could get 23% in a savings account.
That’s not an issue. To 7,200% in 6 months without the commensurate increase in the savings rate in the banks, as we’ve seen recently during COVID right? How they don’t quite match up. So the purchasing power went from $1 million to pennies, whatever it was that the—at the time it was called the Inti, it went to zero. And likewise, the whole economy, anybody who had any savings got wiped out. And the flip side of that, which is a funny story, is that our neighbors who were about to be evicted ’cause they couldn’t afford their mortgage payments was then able to pay off their full mortgage with $$100, bill that they had under their mattress.
So, you know, the savers lost and the debtors won for sure. And that led us to leave Peru to immigrate to Canada. My father was trying to get his software company to work out in North America, put 5% money down in the house right before the housing market crash. And with the recession in ’89, ’90, housing market crash in Toronto that everybody’s forgotten about of 50%. Lost a bunch of money there. Then, you know, clawed himself back as he did raising a family of 4 boys, did a great job doing it.
The financial crashes that shaped Rodrigo’s strategy
Rodrigo Gordillo
And then put him and my brother, put money to work during the tech bubble knowing, you know, being tech guys, like we know what good companies are right before the 75% crash of the NASDAQ. So by the time I graduate college, I did, you know, commerce, finance, statistics. I knew I didn’t want that to be part of my life. I didn’t want the roller coaster. And that’s when my journey into, okay, well, everybody invests in equities, everybody does Warren Buffett, which by the way, Warren Buffett also had 85% drawdowns in his portfolio. How do I avoid that? It went to me doing research going back to the 1800s and seeing different asset classes and where they played a role.
I even extended gold beyond when it was pegged into gold miners to see how they reacted during different periods. And it had similar characteristics. Of course, it’s a bit of a mixed bag when it comes to companies, but I clearly saw a role for other asset classes, including bonds, gold, things like systematic macro and managed futures, equities in a diversified portfolio in order to create that stability and start to create a much more robust portfolio that isn’t totally beholden to just the, a stable economy that grows with no inflation, which is what we are all banking on, but it doesn’t necessarily happen long-term.
Why cash and Treasuries may not be safe
Monetary Metals
And Rodrigo, one of the things I find interesting, there’s these people who lived through the Great Depression, they lived through 2008, they might have lived through a savings and loan crisis, they might live personally, like you’re saying, with their country’s currency literally becoming worthless. So there’s kind of financial scarring that happens there. And on one end, you have people who say, I’m never going to invest in the stock market.
I’m just going to keep all my money in the form of gold bars or real estate or pick your asset class. And then on the other hand, you have people who are a bit more sophisticated and say, listen, I know something happened and I want to get down to the bottom of what that something was, but I want to be smart. I don’t want to just completely take myself out and have this large opportunity cost of not being invested. So how did you decide to go from, hey, I got burned a couple of times, but to actually go back and say, I want to go about this in a smart way?
Rodrigo Gordillo
The belief that a lot of people have, including friends of mine, up until recently, up until COVID, was that, look, if you don’t want to take any risks, you just go into cash. And then their purchasing power has gone down by 40% since COVID They’re starting to realize, oh, well, maybe cash isn’t safe. Certainly, you know, the next best thing would’ve been fixed income. If you look at the TLT long-term ETF, long-term 20 to 30-year treasuries, that’s down over 55% since 2021.
And it’s not moving, right? Like, okay, so bonds now burnt me. What’s the next best thing is equities. And so people, have preconceived ideas from their personal experience that all of a sudden are being broken. There’s cows that are being sacrificed, right? And so what I always tell people is, look, you can’t depend on your experience. Your experience will burn you. You need to understand the mechanics. This is the idea of like, never trust anybody that says I have experience versus expertise.
And expertise is taking the time to truly understand the fundamental mechanics as to what is likely to happen in your lifetime, the different scenario analyses, and what asset classes are likely to react in different ways depending on those analyses. And then a third thing is having the humility to understand that it’s really difficult to guess and predict which one of those things are going to happen. And so how did I get here? I went through all those steps. I learned about the history. I understood it’s very difficult to predict the future.
And then I created a portfolio that, you know, I call the all-terrain portfolio that includes multiple asset classes that respond differently to the same economic shocks, but all over time have demonstrated an ability to have a positive risk premium. Risk premium, for those listeners who don’t know, is the return that you would expect from holding something that is above cash. If you have a positive risk premium, it means you expect to make money beyond the cost of savings. And that’s kind of how I went from lots of burns to how do I burn myself less? Certainly not by being in cash. You have to take risk. How do I take the most balanced risk so that I don’t have to predict the future? And if I close my eyes in 10, 15 years, I think I’ll be happy with the outcome.
Money printing and the new inflation regime
Monetary Metals
And I want to ask you, do you think we’re in a different environment now? You said, well, you have to take risk. You can’t just sit in cash because of this kind of, you know, issue with debasement of the currency in general. Do you think that’s always been true, or is this kind of a 1971 or post-1971 phenomenon where you could say, listen, my grandparents, they didn’t really know anything about investing. They couldn’t tell you what a P/E ratio was. They had cash, they stuck it under the mattress, and then 20 years later it was worth more just by being cash, just because the environment was a deflationary environment. Do you think that we’re in a different environment now post-1971, and that’s why people need to invest? They can’t just hold on to cash.
Rodrigo Gordillo
Yeah, it’s no longer a disinflationary environment, right? It’s no longer an environment where we have an infinite amount of growth. And the debt is significantly higher now across the globe than it has been before. Governments are financing their future by printing a lot of money because they have no choice but to do that right now. And this transition that we’re seeing toward AI, maybe in 10, 15, 20 years, we’ll be in a place where AI will outgrow the amount of debt that we have.
But right now, they have no choice but to print a lot of money, and every nation is going to have a different level of that. And so for the first time in my career that I’ve been pounding the table on the risks of currency debasement, inflation pull, inflation push type of dynamics, people can see it with their own eyes. And it says, okay, well, this has just recently happened to us. What is the likelihood that it’s going to continue? And one thing I’ll say about the environment that we’re in when it comes to currency debasement and inflation is that something has happened. And everybody’s like, maybe it’s over.
What we have seen in our research is that when this type of environment hits, what you end up getting is a lot of inflation volatility. And inflation volatility means that there are going to be spurts and pauses, spurts and pauses, and there’s going to be inflation and disinflation in a more aggressive way than we have seen in our personal experience prior to 2020. And so Don’t get lulled into the belief that the worst of it is over. Historically, if history rhymes, we are going to see fits and starts. And that’s why, you know, gold isn’t always going to be in favor during this next regime, why you want to balance it out with other asset classes. But it is an important factor in protecting against those, that volatility.
The Four-Pillar Portfolio for an uncertain future
Monetary Metals
And in your research, what marks that moment between different regimes? Hey, we’re in a disinflationary regime now, we’re in an inflationary regime. Is it mostly debt levels? Is it a debt-to-GDP ratio? What is it that marks this moment? Wow, we’re in a different regime. And what should investors be looking for to say we’ve left the old regime, we’re in the new regime?
Rodrigo Gordillo
See, now you’re getting into the prediction part of things that we actually, as a quantitative firm, do not get into, right? So I can tell you that the environment is ripe for volatility. Within that volatility, I can’t tell you with any certainty in the next 6 to 12 months Which part of that volatility we’re in. Are we in the volatility part where inflation is going to spike again, or are we in a disinflationary period? In my experience, that is very difficult to do. I’ll leave it to other global macro players to talk about that better than I.
Like I said, I think that what investors need to think about first and foremost is the idea of creating a do-no-harm portfolio first. If I have a day job, you know, I can’t predict the future and I can’t dedicate my whole career on trying to figure out what’s going on. What can I put together that is going to make me okay regardless of market environment? And I think that portfolio is the recommendation in this environment.
If you don’t have any gold in your portfolio, it’s time to add some gold. Everybody hates bonds right now. Okay, it’s gotten a 55% drawdown. Could get worse, but I don’t know, maybe it gets better. You probably should start inching into some of that, right? Make sure you got global equities, not just domestic US equities. For nations during inflationary regimes to do better or worse, especially the emerging emerging market economies that deal with a lot of commodity benefits if commodity prices go up.
You want to look into strategies I just mentioned about predicting the future. My favorite strategy since the beginning of my career has been managed futures. If you don’t know what that is, look it up. AI will tell you all about ’em. But they have the ability to go long and short equity markets globally, bond markets globally, currencies and commodities. And they don’t necessarily do it by trying to predict the future, but rather trying to react to the recent movements. And so the favorite managed futures strategy is trend following.
Something that has recently gone up or down is likely to continue to go up or down for the next period, and then you reassess. And so that one is more of a reactive strategy, but trends, when they become abundantly clear, it can benefit from it. So in 2022, managed futures trend managers were short bonds, short some equities, long a lot of commodities. That’s the kind of strategy that I like to tack on to complement my gold, my equities, my bonds.
Just to answer your question, I don’t know about the future, But I think the most prudent thing to do is at the very least put that, those 4 pillars together in a portfolio in a thoughtful way, and then you’re going to be in a better spot. Then you can say, what’s my ability to predict the future? Try to, you know, from 1 to 10, if it’s 1, then maybe 10% of your portfolio, you decide to make some moves. If it’s 100, then you don’t need us or any of my advice. You just go ahead and put 100% of your portfolio in the thing you think is going to do best in the next period, right? But that is my, the way I think investors should think about preparing for this volatile environment.
Real estate concentration and illiquid assets
Monetary Metals
And when you think about the fact that in general, at least in the US context, a lot of investors are almost over-indexing on real estate because they have this 30-year mortgage, they’re big on real estate, they live in their house, right? It’s not like, oh, I’ve got some real estate, but I want to cut down. You can’t really cut down on your mortgage per se, right? So what do you think about this idea that in general, people in the US are over-indexed or kind of overexposed to real estate prices, as we saw in the 2008 crisis? Versus almost nobody’s overexposed to gold, for example, or overexposed to copper unless they’re out of their way going to invest in these assets. Obviously, 401s are almost all stocks and bonds. What do you think about this idea of just natural over-indexing?
Rodrigo Gordillo
Look, there’s some behavioral advantages that have always existed in real estate, right? Let’s be honest, you and I are looking at the markets every day. We get excited or sad depending on what, what is going up or down. Most homeowners aren’t indexing their price to real estate every day, right? They have no clue whether the price of their neighborhood is up or down on a month, day to day, month to month, week to week. Maybe they’ll index it once every couple of years.
Hey, how’s the neighborhood doing? And so from a behavioral perspective, real estate has always been an interesting investment because people just plow money into it, buy more, lever it up 10x, right? I’m a big fan of thoughtful leverage. In this case, it’s not necessarily so thoughtful, but because there’s no volatility, people tend to lever it up.
Now, my, opinion from a quantitative perspective is that you’re letting the maniacs take over the asylum, right? We always talk about sizing being an important thing. Like, think about Austin real estate. How many Austin investors have, you know, that bought real estate a couple years ago or feel happy about their investments right now? Not many. And that’s got to do with the good thing that Austin did, which is build enough so that people can afford housing and have a house that is at a reasonable rent. To the detriment of investors in real estate, right?
So we can see in different metropolises in the United States and Canada now, finally, that real estate doesn’t always go up. And if you put too many of your eggs in that basket and it doesn’t go well for you for your retirement, and inflation is at, you know, it’s probably not 3% with the spikes and stops, like it’s probably at something just over 10%, then do you really want to bank all of your future on that one asset class. And again, it’s not even a basket of real estate generally, right? It’s at most 2 or 3 properties, most likely a single piece of property.
So what I always say is, if you can have your house and then you can diversify, so don’t pay up. And this is going to be controversial. Don’t pay off your mortgage as fast as you want to. Grab some of that excess capital and invest it in other asset classes that will zig when your real estate portfolio may zag. And that tends to be what most people do anyway, right? People have a mortgage, a house, and a portfolio. I would just, you know, this idea of putting 90% of your wealth in a single security seems a little outrageous to me, but that is an unpopular opinion.
Monetary Metals
If you’re enjoying this conversation, you’ll probably want to check out our 2026 Gold Outlook Report. It’s our latest edition and it covers everything from fundamental prices of gold and silver, basis and co-basis data, as well as our macro outlook for the rest of the year and our price calls for gold and silver in 2026.
And part of this, right, is that, well, if I don’t see the volatility, it’s not really there. If I can’t get up to date every minute Zillow’s updating the price of my house, I’m not gonna, you know, get worried or sell it at a point when maybe I shouldn’t. I should just hold on. And part of the private equity strategy might be as well, hey, listen, we’re not going to tell you every single day what the portfolio is worth. Just trust us, we’ll outperform the market. And part of that has to do with the fact that, You can’t see the volatility. So I want you to kind of, you know, discuss that point a little bit. You know, in a way, helping the investor by not really showing them what’s going on. How important do you think that is?
Rodrigo Gordillo
Well, I think the proof is in the pudding and the attraction of capital is there, right? Real estate, private equity, private credit have really seen a lot of money go in. And as long as that asset class continues to do well and continues to go up, nobody’s going to cry about it. Right. And the smoothed out returns also mean that nobody saw that private equity, which in my opinion is something like small-cap value, Or small-cap quality levered up 1.5 to 2 times.
Nobody saw the drop in 2022. They just kind of saw the result a year later. And so that’s definitely beneficial. But again, if you had been invested in ’08 in those things, and a lot of people were, the outcomes are just as bad as equities, if not worse. And the illiquidity of it is a real problem, right? So tying up your money with an inability to match your liabilities with the liquidity that you’re invested in ends up being a problem.
And so while there is a place in your portfolio for private assets that are illiquid, that may or may not outperform other asset classes, or at the very least, the most important thing is outperform cash, you don’t want to over-index to any of those things because liquidity in my view is king. And diversification requires not just diversity across assets, but, you know, also diversity across illiquid and liquid assets. You want to have the chunk of your portfolio, in my opinion, be in liquid assets in spite of the behavioral benefits that one achieves from, from being in those things.
True diversification and return stacking
Monetary Metals
I want to ask you maybe a tough question. Is there such a thing as over-diversification where someone has basically their foot in every single pond and they’re actually not jumping in the pool and having a fun time? So is there too much diversification realistically that investors can do? Obviously they can go crazy overboard, but in a realistic sense, is there really ever a point where someone’s too diversified?
Rodrigo Gordillo
No, it’s a very good question and it is something that comes up a lot. There’s what people perceive to be diversification and then there’s true diversification. And we wrote a piece, something to the effect like 5 years ago, maybe even longer, called like 2,500 Stocks and Still Not Diversified, right? That this idea that we’ve all kind of heard this in our finance textbook, that after 15 securities, the additional benefit from diversification of adding an extra one is very small.
Like if you look at the hedge fund managers that are equity selectors that are really like high octane, big return They’re looking at 4 to 5 different securities and really concentrated, right? That may or may not go right. After 15, there’s too much diversification. You’re probably getting the index and then you’re charging fees. So yeah, in that perspective on the equities market, if you’re going to be in US equities and you have a portfolio of 10,000 stocks, if you get there between 10,000 and 100, there’s not going to be much of a difference.
There’s going to be index hugging. And so yeah, can there be too much diversification in a single asset class? Possibly. But diversification across asset classes, I don’t think there’s ever too much. All you really should care about is if you think about the S&P 500, what is the return above cash that we expect from that? Everybody talks about the magical 8%. Well, that really is historically the risk premium from US equities above cash. So the return you’re getting, real return, is like 4%, 4.5% a year. Global equities have been 3.5% a year. Probably that’s cyclical.
My guess is they end up being kind of the same. If you look at long-term treasuries, we’re looking at around 3%. If you look at gold, we’re looking at around 3% equity risk premium. So the way to think about this is if all of these are roughly providing the same long-term returns, and I have a hard time defining which one’s going to do better today, and I have one lifetime, I have one life, I don’t have the multiverse to say, okay, which timeline do I want to be on?
You have one lifetime. Do you really think it’s appropriate to under-diversify across asset classes? And the answer is no. I think categorically no. You want to make sure if you roughly expect returns from gold, equities, bonds, managed futures to be roughly the same, but you don’t know when they’re going to hit, grabbing all of them is probably a good idea. To finish my point with this idea of overdiversification, what people tend to see the moment they diversify is they tend to see their Sharpe ratio go up. So the return per unit of risk goes up.
So I’m more efficient with my money. Every unit of risk I take, I get more returns. But that unit of risk, when you diversify, tends to go lower because your volatility gets lower, right? If you have S&P 500 doing 20% a year and this cycle bonds are doing 3% and gold’s down 3%, your overall return is less volatile, but you’re doing 4%. Just, I’m making these numbers up, but your portfolio is 4%. But what if you were to use some thoughtful leverage, right?
What if you say, well, I’m used to getting equity-like volatility. Why don’t I grab my well-diversified portfolio of gold, of bonds, of equities, of managed futures, and then I weight them in such a way so that each one of the asset classes contributes the same amount of risk to the portfolio. If that volatility has gone from 20% annualized standard deviation, i.e., volatility, down to 5%, and I then scale that 4 times, which seems like a lot, but the S&P 500 at a balance sheet level is levered up 4 times.
We’re already doing it anyway. We’re just not seeing it. If you’re able to do that and get the same level of risk, but your Sharpe ratio is, say, 1 instead of 0.25, which is what equity markets are long-term, for the same 20 units of risk, you should expect 4 times the return, right? So diversification tends to hit—if you don’t use leverage, tends to hit your absolute return. But if you allow yourself to stack these things on top of each other beyond the 100% mark using leverage like we do with real estate, then you can actually expect diversification to be both a reduction in sequence of returns risk in your lifetime and a return multiplier that you didn’t have before. And so diversification done right is a return multiplier.
Monetary Metals
I want to ask you a question which I’ve always struggled to find the right answer, which is like, okay, we can come up with these all-weather portfolios, we can come up with diversification benefits. We can even use some thoughtful leverage to try to, you know, add some of those equity-like returns while keeping that risk component a bit lower and diversifying. And you can show someone empirically Hey, here’s what we think would happen if we do this strategy.
And yet people still just love the 60/40 portfolio. And yet they still just say, yeah, I don’t know about that. I’m just going to stick with XYZ portfolio. Why do you think that is? What is it about investor psychology that you can show them on paper, hey, I think this portfolio might work a bit better if you add a bit of gold or if you add a little bit of these managed features. And yet people say, you know what, I’m going to stick with the herd. I just want to stick with my 60/40 portfolio. What is that investor psychology?
Rodrigo Gordillo
Well, look, the psychology, it’s always herd behavior. We feel comfortable with the herd. You know, we don’t have time as individuals to be an expert in every aspect of our lives. And so we depend on the people around us to give us some sort of signal of what’s the standard of care, what’s the standard approach that should be okay. And if you go to different nations, you’ll see different things. If you go to Latin America, it’s going to be real estate. Exclusively.
Nobody puts money in the stock market. That’s not a thing. They’re forced to do so with the superannuation funds. But the moment that they get access to them, they sell and they either buy a small business that they control or they do real estate. You go to North America and G7 nations, well, they’ve been educated on a system of savings, retirement brokerage systems, investment accounts. It has been 5 decades of them finding that their benchmark is that 60/40.
A 60/40 portfolio has in the last 40 years Prior to 2020 has been a disinflationary growth environment. Guess what works best in a disinflationary growth environment? Bonds and equities. Banks piggyback off of that, and their research shows, look at the last 20 years, how well that has done. That becomes the de facto do-no-harm view that we all use as emotional signals to say, hey, that’s appropriate. Okay? Backed up by institutions.
So here we are. 4 years into this disinflationary bull market with a little blip here and there. And that’s our standard. That’s what we believe and know and understand investors are educated on. And that’s your benchmark, right? To get them away from that is incredibly difficult. Believe me, I’ve tried, right? I’ve been talking about all-terrain portfolios for 20 years and built a nice little business off of it, but it wasn’t explosive.
When did the explosion come? It came when we were able to say, hey, we get it, okay? You don’t want to sell your favorite toys. You love your 60, you love your 40. What we’re going to do is we are going to create solutions that allow you to keep your 60 or 40, but we’re going to stack your gold and your managed futures and your carry and your Bitcoin on top of your 60/40 so that you get exposure to the thing you’re most familiar with.
But we are going to, you’re gonna benefit from diversification by us stacking it on top. And that’s through the Return Stack DTS suite that we have launched. And, you know, 20 years of trying the other way did okay. 3 years into this, into saying 60/40 plus, and we’re at $1.5 billion. So, you know, it clearly is a, meeting people where they are is the way to go. And hopefully we can inch ’em closer to the optimal portfolio over time.
Thoughtful leverage and the LICE framework
Monetary Metals
I want to ask you about leverage. Obviously, we’ve discussed and kind of talked about leverage in a lot of these different parts of our conversation. When investors hear leverage, they think, uh-oh, risk. Uh-oh, I’m going to become the next Situational Awareness. I’m going to use leverage, something’s going to go wrong, and next thing you know, my portfolio is going to be gone. So talk to us what it means to use thoughtful leverage, which is what you’ve mentioned throughout this conversation.
Rodrigo Gordillo
Yeah, look, leverage is a real risk, and like, it should be something you understand. If we’re honest, every major financial disaster we have read about at the root is leverage, right? But when you examine what went down in those situations, whether it’s the LTCM crisis or 2008 or quantitative strategies that have gone awry, it comes down to avoiding what we call LICE, okay?
Nobody wants LICE. And LICE stands for leverage, the L, that is illiquid, Illiquid, concentrated, and excessive. Okay? Every major disaster has come from illiquidity or overconcentration or excessive leverage. The LTCM was levering up a bunch of bond portfolios, long and short, 100x. Okay? Like, that’s probably a bad idea. The 2008 portable alpha crisis where people were using this idea of, you know, grabbing bond portfolios, selling it down, buying bond futures, which leaves you with cash, get that cash, buy private equity, private credit.
In a way, probably private credit, private equity, bad idea, right? Because when you want to rebalance, you can’t get your money back, you blow up. And so illiquidity is a problem. And then of course, concentration. What we’re seeing with the 3x bull or the long triple long Tesla or SpaceX going the wrong way, well then your money goes to zero. That’s something you need to avoid. Listen, I come from Canada. The Teachers’ Pension Plan, Canadian pension plan are known to be some of the most sophisticated pension plans on the planet with the best returns and the most stability.
Every one of them use thoughtful leverage. And what does thoughtful leverage mean? It means lots of liquidity, not too much diversification across your book so that if one thing blows up, the rest of your portfolios is likely going up and you’re using leverage on the portfolio level rather than the individual security level. That is what I mean by thoughtful leverage. And we also talk about like if you’re stacking something, Do you want to stack more S&P 500? That’s more concentration. I’d rather people stack what we call defensive leverage, right?
Asset classes that tend to offset when equities are going down. We’ve seen how gold can go up when equities are going down. We have seen how managed futures in 2022 were up over 20% when bonds and equities and gold were going down, right? So So you gotta be thoughtful about what you are stacking on top with leverage. And if you get those things right, you not only have a more resilient portfolio, a portfolio that is likely to have lower peak-to-trough losses, lower volatility, but also because you are stacking these things on top, should expect a higher rate of return above your 60/40.
Monetary Metals
So maybe we gotta amend the quotation, avoid ladies, liquor, and lice. Rather than just pure leverage. That’s right.
Rodrigo Gordillo
Ladies that earn lice. I like that.
Monetary Metals
All right, Rodrigo, before we end, I want to get us into a rapid-fire round. So I’ll ask you questions from all over the map. You can answer as short or as long as you like. So first question, what’s something that everyone should know about Peru?
Rodrigo Gordillo
When you go to Peru, everybody’s going to want you to go to the most expensive and well-known restaurants. What you should do is look at the star ratings for the local joints, which tend to have Fresher fish, better food, and fantastic experience.
What Latin America’s currency crises teach us
Monetary Metals
All right. I like it. All right. Next question for you. Still in the South America questions. Obviously, some countries in South America have really been on the rise. Other ones have kind of fallen. What do you use to try to explain, hey, you know, this country went into hyperinflation while this other country is really thriving? It seems like there’s so much volatility in terms of the outcomes of different areas in Central America and South America. What is your mental model as to why some countries in this area are thriving while others are failing?
Rodrigo Gordillo
A lot of it has to do with different cultures and what their history has come from. Like you’ll see there’s a very populist tilt across Latin America, obviously, but some more than others. Certainly after what happened with Pinochet in Chile and with the influence that the US had in redoing their economy and the constitution, it created a stable infrastructure that is very difficult to change and modify regardless of who the new leader And so because of what they went through, Chile tends to be fairly stable, and they have a lot of scar tissue that reminds them like we shouldn’t veer too far off.
Interestingly, after the scenario that I talked about in Peru, one of the things that the U.S. did with Fujimori when he came in, he dissolved Congress and rewrote the constitution with again the U.S. coming in and saying, “Here’s how a proper constitution, here’s how you can protect it from other people trying to to modify that.” And so what’s happened in Peru, which is wild, there’s. Been dozens of presidents, especially in the last couple decades, that should create—should wreak havoc in the economy and business making and business dealings from international investors.
My view—this is my view alone—is that none of these people have been able to change the constitution and contract law in any real way, which is the base stability of the economy. You look at other nations in Latin America that have had way more volatility, Those are the guys that are rewriting their constitutions where, you know, they didn’t have that big aha moment. There’s just a consistent fluid change of government and laws that don’t allow any long-term stability to be built out. And then of course, then you have the extreme cases like Venezuela, which is pure—Venezuela, Cuba, which is pure extortion and, you know, despotic kind of leadership that happened because of one big event. And it’s tough to get out of, as we can see.
Monetary Metals
I want to ask you about that hyperinflation scenario that happened in Peru. And of course, we’ve seen it happen in Venezuela as well. Is there something that US investors can learn from that experience? Obviously, anytime the Fed does something, you’ll hear gold people say, oh, hyperinflation’s right around the corner. And if inflation’s 9% annualized, that’s the worst it’s been in the US in decades. So this hyperinflation beast is really sometimes just used as a fear mechanism. But what can we learn from this experience? Obviously overnight, it’s unlikely that the US dollar will face that same scenario, but what should investors reasonably try to understand from, you know, a nearby country and nearby neighbors that have had this type of currency crisis?
Rodrigo Gordillo
You know, there’s a benefit of being the reserve currency for sure, and there’s a level of stability there that we cannot deny, right? It’s in Latin American countries where you, at the time, especially in many countries, had, we had pegged Currencies, the, you know, Argentina recently went through something like this and is continuing to go through it. There’s a lot more vulnerability and likelihood of a hyperinflation scenario when you just cannot continue to meet the payments that you had offered your populist base to pay for free services using your local currency while pegging to the US dollar.
The US doesn’t have that issue right now, you know, and it took a global pandemic for every nation in the world to say, we are going to print a ton of money and deal with the consequences after. Now we know that something, not to a hyperinflation extent, but something like what we saw in the ’70s, which was, you know, that you’ve—I’m sure people have seen that meme of the US dollar, kind of how much purchasing power it lost, like a single dollar bill losing its purchasing power over 6 years in the ’70s.
We have seen and continue to see something very similar since COVID Unlikely for the G7 nations to fall to a hyperinflation scenario. It is a reminder that the risk is not zero and that any asset class you hold your ledger in is risky. And so if every asset class is risky and they have different risks attached to them, you need to do something different.
Where gold’s risk premium comes from
Monetary Metals
I want to ask you now about gold as an asset class. Obviously, we’ve talked about where we think this premium or this return premium comes from. Sometimes it’s illiquidity, sometimes it’s volatility. Where do you think this premium for gold comes from? Obviously, at Monetary Metals, we pay yield on gold. In general, people think, well, gold doesn’t have a cash flow, so I got to give up some cash flow there. But where do you see the return coming from, from gold as an asset class?
Rodrigo Gordillo
Our thesis on this comes down to the—like, it is an actual risk-based premium. And you can go back to the early ’70s and prior to that where the risk of owning gold was zero, right? There was, the volatility was zero. It was guaranteed by the US government for every dollar. Well, was it 1 to $33? At one point it was 1 to 1. You could exchange that and have no risk and therefore no premium of owning any gold whatsoever. It was just something that was just as good as a dollar bill.
The organization that was taking on the global macro risk were the governments. If you’ve read any books on gold, you know how crazy the dealings between nations around gold and trying to maneuver situations to gain gold and corner markets and countries and put them in a bad position are. There’s a lot of risk being a nation that had to deal with a pegged gold dollar. The moment they depegged gold to the currency, that risk transferred over to the investor. And so an investor now took on the volatility.
Monetary Metals
Right.
Rodrigo Gordillo
to own gold and you were compensated for the risk of a monetary debasement and you were decompensated for the risk of a stable economy. Then there’s monetary stability. You bought gold, you lost, right? You lost money. You took a risk and there’s volatility there and didn’t go your way. Dollars were better than gold for a while.
But because that there is a risk of owning this, and I think we can all assume that governments have moments of discipline but largely on average are not disciplined, that by owning gold and taking the risk of lowly disciplined governments, that you should get compensated for taking the ride. Much like we get compensated for taking the ride in equities and we get compensated for taking the ride in long-term duration, you should get compensated for gold. And that’s precisely what we’ve seen since the ’70s, a risk premium that is comparable to that of equities.
Monetary Metals
So when you say, hey, listen, you got to take a ride either way, depending on what asset class you choose, there’s no real risk-free return. A lot of people felt, well, if I own bonds, that’s a risk-free return. I know I’ll get the principal and the interest. Now, of course, the price of the bonds might change, but do you think that that idea is starting to have cracks in the foundations where people say, well, the US Treasury, they’ll never default, the bonds are the risk-free rate, and this is what I base my life off on in terms of financials? Do you think that there’s some idea that this is starting to crack? People are starting to say, you know, I’m not so sure about this whole Treasury bond thing in terms of its risk-free guarantee.
Rodrigo Gordillo
It’s fascinating to see how little that’s changed in the wealth management space. So it’s happening, but it’s happening slowly. The likelihood of the US government saying, hey, listen, we’re not going to pay you, is also zero because it can print money. Every nation can print money. The issue, it’s a boiling frog phenomenon, right? You don’t kind of see it. You’re going to get your $100 back.
Okay, well, what can that—those $100 10 years from now, buy—you buy the same suit, you know, like the famous suit that you could buy with the same amount of gold? No, you’re not going to be able to. And so it’s one of those things that you get your nominal dollars back and you got paid your yield, but it’s really tough for people to say, okay, well, now let’s test what that value is in real terms. And so this transition is going to be slow.
And like I said, there’s going to be moments of discipline where sovereign bonds are going to have a cycle upwards when equities go down and there’s going to be disinflation because the economy’s having a rough go. And so the risk isn’t zero is what you’re alluding to, but it’s also not whatever we believe Treasuries to be in right now. The likelihood that that is already priced in right now, all the things that we’re talking about, the debasement is already there.
The question is not what has happened and what the people believe it to be. The question is, are they still going to be of value? for an investor in terms of a positive risk premium for the risk you’re taking on duration in the future. And I think, yeah, I think you’re likely in a full lifetime to have bond durations provide a return above cash. It’s just going to be a wild ride, a wilder ride than normal.
AI and a future nobody can predict
Monetary Metals
I want to now transition to this idea of a wild ride in our lifetimes, which is very likely to be this AI transition where not only companies but the whole economy is using AI. They’re transitioning to AI. There might be job losses from AI, but there might also be job gains from AI. Do you think that because of this volatility of the different scenarios, maybe AI is going to have abundance, maybe there’ll be this big bust?
Do you think that basically the different quadrants from, you know, inflation good, inflation bad, disinflation good, disinflation bad, do you think we’re going to be bopping around those 4 quadrants? And this is just another argument, hey, gold, all-weather portfolio, because right now, as opposed to these other periods of times where you kind of knew what the next 20 years were going to look like, that the next 20 years are going to be just really different because of AI.
Rodrigo Gordillo
They’re certainly going to be different. And I, again, doubling down on the likelihood of it being a volatile and uncertain period. But if we look back over the last 2, 3 years and the predictions that were made then about AI, right? And we’re going to have this massive productivity boom, that everybody’s going to lose their job. How long have we been talking about trucking drivers not like being unemployed forever, what it seems. And none of that has come true.
There’s more employment. There’s in this transition, for whatever reason, there seems to be more desire for software developers, which is wild, right? Like your intuition wouldn’t have told you that a couple of years ago. And so maybe there’s a breaking point. Maybe we all just move up a level and do all the—think about all the tedious stuff that we’ve done and that we no longer have to do.
And there is a productivity boost. So it’s just really difficult to tell. Everybody calls it the singularity, the moment where you don’t know what’s going to happen in the future, as if we weren’t always in the singularity in our lifetime. We’ve always been in the singularity. I’ve yet to meet anybody that ex post knew what they were talking about the future. I just don’t have a lot of trust in anybody’s ability to tell us what something is going to be like. And in the absence of that, you have to be prepared for all scenarios.
Building an All-Terrain Portfolio
Monetary Metals
Well, that’s why our audience tunes into the Gold Exchange Podcast. Rodrigo, I want to see if I can kind of summarize this investment thesis and see if you can kind of correct me where I get it wrong. On the way end of one barbell is gold. It’s been around for 5,000 years. You know it’s going to exist. You know people are going to like it. It doesn’t have counterparty risk. It’s basically the most Lindy of all assets. It’s been around, so we think it’s going to be around.
Every person who has a grandfather that left them some gold has been Like, thanks, Grandpa. Now oppose that to the way other side of the barbell are these newfangled investments, whether they’re cryptocurrencies or new stock markets or new bubbles in AI or 1,000 other things where maybe it’s up for a little while, but then it goes away or goes down for a while. And then there’s something in the middle. You want something that says, hey, listen, we want the benefits of assets that have been around.
They’re time-tested in different regimes, in different environments. They kind of just work. And Not one asset like gold, because sometimes gold works, but sometimes other things work better than gold. And that’s where you get this all-weather portfolio. You have stocks, you have bonds, you have gold, you have some other assets, you have futures, and it kind of gets you that, hey, I’m not missing out on the hot new thing, but I’m also not just sitting here in gold waiting for, you know, the world to go to heck in a handbasket, but it never does. Is that kind of where the Rodrigo Gordillo thesis sits in the all-weather portfolio?
Rodrigo Gordillo
Yeah, it’s an explicit recognition of our ignorance. Is the way I would describe it. It’s understanding why the assets in your portfolio are likely to have returns above cash with the understanding that any one of them in our lifetime may not. And being okay with that and saying, okay, what can I do in order to minimize the chances that the one thing I’m in may not do well is to diversify across assets that are fundamentally structurally different from each other.
And will respond to inflation and growth regimes in different ways. And once you put that together and the magic ingredient being humility, then you can put something together and say, hey, I feel like I have something that if I close my eyes and 20 years go by, I’m not going to get burnt. And I think that’s the all-terrain portfolio in a nutshell, plus some thoughtful leverage so you can actually get compensated for the time and trouble you put in to make one of these portfolios.
Monetary Metals
All right, last question in the rapid-fire section, which is about your investment thesis or your investment philosophy. How has it changed over time? I imagine there’s little 4-year-old Rodrigo, you know, he doesn’t know about the 60/40 portfolio or gold or stocks. And then of course, over time, you’ve maybe changed your investment thesis. How has it changed over time? What are the things that you got right and what are the things that you’ve gotten wrong?
Rodrigo Gordillo
In the beginning, of course, my formative years were about how family educated me on or what I saw, right? Which is again, real estate, then real estate to tech. And then after that being like, okay, well, well it’s diversity. And I think what’s—it all started with a permanent portfolio, Harry Browne’s permanent portfolio that is basically a quarter cash, a quarter gold, a quarter global equities, and a quarter long-term treasuries. And that portfolio to the day has proven to be as resilient as ever. But again, low volatility and being like, we don’t want any leverage.
To then saying, okay, well, I have these 4 asset classes. What else can I use? Then learning about the managed futures space, which in my view, if you look at all the hedge fund categories that exist, the most diversified, the thing that is the most different from these 3 asset classes I just mentioned is that, and it’s been around for 40 years and it continues to perform. And there are fundamental reasons for why they exist. Tacking that on was a game changer.
And then understanding the value of leverage and saying, okay, wait, I get it. Harry Browne wanted a 4-ball, 4% annualized return portfolio. I’m a 28-year-old. I want to take some risk. And knowing that I could take as much risk or more risk than equities while maintaining my diversification. So it went from single asset to Harry Browne to managed futures to leverage. And then The final evolution in terms of educating people on all this is saying, I can’t convince the world.
There’s a subgroup of people that will do that. Where can I help the most people? And it’s okay, stick with what your 60/40, can I use my 1+1 ETFs, $1 S&P 500, $1 managed futures for you to sell 10% of your equities, buy this ETF, you get 10% of your equities back plus an extra 10% of managed futures or gold. And so on. So the full circle is single asset to maximum diversification to meet people where they are. And who knows what the next chapter’s going to look like.
Monetary Metals
All right, Rodrigo, before we end, what’s a question I should be asking all future guests of the Gold Exchange Podcast?
Rodrigo Gordillo
So I imagine you have a lot of macro managers and macro managers tend to have a lot of good stories about You know, what’s going on and they’re super compelling. The question is, how does the story align to the bet and what size should that bet be and how long should I be placing that bet? Because these are all the things that don’t connect. You get these great stories, they’re gone, they’re trading outta their portfolio the next day or maybe the next week, or maybe they’re, as you know, you come back and like, my thesis hasn’t ended. I have a 2-year timeframe. So important questions are, How does your story align to the bet I should make?
Monetary Metals
Fascinating as always, Rodrigo. I’m sure people are going to want to learn about the Return Stacked ETFs. Where can they get more information and of course follow your work?
Rodrigo Gordillo
Yeah, you go to returnstackedetfs.com. There is, uh, 7 ETFs there that we have built that have gold stacks, gold Bitcoin stacks, managed futures trend, managed futures carry. So there’s a wide variety of diversifiers that are there that are stacked equity, US equities, global equities, or bonds. It’s the pick of the litter. It’s again, trying to meet people where they are. What does your portfolio look like? And then how does it fit? How can you stack the things and how much of a stack do you want? Up to you. There’s loads of literature in the literature section there for people to get educated on. And obviously they can reach out to the team if they want to go deeper.
Monetary Metals
Rodrigo, it is always fascinating getting to talk to you. Thanks so much. And we’ll have to have you back on again soon.
Rodrigo Gordillo
Thanks, Ben. It was a pleasure.
