The Rational Reminder Podcast

In our conversation this week, we take a deep dive into factor investing. We are joined by the formidable Antonio Picca, Head of Factor Strategies at Vanguard, to help us navigate this complicated topic. Antonio is one of the largest asset managers in the world, with over seven trillion dollars under management. Among his credentials is a Master's in Finance and Economics from the London School of Economics, as well as a Doctorate in Finance and Economics from Chicago, where he was also a teaching assistant with Gene Fama. During our discussion, we cover a broad series of questions on factor investing, while also venturing into deeply technical territory. We examine how one might make the transition to factor investing after gaining confidence in passive investing and unpack important questions around factor investing and risk. Another fascinating topic we cover is how factor investing resembles active investing, including some crucial distinctions. Next, we take a look at some of the negative connotations of active investing and investigate why those issues may not apply to factor investing. Antonio goes on to explain why factor investing is a natural extension of a broad equity market investing and illustrates how it aligns with Vanguard’s philosophy, which is a belief in low-cost, long-term focus, and broad diversification. You won’t want to miss this excellent opportunity to gain a deeper understanding of factor investing from one of the leading experts in the field. Tune in today to hear it all!   Key Points From This Episode:   Introducing today’s guest Antonio Picca, Head of Factor Strategies at Vanguard. [00:00:17] How Antonio would explain factor investing to an existing Vanguard client who's already sold on the idea of low-cost, cap-weighted index investing. [00:03:16] Why clients need to be educated on factor investing, and why factor investing is a form of active investing. [00:04:31] The benefits of targeting other factors in addition to the market risk factor. [00:05:20] Some of the drawbacks to a strategy that targets other factors in addition to the market risk factor. [00:06:41] How Vanguard helps clients determine whether factor investing is the correct course of action for them. [00:08:19] The role that cap-weighted investing plays in the structure of factor products when capital forms the core of your investing, and factor portfolios are secondary. [00:09:35] How investors should think about sizing their factor position, relative to their market cap-weighted position. [00:11:12] How they decide which factors to target in Vanguard's product lineup. [00:12:37] Vanguard’s approach to capacity when considering factors. [00:15:03] How Vanguard decided to target momentum as a standalone factor. [00:16:24] More on the liquidity factor and how Vanguard is targeting it. [00:17:40] A breakdown of what the value factor is. [00:20:12] Why factor investors should want to be active, rather than follow a factor index, despite the negative connotations that come with active investing. [00:22:25] Why negative connotations of active aren’t applicable to active factor investing. [00:24:27] The frequency with which factor funds need to be rebalanced to effectively capture the factor premiums. [00:25:52] Instances where it is possible to quantify the benefit of more frequent rebalancing, or more flexible rebalancing. [00:27:01] Some of the days in early 2020 where there were market movements of multiple percentage points and how Vanguard made decisions accordingly. [00:28:05] Antonio's thoughts on the prospect of quantifying premiums for factors. [00:30:46] The paper that Vanguard is currently working on to determine whether it is possible to time factor premiums, or whether investors maintain consistent exposure to them. [00:32:32] How factor investing is different from traditional active management. [00:33:51] Some of the instances where a factor portfolio can replace an active manager. [00:35:40] Antonio’s experience leading the factor group at Vanguard during a period when large-cap growth stocks have dominated so powerfully. [00:36:43] How Antonio addresses client concerns that factor premiums have changed or decreased. [00:39:30] Antonio’s thoughts on winner-take-all companies and their proliferation. [00:41:47] What Antonio advises investors should be looking for when they're choosing a factor fund. [00:45:49] Some insights into how Antonio’s clients are using factor products. [00:47:15] How Antonio approaches combining multiple factors. [00:48:33] Antonio shares his thoughts on do-it-yourself investors implementing factor portfolios and why he thinks advisors are essential. [00:50:21] How Antonio defines success in life and investing. [00:54:38]

Today we welcome Rob Carrick back to the show to talk about a range of interesting topics, focusing on the Canadian housing market and some of the recent developments from the banking and investment space. Rob has such a balanced and measured approach, qualities that are visible in his long-standing work at The Globe and Mail. We start today's episode with some fun recommendations of books and TV content, before diving into the meat of our conversation. Rob weighs in on the range of perspectives on whether to rent or buy, offering the assurance that renting is a completely acceptable way to manage your needs and means. He also comments on the utility of robo-advisors, the impacts of the recent banking regulations, and shares his surprise at which of his articles have proved most popular. We always feel like we should have Rob on the show more often, and this episode is such a good argument for that very idea. So, to hear all Rob has to say, be sure to join us today.   Key Points From This Episode: This week's book and TV recommendations; Impeachment, Capital, Trillions, and more. [0:00:39.2] A call for applicants here at PWL Capital, and some recent reviews for the show. [0:07:17.7] Looking at an excerpt from Azeem Azhar's book, The Exponential Age. [0:11:45.4] A recent study comparing renting and buying in Canada. [0:18:18.6] Rob's observations on the new banking rules in Canada and what they mean for the advisor community. [0:29:27.2] Thoughts on trends in the banking space and the roles of financial professionals. [0:36:07.1] Canada's adoption of indexing: measuring the speed of changes in the country. [0:38:38.7] The role of robo-advisors and why Rob believes strongly in their value. [0:41:48.5] Rob weighs in on the debate of buying versus renting property. [0:44:39.6] Generational flows of money from boomer parents to millennial and Gen Y children. [0:50:52.3] Rob's message to Canadians feeling like they are stuck renting. [0:54:24.1] Some of Rob's most popular articles from over the years. [0:55:20.7] Lessons from Sweden's housing market and considering Canada's possible future. [0:59:03.6] A round of Talking Sense cards with Rob dealing with most prized possessions, lending, and happiness. [1:02:26.3] Assessing some of Robert Kyosaki's recent comments on a looming crash. [1:08:29.1] The present is exciting in finance; why Rob is enjoying the ride. [1:14:22.5]

For this week’s episode (our longest to date), we get together with the legendary Professor Campbell R. Harvey and take a deep dive into a diverse range of topics that draw on his incredible breadth of knowledge and extensive research. Campbell is the Professor of International Business at Duke University and is also a Research Associate at the National Bureau of Economic Research. In 2016 he served as the President of the American Finance Association, and from 2006 to 2012 he occupied the incredibly demanding role of Editor for the Journal of Finance. One of his earliest achievements was identifying the inverted yield curve’s ability to predict a recession, a highly regarded metric that is near-ubiquitous in its implementation. For the first half of our conversation, we focus on his research in areas like skewness and emerging economies. We cover specific topics like the factor zoo, why it’s problematic, and how Campbell, along with his student Yan Lui, found through their research that approximately half of the published empirical research in finance at the time was, in fact, false. We also unpack his most downloaded paper entitled The Golden Dilemma and get into the intricacies of why gold is an unreliable inflation hedge. For the latter half of our conversation, we hear about Campbell’s latest book DeFi and the Future of Finance along with his most recent research. Discover how Campbell first became interested in the topic several years ago and decided to put together a course for his students. We also delve into the rise of decentralized finance (DeFi) and how we can expect it to shape global finance, trading, and the future of the internet. Join us today for this essential episode on everything from the pitfalls of academia, to emerging markets, to Bitcoin, and much more!   Key Points From This Episode:   Introducing this week’s guest Professor Campbell Harvey. [00:02:46] How Campbell’s research brought him to Chicago's Ph.D. program. [00:03:55] How Campbell identified that an inverted yield curve had preceded the past four recessions and could be a reliable economic predictor. [00:07:03] Hear about Campbell’s research on skewness, as opposed to simply mean and variance, which is often the focus of portfolio theory. [00:11:40] Why it’s surprising that skewness is still largely disregarded in favor of mean and variance. [00:16:42] Why mean and variance are insufficient for measuring risk when comparing a concentrated portfolio with a more diversified portfolio. [00:20:45] Some of the special considerations that Campbell prioritizes when assessing emerging markets in context and managing an overall portfolio.[00:22:04] Observations on the cost of capital being higher before integration and liberalization. [00:25:11] The implications that Campbell’s research on emerging markets has on asset allocation. [00:26:51] Dynamic asset allocation, Campbell’s research in emerging markets, and how those lessons can be applied when investing in emerging markets at a time when the cost of capital is high. [00:30:04] The factor zoo, why it’s problematic, and how it is caused by data mining. [00:32:26] How Campbell and his student Yan Lui estimated that half of the published empirical research in finance was false and how this has occurred in other industries due to data mining. [00:33:02] How economic incentives from the investment industry inform research. [00:39:38] The important distinction between academic research and practitioner research, and asset management. [00:44:15] The extent to which asset management research could be considered to be more reliable than academic research. [00:47:23] Some of the mistakes that investors make when they pursue these factor premiums that have been identified [00:49:29] Machine learning and its impact on investment decisions for retail and institutional investors. [00:56:06] Whether the benefits of potential alpha from machine learning will be passed on to investors or remain within a firm as their scale increases. [01:00:22] Campbell’s research on traditional active management within the context of a firm’s ability to continue delivering alpha in the future, and how that incrementally decreases as their asset base increases. [01:06:23] The arguments in favor of allocating gold to a portfolio, especially at times of higher inflation, and whether it holds up to scrutiny. [01:09:54] How technological changes can affect the real expected return. [01:16:51] Why gold can be a valuable asset in diversifying your portfolio. [01:17:22] How Campbell became interested in DeFi, cryptocurrency, and blockchain technology. [01:19:19] How digitized finance cuts out the inefficiency of having a middle person and fosters inclusion and financial democracy. [01:26:35] Harvey’s thoughts on how cryptocurrencies facilitate criminal and fraudulent activity. [01:31:07] How DeFi could disrupt traditional asset management and how to prepare for those changes. [01:36:43] How to invest in DeFi even though it’s decentralized. [01:38:33] How companies can increase their revenue by using cryptocurrencies in their transactions. [01:43:24] Why the current wave of FinTech will be replaced by DeFi. [01:44:58] Why it’s important to have a very diverse portfolio when investing in DeFi. [01:51:22] How DeFi will allow people to monetize their content and disrupt the money that Google and Facebook make from their users’ data. [01:52:22] Some of the risks of DeFi and investing in cryptocurrencies. [01:55:27] How Campbell defines success: positively impacting the world. [02:00:17]

For decades, owning a home has been seen as a hallmark of the ‘American dream’ and a major life milestone. While we take it for granted that home ownership is good, we make the argument in today’s episode that, from the perspective of subjective well-being, owning a home isn’t necessarily the key to happiness. This conversation covers the non-financial aspects of homeownership and why owning a home isn’t necessarily superior to renting one. This is supported by data from a number of different studies that describe the relationship between experienced happiness and life evaluation, and how the decision to buy or rent relates to effective forecasting, for example. Benjamin unpacks concepts like focalism, hedonic adaptation, and buyer's remorse, as well as social comparison and happiness when it comes to material purchases like homes. He concludes with the following words of wisdom: buying a house will not make you happy, but that doesn’t mean it’s a bad decision. During the course of today’s episode, we also touch on Shane Parrish’s The Great Mental Models Volume 3: Systems and Mathematics, how individuals engage in panic selling according to the recent MIT study, ‘When Do Investors Freak Out?’, and some of the listener discussion points that arose from our in-depth conversation with John Cochrane in Episode 169. Tune in today for all this, plus so much more!   Key Points From This Episode:   Find out why you should listen to Tim Ferriss’ interview with Micheal Dell. [0:07:06] Today’s recommended book: The Great Mental Models Volume 3 by Shane Parrish. [0:08:05] Unpacking how individuals engage in panic selling according to the MIT study, ‘When Do Investors Freak Out?’ [0:11:10] We weigh in on three top Canadian banks halting sales of third-party mutual funds in preparation for Know Your Product (KYP) rule reform. [0:13:53] Ben highlights some listener discussion points following the John Cochrane episode. [0:16:34] Learn how predictable returns result from unpredictable cashflows in the long run. [0:18:23] What this means for long-term investors: focus on cashflow payoffs, not returns. [0:18:59] Why stocks are less risky for long-term investors if returns are predictable, which introduces horizon effects and impacts portfolio theory. [0:20:49] Key takeaways: outside income streams as additional asset classes, value versus growth, pure wealth investors versus labor market investors. [0:21:42] Introducing Ben’s topic for this week: does owning a home make you happy? [0:28:15] Some perceptions about the correlation between homeownership and happiness. [0:29:53] Why the non-financial aspects of renting might make it superior to home ownership. [0:31:50] Expanding on the 2011 paper, ‘The American Dream or the American Delusion?’ [0:32:10] Conclusions from the 2019 paper, ‘Homeownership and Happiness’, that Swiss homeowners are no happier or even less happy than renters. [0:33:57] The relationship between ownership and slightly elevated reflective life satisfaction; the difference between experienced happiness and life evaluation. [0:34:15] Ben reflects on how the decision to buy or rent relates to affective forecasting. [0:35:02] Focalism: how experience is shaped by how we spend our time rather than more stable circumstances like paying for housing. [0:37:50] How to deal with poor affective forecasting, hedonic adaptation, and buyer's remorse by making smaller, more frequent experiential purchases. [0:41:26] What Elizabeth Dunn and Michael Norton have to say about homeownership in Happy Money. [0:43:14] Social comparison and happiness when it comes to material purchases like homes. [0:43:57] How housing impacts life satisfaction: quality, economic effects, prestige, freedom. [0:46:09] Ben on how working from home can exacerbate possible issues for homeowners. [0:51:28] Concluding this topic: why homeowners are not automatically happier than renters. [0:52:05] Personally, Ben shares why he would rather own more of his time than his home. [0:53:27] Suggested reading, including Positive Psychology and The Happiness Hypothesis. [0:54:35] Talking Sense: whether success is based on money, cost versus value, and more! [0:57:38]

Today's conversation is an extremely enlightened and highly detailed one, that you may want to return to, in order to accrue all of its value. We host John Cochrane, an economist specializing in financial economics and macroeconomics. John has a popular blog and podcast called The Grumpy Economist and also hosts the GoodFellows Podcast. He is a Rose-Marie and Jack Anderson Senior Fellow at the Hoover Institution and a senior fellow at Stanford Institute for Economic Policy Research, and was a Professor at the Booth School of Business at the University of Chicago. In this fascinating chat, John shares so much of his expertise, going in-depth on the subjects that we and our audience are constantly exploring and excited about. We discuss long-horizon stocks, market inefficiency and return predictability, classic portfolio theory, risk-less assets, and performance evaluation. John also shares his perspectives on the future of centralized finances, digital and cryptocurrencies, and where the business of financial advice is headed. So for all this and more from a leader in his field, be sure to join us for this great episode of the Rational Reminder.   Key Points From This Episode: Breaking down the basics of why stock prices go up and looking at the market as a whole. [0:02:05.8] The information contained in valuation ratios about long-horizon stock returns. [0:04:25.3] Market inefficiency and return predictability; unpacking the opinions on the correlation. [0:07:17.8] What the research on available information and market timing tells us about predictability. [0:12:59.6] Under-appreciating risk and asking important questions about dividend growth in the future. [0:18:46.5] The huge impact that predictability can have on classic portfolio theory. [0:22:36.2] Volatility aversion and communicating important concepts across divides. [0:28:11.7] John explains the risk-less asset for the long-term investor. [0:30:12.6] Using the example of bonds to get to grips with performance evaluation. [0:36:26.8] Unpacking the roots of wealth inequality and the best perspectives for understanding it. [0:40:30.4] Misguided thoughts about the market and the usefulness of keeping general equilibrium in mind. [0:44:14.1] Market portfolios and the zero-sum game; hedging state variable risk. [0:52:40.5] Decisions about the ability to bear the value risk premium and allocation. [0:58:10.7] John's thoughts on the future of financial advice. [1:01:27.8] Describing the fiscal theory of the price level and its predictions about inflation. [1:06:03.6] Cryptocurrencies and value maintenance; John's perspective. [1:13:12.8] Assessing the longevity of traditional or centralized finance. [1:19:15.4] John's own definition of success in the different areas of his life. [01:22:06.1]

Today we have a somewhat unique episode for all of our listeners, rounding up the news and information from the world of finance and investment before we welcome Ben Rabidoux back to the show. Ben was a guest on Episode 96, which aired early during the pandemic last year, and we are so happy to have him here for another appearance, to touch in with his real estate expertise, and his thoughts on the current issues facing the Canadian housing market. Ben is the Founder of Edge Realty Analytics and North Cove Advisors and is essentially a real estate analyst, which means he has many clients that are institutional investors and fund managers, who he helps with the real estate side of their portfolios. In this conversation, Ben gives us loads of insight into the current landscape of Canadian real estate, the roots of the contemporary conditions, and what the data can teach us about the high prices that are so prevalent at present. We also hear from Ben about some potential policy solutions, and how the pandemic has affected the rental market. So for all this and a whole lot more in today's episode, be sure to join us on the Rational Reminder Podcast.   Key Points From This Episode:   Some of the best media we have encountered recently; podcasts, documentaries, and more. [0:02:01.3] News from the community and why we had to ban a user for the first time. [0:03:46.1] Quick book reviews of the illuminating DeFi and the Future of Finance and Blockchain Bubble or Revolution. [0:07:05.8] Changes in the world of finance and investment; Walgreens' new bank account and beyond. [0:12:22.3] Today's listener question dealing with research-based investment decisions and frequently cited papers. [0:15:27.5] Recent research from Robert Novy-Marx and Fama and French on US value premiums and factors that matter. [0:22:01.3] How to view the possibility of a replication crisis in finance. [0:31:10.8] Findings on US exceptionalism and the relationship between national economic growth and returns. [0:33:49.6] Market crashes and the correlations between different countries. [0:37:12.6] Reflecting on Ben's appearance on the podcast during the early weeks of the pandemic. [0:39:38.3] The last few decades of the 20th century and how that explains the current climate. [0:43:50.2] The chronic issue of under-supply of housing from the industry. [0:45:30.1] Housing policies that would support the current rates of population growth. [0:48:20.4] Examples and thoughts on the recent house price increases. [0:48:48.6] Statistics of homes bought by investors; surprising numbers and data on purchases. [0:52:58.2] News from the rental market and the interesting ways the pandemic affected it. [0:57:05.1] Common Canadian perspectives on the potential for housing pricing to decline. [1:00:58.4] Ben's thoughts on possible solutions to the current problems in the housing sector. [1:03:47.6] The significant role of the private debt market in Canadian real estate. [1:08:02.2] What we can learn from historic data about the current housing prices. [1:12:15.1] Ben joins us for a round of questions from our Talking Sense cards about savings, happiness, and flow states! [1:15:27.4]

In many episodes of this podcast we refer to the psychological component of investing, and today we are very happy to host a global authority on the subject and share an absolute masterclass about behavioural psychology as it relates to our finances and the decisions we make. We welcome Professor Hersh Shefrin to the show, who is the author of many books including the seminal Beyond Greed and Fear, which he wrote in the last 1990s, and still holds much value and relevance in today's climate. Professor Shefrin is kind enough to share some reflections on how his understanding of the themes discussed in the book has evolved since those days and unpacks some great pieces from the book for listeners to digest. We get into some specific and technical questions about investing, looking at pursuing the alpha, momentum, and index funds, before our guest also weighs in with some broader, more philosophical responses to our queries. The conversation covers the psychological needs of investors, expected returns, and of course biases. Listeners can expect to come away with a clearer and more detailed picture of ideas we often reference, so make sure to join us for this incredible exploration with Hersh.   Key Points From This Episode:   The key message about market psychology from Beyond Greed and Fear. [0:03:23.1] Beyond Greed and Fear's three themes: heuristic-driven bias, framing effects, and inefficient markets. [0:04:39.3] Reflecting on these themes in a modern context and how our understanding has been refined. [0:12:53.6] Considering index funds in light of market efficiency frameworks. [0:21:08.3] Assessing one's ability to pursue the alpha and Professor Shefrin's advice to this end. [0:27:14.1] Possible reasons for large numbers of active money managers at institutions. [0:30:20.6] Understanding risk-based asset pricing models and expectations of higher returns when investing in riskier stocks. [0:34:41.8] The impact of behaviour-based versus risk-based explanations for investors. [0:40:00.2] Utilizing momentum in a portfolio: Professor Shefrin's explanation of this interesting phenomenon. [0:41:58.6] Comparing the current trading landscape with the advent of online trading in the '90s. [0:46:25.5] The addictive potential of stock trading; what we know about the neuroscience. [0:49:02.3] Unpacking the idea of growth opportunities bias and implicit assumptions about averages. [0:52:14.4] Weighing the relevance of the mean-variance framework to individual investors. [0:57:48.2] 'Carrying a psychological call option'; why Professor Shefrin's depicts advisors in this way. [0:59:09.3] Professor Shefrin's perspective on the interchangeability of dividends and capital gains. [1:04:42.9] The big influence that Professor Shefrin's uncle had on his career! [1:08:53.1] How Professor Shefrin defines success in his personal life and career. [1:12:12.7]

In this week’s episode, Cameron and Benjamin share what’s on their mind and delve into listener questions on subjects ranging from the CAPE ratio to how to go about changing someone’s mind. Tuning in you’ll get a preview of some of the formidable guests featured on future episodes, like John Cochrane and Hersh Shefrin. We also cover book recommendations and unpack the concept of libertarian paternalism from the highly influential best-seller, Nudge: The Final Edition by Richard Thaler and Cass Sunstein, and how it can be a force for good. We cover various facets of passive investing and index funds including how, despite its proven effectiveness, many people continue to take a dim view of it. Learn why certain personality types may be more drawn to active investing and why. We also share tips for reasoning with skeptics, including some useful questions to ask when things get heated. Next, we take an in-depth look at index funds and global returns over the last century based on the research of Dimson, Marsh, and Staunton and their book Triumph of the Optimists. We also answer questions from our Talking Cents Cards and take a look at the best bad advice from the previous week. This episode is packed with fascinating anecdotes and excellent recommendations that you won’t want to miss! Tune in today!   Key Points From This Episode: We reflect on some of the reviews and feedback we’ve received over the past week. [0:03:00.7] An overview of the guests that listeners can look forward to on future episodes. [0:06:15.8] Talking Cents Cards and how they can introduce your family to conversations about money. [0:07:01.2] Introducing Nudge: The Final Edition by Richard Thaler and Cass Sunstein, and the concept of libertarian paternalism. [0:08:50.0] Cameron shares his story of the week, an article from Magnify Money on how emotions can influence investor decisions. [0:13:53.3] An update on our response to a listener question on the CAPE ratio by discussing the work of John Cochrane on determining predictability. [0:17:24.2] We unpack a listener question on whether one should be looking to convert family members who fit into the average, active investor archetype. [0:21:47.6] What Benjamin has learned from Think Again by Adam Grant, about how to talk to people you disagree with. [0:24:15] How Benjamin experienced a revelation on index funds. [0:29:28.5] An examination of index funds and global returns over the last century based on the research of Dimson, Marsh, and Staunton and their book Triumph of the Optimists. [0:36:30.3] An in-depth look at how global events factor into Dimson, Marsh, and Staunton’s data. [0:39:35.9] How dictatorships, civil troubles, wars, unsuccessful economic and monetary policies, and communism have prevented countries from transitioning from emerging to developed. [0:42:43] Cameron and Benjamin answer a Talking Cents card question by sharing the first big purchases that they saved up for. [0:50:47.6] Cameron and Benjamin answer a second card question: What is a creative way to save money in today’s digital era? [0:52:53.8] Hear this week’s bad advice from an Entrepreneur article titled: 7 Downsides to Passive Investing and Why it Can Be Bad for Your Portfolio. [0:54:09.2]

The evergreen subject of retirement planning is something that we prioritize here at the Rational Reminder Podcast, and today we have a very interesting conversation in which we explore the topic from a slightly different perspective. We are joined by Gordon Irlam, who is a notable researcher with a wealth of experience from the world of tech and beyond. We have the chance to ask Gordon about bonds, annuities, and optimal allocations for different outlooks, and also get his perspective on charitable giving, effective altruism, and different spending plans. Gordon has conducted some amazing research and even developed his own tools to help investors calculate the variables of their situations. This episode is a great gateway for listeners to explore these concepts, as well as make use of Gordon's resources. Our guest's personal story is equally fascinating, after working with Google early on, and subsequently starting a company that was then acquired by Google, Gordon has leveraged his experience and finances in order to continue asking questions that interest him and will definitely interest our listeners. So for this standout conversation with a great mind, be sure to take a listen.   Key Points From This Episode: Looking back on the Google equity that Gordon sold and how he feels about the decision now. [0:03:00.8] Google’s acquisition of a company that Gordon started and the impact of this financial windfall. [0:04:33.1] Gordon's explanation of effective altruism and how he utilizes the idea. [0:06:25.3] Approaches to asset allocation for foundations and how this differs from personal funds. [0:10:28.7] Comparing practitioner and economist approaches to financial planning. [0:15:59.7] An explanation of stochastic dynamic programming and its strengths. [0:17:45.5] Why Gordon now favors reinforcement learning over stochastic dynamic programming. [0:20:12.6] Considering the role of annuities in Gordon's optimal model for retirement planning. [0:25:05.3] Constant spending versus variable spending in the optimal retirement plan. [0:27:55.2] Gordon's practical advice for entering retirement and tracking spending. [0:29:35.8] Exploring mean reversion in stock returns for tactical planning. [0:32:16.6] A message from Gordon about fixed guaranteed income and the value of long-duration inflation index bonds. [0:35:18.7] Advice to younger individuals and investors; the importance of saving. [0:36:18.9] Thoughts on possible future innovations for the problem of better portfolio building. [0:37:45.3] Gordon's definition of success: the ability to work on interesting and important problems. [0:40:26.2]

Today’s episode is the first that takes a new format we are piloting, where we compile clips from the most valuable conversations we have had in different episodes on a given topic. To kick it all off we will be devoting this episode to inflation-adjusted retirement spending and the nuances of the 4% rule. We start off with a clip from our conversation with Bill Bengen, creator of the 4% rule, where he explains the concept. From there, we pull up an excerpt from an interview with Wade Pfau, hearing him weigh in on how this rule only works in the context of the US and Canada. Next up, Fred Vetesse talks about the changes in stock and bond yields and how they further problematize the 4% rule. After that, Professor Moshe Molevsky makes the case for flexible spending, followed by Michale Kitces with his favourite variable spending rules. We grab a segment from our chat with Scott Rieckens where he argues that the 4% rule should be seen as more of a guideline for making financial decisions than a rule. Bill Bengen’s interview then features again as we hear his comments on the effects of small-cap value stocks and cyclically adjusted price-earnings on safe withdrawal rates. Tune in for this fascinating set of highlights, the main point of which is that the 4% rule should rather be used as a guideline for financial planning and that where actual spending is concerned, a flexible approach is more sensible.   Key Points From This Episode: Bill Bengen, creator of the 4% rule, explains how the concept relates to inflation-adjusted retirement spending. [0:03:50.8] Wade Pfau speaks about how the 4% rule doesn’t work in an international context. [0:09:15.0] Fred Vettesse lays out the contrast between today and the period Bill studied. [0:12:31.1] The importance of having flexibility in retirement spending with Moshe Milevsky. [0:14:51.8] Variable spending rules with Michael Kitces; ratcheting, guardrails, and more. [0:19:27.3] Scott Rieckens on the 4% rule as a tool for making financial decisions. [0:32:33.8] Bill Bengen comments on the problems that have been found with the 4% rule. [0:38:35.7] The effects of small-cap value stocks on the safe withdrawal rate with Bill Bengen. [0:42:52.8] The effects of cyclically adjusted price-earnings on safe withdrawal rates with Bill Bengen. [0:47:20.6] Final thoughts on the 4% rule with Ben and Cameron. [0:51:37.8]