109 episodes

A weekly reality check on sensible investing and financial decision-making for Canadians. Hosted by Benjamin Felix and Cameron Passmore of PWL Capital.

The Rational Reminder Podcast Benjamin Felix & Cameron Passmore

    • Investing
    • 1.0, 1 Rating

A weekly reality check on sensible investing and financial decision-making for Canadians. Hosted by Benjamin Felix and Cameron Passmore of PWL Capital.

    Jim Stanford on The Economics of Capitalism in a Crisis (EP.106)

    Jim Stanford on The Economics of Capitalism in a Crisis (EP.106)

    Today’s guest is Dr. Jim Stanford, Economist and Director of the Centre for Future Work and author of Economics for Everyone. We kick things off with Jim hearing his perspectives on what makes this recession unprecedented before he argues that a traditional approach to macroeconomic policy won’t be enough to augment more than a crippled and unstable recovery. This situation might hold a silver lining though and Jim sketches out the opportunity it provides for rethinking employment ethics. After weighing in on why the deficits caused by a much-needed post-war style economic reconstruction might not such a bad thing, Jim does an amazing job of explaining the connections and differences between quantitative easing and government deficit. On this topic, he talks about why fears around credit creation are centered on an outdated concept of banking, and the potential quantitative easing has for facilitating investment and economic activity in this recession rather than buying corporate assets in the secondary market. From there, we talk about wealth distribution, the inevitability of an economic system that supersedes capitalism, and the concept of the political economy. Jim gets into how issues about history, norms, culture, and power – things that don't show up in your usual supply and demand graphs – are actually crucial inputs for understanding the economy and understanding economics. Don’t miss this incredible conversation about ethics and capitalism with today’s guest.
     
    Key Points From This Episode:
    Introducing Jim Stanford and his work on economics and quantitative easing. [0:00:05.3] What makes this recession unprecedented; the ‘Loch Ness Monster’ recovery. [0:03:16.2] How many of the most vulnerable groups are experiencing more job losses. 0:06:27.3] Challenges of remote work and implications that only 25-30% of jobs can be done remotely. [0:09:32.3] Impacts of social distancing on the economy, a socially constructed phenomenon. [0:12:07.7] Avoiding the Loch Ness recovery by implementing a post-war style recovery plan. [0:14:53.3] The silver lining of this crisis: putting an end to inhumane work arrangements. [0:18:38.4] Why large deficits that could come with a reconstruction might not be a problem. [0:21:02.0] Connections and differences between quantitative easing and government deficit. [0:24:30.3] Dispelling fears of credit creation inflation; how banking actually works. [0:28:14.7] The dangers of quantitative easing and how it can be better used in the recovery. [0:32:44.3] Why GDP might not be the best measure of how well an economy is doing. [0:35:49.1] Metrics that make skew wealth distribution seem less harsh than it is. [0:38:58.2] The precariousness of the bank and mining-based Canadian economy. [0:41:49.9] How Capitalism is not perpetual and examples of seeds of change. [0:46:17.3] Why the capitalist economy is political and gross inequality contradicts it. [0:50:21.8] Jim’s education, early activistic goals, and definition of success. [0:53:28.5]

    • 56 min
    Dimensional's ETFs, Private Equity, and Prescribed Rate Loans (EP.105)

    Dimensional's ETFs, Private Equity, and Prescribed Rate Loans (EP.105)

    With private equity investments increasing in popularity, you may feel the pressure to expand your portfolio. Today’s episode, we look at the data behind private equity returns to see if these investments add something to your portfolio that you couldn’t get elsewhere. But first, we discuss some big news — that slow-moving Dimensional Fund Advisors are entering the ETF marketplace. After looking at the implications of this move, we use a Harvard paper as our springboard into the topic of private equity. By exploring the shift in demand for private equity, the paper establishes the context for why investors, especially institutions, are seeking higher returns. Looking at research from AQR, we talk about their finding that private equity returns are overvalued, despite them being historically good investments. You’ll hear how the risks underlying private equity are obscured by a ‘return smoothing effect’ and why people are willing to overpay to get smooth returns. We examine how the gap between private and public equity returns has narrowed along with AQR’s argument that market changes have caused private equity investments to perform poorly. After AQR, we move onto a paper by Erik Stafford which shows that small-cap investing yields similar returns to private equity — with the advantage that you don’t have to pay high private equity fees. We round off the episode with a discussion on the benefits of spousal loans before talking about this week’s bad financial advice. This is a valuable episode for those wondering about adding private equity to their portfolios. Listen to find out why that might not be in your best interest. 
     
    Key Points From This Episode:
    Updates on our brilliant future guests — Jim Stanford and William Bernstein. [0:01:50] That Jim Stanford’s book provides an excellent view of money and banking in capitalism. [0:02:49] The big news; Dimensional Fund Advisors are entering the ETF marketplace. [0:04:50] The similarity between Avantis Investments and Dimensional Fund’s offerings. [0:06:05] Speculation on why Dimensional Fund Advisors are moving into the ETF space. [0:09:06] The benefit of ETFs — if you want out, then you have to pick up the spread [0:13:12] How ETFs might affect investor discipline and what ETF demand might look like. [0:14:06] Other Dimension news; 16 Canadian funds will get a management fee reduction. [0:15:39] Corrections to a chart on Twitter showing investors selling their equity holdings. [0:16:16] Hear about Capital and Ideology, Benjamin’s book of the week. [0:17:38] How private equity is becoming increasingly popular. [0:19:26] Why, generally, you shouldn’t include U.S ETFs in your portfolio. [0:21:20] The massive shift towards private equity investment from numerous entities. [0:24:08] How the timing has caused large institutions to look for higher returns. [0:25:33] Why expected returns from private equity were historically good and why this is no longer the case. [0:27:50] How private equity trading results in an artificial ‘return smoothing effect’. [0:29:10] That the valuation gap between private and public equity has narrowed. [0:31:40] What other mechanisms lead to an overvaluation of private equity. [0:32:28] Why IRRs, as opposed to PMEs, can be easily gamed, rendering them unreliable. [0:37:00] The historical conditions that led to high returns from private equity. [0:40:50] Comparing the expected return for public and private equity. [0:43:25] How Erik Stafford’s paper agrees that public equity risk is under-stated. [0:47:06] The difference in dispersion between private and public mutual equity funds. [0:49:30] Why private equity past performance isn’t a predictor of future returns. [0:50:55] How spousal loans allow your partner to make investments with your money. [0:54:24] The potential tax savings that result from spousal loans

    • 1 hr 9 min
    Fred Vettese: A Complete Guide to Retirement Income (EP.104)

    Fred Vettese: A Complete Guide to Retirement Income (EP.104)

    Today, we get into a masterclass on retirement planning with a true expert in the field whose perspectives are distinctly evidence-based, Fred Vettese. Fred is a Partner and former Actuary at Morneau Shepell and author of three retirement books including Retirement Income For Life. We hear Fred’s thoughts on what people should be spending in retirement, why there is not a retirement crisis in Canada, and how Canadians can live on far less than they have been told. Fred talks about how to prepare for a bad investment outcome, as well as the problem of underspending early on and ending up with too many assets. He is a big proponent of people deferring their CPP until after 70 and buying an annuity with a portion of their money in most cases. Our guest weighs in on annuities, talking about how to buy them, which types to buy, and why ALDAs exacerbate the problem of early underspending. We query Fred about when people should start their CPP and OAS government benefits, and then move to hear his thoughts about different bear markets, how to invest during them, and what the current massive government interventions mean for the future of taxpayers. Fred gets into the risk of getting a retirement age date wrong, why he doesn’t endorse the 4% spending rule, and how retirement planning is affected by owning versus renting a home next. He also makes a case for when reverse mortgages are a good option, why long-term care insurance makes no sense, and why interest rates are so low right now. Wrapping up, we hear Fred’s thoughts on what this all means for early retirees, people still in the workforce, and those just entering it. Tune in for Fred’s brilliant perspectives on all this and a lot more in what should be an evergreen resource for any Canadian looking for solid retirement instructions.
     
    Key Points From This Episode:
    Introducing Fred Vettese and his evidence-based work on retirement planning. [0:00:16.3] How Fred and Bill Morneau dispelled notions of a Canadian financial crisis. [0:02:45.3] Rethinking the rule that Canadians spend 70% of their income in retirement. [0:04:55.3] Fred’s conclusion about how spending tracks inflation during retirement. [0:09:27.3] Strategies for how retirees can take on less risk but still have enough money. [0:12:00.3] Avoiding underspending and ending up with too many assets later. [0:15:08.3] The benefits of annuities and why they might not be that safe anymore. [0:16:55.3] The pitfalls of annuities indexed to inflation over combining all income sources. [0:20:00.3] Why ALDAs exacerbate Canadians underspending at younger ages. [0:22:47.3] When to start CPP and OAS government benefits, and tips for exceptional cases. [0:25:59.3] Whether this bear market is vanilla or not and how it affects investment decisions. [0:30:25.3] The effects that massive government stimulus could have on taxpayers. [0:32:28.3] Drawbacks of saving for an over and underestimated retirement age. [0:35:12.3] Thoughts on the 4% spending rule now that bond returns are 0%. [0:37:20.3] How people owning versus renting a home affects retirement planning. [0:39:09.3] When it’s a good idea to take out a reverse mortgage. [0:41:36.3] Why long-term care insurance makes no sense; poor coverage for the price. [0:44:10.3] The link between aging populations and low interest rates/inflation. [0:47:40.3] The impacts of this low interest rate environment on early retirees. [0:52:10.3] Whether Monte Carlo simulation is a useful tool and what success rates to aim for. [0:53:49.3] Why early retirees can withstand a lower Monte Carlo success rate. [0:56:11.3] The reason people who are not retired yet should be saving 20% of their income. [0:56:59.3] Fred’s advice for people entering the workforce to live within their means. [0:58:52.3] How Fred defines success: having a minimal amount of regrets when it’s all over. [0:59:55

    • 1 hr
    Picking an Active Manager, Raising the OAS Clawback Ceiling, and Trading Hertz (EP.103)

    Picking an Active Manager, Raising the OAS Clawback Ceiling, and Trading Hertz (EP.103)

    Welcome to another episode of the Rational Reminder Podcast! Today’s main topic is how to pick an actively managed fund to invest in despite funds of this type producing lower returns than passive ones! Before getting into that, we hear a few updates on Ben’s research into dollar-cost averaging versus lump-sum investing, discuss the factors that influence choice making found in an amazing new book by Sheena Iyengar, and touch on an OSC report on QuadrigaCX being a big Ponzi scheme! We get into our main topic next, introduced by the point that while Peter Lynch managed the Magellan Fund so well, none of its investors made any money out of it. We talk about the decrease in popularity of actively managed funds and Ben attempts to find out if it would be possible to sketch out a framework for picking one despite this. He does this by firstly defining active and passive investing and then tracing the evolution of the definition of Alpha (excess risk-adjusted returns) found in different key papers, where at each new contribution to the definition, the window for actually achieving Alpha gets smaller. Finally, we end with a framework but you’ll find out how it falls short of being able to narrow the definition of a sensible actively managed fund to invest in down beyond a certain point. From there, we get into some amazing OAS clawback retirement hacks that could earn you a lot of extra income and wrap up with a glance at the bizarre upsurge in Robinhood investors in now-bankrupt Hertz since the pandemic!
     
    Key Points From This Episode:
    Updates about Ben’s work, fans of RRP, and brilliant upcoming guests! [0:00:40.1] Discussing The Art of Choosing and its meditations on factors that impact choice. [0:05:11.3] Findings of an OSC report about QuadrigaCX being a Ponzi scheme. [0:11:00.6] An article on Peter Lynch and why Active Fund Management doesn’t work. [0:14:53.4] A framework for picking an active fund; defining active/passive investing and Alpha. [0:20:40.9] An evolving definition of Alpha showing active fund management doesn’t often produce it. [0:24:11.3] Findings of a 2017 Vanguard paper that help identify Alpha in actively managed funds. [0:36:20.3] When an active fund is less bad: it is low fee, low turnover, and invested in small-cap value stocks. [0:43:43.3] Adding a criterion to active funds to invest in: those that aren’t that big. [0:44:46.3] The last piece to consider when finding an active fund: active share concerning your belief in the manager. [0:46:29.3] How Ben’s point about active share ties back to investors not doing well under Peter Lynch despite him being a great active fund manager. [0:48:57.3] This week’s planning topic: OAS secrets for the high net worth. [0:52:11.3] Bad advice of the week: the Robinhood investors buying bankrupt Hertz shares. [0:58:08.3]

    • 1 hr 1 min
    Dr. Brian Portnoy: Underwriting a Meaningful Life (EP.102)

    Dr. Brian Portnoy: Underwriting a Meaningful Life (EP.102)

    Even though we learn that money is merely a means of exchange, a store of value, or a unit of account, it’s so much more than this. Money captures so much of what we grapple with like hope, joy, fear, regret, and envy, yet it’s widely surveyed as being the least spoken-about issue when compared to religion, mortality, and marriage. Dr. Brian Portnoy, the author of The Geometry of Wealth, joins us today to share his view on wealth, which moves past the conventional understanding of accumulation. We kick off the show by discussing some of Brian’s research findings around the way people avoid talking about money. From there, we move onto his idea of funded contentment, which he hopes will get people to think about the different facets that go into a contented, joyful, and meaningful life. While this is a purposely loaded concept, Brian conveys the message in a simple, clear way to show that building wealth requires an assessment of many aspects of life. Then, we move onto how Brian believes financial crises affect people’s financial wellness. Although there are certainly immediate devastating effects of these crises, Brian takes it a step further, sharing a conceptual view of how these shifts intersect with people’s financial plans. After this, we turn our attention to adaptive simplicity and how it relates to goal-setting. We round the show off by discussing how the financial management industry is changing, and what Brian hopes the role of the advisor will increasingly become. Be sure to tune in today!
     
    Key Points From This Episode:
    Learn more about Brian’s rationale for comparing money to Lord Voldemort. [0:03:31.0] Why money — contrary to what we’ve learned — is a qualitative, not quantitative. [0:05:58.0] What Brian hopes to get people to think about with his ‘funded contentment’ idea. [0:06:44.0] How the shapes Brian uses in Geometry of Wealth relate to the journey of achieving wealth. [0:08:36.0] The three-step process to achieve funded contentment. [0:09:22.0] Unpacking priorities and decisions and how they intersect with building wealth. [0:10:54.0] The importance of calibrating planning with purpose and where people fall short. [0:13:50.0] Where people in America are in their financial wellness journey. [0:15:43.0] The four corners of the square: Exploring investment expectations and how people view this. [0:17:37.0] Brian’s practical and conceptual takes on how financial crises’ impact on financial wellness.[0:21:12.0] Why Brian disagrees that volatility is not a great measure of risk for a long-term investor. [0:29:13.0] ‘Adaptive simplicity:’ What this is and why it’s key in financial planning. [0:32:15.0] How to set financial goals, which are static, when being flexible is key. [0:35:17.0] Why Brian believes — despite his hedge fund experience — that investors can’t plan for mark-beating returns. [0:38:47.0] The role that hedge funds could play in investors’ retirement strategies. [0:42:47.0] What investors can do to understand if they can manage their own retirement. [0:45:34.0] How reframing the financial advisor relationship to a coaching one helps. [0:49:15.0] What the future of holistic financial advice should look like, according to Brian. [0:54:53.0] Insights into Brian’s firm, Shaping Wealth, and the work that they do. [0:55:37.0] Brian’s definition of success in his own life. [0:58:02.0]

    • 59 min
    Factor Nuances, Dollar Cost Averaging, and Annuities in a Pandemic (EP.101)

    Factor Nuances, Dollar Cost Averaging, and Annuities in a Pandemic (EP.101)

    We kick off today’s episode of the Rational Reminder by discussing when Ben will be publishing his new model portfolios and a quick look at some of our upcoming guests and resources you might want to take a look at. We have been on a roll with our guests lately, and we are certainly not slowing down anytime soon. From there, we look at some of the headlines, such as CDIC developments and the myths around inflation. Next, we move onto to listener rapid-fire questions. Some of the topics include the difference between leveraged ETFs and traditional ones as well as a small-cap investment strategy for an investor with a 30-year plus investment timeline. We then turn our attention to the core topic of the show, dollar-cost averaging versus lump-sum investing. Ben presents an overview of dollar-cost averaging along with some of the perceived benefits. We dive into his analysis of dollar-cost averaging versus lump sum investing in equity portfolios over select 10-year periods across various countries. We discuss the results based on a range of factors and variables. The crux of the argument is that dollar-cost averaging is not as compelling as it’s often sold to be. While there are psychological benefits, the empirical evidence shows that there are not real ones. We wrap the show up with a look at how the pandemic is likely to shape the annuities industry and retirement planning. Tune in today!
     
    Key Points From This Episode:
    Find out when the new model portfolios will be up. [03:10] Some books to look at ahead of upcoming guests. [05:04] Ben and Cameron’s takeaways from Tobi Lutke’s appearance on Invest Like the Best. [05:43] Current affairs, including CDIC changes, Michael Kitces recent publication, and inflation. [09:07] Rapid fire questions: Leveraged ETFs versus traditional ETFs and size as a risk factor. [13:47] How a small cap value investment strategy could work for an investor with a long horizon. [23:07] Why Ben and Cameron don’t talk about implementing the profitability factor with a dedicated ETF. [25:05] A brief explanation of dollar-cost averaging and the rationale behind it. [29:54] Find out more about Ben’s dollar-cost averaging versus lump sum investing analysis. [31:49] The results of Ben’s analysis and some key takeaways. [36:44] The worst 10% of lump sum outcomes versus dollar-cost averaging – the results. [41:26] Two things people look at to try to predict positive outcomes and its influence on lump sum investing.[50:36] How high stock prices influence lump sum versus dollar-cost averaging outcomes. [53:36] Japan vs the US: How Ben determined if the Japanese market is expensive. [56:37] Three key outcomes of the pandemic on retirement planning. [1:00:03] How the annuity industry can encourage its products with decreasing life expectancy. [1:02:05] Bad advice of the week. [1:06:16]

    • 1 hr 8 min

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