The Rational Reminder Podcast

On today’s episode of The Rational Reminder, we once again cover a host of topics. We begin with Cameron sharing his thoughts on a book he recently finished, The Ride of a Lifetime, and some of the lessons he took away from it. We then tackle three listener questions, where we cover Mawer and index funds hypothetically driving prices. Then, in the portfolio portion of the show, we turn our attention to value premiums. Fama and French recently released a paper on the topic, and Ben is naturally very excited to share his assessment on it. We unpack how value has performed in the US, unexpected big value findings, and other takeaways from the paper. After that, we explore the total cost of ownership in our planning section. These are expenses that you incur when you begin investing. We shed light on some of them and the effect they have on your investments. Finally, we end the show with Tim Nash’s take on our assessment of sustainable investing in episode 82. His insights offer an interesting perspective on the topic. While we can’t say we’re fully on board with his active position, it’s certainly a fascinating viewpoint. Don't miss out on today’s jam-packed show!  Key Points From This Episode: Takeaways from the audience’s reception to episode 83 on cryptocurrency. [0:00:52.0] Insights and lessons from The Ride of a Lifetime, which Cameron recently finished. [0:04:13.0] More about Mawer: Data about and insights on how the company has fared. [0:08:48.0] What would happen if index funds could hypothetically drive prices? [0:22:34.0] What’s interesting about the timing of Fama and French’s new paper, The Value Premium. [0:25:46.0] The thesis of Fama and French’s paper and what they found over measured periods. [0:26:49.0] Why Fama and French used how value did relative to the market. [0:29:17.0] How value performed between 1992-2019 and a surprising finding about big value. [0:31:04.0] Ben’s takeaways from the Fama and French study. [0:33:18.0] Conclusions from Fama and French’s 2019 paper, Volatility Lessons. [0:36:37.0] How other countries performed on market-wide value versus the market. [0:38:30.0] Clarifying the confusion around the management expense ratio and some empirical data. [0:40:00.0] The conflict of interest inherent in commission-based products. [0:42:39.0] What the trading expense ratio is and how it works. [0:43:47.0] Things similar to fees: Cash drags, large cap against distribution, and withholding tax. [0:47:50.0] ‘Bad advice of the week’: Globe and Mail [0:48:48.0] An overview of Tim Nash’s services and his take on Ben’s ESG presentation. [0:54:00.0] Tim’s critique of the assumption of lower returns when it comes to equity. [0:57:07.0] Why externalities are so important with ESG even though they are glossed over. [0:58:12.0] There is so much that we don’t know about ESG because it’s all so new. [1:01:45.0] Why Tim believes we should invest in the green companies even with the current market structure. [1:06:08.0] Ben and Cameron’s take on Tim’s insights. [1:09:32.0]

The last ten years have seen so much said and done in the cryptocurrency space, and yet the future of bitcoin is still somewhat unclear. For Michael Sonnenshein however, bitcoin and the crypto market still offer the freedom and possibilities that have long been espoused as their greatest values. He joins us today to talk about his role at Grayscale Investments, how Grayscale fits into the larger Digital Currency Group family and how he envisions the wide-open future possibilities for bitcoin. We discuss some basics for the bitcoin conversation and Michael does a sterling job of setting out the lay of the land at present. From there, we turn to the role of Grayscale in dealing with bitcoin which can also be bought directly. Michael then takes the opportunity to compare bitcoin and gold; showing how they overlap and then bitcoin improves on the benefits that gold investments have historically provided. The last part of the conversation is spent addressing the safety of bitcoin and how time is showing its resistance to shocks and is earning bitcoin its place among other highly trusted assets. For all this and more fascinating insights into a big part of the future, join us on the Rational Reminder today!   Key Points From This Episode: Michael's description of Digital Currency Group. [0:03:28.4] A basic explanation of bitcoin and what defines a digital currency. [0:08:09.2] What will happen when the maximum amount of bitcoin has been mined? [0:11:29.0] Affecting the value of bitcoin through the altering of its decimal places. [0:14:04.2] The usefulness of Grayscale when it is possible to buy bitcoin directly. [0:15:21.4] How bitcoin differs from and improves on gold investments. [0:19:11.7] How digital currency fits in portfolio management and who it really suits. [0:21:30.0] Thinking about the expected returns question in regards to digital currencies. [0:23:30.3] The high amount of institutional investments through Grayscale and deciding on allocation. [0:29:00.5] Bitcoin's response to shocks and its rising reputation as a place of safety. [0:33:36.7] Why Michael is worried by impatience in regards to digital currencies. [0:34:42.5] How bitcoin can impact under-resourced populations through it non-reliance on infrastructure. [0:36:49.3] How Michael defines success for Grayscale and himself moving forward. [0:39:07.0] And much more!

Welcome to this week’s episode of the Rational Reminder! Today, we get stuck into a commonly asked about investment topic – socially responsible or sustainable investing. The show kicks off with Cameron sharing some fantastic insights he gained from a book he recently finished, The Undoing Project. We then delve into the CalPERS story that was in the spotlight at the end of 2019. After that, we move the planning portion of our show, where we tackle the topic of sustainable investing. Many prominent Canadian pension funds have said that sustainability will be a core part of their investing going forward. We explore why sustainable investing has to mean lower returns, how this kind of investing effects social change, and what the amount you need to give up to feel good about your investments is. We also look at the subjectivity of ESG ratings and how this relates to your values. Ultimately, sustainable investing is about balancing the continuum of views and values, how closely they can be matched, and how you can do that in a diversified way. The sustainable label may not meet your expectations of sustainability which is why finding the balance can prove to be challenging. We round off the show by sharing our thoughts on how to restructure your portfolio when it comes time to live off of it. You don’t want to miss out on this interesting show, so tune in today!   Key Points From This Episode: A book Cameron recently finished and how he applies these lessons to his work. [0:01:08.0] More about the CalPERS story that broke in December 2019. [0:05:50.0] Insights into active managers and actively managed funds. [0:07:40.0] Vanguard is the first asset manager to surpass the six trillion-dollar mark and other stats. [0:10:30.0] Portfolio topic: The growth of socially responsible investing in North America. [0:12:10.0] The main considerations to account for when looking at socially responsible investing. [0:14:09.0] Two main sustainable investing strategies: negative screening and ESG integration. [0:15:01.0] The relationship between ESG and expected returns when controlling for common risk factors. [0:17:13.0] The importance of ESG risk factor – where does the negative premium come from? [0:19:45.0] Differences between exclusion and investor tastes and their influence on expected returns. [0:21:40.0] Why the dispersion of preferences in the ESG industry is so important. [0:25:14.0] Does sustainable investing lead to positive social returns? [0:27:05.0] Two ways the lack of diversification of ESG investing hurts investors. [0:30:25.0] Understanding the trade-off between values: do all companies use the same ESG filters? [0:31:42.0] The two major problems of not having consistent ESG rating metrics. [0:33:54.0] Two things to consider when the time comes to live off of your portfolio. [0:36:47.0] Deciding how to change your asset allocation and figuring your safe spending rate. [0:39:05.0] Why selling shares rather than receiving dividends does not make you worse off. [0:42:23.0] Final thoughts on spending income and dividends. [0:45:06.0] ‘Bad advice of the week’. [0:46:03.0]

On today's show, we are joined by Kim Melanson who is a local lawyer in Ottawa. The bulk of the conversation is spent on the particulars of drafting a will and the considerations that have to go into this process. Kim also reminds just how important it is to have an up to date will, something many of us have heard but many of us do not act on! She talks about good times to update your documents and the ins and outs of naming guardians and executors before discussing inheritances, donations, and probate. We then turn to a few different types of wills, namely mutual will, mirror wills, and dual wills. Kim weighs in on the topic of 'will kits' and services that make the writing of a will appear a little easier. We also talk about some common errors that are made in the realm of estate planning before turning our attention to family law. Kim answers our questions common-law relationships, domestic contracts, divisions of assets and more, so for all of this from a true expert on Ontario legal matters, be sure to listen in with us today on the Rational Reminder Podcast!   Key Points From This Episode: An important legal disclaimer about today's show. [0:02:21.9] What happens if you die in Ontario without a will? [0:03:13.6] Reasons that every adult needs to have a will. [0:05:34.7] How often to update a will throughout the course a lifetime. [0:07:32.7] Best practices for the naming guardians and executors. [0:08:34.6] Kim's recommendations for allocation of inheritances, donations, and probate. [0:14:14.4] Understanding dual wills, how they work and when they make sense. [0:19:14.3] Considering the use of 'will kits' and where these services might fall short. [0:21:39.6] Mutual and mirror wills; managing and policing of these documents. [0:23:19.1] Common and important errors made in estate planning. [0:25:19.4] The definition of a common-law relationship in Ontario. [0:26:50.6] Approaching the conversation and weighing the utility of domestic contracts. [0:30:48.6] The Family Law Act ruling on the division of assets; exclusions and subtractions. [0:34:54.4] Kim's own definition of success and her hopes for a positive impact. [0:36:36.2]

For our very first episode of 2020, we kick things off with some quick updates before sharing Cameron’s ten best financial planning strategies for the new year. After laying out some statistics about the great asset class returns that 2019 saw, we get into the wonderful listener questions we have been receiving over the break. Our first topic is about buying versus leasing cars, and Ben shares his thoughts on some of the reasons he recently converted to leasing. Our second question is about using credit to invest in a TFSA and acts as a great segue into our main topic for today’s show: implementing leverage in an investment portfolio. We discover some fascinating outputs given by a Monte Carlo simulation that compares the reliability of expected returns between diversified and concentrated investment portfolios. Surprisingly, the concentrated portfolio, while unpredictable, actually produces higher returns, even in its worst iterations. We start to think of concentrated portfolios as just another form of leveraging after comparing IUSV to VLUE ETFs, and then move on to the idea of time diversification as it relates to implementing leveraging in Lifecycle investing. As always, we end off with our bad advice of the week, with the 60/40 stocks and bonds model taking centre stage, so hop on and join us for the ride!   Key Points From This Episode: Different corporate cultures and the value of instilling one in your workplace. [0:05:55.0] A top ten list of strategies for financial planning in 2020. [0:08:48.0] Asset class returns from 2019 which were very high across the board. [0:15:34.0] Market unpredictability and why to buy a second-hand car but lease a new one. [0:19:18.0] When to use your unsecured line of credit to invest in a tax-free savings account. [0:22:49.0] Three things that structure a belief: values, biases, and models. [0:24:51.0] Ben’s model and expected returns of diversified vs concentrated portfolios. [0:27:49.0] When concentrated portfolios work well: if high performing stocks are chosen. [0:34:01.0] Ways to achieve higher factor exposure with IUSV vs VLUE ETFs. [0:35:47.0] How unexplained portions of returns are the costs of leveraging via concentration. [0:40:40.0] Why investing using leverage creates ‘time diversification’ and higher yields. [0:42:47.0] Ways for young people to leverage their savings: concentration, derivatives, etc. [0:42:47.0] Time decay on leveraged ETFs and other reasons for leveraging not being a joke. [0:50:52.0] Why ditching a 60/40 portfolio denies market efficiency by increasing risk. [0:55:36.0] And much more!

Today on the show we welcome the Head of Investment Solutions at Dimensional Fund Advisors, Marlena Lee. Marlena has a Ph.D. from the University of Chicago where she served as the TA to Eugene F. Fama. She has been at Dimensional for 11 years where a big part of her role is communicating what their research team is doing for the advisors and clients who are using their products. In this fascinating episode, we discuss and define models, factors, and the importance of understanding the risks involved with any investment decision. We talk about the many different reasons why stocks have different returns, and what the research says about underperformance and our expectation of positive premiums. Marlena has some interesting perspectives on whether risk or behavior drives higher returns, and shares some of her biggest lessons gained from working with Eugene Fama, and Dimensional Fund Advisors. Key Points from This Episode: The uses and limitations of models when making investment decisions. [0:02:30.0] Understanding the concept of ‘factors’ and why the word is evolving. [0:04:35.0] Why Dimensional doesn’t combine Price-to-Book with price sales and cashflows. [0:13:10.0] Marlena’s thoughts on whether risk or behavior drives higher returns. [0:15:15.0] The theoretical rationale for why we expect the value premium to be positive. [0:21:00.0] The role of company size in identifying differences in expected returns. [0:25:10.0] The split between dividend income and capital gains: What is the trade-off? [0:27:40.0] How to choose which Factor Model to use for your investing decisions. [0:31:15.0] The good arguments for owning bonds in your portfolio as a young investor. [0:35:00.0] Risk factors and equities when it comes to fixed-income and bonds versus stocks. [0:38:00.0] Questions investors should be asking about fees, risk, and portfolio worth. [0:41:48.0] Evidence that investors can use Yield Curve Inversions to time the market. [0:43:33.0] Marlena shares her most fascinating research topics and economic debates. [0:43:33.0] Marlena shares her biggest lessons gained from working with Eugene Fama. [0:48:13.0]

As we see 2019 out and enter a new decade, we thought it only fitting to do a round-up of some of our shows this year. While we had 26 guests throughout the year, we chose 14 that best captured the sensible investing and education-focused spirit of our show. Some of the guests we have included on this special episode include Rob Carrick, from The Global Mail and leading authority on Canadian personal finance, Alexandra McQueen, a teacher at York University, who offers an explanation on the difference between financial economics and financial planning and Jonathan Clements, who explains why the hardest part of investing is keeping it simple. We also share clips about nipping overconfidence in the bud with Daniel Crosby and the next grand challenge of investing with Dave Nadig. This is just a snapshot of some of the incredibly generous people who have joined us this year. We hope that this show has contributed in some way to educating and helping investors make informed decisions and we are excited for what’s on the horizon. Happy New Year from all of us here at The Rational Reminder! Key Points From This Episode: Rob Carrick’s insights into whether Canadians have a good relationship with money. [0:04:02.0] Moira Somers’ tips on lifestyle changes to decrease financial stress. [0:07:51.3] Why ‘debunking the nonsense’ of financial advice is so important to Barry Ritholz. [0:10:23.0] The difference between financial economics and financial planning. [0:13:10.0] Discover the importance of having a clear belief system when it comes to investing. [0:16:51.0] Criteria other than performance to use to choose a quant fund according to Wes Gray. [0:19:47.0] Why the most difficult part of investing is trusting in simplicity. [0:23:14.0] Learn what has surprised David Butler the most about working with academics. [0:28:56.0] Ben explaining discount rates and factors to his mom. [0:31:58.0] All factors will underperform at some stage so embracing volatility is key. [0:40:14.0] What Jill Schlesinger has found the most common investment blind spots to be. [0:42:54.0] A look at what adverse selection means and how it applies to DIY investors. [0:44:40.0] Find out why Daniel Crosby calls overconfidence the ‘granddaddy’ of investment biases.[0:46:17.0] Even though investing is ‘solved,’ that does not mean people are good investors. [0:44:40.0]

On today’s episode, we are joined by Mark Goodfield of The Blunt Bean Counter blog to talk about estate planning and wills. Mark is a partner at BDO Canada, a national accounting firm and has created a wealth of content on investing, tax and the relationship between the two. He provides full-service wealth management, but does not advise on nor manage investments. Estate planning is a difficult task because you are confronted with your mortality, but it is hugely important because without a clear-cut plan, those left behind will have to deal with many complications in the midst of grieving. Mark has seen these complications with some of his own clients and the negative effects it has had on them. Along with conventional estate planning, such as drawing up a will, Mark also strongly advises transparency about your finances both with your partner and your children. This will not only ensure that there are no surprises, but also allow them to gain a level of financial literacy to deal with money, if they currently do not have that responsibility. He believes that people are not open enough when talking about money, which has implications long after they are gone. While estate planning is largely to do with finances and assets, Mark does not believe that money automatically correlates with success. This is why it is equally important to consider the legacy you leave behind in other ways, such as strong relationships and giving time to good causes. For this and much more, join us today! Key Points From This Episode: What it entails being the executor of an estate. [0:02:47.0] The implications of dying intestate. [0:04:32.0] Why it is important to disclose assets liable to probate tax. [0:07:27.0] Ensure that both spouses are relatively financially literate. [0:08:40.0] Why you should involve your adult children in financial conversations. [0:11:07.0] The two ways of consolidating your investment holdings [0:12:23.0] The tax, legal and personal implications of giving up ownership. [0:17:03.0] The distinction between known and presumed inheritance. [0:20:11.0] How to deal with potential uneven distribution in an estate. [0:23:23.0] When it makes sense to hire a corporate executor [0:25:49.0] The five ways that success is not always linked to money [0:27:06.0] How Mark has defined his own personal success [0:29:55.0] And much more! https://rationalreminder.ca/podcast/77

Welcome to another episode of the Rational Reminder Podcast. We kick off the show today with some great listener feedback before diving into the content of a new podcast by Dr. Laurie Santos called The Happiness Lab. In a recent episode of her show, she gets into the idea of human adaptability to fortuitous or catastrophic events. Our capacity to regulate back to a default state has big implications for dreams of greater happiness through wealth acquisition. Next, we move on to three great listener questions, which by the way will be replacing the investment topic segment of the show from now on. We answer questions about the merit of Ray Dalio’s all-weather portfolio, fall back rules for prospective rental property owners, and whether the Smith Manoeuvre is a good move for high-income earners. Next up you’ll hear some fascinating statistics about residential property value in relation to homeownership and income in Canada. Rob Carrick’s article about how tax-free savings accounts are the greatest Canadian financial success story of the century comes under our scrutiny after that. Finally, we end off with our bad advice for the week, in which we discuss the recent protest by investor advocates to speed up the banning process for early withdrawal fee-charging mutual funds. Tune in for your weekly reality check on sensible investing and financial decision-making for Canadians!   Key Points From This Episode: Three great reviews from our listeners on iTunes. [0:00:15.0] Human adaptability and how bad we are at predicting our future emotions. [0:03:45.0] Expected returns concerning risk parity and factor investing approaches. [0:06:32.0] Cap rates, leverage, and asset-specific risk regarding investing in real estate. [0:14:02.0] The benefits of the Smith Manoeuvre for those willing to be leveraged investors. [0:20:10.0] Lifecycle investing and why young people should invest in stocks with leverage. [0:23:59.0] Homeownership, income, and residential property value statistics in Canada. [0:25:30.0] Different house prices for middle-income earners across Canada. [0:29:25.0] Statistics about TSFAs such as who has one versus who has an RRB. [0:30:53.0] How to use TSFAs in connection with other investments. [0:32:18.0] Rules and cautions about TSFAs such as why not to pick stocks in one. [0:32:38.0] Good reasons to use TSFAs such as when one has a low income and is young. [0:32:38.0] Why not to buy mutual funds that charge investors early withdrawal fees. [0:38:33.0] And much more! https://rationalreminder.ca/podcast/76

On today’s episode, we have Dr. Daniel Crosby joining us for an insightful discussion about the psychology behind investing behaviour. Dr. Crosby is a behavioural finance expert and asset manager who applies his study of market psychology to help people better understand the financial decisions they make and to shed some new light on our ability to be rational. We talk about the inevitability of our emotions and how they impact our actions, but also how they might be leveraged for positive outcomes. As far as behavioural biases are concerned, overconfidence is by far the biggest threat to our investment success, but on the flip side, Dr. Cosby shares why, outside of investing, this trait can serve us really well. We enquire about his thoughts on how wealth changes people’s behaviour, on whether the FIRE Movement has some credibility to it, and he explains why having a strong theoretical underpinning is necessary when making decisions based on empirical data. Join us for some more science-based investment advice!    Key Points From This Episode: The rationality of people and the possibility of leveraging emotion in finance. [0:02:26.0] Research that shows why you should work with a financial professional. [0:06:46.0] Behavioural biases and overconfidence as the most dangerous one. [0:11:05.0] Avoiding overconfidence by understanding that investment rules are different. [0:13:47.0] The extent to which people’s behaviour is affected by those around them. [0:17:58.0] How significant changes in net worth changes a person’s investment traits. [0:25:36.0] Thoughts on the FIRE Movement and how investors should look at risk. [0:28:06.0] Behavioural and risk-based factors and the necessity of a theoretical underpinning. [0:37:06.0] And much more!