The Rational Reminder Podcast Benjamin Felix & Cameron Passmore

There is a huge range of factors that can impact our investment decisions, whether we realize it or not, from our level of financial literacy to our political affiliations. This is borne out in research conducted by today’s guest Professor Antoinette Schoar, the Stewart C. Myers-Horn Family Professor of Finance at MIT Sloan. Today, Antoinette joins us to share her insights and challenge conventional wisdom on various topics from target date funds to cryptocurrencies. Tuning in, you’ll learn about the transformative impact of target date funds on investment behaviours and asset allocation, before delving into the subject of financial literacy and financial advisors. Antoinette also sheds light on the unique dynamics of crypto trading and breaks down why retail investors' strategies in crypto differ significantly from those in traditional markets. We also discuss the complexities of private equity and venture capital, focusing on why these asset classes might not be suitable for retail investors due to high barriers and risks. Our conversation also covers the critical role of regulation in maintaining market stability and protecting investors. Join us for a thought-provoking discussion that promises to deepen your understanding of financial markets and enhance your investment decisions!
 
Key Points From This Episode:
 
(0:00:18) An introduction to today's guest, Antoinette Schoar, and her extensive research.
(0:03:44) The rise of target date funds in the American retirement system: how it’s affected asset allocation and trading behaviour of retail investors.
(0:09:39) The impact of target date funds: how they have affected mutual fund flows, arbitrage opportunities, market efficiency, the elasticity of aggregate demand, and trend-chasing anomalies.
(0:16:48) The influence of individual beliefs, like political affiliation, on financial decision-making and portfolio adjustments, and how to counteract it.
(0:21:54) Perceptions of risk in housing investments: how this affects the rent versus buy decision, what changes people’s housing risk perceptions, and how to make better housing decisions.
(0:29:29) Findings from Antoinette’s study on financial advisors and their effectiveness at undoing bias in their prospective clients.
(0:33:51) How investors' prior beliefs affect their receptiveness to receiving financial advice and why better financial literacy is essential.
(0:41:38) What consumers need to know about advisor compensation structures and what they should look for when seeking out financial advice.
(0:47:05) How Antoinette’s students motivated her to research cryptocurrency and teach it.
(0:49:40) Antoinette’s insights on the applications of cryptocurrency and blockchain, and some of the surprising positive outcomes from the rise in cryptocurrency.
(0:52:13) The trading behaviours of retail investors in cryptocurrencies compared to traditional asset classes.
(0:57:30) An analysis of the Terra Luna collapse explaining the systemic issues and resulting financial impact on smaller investors.
(01:02:14) The broader implications of cryptocurrency trading and the need for regulatory oversight to protect investors.
(01:06:05) An overview of the challenges and risks of investing in private equity and venture capital for retail investors.
(01:11:56) Antoinette’s reflections on success, professional goals, and the broader impact of research on financial markets and investor behaviour.
 
Links From Today’s Episode:


Rational Reminder on iTunes — https://itunes.apple.com/ca/podcast/the-rational-reminder-podcast/id1426530582.
Rational Reminder Website — https://rationalreminder.ca/ 
Rational Reminder on Instagram — https://www.instagram.com/rationalreminder/
Rational Reminder on X — https://x.com/RationalRemind
Rational Reminder on YouTube — https://www.youtube.com/channel/
Rational Reminder Email — info@rationalreminder.ca
Benjamin Felix — https://www.pwlcapital.com/

When robo-advisors first came onto the scene, they were pitched as an easy way to access index funds. These digital platforms provide algorithm-driven financial planning and investment services, with little to no human supervision, and typically use passive investment strategies. But while this technology has revolutionized access, not all robo-advisors are created equal. In today’s episode, Mark, Ben, and Cameron sit down to discuss the role of robo-advisors as passive investors, and the performance disparity in robo-advisor returns, as they investigate different robo-advisors, from Wealthsimple to Wealthfront. Next, in this week’s version of ‘Would you rather?’, we have robo-advisors pairing off against active bank mutual funds, with each of our hosts debating the pros and cons of these two approaches. For our aftershow section, we discuss listener feedback, interesting community discussions, Ben’s addiction to Excel, and much more. Tune in for a deep dive into robo-advisors and how to navigate this technology!


Key Points From This Episode:
 
(0:04:20) The history of robo-advisors and how they are used today.
(0:08:30) Why there is such a marked dispersion among robo-advisor portfolios; an overview of Wealthsimple’s portfolios and the changes they’ve made over time.
(0:16:00) Wealthsimple's investment returns, fees, and an attribution analysis.
(0:24:19) Why Wealthfront pulled value out of their factor-tilted portfolios in 2022.
(0:26:13) PWL’s investment approach and why no strategy is truly passive.
(0:30:43) What the average investor needs to understand when using a robo-advisor.
(0:32:02) Wealthsimple’s value proposition and why people are drawn to it.
(0:33:33) Our ‘Would You Rather?’ Question: Would you rather put all your money with a robo-advisor or in a big bank actively managed mutual fund?
(0:40:30) The growth of passive investing vs active management in the financial industry.
(0:44:12) AI's impact on financial planning and an update on new calculators we’ve released.
(0:52:38) Aftershow section: listener feedback, community discussions, leasing versus buying vehicles, Ben’s addiction to modelling, and more.
 
Links From Today’s Episode:


Rational Reminder on iTunes — https://itunes.apple.com/ca/podcast/the-rational-reminder-podcast/id1426530582.
Rational Reminder Website — https://rationalreminder.ca/ 
Rational Reminder on Instagram — https://www.instagram.com/rationalreminder/
Rational Reminder on X — https://x.com/RationalRemind
Rational Reminder on YouTube — https://www.youtube.com/channel/
Rational Reminder Email — info@rationalreminder.ca
Benjamin Felix — https://www.pwlcapital.com/author/benjamin-felix/ 
Benjamin on X — https://x.com/benjaminwfelix
Benjamin on LinkedIn — https://www.linkedin.com/in/benjaminwfelix/
Cameron Passmore — https://www.pwlcapital.com/profile/cameron-passmore/
Cameron on X — https://x.com/CameronPassmore
Cameron on LinkedIn — https://www.linkedin.com/in/cameronpassmore/
Mark McGrath on LinkedIn — https://www.linkedin.com/in/markmcgrathcfp/
Mark McGrath on X — https://x.com/MarkMcGrathCFP
Wealthsimple — https://www.wealthsimple.com/en-ca
Wealthfront — https://invest.wealthfront.com/
Rational Reminder Episode 308: Dan Bortolotti —
Episode 299: The Most Important Lessons in Investing — https://rationalreminder.ca/podcast/299
The Money Scope Podcast — https://moneyscope.ca/
Episode 251: Covered Calls — https://rationalreminder.ca/podcast/251
Ashleigh Madison: Sex, Lies & Scandal — https://www.netflix.com/za/title/81602884
 
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Papers From Today’s Episode: 
 
‘Are Banks Better Money Doctors?’ — https://www.researchgate.net/publication/377037694_Are_banks_better_money_doctors_An_analysis_of_mutual_fund_flows_of_bank_and_non-bank_funds_using_Canadian_data

When it comes to DIY investing, there’s always a temptation to make things more complicated than they need to be. But, in reality, embracing simplicity is one of the best ways to ensure good investment outcomes. Today’s episode features an exceptional conversation with our long-time friend and colleague, Dan Bortolotti, who has worked alongside us as an Portfolio Manager at PWL Capital for over ten years. Some of our Canadian listeners might recognize Dan as the man behind the Canadian Couch Potato blog (one of the most popular resources for Canadian investors) and the voice behind the Canadian Couch Potato podcast. Dan is a consummate communicator, both on paper and in person; beyond his extensive blogging, he has also written a number of books, both fiction and non-fiction, the most recent of which includes Reboot Your Portfolio: 9 Steps to Successful Investing with ETFs. Dan has played a pivotal role in making PWL Capital what it is today, and in this episode, we learn about his surprising journey to becoming an advisor, before hearing his wide-ranging insights on DIY investing. Dan breaks down key components for investors, from how to approach your asset allocation and picking index funds to navigating fees, taxes, and performance. We also discuss how the investing landscape has changed since Dan started writing and essential lessons he has learned over the years. To hear all about investing from the Canadian Couch Potato himself, be sure to tune in for this expansive conversation!
 
Key Points From This Episode:
 
(0:03:52) The origin story of the Canadian Couch Potato blog, by Dan Bortolotti.
(0:08:17) How the availability of index funds in Canada has changed since Dan started writing about them in 2010, and his role in the index fund revolution.
(0:10:01) Why Canadians have been slower to adopt index funds than Americans.
(0:12:09) How the model portfolios on his site have changed over time.
(0:14:20) Why simplicity is so important to a good investment outcome.
(0:16:38) The biggest obstacle Dan has observed when it comes to successful investing.
(0:19:40) Advice on how to approach decisions around stocks, bonds, and asset allocation.
(0:24:34) How to select the ideal ETF or index fund to express your asset allocation.
(0:27:22) Some of the ways that Dan’s views have changed since starting the Couch Potato portfolio, and the evolution of his blog.
(0:31:46) Why you should be clear on your financial goals before investing and the importance of saving rate relative to fees and performance.
(0:37:32) Understanding the value of financial advice if we consider investing to be effectively solved by low-cost ETF mutual funds.
(0:40:23) Why it’s so important to close the gap between providing a financial plan and implementing it.
(0:43:25) What surprised Dan about his clients during his transition from blogger to advisor, and what he has learned about earning his clients’s trust.
(0:48:22) Dan’s thoughts on how people should make the decision between DIY investing or hiring an advisor, and what people should look for in a financial advisor.
(0:55:46) The story of how Dan connected with PWL Capital and the key ways he has helped shape the company.
 
Links From Today’s Episode:


Rational Reminder on iTunes — https://itunes.apple.com/ca/podcast/the-rational-reminder-podcast/id1426530582.
Rational Reminder Website — https://rationalreminder.ca/ 
Rational Reminder on Instagram — https://www.instagram.com/rationalreminder/
Rational Reminder on X — https://twitter.com/RationalRemind
Rational Reminder on YouTube — https://www.youtube.com/channel/
Rational Reminder Email — info@rationalreminder.ca
Benjamin Felix — https://www.pwlcapital.com/author/benjamin-felix/ 
Benjamin on X — https://twitter.com/benjaminwfelix
Benjamin on LinkedIn — https://www.linkedin.com/in/benjaminwfelix/
Cameron Passmore — https://www.pwlcapital.com/profile/cameron-passmore/
Camero

Are you confident about the amount of life insurance coverage you have? Are you maximizing your tax savings with the principal residence exemption? In this episode, we delve into life insurance and optimizing capital gains to answer these essential questions. In our conversation, we unpack the nuanced topic of life insurance, what people get wrong about it, and how to effectively calculate your life insurance policy needs. Using his own experience as the lens for the conversation, Mark shares how he calculated his life insurance and incorporated costs such as funeral cover, emergency funds, short-term expenses, and income replacement. Learn about using the safe withdrawal rate shortcut, free resources for calculating life insurance costs, and the best financial tools for getting the most out of your policy. He also delves into capital gains and how to use a lesser-known exemption to reduce the amount owed significantly. Mark walks listeners through how the principal residence exemption works and how it impacted the sale of his rental properties. Then, jumping to a brand new segment on the Rational Reminder Podcast, Ben introduces his financial decision-making iteration of the game of ‘Would you rather’. Finally, we share listener reviews and feedback on previous episodes and debate whether to lease or buy a car in our after-show segment. Tune in now!
 
Key Points From This Episode:
 
(0:03:13) Mark explains how he and his wife calculated their life insurance needs.
(0:06:55) Learn how to plan for income replacement and why it is so complicated.
(0:12:10) Ben’s perspective on Mark’s approach to calculating his life insurance coverage.
(0:13:54) Find out why there are differences between Ben and Mark’s calculations.
(0:18:17) How Mark factored in retirement costs into his life insurance calculations.
(0:22:30) Free resources and tips to accurately calculate your life insurance needs.
(0:27:04) Why Mark considers whole life insurance as a separate asset class.
(0:31:25) The principal residence exemption and how Mark applied it to his situation.
(0:39:19) How we would choose to invest $1 billion in today’s market.
(0:42:26) Would You Rather segment: only life insurance versus only disability insurance.
(0:45:02) The exciting development of a tool for realizing capital gains in a corporation.
(0:51:06) Trends in the awareness of corporate notional accounts and tax planning intricacies.
(0:54:12) Listener reviews, episode feedback, and leasing a car instead of buying.
 
Links From Today’s Episode:


Rational Reminder on iTunes — https://itunes.apple.com/ca/podcast/the-rational-reminder-podcast/id1426530582.
Rational Reminder Website — https://rationalreminder.ca/ 
Rational Reminder on Instagram — https://www.instagram.com/rationalreminder/
Rational Reminder on X — https://x.com/RationalRemind
Rational Reminder on YouTube — https://www.youtube.com/channel/
Rational Reminder Email — info@rationalreminder.ca
Benjamin Felix — https://www.pwlcapital.com/author/benjamin-felix/ 
Benjamin on X — https://x.com/benjaminwfelix
Benjamin on LinkedIn — https://www.linkedin.com/in/benjaminwfelix/
Cameron Passmore — https://www.pwlcapital.com/profile/cameron-passmore/
Cameron on X — https://x.com/CameronPassmore
Cameron on LinkedIn — https://www.linkedin.com/in/cameronpassmore/
Mark McGrath on LinkedIn — https://www.linkedin.com/in/markmcgrathcfp/
Mark McGrath on X — https://x.com/MarkMcGrathCFP
‘How Much Life Insurance Do You Need?’ — https://www.linkedin.com/pulse/how-much-life-insurance-do-you-need-mark-mcgrath-cfp-cim-clu--tjwwe/
InsureRight — https://www.insureright.ca/
Episode 65: Dr. Wendall Mascarenhas — https://rationalreminder.ca/podcast/65
Dimensional Fund Advisors — https://www.dimensional.com/
Money Scope Podcast — https://moneyscope.ca/
Braden Financial Services — https://www.bradenfinancialservices.com/
Hendry Warren on

Designing a robust portfolio requires considerable expertise, data, and experience. And while there are plenty of published articles that can guide how you build your portfolio, they are not investment solutions by themselves. Wei Dai is the Head of Investment Research and Vice President at Dimensional Fund Advisors, and she joins us today for a comprehensive and informative conversation on portfolio design for higher returns. Her background includes a Doctor of Philosophy degree in Statistics, Operations research, and Financial Engineering from Princeton. She has also earned a bachelor's degree in mathematics and applied mathematics from Zhejiang University. Her work has been published in multiple journals, including The Financial Analysts Journal. She has also collaborated on articles with esteemed figures such as Professor Robert C. Merton and Robert Novy-Marx. In our conversation with Wei, we explore the contents of these articles, key findings from research conducted by Dimensional Fund Advisors, and how they are implementing this knowledge in their portfolios. We discuss the fundamental aspects of portfolio design, like expected return, risk, and costs, with Wei providing a detailed breakdown of each subject. There’s a lot to be learned from today’s conversation, and while things get pretty technical, you are in very capable hands! Tune in for a fascinating dive into the latest research on portfolio design and much more.
 
Key Points From This Episode:
 
(0:03:37) The main risk premiums that Dimensional Fund Advisors target in their portfolios.
(0:05:42) How long-term drivers of returns vary across different regions: an overview of the tests and outcomes they’ve seen at Dimensional Fund Advisors.
(0:07:15) Unpacking whether the value premium differs from the profitability premium across regions; why it makes sense to be globally diversified.
(0:08:57) Typical approaches to a multi-premium strategy in a portfolio: a rundown of the three approaches they take at Dimensional and the trade-offs between each.
(0:13:44) How they evaluate portfolios at Dimenstional: the benefits of taking a holistic, integrated approach, and instances where that doesn’t make sense.
(0:17:24) Weighting schemes: Dimensional’s approach to assigning individual security weights to achieve the desired level of exposure and how investments factor into weights.
(0:26:46) Advice on how investors should decide whether to currency hedge their foreign asset exposures, and insights on how to approach currency hedging.
(0:30:42) Premium timing: Why timing exposure to premiums is so tempting; parameters that must be defined to implement timing strategies; and which strategies worked in their research.
(0:39:21) Valuation ratios: why it theoretically makes sense that they would be related to differences in expected returns and why they aren’t useful in timing premiums.
(0:42:11) An overview of the main implications for pursuing premiums that arise from Dimensional’s research.
(0:44:10) Diversification and how to improve your odds of capturing return premiums.
(0:46:38) The tradeoff between concentration and expected returns, and defining the optimal balance.
(0:49:06) What investors should look for when choosing a systematic investment manager, why not all systematic strategies are created equal, and Dimemsional’s approach.
(0:52:52) The downsides of performance fees, specifically for systematic managers and what it was like writing a paper with Robert Merton.
(0:57:41) How short-term reversals differ from momentum, ways that reversals are related to liquidity, and how reversals vary across different stocks.
(01:03:12) The ways that Dimensional is implementing this knowledge in their portfolios; how their ideas go from research to publication to implementation.
(01:08:18) What sets Dimensional apart, and the value that they add, despite their research being available online.
 
Links From Today’s Episode:


Rationa

Private credit is one of the fastest-growing asset classes, and today we take a closer look at why that is, and if it’s really worth the hype. When you invest in private credit, you are essentially lending money to borrowers who might have difficulty accessing loans elsewhere. While these assets may be profitable, they can also incur a lot of risk and typically come with illiquidity. It is traditionally traded among institutional and accredited investors, rather than retail investors, namely, non-professional investors. Since private credit has gained so much popularity in recent years, we use today’s conversation to unpack how private credit works, the role of private credit funds, the associated performance fees and risks, and what retail investors should know about this asset class before deciding to invest. Our conversation investigates one of the top reasons for private credit’s rise in popularity, namely risk-adjusted returns, before evaluating whether this is a worthwhile reason to invest, depending on who you are. Stay tuned for our after-show section where we discuss the proposed changes to the capital gains tax, why the death of value could be exaggerated, and more!
 
Key Points From This Episode:
 
(0:00:18) Today’s main topic, private credit, and our upcoming webinar on May 22nd.
(0:02:18) An introduction to private credit as an asset class.
(0:05:33) Private credit funds: how they work, interest rates, performance fees, and valuations.
(0:08:14) Who does valuations on private credit funds and related risks.
(0:10:01) Unpacking the underlying risks of private credit and how investors are compensated.
(0:11:02) Insights from the paper ‘Direct Lending Returns’ related to publicly listed business development companies (BDCs).
(0:16:15) Takeaways from the paper ‘Risk Adjusting the Returns of Private Debt Funds’.
(0:18:16) Private credit funds, equity exposure, how private credit gets misrepresented, and what investors need to know about high-fee investment products.
(0:25:09) Illiquidity and what retail investors can expect from private credit.
(0:30:15) Our aftershow segment, starting with the proposed changes to capital gains tax.
(0:33:55) Ben’s conversation with David Chilton.
(0:36:55) The value premium and why the death of value could be exaggerated.
(0:40:45) Unpacking the heated response to our conversation with Scott Galloway.



Meet with PWL Capital: https://calendly.com/d/3vm-t2j-h3p
 
Links From Today’s Episode:


Rational Reminder on iTunes — https://itunes.apple.com/ca/podcast/the-rational-reminder-podcast/id1426530582.
Rational Reminder Website — https://rationalreminder.ca/ 
Rational Reminder on Instagram — https://www.instagram.com/rationalreminder/
Rational Reminder on X — https://twitter.com/RationalRemind
Rational Reminder on YouTube — https://www.youtube.com/channel/
Rational Reminder Email — info@rationalreminder.ca
Benjamin Felix — https://www.pwlcapital.com/author/benjamin-felix/ 
Benjamin on X — https://twitter.com/benjaminwfelix
Benjamin on LinkedIn — https://www.linkedin.com/in/benjaminwfelix/
Cameron Passmore — https://www.pwlcapital.com/profile/cameron-passmore/
Cameron on X — https://twitter.com/CameronPassmore
Cameron on LinkedIn — https://www.linkedin.com/in/cameronpassmore/
Mark McGrath on LinkedIn — https://www.linkedin.com/in/markmcgrathcfp/
Mark McGrath on X — https://twitter.com/MarkMcGrathCFP
Webinar May 22nd: Optimal Compensation Strategies for Business Owners — https://us06web.zoom.us/webinar/register/3317145039436/WN_GYudVJCYSnyF8HfUx9UbJQ
Money Scope Episode 12 — https://moneyscope.ca/2024/04/19/episode-12-paying-yourself-as-a-canadian-business-owner/
Money Scope Episode 13 — https://moneyscope.ca/2024/04/26/episode-13-optimal-compensation-from-a-ccpc/
Rational Reminder Episode 220: Jonathan Berk and Jules van Binsbergen — https://rationalreminder.ca/podcast/220
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