The Rational Reminder Podcast

Even among rational investors with diversified portfolios, there seems to be less known about the inner workings of the bond portion of their investments. Here on the show today to help us get a better understanding of fixed income investments is none other than Dave Plecha, Global Head of Fixed Income at Dimensional Fund Advisors. Dave is one of the authorities on the subject of bonds and is amazing at articulating the concepts at play in this arena. This conversation goes in-depth, but is also a great starting point for investors to begin thinking about this part of a portfolio, and deepen an understanding of something that is so often misunderstood or misused. As you will hear, Dave has a real passion for this subject and has been presenting and speaking on precisely this work for the last twenty years. We cover a lot of ground with Dave, talking about why his approach might be confused with a certain type of market timing, the impacts of inflation, the current low interest rates and if these affect bond investments, an explanation of forward rates, and so much more that you will not want to miss. We even find time for a quick story about Dave's early days working with Eugene Fama, so make sure to stay tuned in for that.   Key Points From This Episode: Assessing the role of bonds in a portfolio, in relation to the current low interest rates. [0:02:30.3] Concerns over negative interest rates for bond investors. [0:05:30.1] Bonds and real returns; the impact of inflation on Canada's market. [0:09:30.7] Dave's perspective on the argument for long bonds as diversifying assets. [0:15:39.4] Comparing and contrasting the bond market with the stock market. [0:17:55.7] The trading of bonds and what differentiates it from trading stocks. [0:22:29.5] The volatility of last March and Dave's reflections on trading during that period. [0:27:17.8] Differentiating Dimensional's approach to bonds from the other big firms'. [0:29:21.7] The primary factors that influence expected returns in fixed income. [0:31:40.4] Understanding forward rates and the information they provide about expected returns. [0:37:26.7] Building better investing strategies using forwards rates. [0:40:43.5] Clarifying expected premiums for maturity in a variable maturity strategy. [0:44:06.7] Dave explains why market timing does not work with regard to fixed income. [0:46:30.4] Quantifying the differences in expected returns from the index and Dimensional. [0:51:01.7] A great argument from Dave for maintaining a diversified approach to all investments. [0:52:31.51] The connection between present observable credit spreads and future realized payments. [0:55:48.5] The game-changing development of Trace in the bond market. [0:59:40.2] Applying the Dimensional approach as a do-it-yourself investor. [1:05:57.7] A great story from Dave about his early days working with Eugene Fama. [1:10:25.2] How Dave defines success in his life and work these days. [1:11:30.1]

Today our main topic expands on a recent episode in which we talked about what constitutes good financial advice, and here we look at how to go about finding the kind of advice that you want and need. It is one thing to know what it is, but that does mean it is straightforward to locate an advisor or firm that provides it. After our opening salvo of some media recommendations and a review of the fascinating book on different ideas on leadership, called The Starfish and the Spider, we dive into a listener question about where to geographically weight your investments and the idea of underweighting the US equity of your portfolio. This leads to a much bigger consideration of the research, which we try to breeze through, and in sum seems to lead us back to the idea of the non-predictability of markets. For our main subject, we share an extensive list of questions to ask yourself before even beginning any conversations with advisors, and using your answers to determine the kind of advisor you need. From there, we get into the questions you can ask the advisor and firms you approach in order to make sure you find the best fit for your needs. We talk about credentials, investment philosophies, firm policies, and everything in between, and we will be posting this full list on our community platform for your reference too. Stay tuned for today's Talking Sense card, and Bad Advice of the Week too, and make sure to tune in for the great guests we have lined up in the coming weeks.   Key Points From This Episode: The positions that we are currently looking to fill here at the podcast! [0:05:48.2] This week's book of the week: unpacking The Starfish and the Spider and its lessons on leadership. [0:09:53.1] Looking at an interesting blog post about the power of systems over goals. [0:12:57.8] A listener question dealing with underweighting US equity in comparison to emerging markets. [0:14:40.5] Plotting trend lines and the inconsistent relationship between forecasts and outcomes. [0:23:02.4] Adjusting the standard errors, when using overlapping data samples. [0:27:48.3] Bootstrapped simulations for defining predictability and market timing. [0:29:20.2] Good financial advice and how to make sure you find it. [0:32:02.8] The three channels through which you can access advice; commission-based, asset-based fee advice, and fee-only. [0:33:30.2] The conflict of interest that arises with us delivering our thoughts on this topic. [0:36:28.8] Credentials and qualifications to look out for in Canada and abroad. [0:38:20.3] Starting with what you want from an advisor and departing from clearly defined goals. [0:41:12.7] Questions to ask yourself before selecting an advisor about your assets, self-management, and more. [0:45:22.8] The conversations to have with your chosen type of advisor; services provided, compensation, and more. [0:48:55.2] Getting to grips with the investment philosophy of an advisor and their firm. [0:54:50.1] This week's Talking Sense segment: choosing between a lump sum or installments. [0:57:28.2] Bad advice of the week and the seven reasons to own individually-managed portfolios of stocks. [0:58:14.6]

Today we are so happy to welcome the amazing Katy Milkman to the show. Katy is the author of the impressive and inspiring new book, How to Change: The Science of Getting from Where You Are to Where You Want to Be, and in this episode, we get the inside scoop from her about her work, with specific attention to how it can be applied to investment and finances. Emerging from an engineering background, Katy has a powerful and unique skillset to be tackling the social sciences, and we hear from her about how this path has impacted her thoughts on data quality and the areas she has chosen to research. Our guest shares some very interesting and sometimes surprising information on the idea of fresh starts, commitment devices, and ambitious goals, before we tackle the fascinating subjects of laziness and confidence in relation to our saving habits. Listeners can expect to come away with some renewed reasons for data-driven decisions as well as some new impetus to double down on healthy change. We cannot recommend Katy's book highly enough, so tune in to hear what she has to say and make sure to purchase this amazing read.   Key Points From This Episode: Unpacking the idea of a 'fresh start' and the ideal times for this. [00:02:26.2] Instances when fresh starts might be harmful instead of helpful. [00:07:28.1] Better methods for adhering to goals around saving money. [00:12:04.6] Commitment devices and how these can aid people in avoiding dipping into savings. [00:19:04.3] The value of ambitious goals and the impacts of different kinds of goal setting. [00:22:13.7] Using the power of a new identity in the process of goal setting around retirement savings. [00:26:00.8] Katy's suggestions for taking responsibility for independent saving. [00:29:58.7] Thoughts on laziness; utilizing this inherent tendency for our benefit. [00:31:43.6] Katy's perspective on habit-forming; habit loops, consistency, and triggering certain behaviours through rewards. [00:35:40.6] Decision-making and confidence; how much it matters and how to increase it. [00:42:11.4] More productive conversations around advice, assistance, and expertise. [00:46:31.2] The influence of community on our success; how determinant the people around us are. [00:49:38.6] Considering the permanence or perpetual struggle of behavioural change. [00:52:20.6] How accountability and the role of third parties can initiate meaningful change. [00:54:21.1] Katy's concerns over data quality and how this has impacted the areas of her research. [00:55:24.9] How Katy defines success in her life: leaving the world a better place and enjoyment. [00:56:49.8]

Today we get the chance to take some very interesting listener questions and dig into fascinating findings on day trading in 2020. To kick things off we have a quick review of Simon Sinek's insightful new book, The Infinite Game before rounding up some of the news from the investing space. Then it's time to tackle a number of questions from a member of our thriving community and break down some helpful responses to queries about bonds, retirement, convexity, different types of ETFs, and more. We were lucky enough to draw on some great wisdom within our network of advisors to help us answer these complex questions, so you will not want to miss the specifics that we dive into. From there, we dive into the main course of today's show, exploring the topic of day trading in 2020. With the rise of mobile trading on apps like Robinhood, there has been a spike in what some may call casual or free trading. We unpack some of the surprising and not-so-surprising findings on the impact of Robinhood's model, looking at the community's trend towards herding and how the smartphone platforms are changing the way people invest. The main conclusion here may not be a big surprise to any of our listeners, with the higher frequency of transactions leading to worse returns in the long run. For all this, plus some Talking Sense questions cards, and a whole lot more, listen in with us.   Key Points From This Episode: This week's book review of The Infinite Game by Simon Sinek. [0:06:02.7] News from the world of investing: Vanguard's latest move into indexing, and more. [0:10:30.8] A series of listener questions dealing with bonds and retirement. [0:15:51.2] An argument for federal government bonds when prioritizing liquidity. [0:18:26.7] Understanding convexity and 'bullet' portfolios in this context. [0:20:36.7] Ten-year treasury ETFs versus all duration ETFs. [0:23:52.4] Weighing provincial bonds and their lack of liquidity against Canada's governmental bonds. [0:26:12.1] Looking into what the research shows us about day trading during last year. [0:29:01.6] Available data on Robinhood users and their general tendency to herd investments. [0:33:40.7] The losses incurred by the Robinhood community during herding. [0:38:29.0] Digging a little deeper on transaction costs and how this actually plays out at Robinhood. [0:44:20.1] Market efficiency as it relates to these new ways of 'free' trading. [0:48:29.6] Another round of Talking Sense cards; things to save and decision hindsight. [0:52:32.1] Bad advice of the week courtesy of Canada's big banks. [0:59:18.6]

The work of Bill Schultheis has had a profound effect on us here at the Rational Reminder Podcast, and eventually having him join us on the show is truly an honour! Bill is the author of the Coffeehouse Investor series and is currently the Principal and Senior Advisor at Soundmark, in Kirkland, Washington. Throughout his career Bill has dedicated himself to helping his clients make the choices that best serve them and their particular needs, and his approach has continued to grow and improve over the decades he has been in the game. We have a wonderful conversation with Bill, charting his course from his early days on Wall Street, to writing his first book and starting Soundmark, to where is today. Bill gives us some great insider insight into the important concepts from his books and also talks about current issues in the financial world, like the impact of cryptocurrencies. Towards the end of our conversation, we get even more philosophical with our guest sharing some thoughts on what constitutes a 'rich life', and the importance of listening to your heart when it comes to your big decisions. So for this and much more from an inspiring and sensible voice, be sure to join us today!   Key Points From This Episode: Bill's upbringing on a farm in Washington with a large family. [0:04:16.2] The route that Bill took to publishing his first book as a way to share the wisdom of indexing. [0:06:40.7] The beginnings of Soundmark and the first clients that Bill started helping. [0:10:13.4] Bill's most recent book and the three ground rules it lays out for readers. [0:12:36.3] Unpacking the 'coffeehouse investor' model portfolio. [0:18:20.7] How Bill approaches and explains diversification to his clients. [0:21:54.7] Thoughts on presenting data and challenging strongly held views from clients. [0:23:14.1] The impact of cryptocurrencies and commission-free trading on indexing. [0:25:53.6] Comparing the commonly held investing approaches of now and the 1990s. [0:29:01.0] The approaches to wealth building that Bill recommends to younger people. [0:30:52.7] How a persistent attitude served Bill when looking for a publisher for his book. [0:33:07.4] The basic strengths and weaknesses of index funds. [0:34:56.3] Bill's idea of a 'rich life' and what this means to him. [0:39:55.2] How to 'dial in your power settings' with your financial planning and common mistakes to avoid. [0:41:19.2] Listening to your heart and finding the financial and professional life that feels right. [0:44:52.7] How dissatisfaction can lead to unhealthy spending habits! [0:48:37.5] Bill's thoughts on the FIRE concept; pros and cons of adopting the philosophy. [0:50:31.4] The impact that The Millionaire Next Door has had on Bill's life and work. [0:51:48.2] How Bill defines success and the value he places on kindness. [0:52:51.7]

Welcome back to another episode of the Rational Reminder Podcast, where we give you the most considered and evidence-based information about investing in Canada. Our focus for this episode is the topic of tax loss harvesting, a subject we have touched on before but felt warranted a revisit, with some updates. To kick off the show, we review Playing to Win, looking at the illuminating perspective it offers with regards to strategy and preparation. From there we turn to some recent investing news on ETFs and Robinhood, before we get into the main course of today's show. There are plenty of pitches and arguments for why tax loss selling can be very rewarding, and while these are not necessarily false, there are certain ways in which the information can be misleading, or not comprehensive for all investors. We discuss how best to think about the supposed gains, noting the importance of high expected returns and the time frame in which a case study is made. We also think about some of the potentially negative results of letting tax drive your investment decisions, despite the seeming attractiveness of this route. One of the most important points here is the adjustment needed in order to apply these strategies to the Canadian market, as many of the pitches and research are based in the US system, which has significant differences when it comes to taxation. We highlight some red flags to look out for and give some more general warnings around rushing into investments that lean too heavily in this direction. So for all this and a bunch more great advice for your portfolio, join us for the show.   Key Points From This Episode: This week's book review of Playing to Win by Roger Martin and A G Lafley. [0:08:43.3] Continued increases for ETFs and comparing the statistics with recent history. [0:12:30.7] Some amazing statistics about Robinhood users and cryptocurrency investments! [0:15:18.5] A reintroduction to, and revisited analysis of, tax loss harvesting. [0:18:20.8] The best times to consider tax loss selling; waiting for high expected returns. [0:27:55.5] Recent findings on the tax alpha and modifying the arguments and assumptions. [0:33:20.5] Creating a new base case to work from with some helpful adjustments. [0:38:41.3] The importance of the time period when looking at historical returns for tax loss selling. [0:43:10.1] Cases in which we believe tax loss selling makes the most sense. [0:46:14.3] Looking at the tax implications of pooling funds with other investors. [0:49:02.7] Locating these tax loss strategies within a specifically Canadian context. [0:52:18.5] A couple Talking Sense cards dealing with leading and following, and protection. [0:55:25.5] Bad advice of the week; looking at pensions in the UK. [0:58:03.5]

Today we welcome Rob Arnott to the show! Rob is the founder of Research Affiliates and is a prolific writer who has published hundreds of articles for many different journals. We know firsthand, the power of Rob's work, and how it can alter the way you think about investing, and this depth of knowledge, coupled with his ability to make complex topics understandable makes him a dream guest for us! Rob is the co-author of The Fundamental Index, and we get some insight into this subject along with many other groundbreaking areas he has worked on. We cannot stress enough the rarity of Rob's gift for getting difficult ideas across in a deliberate and approachable way, and this is apparent through this illuminating conversation. For us, it was quite surreal to speak to someone so influential, and listeners can expect to come away with a greater understanding of 'smart-beta', intangible assets, forecasting, and some insight into the interesting areas of earnings dilution and 'the big market delusion', before Rob shares some very surprising information on factor momentum at the end of our chat. So for this and a whole lot more, in a truly stand-out episode, be sure to listen in!   Key Points From This Episode: Rob's perspective on the drawbacks of cap-weighted indexing. [0:02:47.2] Getting to grips with 'smart-beta' and its links to RAFI. [0:06:21.6] Building a fundamental index and what the weights are based on. [0:11:17.4] Misconceptions of the value of backtesting when making investment decisions. [0:13:43.3] The prevalence of extreme factor-drawdowns for investments. [0:17:22.7] Weighing the importance of intangible assets and what to trust in this regard. [0:23:32.8] Value stocks in the current drawdown; value's relative cheapening over recent years. [0:25:53.8] Stories about the inner workings of a company and how this can vary in importance. [0:28:41.5] Unpacking 'the big market delusion' and the paper that Rob co-authored on the subject. [0:33:33.2] Rob's work on earnings dilution and how it relates to bubble-formation. [0:37:00.9] How the findings on earnings dilution impact strategies towards disruptive industries. [0:40:19.9] Forecasting the expected returns of a factor portfolio and utilizing Research Affiliates website! [0:44:03.0] The possibility of adding value through timing exposure to factors. [0:47:26.7] The truth about momentum in historical back-tests in the last few decades. [0:49:12.8] Rob explains the real costs of trading! [0:55:42.7] Momentum's primary existence in factors, ahead of individual stocks and sectors. [0:58:44.8] How Rob currently defines success in his life. [1:07:38.7]

The looming issue of climate change has far-reaching implications, not least of which are relevant to the financial and investment world. Today we spend some time considering these impacts, with a focus on the question of whether climate risk is a priced investment. The short answer, conferred by the numerous academic explorations into the subject, is yes. This answer, however, still leaves investors with many options and contrasting possible approaches as to how to act. We get into some of the different avenues to explore when considering your best route, taking into account both ethical constraints and returns, as well as a long-term vision of sustainability. We also talk about why big companies with less of a focus on ethics may be tempted to go green for financial reasons, how investors might enact a moral stance by investing in fewer green companies, and many more surprising possibilities that arise out of the current findings. Rounding out all this serious discussion, we squeeze in an interesting book review from Hans Rosling, some Talking Sense questions, and of course, bad advice of the week, all of which you are not going to want to miss.   Key Points From This Episode: This week's book review, looking at Hans Rosling's Factfulness. [0:08:09.2] Recent financial and investment news; penalties, TFSAs, and a big shift from Wealthfront. [0:14:36.7] The question of climate change and markets connected to the use of fossil fuels. [0:19:04.5] Expected rate of returns in relation to the costs of capital, and the idea of climate hedging. [0:26:46.2] Looking at empirical evidence on the pricing of climate risk. [0:28:40.1] Recent scholarly findings on the subject of whether climate risk is priced. [0:31:50.3] Summing up the academic arguments for why and how pricing of climate risks operates. [0:38:35.7] The cost of capital incentives for companies to reduce their exposure to climate risk. [0:40:19.3] Participating in the transition of companies to greener and more sustainable practices by investing in them. [0:45:12.9] Financial needs for different age groups, at the beginning and the end of a lifetime. [0:48:17.6] Personal savings goals versus generosity towards loved ones. [0:51:47.2] This week's Bad Advice of the Week: making inflation trades in cryptocurrencies and gold. [0:53:27.1]

One of the major topics we hope to help our listeners with is retirement planning, and today we have a really informative and illuminating conversation with a true expert in the field, Don Ezra. His approach is typified by his focus on retirement and happiness, and their important intersection, subjects he has broached in his many published books, notably Life Two, and Happiness. Don is a self-professed financial nerd, so you know that he will fit right in on this podcast! His advice is relatable and easy to understand, a result of working on his own retirement along the way. Don is an actuary by trade and helped establish Russell Investments Canada in 1984, through which he worked on many huge pension funds across the world, endowing him with amazing expertise in the space. In our conversation, Don gives us such a wide-ranging view of his approach, and the amazing conglomeration of ideas he has amassed on the subject of better retirement, or as he likes to call it, graduation from full-time employment! He breaks things down in easy and catchy ways, giving us some fundamental questions that can help initially guide the retiree, around purpose, action, and money. From there he talks about the seven asset classes of your life's abundance portfolio, needs versus wants, and even finds a spot to comment on the strengths and weakness of the FIRE philosophy. So for all this and much more, join us on the Rational Reminder today!    Key Points From This Episode: Don's feelings around the time of his retirement from such a successful career! [0:02:10.4] The common feeling of discombobulation around retirement and Don's thoughts on addressing it. [0:03:41.2] Questions people should be asking and answering as they approach retirement. [0:06:45.8] Safety, growth, longevity; the three things we need for our finances in retirement. [0:08:49.7] Don explains the sequence of returns and some misconceptions about averages. [0:10:21.1] Weighing the uncertainty of life expectancy against that of random stock returns. [0:12:24.8] Better ways to calculate life expectancy for individuals and couples. [0:15:15.7] Don's advice to the average person looking to build a diversified portfolio for retirement. [0:16:54.1] How Don has approached his own portfolio and generating retirement income. [0:21:10.8] The importance of flexibility and adjusting a retirement budget over time. [0:23:48.7] When retirees should be seriously considering annuities. [0:25:52.1] The dimension that inflation adds to these questions for people in retirement. [0:27:49.4] Assumptions that Don uses for his life expectancy planning. [0:34:06.1] Calculating what is needed against what you have; Don explains the personal funded ratio! [0:36:33.7] Lessons that Don learned during his work with huge pension funds before retirement.[0:38:35.4] The question of filling one's time in retirement; staying busy and maintaining purpose. [0:41:29.5] Don breaks down the seven asset classes of your life's abundance portfolio. [0:45:22.1] A look at the different parts of the FIRE movement and its success and failures. [0:48:38.5] A few approaches to challenge below-average advice from any expert. [0:50:42.1] Fostering healthy ambitions and dreams for the years of your retirement. [0:55:24.5] Better conversations with family around money, inheritance, and financial planning. [0:57:21.2] The emotional legacy that Don views as the success of his life! [1:01:16.8]

Welcome back to another episode of the sensible money show. The focus this week is the age-old question of housing; whether to buy or to rent. After our preliminary remarks, book review, and a new TV recommendation, we get down to brass tacks on the important things to look at when assessing your living situation. There are some commonly held views on the expenses and sacrifices associated with real estate, and we do our best to share some of the facts as they stand. We get into some meaningful ways to truly compare the costs of each option, looking at the financial aspects, risk, quality of life, and related psychological elements to the debate. The truth is that there will be costs associated with each, but that they may not always lie where you think they do! For instance, it is commonly believed that it is less risky to own than to rent, however, the evidence suggests otherwise. Similarly, many of us assume that the costs of owning a property are greatly diminished once it is paid off, again, this is not necessarily true. Our main argument here is to base your choices on factors more closely related to your physical and mental health, things like stress and relaxation due to noise and travel times.    Key Points From This Episode: This week's highly recommended book, Noise. [0:05:37.3] Unpacking the new article by Larry Swedroe titled 'The Misguided Faith in the Fiduciary Standard' [0:11:50.7] A few thoughts on FIRE, positive psychology, and moral judgments. [0:16:49.2] The big decision that so many of us are faced with: buy or rent? [0:20:41.7] Flawed logic around mortgage payments and rental costs. [0:25:55.5] Opportunity and maintenance costs and the truth about depreciation. [0:29:51.7] Equating the total costs of renting and owning and making a judgment based on this. [0:36:53.8] The ratio of prices to rent in Canada currently and in the last few decades. [0:39:47.9] Risk and homeownership; why renting is less risky in many ways. [0:40:50.8] Keeping the focus on living a good life when making real estate decisions. [0:45:15.7] The surprising relationship between owning a property and a sense of control. [0:49:16.8] Weighing all the factors and making an informed decision based on wellbeing. [0:55:30.4] This week's Talking Sense segment dealing saving, speed of decision-making. [0:56:08.8] Bad advice of the week: Fidelity's investment initiative aimed at teenagers. [1:00:34.4]