The Rational Reminder Podcast

Episode 383: AMA #10 – Dollar Cost Averaging & Mutual Funds vs. ETFs
Hosts: Benjamin Felix, Cameron Passmore, Dan Bortolotti
Date: November 13, 2025

Overview

This episode is an Ask-Me-Anything (“AMA”) session where Ben, Cameron, and Dan tackle seven audience questions focused on practical investing topics. They dig deep into the behavioral and practical aspects of dollar cost averaging versus lump sum investing, the pros and cons of mutual funds versus ETFs (especially in Canada), tax implications of discount bonds, the realities of scalable financial advice, mistakes they've made as investors, buffer/structured products, and model portfolio updates. The discussion blends evidence-based advice with candid anecdotes, humor, and the hosts’ distinctive Canadian pragmatism.

Key Discussion Points & Insights

1. State of Index Investing in Canada & Updates from PWL Capital

(00:43–05:33)

• Cameron highlights the ongoing mission to spread evidence-based investing across Canada, referencing low adoption rates of index funds and high expense ratios.
  • “Canada being home of some of the lowest adoption rates of index funds and some of the highest expense ratios in the world… great opportunity.”—Cameron (00:43)
• Celebration of new advisors joining PWL in Halifax; focus on philosophy and financial planning first.
• The "finding and funding a good life" principle is called out as integral to their firm’s DNA, alongside markets-based investing and smart planning.

2. Lump Sum Investing vs. Dollar Cost Averaging (DCA)

(05:51–18:06)
Listener question: If you’re able to top up TFSAs/RRSPs/RESPs in one go, is it better to invest at once or through DCA?

• Evidence: Lump sum investing beats DCA about 65% of the time; annual opportunity cost of DCA around 38 basis points. (Ben, summarizing their 2020 paper)
  • “Investing a lump sum beat dollar cost averaging about 65% of the time... approximate annualized cost of dollar cost averaging was about 38 basis points over 10 years.” —Ben (10:04)
• Behavioral Considerations: DCA can minimize regret, but is objectively suboptimal. (Referencing Meir Statman’s paper)
• Role of Advisors: Providing clients with base rates and objective probabilities is vital; most errors in decision-making are from lacking these.
  • “Providing that base rate is a huge role of an advisor...” —Ben (09:02)
• Worst Case Analysis: Even in the worst 10% of market cases, DCA only outperforms lump sum investing about 50% of the time.
  • “Dollar cost averaging still trails more than 50% of the time in those worst lump sum cases.” —Ben (12:22)
• Market Timing Fallacy: There’s always “something crazy” about the markets making people feel hesitant to invest; recency bias is persistent.
  • “No matter when you’re talking to someone, there’s always something happening in the world that makes it seem like now is the craziest time to invest ever in history.” —Ben (14:20)
• Asset Allocation Point: If someone feels the need to DCA, maybe they should just have a more conservative portfolio.
  • “Maybe that just suggests that you should have a more conservative portfolio.” —Ben (16:10)
• Tax Angle: If money is ready, why not invest in a taxable account rather than waiting for a registered one.
  • “You’re paying tax because you’re better off.” —Ben (18:01)

3. Low Net Worth Clients & Financial Planning Advice at Scale

(18:07–23:32)
Listener question: What are sources of accountability/behavioral nudges for those with less than $300K and no advisor?

• Apps & AI: Some exist, but hosts are skeptical of current AI-powered advice quality.
• Podcasts & Communities: Besides RR, other podcasts focus on day-to-day financial behavior. The RR community had interest in accountability buddy systems.
• Fee-Only Planners: For smaller net worths, a fee-only financial planner can provide targeted, cost-effective advice.
  • “Fee only planner is a good option.” —Host (20:20)
• Technology’s Role: Tech (e.g. self-driving cars) can scale advice delivery, but personal finance is more complex due to its subjective destinations.
  • “Driving from one place to another is a relatively straightforward goal... compare that to personal finance and living a good life, I think it’s just a lot more complex.” —Ben (21:57)

4. Dimensional Funds: Mutual Funds vs. ETFs in Canada

(23:43–37:40)
Listener question: Why does Dimensional still focus on mutual funds in Canada? Pros and cons compared to ETFs?

• US vs. Canada Tax Efficiency:
  • In US: ETFs are more tax efficient due to “in-kind redemption” allowing capital gains to be deferred.
  • In Canada: Both mutual funds and ETFs get Capital Gains Refund Mechanism (CGRM), but mutual funds have more actual redemptions, letting them capitalize more on CGRM—leading to lower cap gains distributions than ETFs.
  • “In Canada, it may actually be the opposite [of the US].” —Ben (28:12)
• Empirical Evidence:
  • Dimensional’s 60:40 Global Portfolio (mutual fund): no capital gains distributions since 2014.
  • Vanguard 60:40 ETF: distributed 40+ bps in most years.
  • “Specifically capital gains distributions... the Dimensional Fund and the Vanguard Fund would both have income distributions... we’re talking specifically about capital gains distributions, which is a non cash distribution.” —Ben (34:53)
• Rebalancing via flows: Flows influence tax efficiency, but both funds have experienced inflows.
• Price Execution: Mutual funds transact at end-of-day NAV; ETFs trade intraday with prices set by the market. Neither is inherently “better.”
• Takeaway: In Canada, mutual funds may be more tax efficient, so no strong incentive for Dimensional to shift to ETFs.

5. Are Discount Bonds Tax Benefits Priced In?

(37:43–42:22)
Listener question: Are after-tax advantages of discount bonds reflected in prices?

• Theory: If discount bonds are more tax efficient, pre-tax yields should compress (i.e., bid up price) until there’s no after-tax benefit.
• Evidence: Empirically, Canadian studies (Canadian Tax Journal, 2008) show after-tax yields on discount bonds remain higher than premium bonds for individual investors; i.e., tax benefits are not fully priced in.
  • “There are clear tax benefits to investing in bonds with lower coupons.” —Ben (41:54)
• Product Application: Some Canadian ETFs (e.g., BMO ZDB) and Dimensional’s fixed income approach exploit this by favoring discount bonds.

6. Biggest Investment Mistakes

(42:23–47:58)

• Cameron: Regrets selling JDS shares too early (used for a house down payment; missed explosive gains) and not buying/holding Bitcoin in its infancy.
  • “Bitcoin is a perfect tool for someone who has a drive for skewness... I have no firm conviction about bitcoin. But man, what a story.” —Cameron (44:02)
• Ben: Feels that regret over not buying Bitcoin is universal, but realistically, very few would have held through its volatility.
  • “If you bought bitcoin back then with any meaningful amount of money, there’s no way you held it until now.” —Ben (44:52)
• Dan: Admits to not having made major investment mistakes; his early saving/investing habits helped, though he owned high-fee active mutual funds (now recognizes as suboptimal).

7. Buffer/Structured Strategies (Buffer ETFs)

(47:58–53:45)
Listener question: Thoughts on buffer (structured) ETFs that cap downside while capping upside?

• Mechanism: Buffer funds use options overlays to limit downside while capping upside, typically in an ETF wrapper.
• Academic Analysis (AQR): Buffer funds have produced inferior risk-adjusted returns versus reference assets, often underperforming their own payoff diagrams.
  • “Many of the weaknesses that plagued earlier structured products persist.” —Ben (52:53)
• Main Issues:
  • Options are expensive; fund fees are high; complexity abounds.
  • Simpler combinations of stocks and cash generally yield better outcomes.
• Sales Over Substance: These products often sell a narrative of comfort, but typically benefit the providers more than investors.
  • “Much of the innovation in this space is superficial, engineered more for sales than for substance... the future should favor simplicity over illusion.” —AQR paper, paraphrased by Ben (52:55)

8. Updating the Rational Reminder Model Portfolio

(55:03–58:30)
Listener question: Will the RR model portfolio be updated, e.g., with new DFA Vector ETFs?

• Original Purpose: The RR model was created to approximate PWL’s Dimensional portfolios, as a guide for DIYers.
• Current Reality: More ETF options (e.g., Avantis, Dimensional small-value) mean more portfolio design choices; no optimal answer.
  • “Now that there are so many different products to build a really high quality factor-tilted portfolio... it's hard to update.” —Ben (57:33)
• Keep it Simple: Main advice is to stick to a diversified, rule-based plan you can execute and stick with, rather than constantly tinkering for “optimization.”
  • “If you can focus on a plan you can stick with, probably better to just keep a good diversified strategy.” —Dan (57:33)
• Ben notes he’d just buy a simple market-weighted asset allocation ETF if he didn’t have access to Dimensional.

Notable Quotes & Memorable Moments

• On Lump Sums vs. DCA:

  “Providing that base rate is a huge role of an advisor... You should expect to be better off from doing the lump sum by this much.”—Ben (09:02)

• On Behavioral Traps in Investing:

  “No matter when you’re talking to someone, there’s always something happening in the world that makes it seem like now is the craziest time to invest ever in history.” —Ben (14:20)

• On Buffer Funds & Product Proliferation:

  “Much of the innovation in this space is superficial, engineered more for sales than for substance... the future should favor simplicity over illusion.” —Ben, quoting AQR paper (52:55)

• On Portfolio Design Choices:

  "If you can focus on a plan that you can stick with, probably better to just keep a good diversified strategy." —Dan (57:33)

Timestamps by Segment

• PWL Capital & Indexing State Update | 00:43–05:33
• Lump Sum vs DCA | 05:51–18:06
• Planning Help for Low Net Worth/Tech & Advice at Scale | 18:07–23:32
• Dimensional Funds: Mutual vs ETF (Canada) | 23:43–37:40
• Discount Bonds & Taxation | 37:43–42:22
• Regrets/Biggest Investment Mistakes | 42:23–47:58
• Buffer Funds/ETFs | 47:58–53:45
• Model Portfolio Updates | 55:03–58:30

Tone & Style

• Open, conversational, and occasionally self-deprecating humor.
• Dedication to evidence-based answers and academic citations.
• Willingness to challenge industry narratives.
• Frequent references to Canadian investing realities.

Final Takeaways

• Lump sum investing generally beats DCA, though behavioral aspects matter.
• In Canada, mutual funds can be more tax efficient than ETFs, especially for Dimensional's products.
• Discount bonds’ tax advantages are not fully priced in in Canada; they remain more tax-efficient for individuals.
• Simplicity is vital: complex structured products and endless optimization rarely outperform disciplined, straightforward investing.
• Access to quality advice and base rates—whether via advisors, communities, or carefully chosen tech—empowers better decisions, regardless of portfolio size.

For those seeking a sensible, rational, and research-driven approach to their own investing, this episode delivers practical guidance and clarity on several key debates in portfolio management.