The Rational Reminder Podcast

Ashley Whillans, an Assistant Professor at Harvard Business School, dives into the intriguing concept of time poverty and its impact on well-being. She explains how modern technology creates stress despite offering some leisure time. Whillans discusses the surprising benefits lower-income women experience from having extra time versus money. The conversation shifts to how work-from-home dynamics can exacerbate feelings of time scarcity. Ultimately, she emphasizes the importance of valuing time over money for long-term happiness and well-being.

While there is no way of knowing what the best portfolio is, empirical data and financial economics have fixed the problems surrounding investing. But if we’ve fixed investing, then what’s the point of financial advisors? Today we dive into this topic and reveal why financial advice is still valuable to the everyday investor. We open the episode by touching on our movies and books for the week, as well as the latest from the financial world. We then explore why, despite their failure at making predictions, experts are so important across many industries. After defining what financial advice is, co-host Benjamin Felix systematically unpacks the value that financial advisors provide as they relate to key areas including goal-setting and quantification; asset allocation; understanding your human capital and insurance needs; selecting the right financial products; and tailoring strategies to tax considerations. Later, Benjamin highlights how financial advisors can help investors overcome their biases while helping them align their investing goals with living a meaningful life. We close the episode with our Talking Sense segment, followed by the bad financial advice of the week. When so much data is available, it’s necessary to revisit the relevancy of financial advisors. Join us to hear why they continue to play such a valuable role in helping people meet their investing goals.   Key Points From This Episode: Cameron shares the birthday message he received from Seinfeld’s ‘Soup Nazi.’ [0:00:35] We discuss community feedback and the documentary The Last Blockbuster. [0:02:53] Details on financial educator Paul Merrimen, our next guest. [0:06:10] Updates on podcast merchandise and shipping times. [0:07:32] Elon Musk and Mark Carney; hear about our books of the week. [0:09:00] We talk about the latest from the financial world. [0:10:14] Introducing today’s planning topic: What is financial advice? [0:18:40] The role of financial planners when index fund investing is so easily available. [0:19:45] Exploring what financial advice is and what it isn’t. [0:23:37] We unpack the link between goal-formation and quantification and sound financial advice. [0:24:35] The challenge of trying to predict what will make us happy in the future. [0:27:07] Happiness, life satisfaction, and goal-setting as it relates to financial advice. [0:29:00] Pricing your goal and avoiding the hedonic trap of never ‘having enough.’ [0:32:00] Asset allocation as key to the value of financial advice. [0:34:02] Quantifying human capital and your insurance needs. [0:37:00] Why knowledge of financial products is the basis of financial advice. [0:37:50] How taxes impact investing strategies. [0:39:05] Why managing wealth and getting financial advice is an iterative process. [0:40:02] How financial advisors help you eliminate biases that affect decision-making. [0:40:40] The many reasons that people seek expert advice. [0:43:28] We summarise the arguments for the value of financial advisors. [0:47:00] Advice on determining a financial advisor’s level of expertise. [0:48:34] Hear our answers to the profound questions posed in our ‘Talking Sense’ section. [0:51:02] Courtesy of TikTok, we share our bad financial advice of the week. [0:53:30]

How do your perceptions of time influence your long-term decision-making and financial well-being? Today we speak with psychologist and UCLA Associate Professor Hal Hershfield to answer this abstract question. We open our conversation with Hal by exploring the concept of well-being. After chatting about the factors that impact financial well-being, Hal unpacks the balancing act that’s required to live in the present while safeguarding your wealth to support your future self. Hal shares exercises that can help you develop a more vivid sense of your future self and we discuss how this can lead to better financial decisions. We then dive into the role that free time plays in determining your well-being, leading into a discussion on how financial advisors can steer their clients towards achieving their idea of well-being. Returning to the notion of your future self, Hal shares insight into the importance of self-compassion, dealing with life and preference changes, and how hitting age milestones lead to periods of personal reflection and financial reevaluation. Later, Hal gives listeners his take on annuities and how retirees perceive them. We wrap up another informative episode by looking into the link between perceived wealth and spending before touching on how Hal views success. Tune in to hear more about Hal’s research and how it can give you a stronger and deeper conception of your financial future.   Key Points From This Episode: Introducing today’s guest, decision-making expert Hal Hershfield. [0:00:03] Exploring the definition of ‘well-being.’ [0:02:28] Ways that Hal measures well-being. [0:03:46] How financial behaviours and psychological factors impact financial well-being. [0:05:17] Hear how your relationship with your future self affects wealth savings. [0:06:52] Hal talks about how we can get closer to our future selves. [0:10:14] Reflecting on exercises that can help you imagine your future self. [0:13:14] We ask Hal when the present and the future begin. [0:17:01] The link between well-being and your perception of your present and future self. [0:20:32] Distinguishing between your present and future self versus having no distinction. [0:22:18] Whether not having little free time is detrimental to life satisfaction. [0:23:51] Hal discusses whether people would rather have more time or more money. [0:28:06] How financial advisors can help people achieve higher well-being. [0:30:59] How changes in your chronological age can trigger moments of reflection. [0:35:48] Differences in how retirees view lump sum and monthly income streams. [0:41:49] Helping people get a clearer idea of the value behind annuities. [0:44:42] How people can develop opposing ideas about when they’ll die. [0:47:33] Hal’s work on the relationship between meaning and spending. [0:49:21] Hear how Hal defines success in his life. [0:52:40]

Where do stock returns actually come from? The answers to this deceptively simple question might change your investing perspective. We dive into this foundational investing topic after sharing community updates and chatting about our books and TV series of the week. A key concept in understanding where returns come from, we unpack how stock returns are impacted when companies migrate across size and value portfolios. While exploring how migration differently affects value and growth stocks, we also break down why book equity and growth drive capital gains for growth portfolios but not for value stocks. Linked to this, we discuss stock convergence as they relate to growth and value stocks. Looking deeper into the stock returns, we assess research on why valuation changes in asset classes are critical in determining expected returns. We touch on how valuations lead to an unfair depiction of international stock performance before asking: how justified are valuation changes to value and growth stocks? From understanding stock returns, we jump into our mini-planning topic on Canadian work from home tax reductions, followed by our Talking Sense segment. We wrap our conversation by sharing some bad financial advice. Join us to hear what it is, and to learn more about the anatomy of stock returns.   Key Points From This Episode: More updates from the community and co-host Benjamin’s battle bot building. [0:00:20] Hear about The Defiant Ones, our TV series of the week. [0:02:50] From The Coaching Habit to Elon Musk, we share our latest book reviews. [0:04:50] Introducing our investing topic: the anatomy of stock returns. [0:10:00] Exploring how changes to a stock type affect value premiums and returns. [0:13:40] Why small stocks tend to have high returns compared with big stocks. [0:17:00] Understanding the value premiums that underpin stock types. [0:18:45] What happens when a stock improves in type. [0:21:32] Factors that lead to price increases in growth and value stocks. [0:25:19] The concept of stock convergence and how convergence impacts value and growth stocks. [0:28:45] Behavioural explanations for the capital gains of value and growth stocks and the role played by stock drift and convergence. [0:32:25] Whether historical returns tell us anything about expected returns. [0:34:15] Why you should always include international stocks when assessing value stock performance. [0:39:18] Using value spread to determine expected value premiums. [0:41:39] We ask the question, “what if the trend in valuation changes to value and growth stocks are justified?” [0:44:17] Diving into our planning topic: Canadian work from home tax deductions. [0:50:12] How renters get a better deal than owners on work from home tax reductions. [0:52:25] Hear our answers to the profound questions posed in our ‘Talking Sense’ section. [0:54:06] Courtesy of Forbes, we share our bad financial advice of the week. [0:57:16]

We’ve previously compared IPOs to lotteries that are prone to inflated valuations and low returns. Today we welcome “Mr. IPO,” Professor Jay Ritter onto the show for a deeper dive into IPO performance, for his insights into SPACs, and to hear his research into why economic growth doesn’t correlate with stock returns. Early in the episode, Jay unpacks how long-term IPO returns perform against first-day trading. While exploring the role that venture capital plays in tech IPOs, Jay talks about why negative earnings don’t affect tech IPOs in the short-term before sharing how skewness factors tend to impact young companies. Reflecting on how IPOs are usually underpriced, Jay discusses how the interests of companies are not aligned with the interests of IPO underwriters. After looking into IPO allocation, Jay compares the 2020 ‘hot IPO market’ with the internet bubble of the late 90s. Later, we ask Jay about what special-purpose acquisition companies (SPACs) are and why they’ve exploded in recent years. His answers highlight their investing benefits, risks, and why SPACs might be a better option for companies than IPOs. We examine how SPACs have historically performed and then jump into our next topic; why economic growth isn’t a good indicator that a country is worth investing in. He touches on why returns don’t correlate with economic growth, the place of capital gains and dividend yields when investing abroad, and how innovations in an industry can lead to higher stock returns. We wrap up our conversation by asking Jay for his take on whether the stock market is efficient before hearing how he defines success in his life. Tune in to hear our incredible and informative talk with Jay Ritter.   Key Points From This Episode: Introducing today’s guest, finance professor Jay Ritter. [0:00:03] How long-run returns of IPOs perform against the first trading day. [0:03:06] Industry differences in IPO returns and how venture capital affects tech IPOs. [0:03:33] Why it’s not always a bad idea to invest in IPOs. [0:05:22] Whether negative earnings for tech companies affect IPO performance. [0:07:32] Exploring the idea of skewness in IPO valuations and returns. [0:08:56] Jay shares advice on investing in IPOs. [0:11:07] Why IPOs tend to be underpriced. [0:12:44] Whether individuals get IPO allocations compared with hedge funds and brokerages. [0:18:00] The factors that lead to ‘hot IPO markets.’ [0:20:53] How technical innovation is linked to an increase in IPOs. [0:23:32] Whether hot IPO markets tell us anything about future expected returns. [0:26:33] Why 2020 was a hot IPO market and how it compares with the late 90s. [0:28:19] The dubious value of individual investors getting exposure in the private market. [0:30:50] Jay unpacks what special purpose acquisition companies (SPACs) are. [0:33:51] How new SPAC prices are rising despite not having acquired an operating company. [0:37:11] Ways that promoters benefit from launching SPACs. [0:38:34] Whether SPACs are a better route for going public than traditional IPOs. [0:42:44] We talk about the risks and historical performance of SPAC investing. [0:44:06] Jay details the upsides and downsides of investing in SPACs. [0:48:02] Insights into which foreign countries have been the best to invest in. [0:50:11] How industry growth can lead to higher returns in that industry. [0:56:30] What Jay uses to work out expected stock returns. [0:59:58] We ask Jay the big question; “Is the stock market efficient?” [01:04:29] Hear how Jay defines success in his life. [01:05:57]

How we model our expected returns hugely impacts our financial decision-making, with poor models leading us to retire either too early or too late. Today’s episode is a deep dive into two topics: how we model expected returns and how fixed income bonds fit into your portfolio allocation. We open the show by talking about the books and news of the week before unpacking the relationship between bond terms, credit, and fixed income returns. We then explore why it’s easier to forecast the expected returns of bonds than stocks, with insights into how this affects your allocation. After reflecting on the predictive power of yield curves and expected capital appreciation and depreciation, we look into how the forward rate can be used to forecast expected term premiums. Touching on conflicting research, we present our conclusions on how you can determine your expected bond returns while also providing a summary of your risk premiums. We round off the topic by assessing alternatives to fixed income investments. From fixed income, we leap into the world of expected return assumptions and how they can best be modelled. We chat about the dangers of operating from poor expected returns models and discuss the successes and drawbacks of the most commonly used ones. While establishing the predictability underpinning average returns, we explain the limits on using historical returns to forecast expected returns. Later, we open up about PWL Capital’s approach to measuring expected returns. We close off another informative episode by sharing this week’s bad advice and answering left-field questions in our ‘Talking Sense’ segment. Tune in to hear more about the role of fixed income bonds and returns models in your portfolio.   Key Points From This Episode: We touch on future guest Jennifer Risher’s book, We Need to Talk. [0:05:34] Hear about the new Bitcoin ETFs and other cryptocurrency news. [0:08:30] Introducing today’s investment topic; fixed income products. [0:12:45] Approaches to building fixed income portfolios and forecasting expected returns. [0:15:31] Exploring the factors that impact fixed income risks and returns. [0:20:50] Using forward rates to predict your fixed income returns. [0:22:31] Conflicting research on the power of forward rates to predict term premiums. [0:24:52] Why forward rates do contain information about expected term premiums. [0:27:51] What Barclays’ intermediate indexes say about fixed income allocation. [0:31:49] The summarised formulas for expected bond returns. [0:34:03] Evidence on why credit spreads have low explanatory power for default rates. [0:35:07] The main takeaways on how we should view bonds and returns. [0:38:20] Comparing fixed income with cap-weighted indexing. [0:40:27] Why Dimensional Funds looks at credit spreads and yield curves around the world. [0:42:20] Introducing today’s planning topic: expected return assumptions. [0:44:55] How important expected returns models are to financial decision-making. [0:45:55] Different models that are used to derive expected returns. [0:47:20] Planning for short-term versus long-term predictability. [0:50:08] The danger of using historical returns as the basis for your expected returns. [0:53:20] Damodaran’s research on how different forecasting models perform. [0:53:48] Insights into PWL Capital’s expected return models. [0:55:07] We answer questions in our ‘Talking Sense’ segment. [0:59:26] This week’s bad advice; incorporate Bitcoin into your retirement investments. [01:01:36]

Today’s extensive conversation with David Blanchett covers nearly all aspects of retirement planning. As the Head of Retirement Research for Morningstar, David has published extensively on the topic and speaks energetically about how you can best manage your retirement wealth. After a brief digression on Kentucky's Bourbon Chase Relay, we open the episode by discussing how an increase in your pre-retirement income can impact your plan. David shares his insights on what your plan should factor in, including earlier than anticipated retirement, inflation, healthcare costs, and whether you should invest in high-risk options to increase your retirement income. While reflecting on why success rate is a poor metric for weighing your strategy, we then chat about David’s view on flexible retirement spending. A controversial subject for some, we dive into the role of annuities and how different annuities cater to varying retirement scenarios. Later, we touch on how human capital affects portfolio allocation and why it’s challenging to evaluate real estate before hearing David’s take on why financial advice is about helping a client accomplish their goals — and not about beating the market. Tune in for an ever-relevant overview of top retirement planning considerations. Key Points From This Episode: Introducing today’s guest, Morningstar Research Head David Blanchett. [0:00:03] Swapping experiences of running the Bourbon Chase Relay. [0:02:34] How rising pre-retirement income impacts your ability to retire comfortably. [0:04:19] Rules of thumb in how you should approach salary increases. [0:05:21] Why people end up retiring earlier than they expected to. [0:06:47] What percentage of working income retirees should aim to replace. [0:08:06] Whether your retirement plan should cover inflation and healthcare costs. [0:08:59] Using worst-case scenarios to explain the consequences of risky investing. [0:11:52] Why success rate can be a poor metric for retirement planning. [0:13:41] Gauging your minimum and maximum levels of retirement comfort. [0:14:50] David’s advice on implementing a flexible retirement spending strategy. [0:17:23] Exploring the role that annuities play in a retirement portfolio. [0:18:32] How the alpha of your portfolio can be equivalent to annuity benefits. [0:20:11] Conflicts in how financial advisors help you allocate for your retirement. [0:23:06] Further insights into the factors behind whether you should get an annuity. [0:24:47] Why pension benefits have a higher value than most are aware of. [0:28:03] Why bond ETFs can’t recreate the cash flow stream offered by annuities. [0:30:45] Are you a stock or a bond? Revisiting the human capital question. [0:34:10] How your profession might impact your portfolio allocation. [0:36:41] The difficulty of accounting for the value of real estate. [0:38:11] David’s view on how financial advisors can justify their fees. [00:42:09] Evidence showing that those with financial planners have healthy finances. [00:47:18] Hear how David defines success for himself. [00:51:13]

When you see funds performing monumentally well, you may feel regretful for not investing in them earlier. There is, however, a long history of funds that skyrocketed only to have major falls from grace a brief period after. The bulk of today’s episode is spent exploring this idea in the portfolio topic section but before getting into that, we kick the show off with some updates. We begin by talking about the GameStop short and whether this casts any new light on the concept of market efficiency. From there, we take a look at some recent news, particularly one story about the meteoric growth of New York-based investment managers ARK Invest, who recently hit $50B in assets under management up from $3B this time last year. This story acts as a great segue into the portfolio topic where Ben traces a history of funds that performed colossally well for a brief period but then plummeted thereafter. These funds were under the direction of ‘star’ fund managers with a focus on investing in tech disruptors. The discussion acts as a cautionary tale about overpaying for growth leading to poor realized returns. For the planning topic, we continue to shine a light on the ‘Talking Cents’ card game, a financial literacy outreach strategy created by The University of Chicago Financial Education Initiative. We invite the director of the Financial Education Initiative, Rebecca Maxcy, onto the show to speak about some of the thinking around this project and then discuss a few of the questions posed by the cards ourselves. Tune in today!   Key Points From This Episode: This week’s updates: Gerard O’Reilly on The Long View podcast and more. [0:00:25.3] Exploring the theme of questioning our beliefs with this week’s book. [0:03:15.3] News: What does the GameStop short mean for market efficiency? [0:06:10.3] More news: The meteoric growth of the investment managers ARK Invest. [0:12:15.3] Portfolio topic: Why funds with star managers have skyrocketed and subsequently plummeted. [0:15:13.3] Why overpaying for growth leading to poor returns is relevant to indexes too. [0:31:31.3] Do fund returns mean revert? Questions of luck and skill in fund management. [0:39:00.3] Planning topic: Rebecca Maxcy speaks about the ‘Talking Cents’ initiative. [0:45:41.3] Other financial education tools developed by the Financial Education Initiative. [0:52:51.3] Discussing Talking Cents questions about outsourcing financial planning and more.[0:55:09.3] Bad advice of the week: Michelle Schneider’s investing resources. [0:58:33.3]

At a time when the financial community provided inconsistent retirement advice, the 4% withdrawal rate was a data-backed strategy that revolutionized retirement planning. Today we speak with William Bengen, a literal rocket scientist and the influential personal advisor who popularised the 4% withdrawal rate, A.K.A, the 4% rule. After exploring what the 4% rule entails and the impact that it had on the financial industry, we talk about updates that William has made to his theory since first publishing about it in 1994. We then unpack more of the rule, talking about its conservative nature, whether young retirees should adhere to it, and if there are situations where you should break the rule. Reflecting on criticisms of the 4% rule, we ask William about how it fits with the notion of dynamic spending. His answers highlight his approach in helping his clients to maintain the same lifestyle that they have when they enter retirement. Later, we touch on tips to keep track of your expenses, whether you should taper your retirement income, the role of bonds and small-cap stocks in your portfolio, and William’s view that financial planning should be fee and not commission-based. We wrap up by discussing William’s career and how he defines success for himself. For more insights into the 4% rule from the man who created it, tune in to hear our incredible conversation with William Bengen. Key Points From This Episode: Introducing today’s guest, financial advisor and 4% rule creator William Bengen. [0:00:15] Exploring William’s original 1994 research that led to the 4% rule. [0:03:58] Hear why the 4% rule has been so impactful to the world of financial planning. [0:05:06] William shares details about the ‘hate mail’ his findings inspired. [0:06:07] Why William updated his theory to include small-cap stocks. [0:07:43] William’s view that you might be able to get away with withdrawal rates that are higher than 4.5%. [0:08:26] Whether young retirees should adhere to the 4% rule. [0:11:48] The scenarios that break the 4% rule. [0:13:02] How the 4% rule applies in countries outside of Canada and the US. [0:13:55] Insights into how much you should be spending in your retirement. [0:15:28] What your triggers should be if you want to deviate from the 4% rule. [0:17:45] William’s views on dynamic spending. [0:20:09] Tips on keeping track of your expenses and William’s throughs on fixed annuities. [0:21:20] Whether you should taper your retirement income. [0:22:54] The role of bonds versus small-cap stocks in your retirement portfolio. [0:24:04] From rocket scientist to financial advisor, hear about William’s extraordinary career. [0:28:29] Reasons why financial planning should be fee and not commission-based. [0:32:02] Reflecting on the impact that William has made on his client’s lives and in the financial world. [0:32:55] Details on William’s current research and what most excites him. [0:34:48] How William defines success for himself. [0:37:01]

Skewed Factor IPO Investing and Financial Well-being   Episode 134: Show Notes.   Many IPOs start with a bang, resulting in high first-day closing prices that attract retail investors. Today we unpack new and established research to explore how the hottest IPOs compare with average market returns. We open our conversation by first sharing community updates and details about the book and news of the week. After reflecting on how 2020 was one of the biggest IPO years since 2000, we talk about why IPOs tend to release in waves. We then chat about where IPO allocation usually goes and why most investors aren’t given access to huge early returns. A key insight this episode, we dive into how retail investors impact IPO pricing and why IPO buy and hold returns often trail the market. Following this, we discuss the factors that skew IPO prices, why IPOs resemble lotteries, and whether there is an optimal model for when companies make an IPO. From IPOs we jump into our planning topic on well-being and behavioural coaching. We start by looking into the differences between financial well-being and funded contentment. Linked to this, we talk about other forms of capital that range from human and social capital to temporal capital. We examine the factors that impact your well-being before touching on why you should make decisions while considering all your forms of capital. Later, we debut a new feature and then offer our bad advice of the week. Tune in for another informative conversation on rational investing.   Key Points From This Episode:   From building battlebots to what they’ve been watching, hosts Benjamin and Cameron catch-up with listeners. [0:00:23] Rational Reminder community updates and added features. [0:02:53] Being a generalist over a specialist? Hear about the book of the week. [0:06:23] Hear our news roundup for the week. [0:09:14] Introducing today’s portfolio topic: investing in IPOs. [0:15:30] Exploring IPO waves, pricing, and why only high-value investors are given IPO offerings. [0:19:54] How institutions and retail investors impact IPO pricing. [0:23:00] Examining the historical buy and hold returns for IPO stocks. [0:25:37] Why IPO stocks might be the “worst of all worlds.” [0:29:31] Research that shows why IPOs are like lotteries. [0:30:48] How ‘skewness factors’ hype up the value of IPOs. [0:34:01] Why waves of companies tend to make IPOs near the same time. [0:37:11] Benjamin summarizes his arguments for and against IPOs. [0:42:54] Introducing today’s planning topic: your well-being. [0:44:22] Financial well-being versus funded contentment and the different forms of capital. [0:47:11] The importance of weighing your other forms of capital when making decisions. [0:51:12] Why high-income doesn’t correlate with higher well-being. [0:53:28] How nationality and social factors affect self-reported well-being. [0:56:54] Consequences from people being generally bad at predicting what will make us happy. [01:00:37] Setting financial goals that consider your well-being and sense of purpose. [01:02:58] How unemployment can affect your well-being. [01:04:26] Why you should consider other forms of capital when saving for retirement. [01:06:30] We answer a conversation card from the University of Chicago Financial Education Initiative. [01:09:30] Hear our bad advice of the week, courtesy of TikTok. [01:12:20]