The Rational Reminder Podcast

The work of Bill Schultheis has had a profound effect on us here at the Rational Reminder Podcast, and eventually having him join us on the show is truly an honour! Bill is the author of the Coffeehouse Investor series and is currently the Principal and Senior Advisor at Soundmark, in Kirkland, Washington. Throughout his career Bill has dedicated himself to helping his clients make the choices that best serve them and their particular needs, and his approach has continued to grow and improve over the decades he has been in the game. We have a wonderful conversation with Bill, charting his course from his early days on Wall Street, to writing his first book and starting Soundmark, to where is today. Bill gives us some great insider insight into the important concepts from his books and also talks about current issues in the financial world, like the impact of cryptocurrencies. Towards the end of our conversation, we get even more philosophical with our guest sharing some thoughts on what constitutes a 'rich life', and the importance of listening to your heart when it comes to your big decisions. So for this and much more from an inspiring and sensible voice, be sure to join us today!

Key Points From This Episode:

• Bill's upbringing on a farm in Washington with a large family. [0:04:16.2]
• The route that Bill took to publishing his first book as a way to share the wisdom of indexing. [0:06:40.7]
• The beginnings of Soundmark and the first clients that Bill started helping. [0:10:13.4]
• Bill's most recent book and the three ground rules it lays out for readers. [0:12:36.3]
• Unpacking the 'coffeehouse investor' model portfolio. [0:18:20.7]
• How Bill approaches and explains diversification to his clients. [0:21:54.7]
• Thoughts on presenting data and challenging strongly held views from clients. [0:23:14.1]
• The impact of cryptocurrencies and commission-free trading on indexing. [0:25:53.6]
• Comparing the commonly held investing approaches of now and the 1990s. [0:29:01.0]
• The approaches to wealth building that Bill recommends to younger people. [0:30:52.7]
• How a persistent attitude served Bill when looking for a publisher for his book. [0:33:07.4]
• The basic strengths and weaknesses of index funds. [0:34:56.3]
• Bill's idea of a 'rich life' and what this means to him. [0:39:55.2]
• How to 'dial in your power settings' with your financial planning and common mistakes to avoid. [0:41:19.2]
• Listening to your heart and finding the financial and professional life that feels right. [0:44:52.7]
• How dissatisfaction can lead to unhealthy spending habits! [0:48:37.5]
• Bill's thoughts on the FIRE concept; pros and cons of adopting the philosophy. [0:50:31.4]
• The impact that The Millionaire Next Door has had on Bill's life and work. [0:51:48.2]
• How Bill defines success and the value he places on kindness. [0:52:51.7]

Welcome back to another episode of the Rational Reminder Podcast, where we give you the most considered and evidence-based information about investing in Canada. Our focus for this episode is the topic of tax loss harvesting, a subject we have touched on before but felt warranted a revisit, with some updates. To kick off the show, we review Playing to Win, looking at the illuminating perspective it offers with regards to strategy and preparation. From there we turn to some recent investing news on ETFs and Robinhood, before we get into the main course of today's show. There are plenty of pitches and arguments for why tax loss selling can be very rewarding, and while these are not necessarily false, there are certain ways in which the information can be misleading, or not comprehensive for all investors. We discuss how best to think about the supposed gains, noting the importance of high expected returns and the time frame in which a case study is made. We also think about some of the potentially negative results of letting tax drive your investment decisions, despite the seeming attractiveness of this route. One of the most important points here is the adjustment needed in order to apply these strategies to the Canadian market, as many of the pitches and research are based in the US system, which has significant differences when it comes to taxation. We highlight some red flags to look out for and give some more general warnings around rushing into investments that lean too heavily in this direction. So for all this and a bunch more great advice for your portfolio, join us for the show.

Key Points From This Episode:

• This week's book review of Playing to Win by Roger Martin and A G Lafley. [0:08:43.3]
• Continued increases for ETFs and comparing the statistics with recent history. [0:12:30.7]
• Some amazing statistics about Robinhood users and cryptocurrency investments! [0:15:18.5]
• A reintroduction to, and revisited analysis of, tax loss harvesting. [0:18:20.8]
• The best times to consider tax loss selling; waiting for high expected returns. [0:27:55.5]
• Recent findings on the tax alpha and modifying the arguments and assumptions. [0:33:20.5]
• Creating a new base case to work from with some helpful adjustments. [0:38:41.3]
• The importance of the time period when looking at historical returns for tax loss selling. [0:43:10.1]
• Cases in which we believe tax loss selling makes the most sense. [0:46:14.3]
• Looking at the tax implications of pooling funds with other investors. [0:49:02.7]
• Locating these tax loss strategies within a specifically Canadian context. [0:52:18.5]
• A couple Talking Sense cards dealing with leading and following, and protection. [0:55:25.5]
• Bad advice of the week; looking at pensions in the UK. [0:58:03.5]

Today we welcome Rob Arnott to the show! Rob is the founder of Research Affiliates and is a prolific writer who has published hundreds of articles for many different journals. We know firsthand, the power of Rob's work, and how it can alter the way you think about investing, and this depth of knowledge, coupled with his ability to make complex topics understandable makes him a dream guest for us! Rob is the co-author of The Fundamental Index, and we get some insight into this subject along with many other groundbreaking areas he has worked on. We cannot stress enough the rarity of Rob's gift for getting difficult ideas across in a deliberate and approachable way, and this is apparent through this illuminating conversation. For us, it was quite surreal to speak to someone so influential, and listeners can expect to come away with a greater understanding of 'smart-beta', intangible assets, forecasting, and some insight into the interesting areas of earnings dilution and 'the big market delusion', before Rob shares some very surprising information on factor momentum at the end of our chat. So for this and a whole lot more, in a truly stand-out episode, be sure to listen in!

Key Points From This Episode:

• Rob's perspective on the drawbacks of cap-weighted indexing. [0:02:47.2]
• Getting to grips with 'smart-beta' and its links to RAFI. [0:06:21.6]
• Building a fundamental index and what the weights are based on. [0:11:17.4]
• Misconceptions of the value of backtesting when making investment decisions. [0:13:43.3]
• The prevalence of extreme factor-drawdowns for investments. [0:17:22.7]
• Weighing the importance of intangible assets and what to trust in this regard. [0:23:32.8]
• Value stocks in the current drawdown; value's relative cheapening over recent years. [0:25:53.8]
• Stories about the inner workings of a company and how this can vary in importance. [0:28:41.5]
• Unpacking 'the big market delusion' and the paper that Rob co-authored on the subject. [0:33:33.2]
• Rob's work on earnings dilution and how it relates to bubble-formation. [0:37:00.9]
• How the findings on earnings dilution impact strategies towards disruptive industries. [0:40:19.9]
• Forecasting the expected returns of a factor portfolio and utilizing Research Affiliates website! [0:44:03.0]
• The possibility of adding value through timing exposure to factors. [0:47:26.7]
• The truth about momentum in historical back-tests in the last few decades. [0:49:12.8]
• Rob explains the real costs of trading! [0:55:42.7]
• Momentum's primary existence in factors, ahead of individual stocks and sectors. [0:58:44.8]
• How Rob currently defines success in his life. [1:07:38.7]

The looming issue of climate change has far-reaching implications, not least of which are relevant to the financial and investment world. Today we spend some time considering these impacts, with a focus on the question of whether climate risk is a priced investment. The short answer, conferred by the numerous academic explorations into the subject, is yes. This answer, however, still leaves investors with many options and contrasting possible approaches as to how to act. We get into some of the different avenues to explore when considering your best route, taking into account both ethical constraints and returns, as well as a long-term vision of sustainability. We also talk about why big companies with less of a focus on ethics may be tempted to go green for financial reasons, how investors might enact a moral stance by investing in fewer green companies, and many more surprising possibilities that arise out of the current findings. Rounding out all this serious discussion, we squeeze in an interesting book review from Hans Rosling, some Talking Sense questions, and of course, bad advice of the week, all of which you are not going to want to miss.

Key Points From This Episode:

• This week's book review, looking at Hans Rosling's Factfulness. [0:08:09.2]
• Recent financial and investment news; penalties, TFSAs, and a big shift from Wealthfront. [0:14:36.7]
• The question of climate change and markets connected to the use of fossil fuels. [0:19:04.5]
• Expected rate of returns in relation to the costs of capital, and the idea of climate hedging. [0:26:46.2]
• Looking at empirical evidence on the pricing of climate risk. [0:28:40.1]
• Recent scholarly findings on the subject of whether climate risk is priced. [0:31:50.3]
• Summing up the academic arguments for why and how pricing of climate risks operates. [0:38:35.7]
• The cost of capital incentives for companies to reduce their exposure to climate risk. [0:40:19.3]
• Participating in the transition of companies to greener and more sustainable practices by investing in them. [0:45:12.9]
• Financial needs for different age groups, at the beginning and the end of a lifetime. [0:48:17.6]
• Personal savings goals versus generosity towards loved ones. [0:51:47.2]
• This week's Bad Advice of the Week: making inflation trades in cryptocurrencies and gold. [0:53:27.1]

One of the major topics we hope to help our listeners with is retirement planning, and today we have a really informative and illuminating conversation with a true expert in the field, Don Ezra. His approach is typified by his focus on retirement and happiness, and their important intersection, subjects he has broached in his many published books, notably Life Two, and Happiness. Don is a self-professed financial nerd, so you know that he will fit right in on this podcast! His advice is relatable and easy to understand, a result of working on his own retirement along the way. Don is an actuary by trade and helped establish Russell Investments Canada in 1984, through which he worked on many huge pension funds across the world, endowing him with amazing expertise in the space. In our conversation, Don gives us such a wide-ranging view of his approach, and the amazing conglomeration of ideas he has amassed on the subject of better retirement, or as he likes to call it, graduation from full-time employment! He breaks things down in easy and catchy ways, giving us some fundamental questions that can help initially guide the retiree, around purpose, action, and money. From there he talks about the seven asset classes of your life's abundance portfolio, needs versus wants, and even finds a spot to comment on the strengths and weakness of the FIRE philosophy. So for all this and much more, join us on the Rational Reminder today!

Key Points From This Episode:

• Don's feelings around the time of his retirement from such a successful career! [0:02:10.4]
• The common feeling of discombobulation around retirement and Don's thoughts on addressing it. [0:03:41.2]
• Questions people should be asking and answering as they approach retirement. [0:06:45.8]
• Safety, growth, longevity; the three things we need for our finances in retirement. [0:08:49.7]
• Don explains the sequence of returns and some misconceptions about averages. [0:10:21.1]
• Weighing the uncertainty of life expectancy against that of random stock returns. [0:12:24.8]
• Better ways to calculate life expectancy for individuals and couples. [0:15:15.7]
• Don's advice to the average person looking to build a diversified portfolio for retirement. [0:16:54.1]
• How Don has approached his own portfolio and generating retirement income. [0:21:10.8]
• The importance of flexibility and adjusting a retirement budget over time. [0:23:48.7]
• When retirees should be seriously considering annuities. [0:25:52.1]
• The dimension that inflation adds to these questions for people in retirement. [0:27:49.4]
• Assumptions that Don uses for his life expectancy planning. [0:34:06.1]
• Calculating what is needed against what you have; Don explains the personal funded ratio! [0:36:33.7]
• Lessons that Don learned during his work with huge pension funds before retirement.[0:38:35.4]
• The question of filling one's time in retirement; staying busy and maintaining purpose. [0:41:29.5]
• Don breaks down the seven asset classes of your life's abundance portfolio. [0:45:22.1]
• A look at the different parts of the FIRE movement and its success and failures. [0:48:38.5]
• A few approaches to challenge below-average advice from any expert. [0:50:42.1]
• Fostering healthy ambitions and dreams for the years of your retirement. [0:55:24.5]
• Better conversations with family around money, inheritance, and financial planning. [0:57:21.2]
• The emotional legacy that Don views as the success of his life! [1:01:16.8]

Welcome back to another episode of the sensible money show. The focus this week is the age-old question of housing; whether to buy or to rent. After our preliminary remarks, book review, and a new TV recommendation, we get down to brass tacks on the important things to look at when assessing your living situation. There are some commonly held views on the expenses and sacrifices associated with real estate, and we do our best to share some of the facts as they stand. We get into some meaningful ways to truly compare the costs of each option, looking at the financial aspects, risk, quality of life, and related psychological elements to the debate. The truth is that there will be costs associated with each, but that they may not always lie where you think they do! For instance, it is commonly believed that it is less risky to own than to rent, however, the evidence suggests otherwise. Similarly, many of us assume that the costs of owning a property are greatly diminished once it is paid off, again, this is not necessarily true. Our main argument here is to base your choices on factors more closely related to your physical and mental health, things like stress and relaxation due to noise and travel times.

Key Points From This Episode:

• This week's highly recommended book, Noise. [0:05:37.3]
• Unpacking the new article by Larry Swedroe titled 'The Misguided Faith in the Fiduciary Standard' [0:11:50.7]
• A few thoughts on FIRE, positive psychology, and moral judgments. [0:16:49.2]
• The big decision that so many of us are faced with: buy or rent? [0:20:41.7]
• Flawed logic around mortgage payments and rental costs. [0:25:55.5]
• Opportunity and maintenance costs and the truth about depreciation. [0:29:51.7]
• Equating the total costs of renting and owning and making a judgment based on this. [0:36:53.8]
• The ratio of prices to rent in Canada currently and in the last few decades. [0:39:47.9]
• Risk and homeownership; why renting is less risky in many ways. [0:40:50.8]
• Keeping the focus on living a good life when making real estate decisions. [0:45:15.7]
• The surprising relationship between owning a property and a sense of control. [0:49:16.8]
• Weighing all the factors and making an informed decision based on wellbeing. [0:55:30.4]
• This week's Talking Sense segment dealing saving, speed of decision-making. [0:56:08.8]
• Bad advice of the week: Fidelity's investment initiative aimed at teenagers. [1:00:34.4]

Today we speak to Professor Johanna Peetz about how the errors people make about predicting their futures affect financial planning and relationships. Professor Peetz is an Associate Professor of Psychology at Carleton University and her three main research interests are time perception, personal spending, and close relationships. We kick the conversation off on the topic of biased spending estimates, the idea that people are bad at budgeting, and Professor Peetz gets into the main causes and implications of this issue. Our guest gives pointers for how to make less biased predictions for spending and makes a great point about how people with more aggressive saving goals often don't spend less. We move onto the subject of long-term financial planning and motivation, and Professor Peetz weighs in on a few methods to get better at breaking down big goals into steps as a way of keeping motivation up. Another big discussion from today is how this idea of behaviour predictions fits into the context of healthy relationships. We talk about the connection between partner-satisfying decisions and happiness, and how partners should view each other's ability to keep promises. So for all this and more on how to get better at knowing your personality traits and the effects this can have on finances and relationships, tune in today.

Key Points From This Episode:

• Introducing Professor Johanna Peetz and her research on predictive errors. [0:00:48.2]
• If people are good at predicting how much money they're going to spend in the future. [0:03:05.2]
• The causes and implications of these biased spending estimates. [0:04:33.5]
• What people can do keep their spending in line with their goals. [0:06:53.5]
• The financial literacy gap between men and women. [0:13:37.5]
• Increasing motivation to reach long-term financial goals based on a future self. [0:17:05.7]
• Setting goals using intrinsic over extrinsic reasons. [0:21:40.5]
• How financial planners can help their clients find and reach their goals. [0:23:56.5]
• The relationship between pro-social behaviour and happiness. [0:24:51.5]
• How good people are at predicting relationship-enhancing behaviour. [0:28:27.0]
• Dealing with money-related relationship conflict amongst being bad at predicting behaviour and spending. [0:32:39.0]
• How unpacking expenses can help people make less biased spending predictions. [0:34:26.0]
• Different ways of responding to boredom in a relationship. [0:39:34.0]
• Taking the perspective of the other person to improve the forecast of relationship-enhancing behaviours. [0:43:10.0]
• What Professor Peetz is working on now that makes her most excited. [0:46:05.0]
• How knowing your personality traits can help you make better financial decisions. [0:48:20.0]
• Our guest's definition of success. [0:49:09.0]

Welcome back to your favourite Canadian podcast about sensible investing! Today we are focusing on evaluating equity strategies and wondering aloud whether you should be chasing these anomalies, thinking about the costs and turnover, and how these products are being implemented. These are just some of the important questions that can be asked on this subject, and we do our best to cover the most vital points in this episode. We start things off with our customary book review segment, taking a look at Katy Milkman's fascinating new title How to Change and the thesis it lays out on the continuum from now into the future. We then turn to a few interesting and pertinent news stories dealing with the CPP and clarifying the role of fund managers! After the preamble, we get into the main course of today's show and talk about some of the most prominent literature on the subject of equity strategies before laying out some criteria for useful data in this discussion. Our main point can be simplified as such: in the event of selecting systemic equity strategies with hopes of beating the market, there are many additional tradeoffs and costs that should be considered, many more than we even have time here to go through! To close out the show we take on a few questions for our Talking Sense segment and share some somewhat relieving news for our bad advice of the week!

Key Points From This Episode:

• A retraction and re-review of the last episode's book of the week, Effortless! [0:04:26.4]
• This week's book review of the exciting new title from Katy Milkman, How to Change. [0:06:35.6]
• A round-up of recent news stories from the WSJ, The Globe and Mail. [0:10:32.2]
• The surprising results of the Canadian year-end SPIVA scorecard. [0:14:55.8]
• Investment topic of the week: evaluating equity strategies and the inspiration behind it. [0:17:24.5]
• The identification of systematic factors; Fama and French's original findings and newer research. [0:21:15.9]
• Conditions for useful data: persistent over time and pervasive across markets, strong economic rationale, and non-reliance on rising valuations. [0:23:44.3]
• The two forms of implementation costs that the data needs to survive: implicit and explicit. [0:32:40.1]
• The importance and impact of taking transaction costs into account for your portfolio. [0:35:53.0]
• The rough estimations that Ben put together in 2019 for a fund premium regression. [0:38:54.6]
• The 'what if I am wrong' check; the usefulness of maintaining a healthy level of skepticism. [0:42:22.5]
• Summarizing today's argument about additional costs and tradeoffs when selecting equity strategies. [0:46:01.7]
• Talking Sense segment; thoughts on money's purpose, and goals and sacrifices. [0:46:39.1]
• This week's bad advice! The amazing claims of TFSA maximizer schemes. [0:52:21.0]

There is an overarching investment philosophy that permeates most of what we do here at the Rational Reminder Podcast, and while some guests' positions might differ at times, it is rare that we have someone on the show whose approach is as strongly contrasted with ours, as Professor Brad Cornell. Professor Cornell's arguments are so well-founded and researched that they require a re-examination of positions that we feel have been a given for us for a long time. He is the author of about 150 referenced articles, four books, and has conducted hugely interesting work on the current state of value investing. His research with Aswath Damodaran, and insights into Tesla's valuation provide great food for thought, and we get into all of this on today's show! Our conversation also covers ways to go about picking a fund manager and a slightly different lens through which to view past performance. We feel truly grateful to have such a different, yet valid, perspective expressed so well here, and cannot wait to share this highly useful information with all of our listeners. Tune in to hear it all from Professor Brad Cornell!

Key Points From This Episode:

• The difference between a stock characteristic and a stock risk factor loading. [0:03:30.2]
• Some of the challenges in using characteristics to develop an investment strategy. [0:05:43.8]
• The problem of non-stationary frameworks as a starting point for investing. [0:07:33.4]
• How little we know about the cross-section of expected stock returns. [0:08:32.1]
• Concentrated, characteristic-focused portfolios versus something more diversified. [0:11:12.7]
• Unpacking the 'big market delusion' and the huge power of the narrative. [0:12:11.4]
• Looking at the example of the electric car market and what it teaches us. [0:16:18.4]
• Professor Cornell's thoughts on how to pick a fund manager. [0:21:23.0]
• Assessing the issues with mean reverting performance. [00:25:58]
• The most relevant ratio: price to a value estimat [00:30:35.2]
• Some thoughts from Professor Cornell on the rise in ESG investment. [00:32:22.5]
• Approaches to the expected equity risk premium for investors and planners. [00:39:45.0]
• Bringing in historical context to the conversation about predictability. [0:45:16.1]
• Professor Cornell's approach to calming down investors' reactivity to volatility. [0:47:56.5]
• A great definition of success from Professor Cornell! [00:49:57.2]

Is it possible to hedge your investments against different levels of inflation? This is the question we ask in today's episode, as we run through a variety of different investment approaches and commodities. While the answer may not come as a huge surprise, it is definitely worth the walk-through and getting to grips with what the literature can tell us in each scenario. After rounding up some news and a few reviews relevant to our usual subject matter, we dive straight into this topic, tackling the performance of stocks and bonds, gold, international stocks, value stocks, and more! We also share some general thoughts and questions to ask during periods where inflation is high, before positing our view that there is no single successful hedge against inflation, but rather our usual position of an adjusted and diversified portfolio will serve you as well in this regard as in others. We finish off this episode with a few of our usual quick cards, and this week's disturbing bad advice! So tune in to hear all about what you should know about expected and unexpected inflation and a whole lot more!

Key Points From This Episode:

• The exciting recent decisions around succession that were made at PWL! [0:00:22.4]
• Ben's review of Greg McKeown's new book Effortless and Netflix's Money, Explained. [0:04:51.7]
• A quick round up of some big money news from around the country. [0:08:25.2]
• Reflecting on the recent performance of Wealthsimple portfolios. [0:13:26.6]
• 'The ultimate inflation hedge'; looking at returns under different conditions through the years. [0:19:50.1]
• Looking at the performance of stocks and bonds during high inflationary periods. [0:25:04.6]
• What to do and what to ask in situations with higher-than-expected inflation. [0:32:21.0]
• Weighing the value of gold as an inflation hedge; 'The Golden Dilemma' and 'The Golden Constant'. [0:39:50.3]
• The performance of international stocks during a period of high inflation. [0:44:05.8]
• What the research shows about value stocks and and their relation to inflationary periods. [0:45:55.2]
• The answer to the question: no perfect hedges against inflation! [0:52:04.7]
• Today's cards; saving versus spending, and tools versus treasures. [0:55:20.3]
• Bad advice of the week courtesy of the Investment Executive! [0:56:56.0]