The Rational Reminder Podcast: Episode 353 – AMA #5

Release Date: April 17, 2025
Hosts: Benjamin Felix (B), Cameron Passmore (A), Dan Bortolotti (C)
Theme:
A wide-ranging Ask Me Anything (AMA) episode addressing market volatility, investing principles, notable listener and guest feedback, the nuances of Canadian pensions, memorable guest insights, and a personal announcement about a host stepping back for “semi-retirement.”

Main Theme & Purpose

This fifth AMA delves into current market volatility, evidence-based responses for investors, and answers listener questions ranging from optimal bond usage, pensions, and spending rules, to memorable influences from past guests. The episode is threaded with insightful anecdotes, rigorous evidence, and closes with a heartfelt segment on finding and funding a “good life,” accompanied by bittersweet news from co-host Mark McGrath.

Key Discussion Points & Insights

1. Market Volatility: Context and Guidance

(00:40–18:06)

• Volatility is Normal:
  • Around 25% of years have negative returns for US stocks; bear market declines (20% or more) are less frequent but not rare.
  • History suggests stocks recover over time, but timing and downturn durations are unpredictable.
• The Power of Narratives:
  • Media and investor narratives (“this time is different”) fuel anxiety and poor decisions, regardless of underlying historical data.
  • “[T]he narrative is always, this time is different. That classic phrase, it's always the beginning of the end of the world as we know it…” — Ben (03:10)
• Lessons from Financial History:
  • Referenced events include the 1920-21 recession, the Great Depression, and recent tariff/trade war volatility.
  • Studies (Will Goetzmann’s “Negative Bubbles”) show markets frequently rebound after drastic declines.
  • Even during global ups and downs, long-term, diversified portfolios have been resilient.
• Actionable Responses for Investors:
  • Assess true risk tolerance during these times; adjust portfolios based on new, lasting personal insights, not market timing.
    “‘If you're in a really aggressive portfolio and you're losing sleep... that might be a sign that you should change your asset allocation, not because you're timing the market, but because you can't handle downturns’” — Ben (13:04)
  • Review and update your financial plan—good plans are built to withstand routine volatility.
  • Remember: Negative intra-year returns often do not predict negative annual returns (ex: 2020’s recovery).

2. Listener Q&A – Ask Me Anything Segment

On Bonds and Reasons to Hold Them

(18:06–20:37)

• Bonds are a Buffer, Not Return-Seekers:
  • Bonds reduce volatility and improve risk-adjusted returns but are not expected to enhance total portfolio returns, especially versus stocks. They serve an essential behavioral function—easing investor anxiety during equity downturns.

Canada Pension Plan vs. Proposed Alberta Pension Plan

(21:04–24:59)

• Complexities and Uncertainties:
  • The potential split is riddled with actuarial, demographic, and investment management challenges.
  • Alberta’s investment manager (AIMCO) has historically underperformed CPP Investments.
  • The sense among hosts: the national plan’s diversification and history are valuable; subdividing by province may add unwarranted risk and logistical headaches.

Notable Guest Impact on Practice

(25:02–31:49)

• Andrew Chen (Factor Investing):
  • Chen’s critical take on factor investing spurred introspection about their own portfolio construction.
• Scott Cederberg (Challenging/Beyond the Status Quo):
  • Led to deeper dialogues around asset allocation, especially for long-term investors.
• Annuities and Behavioral Insights:
  • Guests like Wade Pfau and Moshe Milevsky reinforced the theoretical benefits of annuities—offset by real-world behavioral reluctance.
    “People love pensions and hate annuities and it's the same thing… fundamentally… there's some endowment bias there.” — Mark (28:27)
• Dr. Mark Soth (Tax Diversification for Business Owners):
  • Emphasized the value of owning different account types (corporation, RRSP, TFSA) for risk reduction against changing tax rules.

Evidence-Based Advising at Big Firms

(33:38–35:29)

• Constraints of Product Shelves:
  • Difficulties exist in adhering to “PWL-style” evidence-based investing under some large institutional platforms.
  • Community (FPAC) and ongoing learning recommended; sometimes, switching firms may be best.

Dimensional (DFA) Funds vs. Market Cap ETFs (VEQT, VGRO)

(35:36–41:39)

• DFA Tilt:
  • Theoretically higher expected returns via factor tilts (small cap, value)—about 0.4% excess is expected, but recent history hasn't matched.
  • Multiple sources of return can add reliability and resilience, especially in flat or negative markets (ex: the US “lost decade”).
  • Drawbacks: periods of underperformance, tracking error, and greater behavioral challenges.
  • For most DIY investors: single-asset-allocation ETFs may be sufficient and easier to stick with through volatility.

Dynamic Spending Rules in Retirement

(41:56–44:53)

• Rules Rare in Practice:
  • Instead, spending is regularly revisited in the context of broader financial plans and personal circumstances.
  • Emphasis: Good plans already account for market downturns so spending need not be cut reactively. “You don't have to hit the brakes and revisit the entire plan every time it does [the market crashes].” — Dan (44:50)

Withdrawal Rates and Asset Allocation

(45:02–49:56)

• Withdrawals & Bonds Mix:
  • The optimal asset allocation to maximize “safe” withdrawal rates depends on whether portfolios are domestic-only or global.
  • With only domestic stocks, some bond mix is optimal; with international stocks included, 100% global equity can be optimal due to higher historical real returns.

Investing for the Medium-Term

(50:01–56:59)

• Few Hard Rules – It Depends:
  • For inflexible, fixed liabilities: use duration-matched bonds or cash/GICs.
  • For flexible goals and smaller amounts, riskier assets may be acceptable.
  • Bonds funds are a poor short-term or even medium-term solution—only use where time horizon matches fund duration.
  • Examples: RESP investing for kids’ education—use conservative products (GICs, short bonds) as withdrawals near.

3. Mark’s Reflection: Finding and Funding a Good Life

(56:59–62:28)

• Personal Decision: Mark is leaving PWL and the podcast for “semi-retirement” and extended family travel.
• Motivation:
  • Desire to prioritize experiences and time with family over more work or money.
  • References to life experiences, health scares, and moments from pop culture (“Hook”) that spotlight the fleeting nature of parenthood and life itself.
  • Did not base decision on a detailed Monte Carlo analysis, but on broad understanding and conviction about “enough.” “I just cannot envision a scenario where I look back on my life and think I should have worked more, I should have spent less time with my family and my kids…” — Mark (61:35)
• Influence of Ben’s Paper: Ben’s “Finding and Funding a Good Life” paper was central to their decision framework—focus on experiences, time, and minimizing regret.
• Support from Hosts: Ben and Dan congratulate and support Mark’s “YOLO” (You Only Live Once) choice, promising to stay in touch and follow his next chapter.

4. Listener Feedback & Notable Mail

(62:37–67:38)

• Antti Ilmanen’s Feedback:
  • Reminder to consider how changes in relative valuation affect performance comparisons over time (for factors and real estate).
• Listener Reviews:
  • Praised for clarity, unbiased research, real-world impact—even by listeners outside Canada or finance.
  • “Discipline is probably the most achievable and sustainable by most people over time.” — Listener from India (65:54)
• Physical Postcard:
  • Christopher from Europe sends appreciation and a quote from Ben:

    “Most investors should be using low cost index funds. Anyone who disagrees with that statement is probably misinformed, conflicted, or just plain wrong.”

Notable Quotes & Moments

• On Market Narratives:

  “The narrative is always, this time is different. That classic phrase, it's always the beginning of the end of the world as we know it…”
  — Ben (03:10)

• On Risk Tolerance:

  “If you're in a really aggressive portfolio and you're losing sleep... that might be a sign that you should change your asset allocation, not because you're timing the market, but because you can't handle downturns and you've learned something about yourself.”
  — Ben (13:04)

• On Pensions:

  “Ripping [the Canada Pension Plan] apart doesn't seem like a great idea.”
  — Ben (23:21)

• On Annuities:

  “People love pensions and hate annuities and it's the same thing… fundamentally… there's some endowment bias there.”
  — Mark (28:27)

• On “Good Life” Decisions:

  “I just cannot envision a scenario where I look back on my life and think I should have worked more, I should have spent less time with my family and my kids…”
  — Mark (61:35)

Timestamps for Important Segments

• Market Volatility & Historical Perspective: 00:40–14:34
• Actionable Guidance during Volatility: 14:34–18:06
• AMA – Bonds Role in Portfolios: 18:06–21:04
• CPP vs Alberta Pensions: 21:04–25:02
• Impactful Past Guests: 25:02–31:49
• Evidence-Based Advising at Big Firms: 33:38–35:29
• DFA vs. Market Cap ETFs: 35:36–41:39
• Dynamic Spending Rules: 41:56–44:53
• Withdrawal Rates & Asset Allocation: 45:02–49:56
• Medium-term Investing: 50:01–56:59
• Mark’s Semi-Retirement Reflection: 56:59–62:28
• Listener Feedback & Postcard: 62:37–67:38

Tone & Style

Warm, analytical, and evidence-based. The discussion is precise yet approachable, balancing technical rigor with real-life anecdotes. The hosts maintain a supportive and collegial tone throughout, especially during Mark’s farewell reflection.

For Listeners New and Old

This episode blends timely market wisdom, disciplined answers to complex questions, and a poignant personal story—offering not just financial “reality checks,” but thoughtful reminders about purpose and the meaning of wealth.