The Rational Reminder Podcast

David Booth, Co-founder and Executive Chairman of Dimensional Fund Advisors, discusses his journey from shoe salesman to a pioneer of index funds. He shares insights on the importance of evidence-based investment strategies and the role of academic research in asset management. Booth reflects on the challenges of early small-cap fund performance and the significance of client communication. He also delves into the rise of value portfolios, the evolution into the ETF market, and the need for simplicity in investing. Luck, culture, and defining success are key themes throughout their conversation.

For this episode of the Rational Reminder Podcast, we review our year by playing back and discussing a collection of the most impactful moments of the show from 2020. This has been a drastic year filled with many learnings for us all, and in today's show, we cover topics of happiness, decision making, dealing with uncertainty, and the connection that financial planning and investing have to all of this. We collect some amazing gems of wisdom from guests like Annie Duke, Ken French, Michael Kitces, Patricia Lovett-Reid, and a whole lot more, whittling down an original list of over one hundred of this year's finest moments to a collection of just 45. The show starts out exploring themes of the connection between wealth and happiness, keeping cool in stressful times, and the transformations that crises kickstart. From there, we talk about the importance of models and systems for informing investing and behaviour in general, and the idea that unexpected outcomes swamp expected ones in the short term. We also look at what market history has to say about staying in your seat rather than market timing when things look bleak. Next up, we cover themes of the value of a flexible approach to retirement spending, how families should think about financial planning, whether 60/40 portfolios are dead, and why stock market returns in the U.S. are higher under Democratic presidents. Moving onto the subject of decision making, we explore some of our guests' thoughts on evaluating decisions, outcomes bias and the role of luck, and more. We also consider the topic of human capital, how it relates to investing, and what we should really be spending our time on. The subject of the convergence of brokerage firms and financial advisors then leads to a great exploration of the role of financial advisors. We wrap up with some extra special perspectives on how optimal financial planning should be geared around the person that you want to be rather than maximizing wealth for the sake of it. Tune in today for an amazing overview of the year and to hear all the ways we have changed and grown thanks to our incredible guests. Key Points From This Episode: Looking back on the year: Pandemic adjustments and how this podcast has grown. [0:00:15] Shoutouts and Cameron's method of putting past clips together for today's show. [0:06:20] Brian Portnoy and Andrew Hallam on wealth and happiness. [0:09:15] Dealing with stress and volatility with Dr. Moira Somers and Dave Goetsch. [0:13:48] Craig Alexander on market volatility and Jim Stanford on crisis and revolution. [0:18:27] Dave Goetsch and Greg Zuckerman on the benefit of models and systems. [0:23:11] The role of unexpected returns in outcomes and how to deal with this. [0:27:04] Small and value stocks relative to the market with Dr. William Bernstein. [0:33:09] Ken French and Cliff Asness on whether 'this time is different'. [0:35:29] Enduring tracking error with Cliff Asness and Andrew Hallam. [0:38:37] Cliff Asness on whether 60/40 is dead and Lubos Pastor on why stock market returns in the US are higher under Democratic presidents. [0:41:00] Changing your risk portfolio when the market is dropping with Ken French. [0:45:25] Market timing versus awareness of investing history with Mark Hebner and Dr. Bernstein. [0:48:20] Wade Pfau on how expected returns fit into financial planning and the 'safety first' approach. [0:52:15] Moshe Milevsky on retirement spending and Pattie Lovett Reid on addressing one's financial situation. [0:56:13] Annie Duke, Ken French, and Victor Ricciardi on making and evaluating decisions. [1:00:05] Greg Zuckerman on the role of luck in decisions leading to positive outcomes. [1:08:15] Forecasting as a way of knowing the range of outcomes with Craig Alexander. [1:11:15] Moshe Milevsky and Dr. Bernstein on human capital, financial planning, investing and asset allocation. [1:13:34] Josh Brown on what to spend your time on and Fred Vettesse on when to start saving. [01:16:28] Michael Kitces on the convergence of brokerage firms and financial advisors. [01:19:20] Dennis Mosey Williams and Ken French on financial advice for gaining wealth and being content. [01:20:57] Allison Schrager on the role of financial advisors for mitigating systematic risk. [01:25:00] Mark Hebner on the role of financial advisors for explaining a range of outcomes. [01:26:38] Scott Rieckens and Dennis Mosey Williams on what finding happiness means. [01:30:03]

Delving into the theory behind their new model ETF portfolios, the hosts explore market assets pricing and historical views. They address the systematic risk factors in the Fama-French Five-Factor Model, discussing factor exposure through ETFs. Insights on portfolio distribution and premium expectations are shared, along with reflections on factor-loaded indexes and bad financial advice.

As author and financial expert Morgan Housel explains this episode, "people don't make financial decisions on a spreadsheet. They make financial decisions at the dinner table." Today we chat to Morgan about his key insights into financial decision-making — many of which are captured in his book, The Psychology of Money. Our conversation opens with an exploration of how investing success has less to do with what you know and more to do with how you manage your behaviour. We then look into the dangers of emulating top investors and how luck can fuel success. Reflecting the theme that people invest according to their unique circumstances, Morgan shares why he prioritizes endurance as an investor by minimizing his debt and having high cash reserves. After hearing his take on debt and whether young people should use leverage, we dive into how financial expectations impact investing and the importance of deciding what 'enough' means to you. We discuss the virtues of saving like a pessimist and investing like an optimist before looking into the role that financial advisors play in guiding their clients. In the latter part of the end of the episode, Morgan touches on active versus passive investing, the purpose that bonds serve in your portfolio, his top lesson from 2020, and why he's empathetic toward people who sell their portfolios during a downturn. Throughout our discussion, Morgan shares his clear understanding of how our psychology affects our relationship to money. Tune in and benefit from his incredible perspective. Key Points From This Episode: Introducing today's guest, financial author Morgan Housel. [0:00:15] Morgan shares his view that succeeding in investing has little to do with how you behave. [0:02:31] Hear about the problems that can arise from trying to emulate top investors. [0:05:02] Exploring the impact of luck on your success. [0:07:37] The differences between being conservative and having a margin of safety. [0:08:35] Insights into Morgan's personal investing strategy. [0:09:48] Morgan's thoughts on leverage and how debt impacts behaviour and peace of mind. [0:10:31] Stepping off the hedonic treadmill and the importance of defining your financial expectations. [0:14:02] The link between money, independence, and having a high quality of life. [0:16:44] What it means to be wealthy and what motivates the drive to be rich. [0:19:18] Morgan's advice to save like a pessimist and invest like an optimist. [0:21:34] Why no one makes perfectly rational investing decisions. [0:23:54] The role of financial advisors in guiding clients towards their investing decisions. [0:26:22] Why Morgan has embraced the simplest investing strategy available to him. [0:29:02] How you should be thinking about fixed income in your portfolios. [0:31:20] Why financial advisors can be priceless when understanding your finances and goals. [0:33:44] Life is surprising; hear why this is Morgan's top takeaway from 2020. [0:36:29] Morgan's thoughts on the FIRE Movement and retiring early in life. [0:38:53] Hear Morgan's predictions on the next big financial innovation. [0:41:49] Why Morgan is empathetic towards people who sell their portfolios during a downturn. [0:43:50] The tendency for people to embrace more extremist views during times of financial crisis. [0:47:34] We ask Morgan how he defines success in his life. [0:50:25]

There is a sharp divide between those who invest in dividend-paying stocks and those who don't. Underpinning this is the question of whether dividends are relevant to the evaluation of shares. Today we answer this question by digging into the data and parsing the maths before exploring what the future of financial planning looks like. But first, we open our episode with news from the Rational Reminder community — including the fact that we just passed one million podcast downloads. We then touch on lessons from Seth Godin's new inspiring book, along with the latest from the financial world. Following this, we dive into a discussion on dividend stocks. We begin by unpacking the assumptions behind Miller and Modigliani's theory of dividend irrelevance. Host Benjamin Felix presents a case study and applies the Fama-French Model to explain differences in returns on dividend portfolios and if dividends truly affect share valuation. After sharing our practical takeaways from Benjamin's analysis, we move onto our financial planning topic for the week. From technology to retirement decumulation and demographics, we discuss the five key areas which will most impact the future of financial planning. We then wrap up another informative episode with the bad financial advice for the week. Tune in for more insights into the role of dividend stocks and the future of financial planning. Key Points From This Episode: Community news, Benjamin's 3D printing project, and celebrating our 1 millionth download. [0:00:15] Drawing insights from a recent Ted Seides-Shane Parrish interview. [0:03:44] Reflecting on Seth Godin's latest book, Practice: Shipping Creative Work. [0:06:44] How our culture overvalues outcomes while neglecting the creative process. [0:07:46] Why having meals delivered to you helps to limit decision fatigue. [0:08:28] Hear about the new TFSA limits and Tesla's addition to the S&P 500. [0:09:25] Exploring whether size affects premium in the US versus elsewhere. [0:12:28] Why long-only investors may overweight small caps. [0:15:44] How US junk stocks impact value and their place in your portfolio. [0:16:18] Introducing today's portfolio topic; should you invest in dividend stocks? [0:17:53] Unpacking the assumptions behind Miller and Modigliani's theory of dividend irrelevance. [0:18:45] Host Benjamin Felix creates a case study to show Miller and Modigliani's theory in action. [0:22:38] Why Miller and Modigliani's math and idea of financing are based on poor assumptions. [0:26:24] The predictive power and limits of frameworks like the Fama-French 5-Factor Model. [0:27:25] Applying the Fama-French Model to portfolio dividend returns. [0:28:28] Key investing lessons from the notion that dividends are irrelevant to the valuation of shares. [0:31:30] Reasons why people might only want to invest in dividend-paying stocks. [0:33:20] The argument that firms seeking external financing may be subject to greater scrutiny. [0:35:33] Introducing our financial planning topic on the paper 'Financial planning: A research agenda for the next decade.' [0:37:02] Ties between psychology, communication, and financial decision-making. [0:39:02] Exploring the five key research areas informing the future of financial planning. [0:40:16] This week's bad financial advice; invest with active managers. [0:46:31]. What it actually means to say that a fund is actively or passively managed. [0:47:56]

Dr. Brian Portnoy and Josh Brown's book How I Invest My Money, captures the stories and investment strategies of 25 top financial advisors. The book highlights that while there are established dogmas that tell you how and why you ought to invest, there is no 'one-size-fits-all' way to invest. Today we speak with Brian and Josh about the key insights that we can derive from their work. We open our conversation by exploring how they conceived and developed their book before talking about why fully rational investing is a myth. After diving into how we allocate money to solve our unique needs, Brian and Josh share how people use their portfolios to express themselves. We then discuss common investing themes in the book, including how most advisors have an aversion to debt, and how their experiences have guided their strategies and outlooks. From why we should place more value on social and human capital, we look into why financial planning has a profound impact on how you manage your investments. We touch on direct indexing, the relationship between money and happiness, and the unexpected yet incredible perspectives that came from giving advisors a license to tell their stories. Near the end of the episode, Brian and Josh reflect on how their book might have changed their views and how their work fits into their visions for the financial industry. Tune in to hear more on the usually secretive topic of how financial advisors invest their money. Key Points From This Episode: Introducing Brian Portnoy and Josh Brown, authors of How I Invest My Money. [0:0:15] Why we invest and reflections on commentary made by the Rational Reminder community. [0:02:58] Josh shares his motivations for being transparent on where and how he invests. [0:05:25] Hear about the genesis and subsequent development of Brian and Josh's book. [0:07:19] The common needs that individual investors have beyond getting a return. [0:10:18] How the uniqueness of everyone's life affects their investing decisions. [0:13:09] Why there is no strict 'right way' to invest — invest according to what's right for you. [0:14:35] ESG investment and seeing your portfolio as a form of expression. [0:17:21] Exploring common investment themes that arise in Josh and Brian's book. [0:20:07] How Brian and Josh developed their personal investing outlooks. [0:21:44] Why we should place more value in human and social capital. [0:25:16] Brian expands on why we should invest in human and social capital. [0:28:35] The importance of financial planning in managing both your life and investments. [0:31:50] Answering the question: is direct indexing the future for outcome-driven portfolios? [0:36:55] Assessing a client's risk profile as central to modern financial advising. [0:39:34] Portfolio customization and direct indexing versus helping clients create a portfolio around their purposes. [0:40:58] Funding contentment and the relationship between money and happiness. [0:42:22] Whether the stories featured in their book have Brian and Josh's views. [0:46:18] When your life is your benchmark, how do you derive your portfolio benchmark. [0:49:15] How their book fits into Brian and Josh's visions for their industry. [0:54:43]

On today's show, we explore rational explanations for pricing bubbles, how the concept of human capital relates to financial decisions, and a whole lot more! We kick things off with a discussion of Ashley Whillans' book Time Smart, which explores proven strategies for improving your 'time affluence'. Diving into this week's portfolio topic, we use a previous discussion about Carlota Perez's model for technological revolutions as a springboard to introduce Lubos Pastor and Pietro Veronesi's mathematical arguments that present a rational explanation for pricing bubbles. Perez maintains that prices get bid up too high during technological revolutions due to 'frenzy' but we unpack two papers by Pastor and Veronesi where they argue differently, drawing on the concepts of uncertainty and discount rates. From there, we dive into the relationship between human capital, life insurance and asset allocation for our planning topic. We provide some definitions for the term 'human capital' and discuss how it differs from other forms of capital. A key idea we explore here is that the more risky your human capital is, the less life insurance you should take out. Along with this, you'll hear a few quick suggestions for how you should approach life insurance and bonds depending on age, financial wealth, risk aversion, and other factors. Tune in today! Key Points From This Episode: Talking COVID, next week's guests and Rational Reminder Community updates. [0:0:18] Book of the week: Rethinking conventional notions of time well spent in Time Smart. [0:04:07] News updates: Stories about Bitcoin, marijuana stocks, and more. [0:08:56] Portfolio Topic: Whether pricing bubbles are caused by rational behaviour. [0:14:19] Unpacking Pastor and Veronesi's paper connecting uncertainty to high prices. [0:18:25] Pricing bubbles as caused by discount rates; a second Pastor and Veronesi paper. [0:27:48] 'IPO waves' connected to the bubble discussion in a third Pastor and Veronesi paper. [0:37:58] Planning topic: How the concept of human capital relates to financial decisions. [0:44:45] The importance of considering asset allocation decisions and life insurance needs together. [0:54:46] Bad advice of the week: 'The Market's Invisible Guardrails Are Missing'. [1:01:16]

Professor Lubos Pastor, renowned for his finance research, discusses the impact of political cycles on stock returns, the relationship between green assets and expected returns, and challenges conventional wisdom on stock volatility. He also addresses the effectiveness of quantitative easing in boosting the economy and the influence of market-wide liquidity on stock prices.

As counter-intuitive as it may seem, most of the companies that push us into the next technological revolution deliver poor investment returns. Today we look at current and historical data to show why this is the case but first, we chat about the top financial news of the week. Borrowing heavily from Carlota Perez's Technological Revolutions and Financial Capital, we then explore how the links between tech revolutions and investing adhere to a consistent model. Following this model, we discuss how our current information-led revolution is as impactful as revolutions experienced in previous generations. We touch on the factors that lead to innovation, historical perspectives of technology companies, and the many investing phases resulting from tech revolutions. Despite making for poor returns, we talk about why the frenzy of investing that accompanies innovation is good for that industry and leads to a golden age of tech adoption and growth. A key takeaway, we dive into how investors are paying too much for the expected growth of new companies and that there is little to no link between massive growth and high stock returns. From guessing the next IPO winner, we move to our planning topic of the week — how to be a successful household CFO. We close this episode with our bad financial advice of the week. There's a lot of pressure in the market to invest in tech. Despite that, tune in to hear why you shouldn't invest in the next technological revolution. Key Points From This Episode: Hear about host Benjamin Felix's burgeoning 3D printing addiction. [0:0:06] Sharing listener feedback and messages from the Rational Reminder community. [0:02:02] Robinhood and why users are treated as the product, not the customer. [0:04:33] News on what might be the largest cash raise in IPO history. [0:07:25] How most ETF assets are in products that were launched prior to 2015. [0:09:24] Benjamin shares details about his project exploring the value of investing in tech revolutions. [0:11:05] Modelling the consistent sequences that technological revolutions follow. [0:14:38] Why current tech revolutions are as powerful as those experienced in previous generations. [0:16:55] Which common factors lead to tech revolutions. [0:18:31] Looking at historical examples of innovations and the performance of tech companies. [0:20:35] Why innovative big companies become unable to lead the next tech revolution. [0:23:18] How explosive growth and a frenzy of investment is common during early tech breakthroughs. [0:29:30] Signs that our current tech bubble has begun to pop. [0:34:45] The benefits of investment frenzy phases for tech industries and society as a whole. [0:36:15] Exploring what happens after phases of investment frenzy. [0:38:10] Evidence showing that investors pay too much for the expected growth of new companies. [0:42:42] Why there is no link between massive industry growth and stock returns. [0:50:00] Applying lessons from our discussion to our current investing environment. [0:52:03] Why you probably shouldn't put your money in the technological revolution. [0:58:04] How people operate as unofficial CFOs within their households. [01:02:45] The many tasks that household CFOs need to perform. [01:05:20] Bad advice of the week; swap your bonds for dividend-paying stocks. [01:10:42] Why increasing inflation may be a key post-pandemic government strategy. [01:15:40]

There are seven equations that, if understood, will put you in the best possible position to tackle your retirement plan. Today we speak with business professor Moshe Milevsky about these equations, which he's written extensively about in his best-selling book, The 7 Most Important Equations for Your Retirement. After introducing Moshe, we dive straight into the first equation that maps out the longevity of your money. Following this, we talk about determining how long you will live by comparing your biological and chronological ages. Regarding the third equation, Moshe provides his insights into evaluating the usefulness of an annuity plan, and at what age they become relevant to you. We then chat about what annuity plans are offered in Canada versus elsewhere and why people don't want to buy annuities during a bull market. Despite the popularity of the '4% spending rule' — which we also unpack — Moshe discusses the importance of being adaptable with your retirement spending rates. Reflecting on the key theme of another of his books, we explore the question of whether people are stocks or bonds. Moshe shares some investing advice for younger listeners and touches on what the ideal mix of stocks, bonds, and human capital looks like. For the last equation, we look into the impact of probability frameworks and why financial advisors need to understand the math behind retirement plan probabilities to make meaningful recommendations. Throughout our discussion, Moshe presents coherent answers and pragmatic advice. Tune in and learn more about the equations needed to build the best possible retirement plan. Key Points From This Episode: Introducing today's guest, Professor Moshe Milevsky, and his work. [0:0:15] Exploring Moshe's book, The 7 Most Important Equations for Your Retirement. [0:02:57] Mapping the longevity of your money according to Moshe's 'Fibonacci Equation.' [0:03:25] Determining how long you will live when planning your retirement funds. [0:04:37] Understanding the difference between your biological and chronological age. [0:06:22] A challenge to our retirement system; it's based on chronological and not biological age. [0:08:45] Introducing the concept of annuities and how they can be valued. [0:10:03] Striking a balance with your annuity plan and answering — "How much is too much?" [0:11:42] Moshe shares his thoughts on how much insurance companies factor in biological age. [0:14:04] Ideas on using your biological age to your advantage. [0:15:35] Why you probably shouldn't even consider getting an annuity until you're 60. [0:17:16] Canadian annuity plans versus elsewhere; "The shelf feels empty here." [0:18:30] The correlation between being in a bull market and people not wanting annuities. [0:20:35] Establishing your ideal retirement spending rates — flexibility is important. [0:25:25] Unpacking the '4% rule' and why it's a ridiculous spending framework. [0:28:04] What your mix between stocks, bonds, and human capital should be. [0:31:08] Answering the question — are humans stocks or are they bonds? [0:33:28] Leveraging youth to get quicker exposure and equity. [0:36:03] Life insurance and measuring your financial legacy. [0:39:10] Details on the life of Andrey Kolmogorov and his effect on understanding probability. [0:40:54] How important probability frameworks and analysis are to retirement planning. [0:43:17] The impact of low-cost index funds on retirement income planning. [0:45:18] Keeping finance students engaged in the industry. [0:47:24] How Moshe defines success, his other research interests, and reflections on the success of his books. [0:49:53]