The Rational Reminder Podcast

Episode 339: 2024 Year-End AMA Pt 2
Date: January 9, 2025
Hosts: Benjamin Felix, Cameron Passmore, Dan Bortolotti

Episode Overview

In this extended AMA (Ask Me Anything) episode, hosts Benjamin Felix, Cameron Passmore, and Dan Bortolotti tackle a wide array of listener questions, ranging from portfolio construction and behavioral biases to the nuances of real estate investing, the continued relevance of bonds, and personal reflections on changing perspectives in finance. The trio draws on both research and their hands-on experience as advisors, blending rigor with practical, relatable insights. The episode is packed with actionable advice, deep dives into financial theory, and candid opinions on financial planning topics Canadians grapple with today.

Key Discussion Points & Insights

1. Home Country Bias in Investing (00:59–06:53)

• Should investors overweight their home country stock market?
  • Owning a home isn't the same as holding stocks or bonds. It hedges against future housing costs but isn't an easily “rebalancable” asset (02:15).
  • Research supports some home country bias, but not an extreme one. PWL recommends ~30% in Canada for Canadian clients, aligning with minimum volatility portfolios (03:24).
  • “Any simulation is super sensitive to the specific past returns… not a hill I’m going to die on.” — Ben Felix (04:41)
  • Behavioral reasons, such as FOMO and availability bias, often drive higher home country allocations (04:04).
  • Despite easier access to global diversification now, many investors (especially Canadians) still heavily overweight their local market (~50–80% historically) (06:42).

2. What Should High Net Worth Investors Do Next? (07:44–12:48)

• Is there a need to complicate investments once you “made it”?
  • Hard to answer without details, but net worth alone doesn't dictate next steps; spending and overall situation matter (07:44).
  • More diversification than a global index fund portfolio is usually unnecessary—it's exposure to “80–90% of global liquid investments” already (08:53).
  • “Access classes, not asset classes”—many alternatives (private credit, real estate, etc.) are about prestige, not genuinely superior returns (10:35).
  • “Most of the time you’re probably going to make yourself worse off rather than better [by getting fancy].” — Ben Felix (13:14)
  • Focus remains on disciplined, global, low-fee index investing; avoid the allure of hedge funds and “fancier” investments unless for very specific, researched reasons.

3. Active Management, Day Trading, “Core & Explore” (14:15–20:26)

• Splitting portfolio between index and day-trading advisor?
  • Suspect results; day trading rarely produces sustainable outperformance (15:28; 18:01).
  • If someone is “beating the market,” it’s usually higher risk, luck, or select time periods (16:47).
  • “If that’s the part you think is going to outperform, then you should do it with 100% of your portfolio.” — Dan Bortolotti (19:03)
  • Core-and-explore may scratch an itch, but isn’t rational evidence-based investing (19:03).

4. Bitcoin & Blockchain: Risk to Markets? (21:47–24:29)

• Bitcoin/blockchain activity doesn't threaten ETF/GIC portfolios; any economic effect will manifest through public markets if it’s relevant (21:47).
• “If it became so obvious that holding Bitcoin is necessary for economic success, companies will start doing it and equities… will reflect that.” — Ben Felix (23:59)
• The “blockchain revolution” itself is seen with skepticism by hosts; real-world impact remains elusive (23:11).

5. Should Canadians Change Strategy If U.S. Imposes Tariffs? (24:45–26:20)

• Markets price in known risks rapidly. Making portfolio changes based on predictions (like new tariffs) is just market timing in disguise (24:53).
• “If you’re going to adapt your investment strategy to every piece of economic news like that, it’s a very slippery slope and pretty soon you’re just becoming an active…” — Dan Bortolotti (26:01)

6. Borrowing to Max Out TFSA and RESP—Smart Move? (26:20–32:37)

• Borrowing to invest in registered accounts typically not optimal:
  • Interest on such debt isn’t tax-deductible (27:18).
  • Financial theory may support leverage at times, but with higher risk and little real-world payoff unless done aggressively (28:45; 30:56).
  • Most people, once freed from debt, don’t go back to leveraging—psychologically, “it just felt good enough” (31:45).
  • If desire is higher risk, first check current allocation; simply increasing equities may be as effective as adding leverage (31:28).

7. Does Indexing Overvalue Stocks or Markets? (33:23–37:48)

• Open question in research: Does index investing distort prices of individual stocks (cross-sectional effect) or inflate the market as a whole (market-wide effect)? (34:09)
• S&P 500 vs. total market? Given uncertainty, total market is favored; S&P 500 isn’t an ideal or terrible proxy (36:17).
• “People should probably be total market instead of S&P 500.” — Ben Felix (36:17).

8. Rent vs. Buy: When Should Canadians Buy a House? (37:48–42:38)

• Renting is not “throwing money away.” Buying makes sense if you plan to stay long-term due to high costs and risks in real estate (38:04).
• The cultural narrative (“must buy a house”) can be unhelpful. Many underestimate true costs and risks of homeownership (39:24).
• For average, less disciplined savers, owning a home’s forced savings and illiquidity can be advantages (41:23; 42:38).
  • “You have to do a lot of right to be a successful renter.” — Ben Felix (41:23)

9. Increasing Risk Exposure for Young, Aggressive Investors (42:38–50:59)

• Key steps: Max out equity allocation first, then consider sources of higher expected return (43:22).
• More risk ≠ more return unless it’s compensated risk (44:04).
• Ensure extra risk-taking aligns with genuine goals, not vague “more wealth” ambitions (46:43).
• “Why do you want to take more risk in the first place? Are you trying to increase your returns?… Or are you already in a great portfolio?” — Mark McGrath (44:04)

10. Fire (Financial Independence Retire Early): Pitfalls (51:18–56:05)

• FIRE can lead to lifestyle mismatches and lack of fulfillment; retiring extremely early is more complicated emotionally than financially (51:35).
• Asset allocation for early retirees is hard—they have long time horizons but may need to moderate risk as retirement approaches (53:07).
• Many FIRE advocates “retire” only to work more (blogs, books, consulting)—it’s often just a career change (54:42).

11. REITs vs. Direct Real Estate: Which Diversifies Retirement? (56:05–60:55)

• Owning rental properties is often like “buying yourself a second job.” REITs deliver real estate exposure without labor or liquidity risk (56:44).
• “Max your RRSP and TFSA before you even think about buying real estate.” — Dan Bortolotti (59:21)
• For those uncomfortable with equities, real estate can provide behavioral comfort, but rarely a superior mathematical outcome (59:21).

12. Most Overlooked Behavioral Biases (61:08–65:38)

• Top contenders:
  • Overconfidence (“especially among the financially literate”) (61:08).
  • Bias for action—doing something often feels better than doing nothing, but is usually counterproductive (61:43).
  • Recency bias—chasing recent winners (stocks, Bitcoin, US equities) (63:40).
• “Doing nothing is action. It is a decision…” — Mark McGrath (63:40)
• Analogies from penalty kicks and basketball show people would rather appear to act than actually maximize their odds.

13. Do Bonds Still Matter? (69:24–72:21)

• Bonds aren’t imaginary, but their long-term real-world benefit is debated.
  • Traditionally included to reduce volatility, but don’t enhance returns (70:51).
  • Drawdowns in real terms (inflation-adjusted) can be similar to equity portfolios (72:21).
  • Whether and how much to own remains a personal and context-dependent question (70:51; 72:21).

14. Personal Portfolio Allocations (65:49–69:24)

• Ben: 100% equities, comfortable with both capacity and behavioral risk; may reconsider later in life.
• Mark: 100% equities (plus a small amount of Bitcoin as a speculative hedge), comfortable with risk now but open to change over time.
• Dan: Balanced “classic” 60/40 portfolio; content with expected return, mindful of business risk tied to equity markets.

15. What Did You Change Your Mind About in 2024? (72:21–78:59)

• Ben & Dan: The value of homeownership as a behavioral “forced savings” mechanism. It’s hard to rent successfully unless investors are disciplined and fee-sensitive (75:36).
• Mark: Shifted stance on Bitcoin—not a maximalist, but sees merit in some of the behavioral and ideological arguments after reading deeply (76:36; 77:45).
  • “Bitcoin is an ideology more than anything else.” — Ben Felix (77:45)

Notable Quotes

• On home country bias:
  “Any simulation is super sensitive to the specific past returns… not a hill I’m going to die on.” — Ben Felix (04:41)
• On “fancier” investments:
  “Most of the time you’re probably going to make yourself worse off rather than better [by getting fancy].” — Ben Felix (13:14)
• On adopting day trading or active strategies:
  “If that’s the part you think is going to outperform, then you should do it with 100% of your portfolio.” — Dan Bortolotti (19:03)
• On portfolio changes after economic/political news:
  “If you’re going to adapt your investment strategy to every piece of economic news like that, it’s a very slippery slope and pretty soon you’re just becoming an active…” — Dan Bortolotti (26:01)
• On real estate as forced savings:
  “You have to do a lot of right to be a successful renter.” — Ben Felix (41:23)
• On “doing nothing” as a valid investment strategy:
  “Doing nothing is action. It is a decision…” — Mark McGrath (63:40)
• On bonds:
  “I do believe they exist… I do believe they serve a purpose in a portfolio, depending on your risk capacity and profile.” — Mark McGrath (69:44)
• On Bitcoin and ideology:
  “Bitcoin is an ideology more than it is anything else. If you agree with the ideology, then bitcoin’s really interesting.” — Ben Felix (77:45)

Timestamps for Key Segments

• Home Country Bias: 00:59–06:53
• High Net Worth Investor Next Steps: 07:44–12:48
• Day Trading vs. Indexing Debate: 14:15–20:26
• Bitcoin/Blockchain Risk: 21:47–24:29
• Reacting to U.S. Tariffs: 24:45–26:20
• Borrowing for Registered Accounts: 26:20–32:37
• Does Indexing Overvalue Stocks: 33:23–37:48
• When to Buy a House: 37:48–42:38
• Increasing Portfolio Risk: 42:38–50:59
• FIRE and Early Retirement: 51:18–56:05
• Real Estate Allocation: 56:05–60:55
• Behavioural Biases: 61:08–65:38
• Bonds Today: 69:24–72:21
• Personal Allocations: 65:49–69:24
• What Changed in 2024?: 72:21–78:59

Tone and Takeaways

Engaging, practical, evidence-driven—these hosts blend robust research, real-world examples, and a warm, self-effacing humor throughout. Their advice is rooted, above all, in coherence and skepticism of “fancier” solutions: beware behavioral pitfalls, don’t chase trends, and don’t mistake action for intelligence. Ultimately, for most investors (especially Canadians), the advice is reassuringly simple: stick to the plan, tune out noise, and know yourself.

Endnote

Memorable Listener Impact:
“This podcast keeps me centered when the human in me starts to waver.” — Listener Review (80:04)

Hosts’ Sign-Off:
“Happy New year. Welcome to 2025. Hopefully you enjoyed the AMA episode… Looking forward to a full year with you guys this year.” — Dan Bortolotti (84:21)