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The Rational Reminder Podcast
Episode 383: AMA #10 - Dollar cost averaging & mutual funds vs. ETFs
01:06:55
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Foreign.
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This is the Rational Reminder podcast, a weekly reality check on sensible investing and financial decision making from three Canadians. We were hosted by me, Benjamin Felix, Chief Investment Officer, Cameron Passmore, Chief Executive Officer, and Ben Wilson, Head of M and A at PWL Capital.
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A
Welcome to episode 383.
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C
Good to be here.
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A
I think. This is my first episode with Cameron joining as well. So excited to have the new dynamic.
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C
This is my first episode not doing the introduction, so well done, Ben.
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A
Thanks.
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B
It's a good crew here. We have an AMA episode today. We've got seven pretty solid AMA questions, I think, and then we'll have our after show and that's gonna be it.
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C
So it's been almost 11 months, guys, since we joined OneDigital, and the whole mission of bringing what we all believe in to more Canadians is coming true. The whole notion of markets, work and financial planning matters sounds so basic. And as Ben, you and I learned when we were out west at the meetups, it's amazing how something so simple has such a profound impact on so many people. So that's been our goal to expand this philosophy to more Canadians. We've long talked about Canada being home of some of the lowest adoption rates of index funds and some of the highest expense ratios in the world. So we think there's great opportunity. And this week has been an amazing week as we keep chipping away at our dream of getting more presence in more parts of the country. So this week we had Trevor Digg and Brett Watt join us in Halifax. Two amazing planners, amazing guys join our team. So super proud and super excited for what we're all going to do together in that part of the country.
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B
It is super exciting.
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A
Exciting. They're great, fit, they're super pumped to join. And I mentioned a LinkedIn post this week. One thing that stood out, Trevor mentioned along our journey talking to them, that he's always felt like a black sheep in the industry and felt like he didn't fit in anywhere and finally found a place where he feels at home. And I think that's a pretty powerful message. Lines on philosophy, planning, first approach. And he was kind of always a bit different because he wasn't the active guy slinging product.
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B
We will bring Trevor and Brett on the podcast for a conversation just like we did with Taylor and Connor when they joined.
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C
What a great part of the country too. Had the chance to spend time with them this past summer in Halifax. Just a phenomenal city, phenomenal area. So it's great to finally have a maritime presence.
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B
Very exciting. And it's exactly what our vision was when we partnered with OneDigital to do exactly what we've done so far. And I know it's been 11 months, which on one hand that's kind of a long time, but it's also not very much time at all. So I know it's maybe not enough data for us to say things are working out exactly how we hoped, but so far things are working out exactly how we hoped.
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C
And it's kind of fun.
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It's super fun. It's more than kind of fun, it's very fun.
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It's pretty cool that the first two deals that we closed are in locations that we otherwise didn't really have much presence, both from a team perspective and really from a client perspective. We didn't have many clients in Saskatchewan and there wasn't many in Maritimes either. So now we have presence in two different local areas that nobody knew about PWL before.
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C
And it'll be nice to build around them too and add more team members in those areas with their presence and awareness of the local markets. We really look to their leadership in these areas to help us build out something pretty special.
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B
That's the update.
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C
That's the update.
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B
Things are working.
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C
Things are working. All right, should we carry on to the ama?
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B
I'll finish just by saying that if people listening are interested in being part of what we're doing, we're always happy to have a conversation, just reach out.
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A
It's always interesting to learn and just compare notes and see what everybody's up to. No obligation, just let's have an interesting chat and make connections.
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C
And as you guys know, I talk to people at least every day, usually multiple people every day from all over the industry. People wanted to join the industry. So it gives me quite an interesting lens. And there's certainly a sample bias going on here because we attract people who are somewhat like minded. But it's super interesting to see how many people want to be part of something like this, whether it's with us or not. But they see the opportunity and also the obligation. Right. Once you believe in this, we have to get it in front of more people. This movement is really gaining momentum for sure.
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B
We've heard from a lot of people we've talked to that once you see what we're doing, once you see it from the inside and really see how it's working and how well it's working and the impact it's having on clients, you can't unsee it. Once you see it, you can't Unsee it. We've heard that a bunch of times. I'd add one thing actually, on our philosophy, Cameron, you mentioned our mission, our model, as being the combination of financial planning with the market's work investment philosophy. I think that's true, and that's what we've been saying. I would add to that, though, that the finding and funding a good life piece, you can maybe lump that in with planning, but I think it's distinct and it's such an important part of the way that we work with clients and part of our firm's DNA. I talked to one of our employees earlier today about how impactful that paper and those ideas, taking the principles of living a good life of wellness and happiness and turning that into something that's actionable from a personal finance perspective was super impactful to their own life. So I've just been thinking about that. I think it is part of our DNA.
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C
That's a very good point. Duly noted.
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A
Agreed.
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B
All right, should we carry on to our AMA questions here?
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C
Sure, let's get into it.
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Who wants to read the first one?
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I'll read the first one. I just looked up how to pronounce the same city.
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Nice.
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Save you all the embarrassment.
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Perfect.
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A
From John Zed in Quespamsis, New Brunswick. He says leading into the new year, many of us will have the opportunity to top up our TFSAs, RSPs and RESPs. If someone has the financial flexibility to fully top up their accounts in January. What is your general take on moving money into the market as quickly as possible versus spacing out investments over a few weeks or months?
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B
It's kind of funny. This question's probably from last year heading into the new year, and we're now a year later answering it. Sorry for the delay, John. It's just a slightly different take on the good old fashioned lump sum versus dollar cost averaging question. Should you dump a lump sum into the market as soon as the cash becomes available, or should you set up a systematic strategy to enter the market over some predetermined period of time, like whatever, 12 months or six months? This is a slight twist on that, where you have the money to make your registered account contributions and you're making those contributions and then you're making the same decision. But I think it's pretty much the same as any lump sum versus dollar cost averaging. Dollar cost averaging feels like a smart thing to do because when stock prices are high, you're buying fewer shares, and when stock prices are low, you're buying more shares. That seems pretty sensible. It's a good story, but the problem is you're introducing an opportunity cost which the period of time where you're waiting to invest, you can't really get away from that. I think the strongest argument in favor of dollar cost averaging, so to answer John's question is behavioral. Mayor Statman, who we've had in this podcast twice, he has a 1995 paper where he creates this behavioral framework for dollar cost averaging why it remains popular despite being objectively suboptimal. There's a bunch of research showing that dollar cost averaging makes no sense in a rational decision making framework. And Mayor Statman basically says that dollar cost averaging can help to minimize regret. Avoiding a lump sum right before a crash, you're making a bunch of smaller investments. So he's arguing that's why this is still a thing, that's why it's still popular, even though it doesn't make you better off.
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A
This is a very common question that comes up in client conversations and we often go through this and I think you're going to get into it here with the paper that you wrote, 2020, but it comes down to the behavioral preference that you said. And in a lot of cases, people, we show them the two balances, talk about the psychological impact and then just decide, well, if it is rationally better to do the lump sum, they end up going with the lump sum. That may be partly due to working with an advisor. I don't know if that's the case for sure. I have no data to back that up. But in the case where they are running into that psychological wall, market goes down, it's not them working against themselves. They have an advisor to coach them through. This was a rationally good decision. Market went down doesn't mean it was a wrong decision at this time, even if it had a bad outcome right away.
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C
But the more they have, the less it matters because those contributions are a smaller portion of the portfolio. So maybe there's also a time sensitive.
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Decision in this specific example with the registered account twist. Yes, that's true. If someone has $10 million and they're wondering about this, it's probably less interesting. More generally, if you have $10 million, you're deciding how to invest, then it still matters. But that's a good point that for this specific question, how large the registered accounts are relative to your overall portfolio is for sure relevant. Your point about the advisor is important, Ben, not just for the behavioral coaching. After making the decision, you think about what is an expert useful for experts, especially in finance. They can't predict the future, we all know that. But they're really useful for providing base rates, which is what you just described. If a client comes in and says, I don't know what I should do, should I do this or that, and you provide the base rates, the base rate is that you should expect to be better off from doing the lump sum by this much. And people take that base rate and they make a decision from there, but they didn't have the base rate to begin with. Providing that base rate is a huge role of an advisor, of an expert in that type of relationship. I recorded a podcast yesterday where Hal Hirschfeld was interviewing me and Annie Duke, which. That was a cool experience.
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C
No kidding.
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Didn't have that one on my bingo card. But we talked a lot about this. We talked a ton about base rates and just how important it is. How do you make a decision without knowing the base rates? And so many of the errors that people make in decision making come down to not knowing or not having the base rates available to them, I think that's necessary. We can say, okay, yeah, dollar cost averaging has some behavioral appeal, but I think you have to understand the base rates. What are the base rates? We did that paper that you mentioned, Ben, in 2020, we compared lump sum investing to dollar cost averaging in six stock markets. And while the cash in that model was being deployed, so as it's being dollar cost averaged into the market when it's not invested in stocks, it's sitting in one month, US treasury bills across the full sample. For all the different markets that we looked at, investing a lump sum beat dollar cost averaging about 65% of the time. So 65% of the sample periods that we had. And the approximate annualized cost of dollar cost averaging was about 38 basis points over 10 years. The 10 years was the period of time that we looked at. In a world where an index fund cost 5 basis points, 38 basis points is not insignificant. That's the base rate. So whether the regret minimization that you might get is worth that expected cost, that becomes the personal decision. But now you're armed with the base rate to make the decision. Then there are a whole bunch of other interesting concerns that stem from that. It's like, okay, that's the base rate, but there are all the buts and the what ifs. So we did try to address some of those. In that paper, we looked at the performance in the worst 10% of outcomes for lump sum investments. Because people will say, well, I hear what you're Saying on average, lump sum investing is better. But I want to protect myself from that worst scenario when the lump sum is just going to do awful. I'm going to dollar cost average to hedge against that bad outcome. In the paper we were like, okay, let's look at the worst 10% of outcomes in our sample for lump sum investing. On average, in those worst lump sum cases. Dollar cost averaging does have a small advantage in terms of basis points. But the thing I found really interesting about that analysis is that dollar cost averaging still trails more than 50% of the time in those worst lump sum cases. So we took the worst lump sum cases in the whole sample and it was still 50, 50 whether you're better off from dollar cost averaging. I thought that was kind of mind blowing.
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Yeah, it's crazy. Back to Cameron's example when he was talking about if you have smaller dollars, it may not matter as much. But I've had conversations with clients that have a million dollars or more from either an inheritance or a business sale, like, should I invest this all at once? And the one thing that I love about PWL and the way we approach things, it's not just anecdotal. From a behavioral perspective, you should invest as lump sum because you'll be better off. And behavioral hedge is the best way to do it is to do the dollar cost averaging. But we actually go through and have the data to support it. So that reinforces the argument and gives clients more comfort to do that. It's not just on a hope and a prayer. It's okay they've actually done the research, even if they don't read the paper themselves. They're like, we trust that you've actually gone through the effort of looking at this in detail and taking the care to give a fulsome answer on this relatively basic question, but it's an important one.
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I would summarize. Everything you just said, Ben, is we provide base rates. Not everybody has base rates and they're not always easy to establish. One of the other what if scenarios we looked at was like, okay, what if markets just dropped? We just had a 20% or greater drop in the market. Now does dollar cost averaging make sense? Because I think people will get that perception too. Okay. But yeah, with things being like they are right now, I think I should probably. Dollar cost average is the same thing. Lump sums are still better on average and most of the time. And then we also looked at investing a lump sum when US stock valuations were in the 95th percentile of expensiveness. And again Lump sums continue to dominate.
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A
The irony of what you just said, things are going to drop or they're as good as they could be right now. So there's bound to be a recession. I think I've heard a client say that literally every single year since I've been at pwl. Something's going to happen, there's going to be a recession, or near all time highs. Why would we invest as a lump sum?
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B
I remember having revelation. I don't even know if you can call it that because it's not that profound. But I remember realizing, wow, 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.
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C
Haven't you noticed that through your lifetime, every year you think that's like the most ultimate news year ever and the news just keeps on coming like a river.
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There's always something, it's always recency bias. This feels more extreme because it's new information. We haven't lived through the same exact event before. Feels scary because you're living it and you don't know the outcome. The other events feel less scary because you know how they played out. There's always uncertainty, which is why you expect a positive return.
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Yeah, that's right.
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However, a lot of people have been lulled into some very good returns. Then doesn't mean that bad short term events can't happen.
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Totally. I loved your point too, Ben, about how this comes up. Whether things have been going badly or well, things have been going well for so long, something bad must be about to happen. Things have been going badly. They're going to keep going badly.
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C
Going to get worse.
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Yeah, we did that paper. I thought that was a pretty cool paper. Vanguard had done a similar paper which is no longer online. You might be able to find it somewhere. But they found similar results. They wrote theirs probably 10 years before we did ours. And then there's a whole academic literature on this in proper academic journals that have suggested basically that dollar cost averaging is suboptimal in a rational decision making framework. The other point that I always find interesting on this topic is that even if we establish that, okay, Meher, Statman's right, there's a behavioral reason for you to have a dollar cost averaging strategy instead of just investing a lump sum. Maybe that just suggests that you should have a more conservative portfolio.
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A
That's a super important point and something that people often breeze over. I've seen many clients where it's my friend is doing better than me. Why am I getting the same return? Well, your friend has invested in a 50 stock portfolio that happened to do well and you're in a 5050 balance portfolio. It's just math.
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B
Yeah, exactly. There is a paper that looks at this. It's a 2016 paper in the Journal of Wealth Management. They show this is language from the paper theoretically, numerically and empirically that dollar cost averaging is approximately equivalent to an asset allocation where only 50 to 65% of the portfolio is invested in risky assets and the rest is in riskless assets like treasury bills or cash or whatever. But they find that while that's true, dollar cost averaging is suboptimal compared to just holding that static 50 to 65% risky allocation. You end up with this thing that behaves kind of like a conservative portfolio but does a little bit worse. They conclude in this paper that dollar cost averaging should be recommended with care since risk averse investors would be better off investing a lump sum in a more conservative asset allocation instead of dollar cost averaging into a more aggressive one. That's pretty interesting. I think if you have a lump sum to invest, it's probably optimal to invest it right away in a risk appropriate portfolio. There is the behavioral argument for dollar cost averaging, but again, if you're so worried about regretting the decision to invest a lump sum, maybe you should reconsider your asset allocation for this specific question with the registered accounts, I would also ask why were you sitting on the cash in the first place? Because it could be invested in your taxable account. You could move it over in kind when January rolls over.
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A
It's a good question. It's a kind of backwards mentality because people think if I invest it now and the market goes up, then I'm going to have to pay tax. But you're paying tax because you're better off. It's probably a better decision to just invest now.
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B
That's right. Paying the capital gains tax on the asset that went up is better than missing out on the capital gains.
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Exactly.
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C
I'll read the next one from Patrick. I believe in the value that a financial advisor could add to my personal financial situation, such as the presence of ongoing accountability, behavioral discussions, data driven reminders to stick to the long term plan, etc. I've never had a financial advisor because my net worth is relatively small. Less than 300,000 US, he says. So I turn to the RR podcast and participate in the RR community for that outlet. What other outlets would you recommend for someone with a relatively small net worth looking for accountability behavioral nudges and data driven reminders as a follow up. Is there a subset of the financial planning industry serving relatively small net worth customers or is it simply economically impossible for firms with human advisors to be profitable with smaller net worth clients?
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B
This is a tough one. I don't have specific examples, but I think that there are apps out there that are being designed or have been designed for this kind of thing. For the behavioral nudges and especially now with AI being pumped into everything. I know I've seen some pitches for AI powered financial planning apps. Would I trust them at the moment? Personally, no, not yet because I see how many financial planning related errors they still make when I try and use LLMs to get information. Even some of the Robo Advisor apps will have built in nudges and things like that. But again, I don't have specific examples. There are other podcasts. We are one podcast. We get pretty nerdy about stuff. There are other podcasts that are more focused on day to day behavior, good financial decision making. There are podcasts that interview regular people about their stuff. I'm hesitant to even bring this up as an example, but Dave Ramsey has made a name for himself by giving, in my opinion, in many cases questionable advice, but doing it in a way where he's just telling people what to do. You have to do this and you'll be better. I think people like that. So I'm not saying that he's the right person to turn to, but there are content creators out there who are giving lifestyle guidance with a personal finance perspective. I know at one point the rational Reminder community had devised a buddy system or at least they had an idea. Some people were like hey, we should do this and pair up where people could kind of be accountability buddies. Not sure if that went anywhere. And then there is fee only financial planning.
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C
That's a good one.
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A
Lots of good fee only planners out there. There's definitely some people that can do DIY that they get into the details enough. But the reality is that personal financial planning and wealth management can be very complex even at lower net worths. The blind spots that you might have without talking to a professional, you just don't know what you don't know and sometimes you make a mistake that costs you more than it would have to just pay someone to help you along the way. I would always caution with that doesn't mean you're always going to be better off at lower net worths, but it's worth getting some professional advice. And at this level of Net worth a fee only planner is a good option.
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C
You guys know this but I was in Southern California as we all were, but I had a chance to take a Waymo ride. I was with James, my son. I said, man, people think that technology will not have a great impact on our advice giving ability. And you see a Waymo car drive through Los Angeles traffic impeccably. There's some pretty crazy traffic we went through on four different rides in this Waymo. And I'm like, it can figure this out impeccably. I would suggest that technology can figure a lot of what advisory services currently do. I get the whole human thing. I get it, we live it. And I'm skeptical. But boy, when you go through a technology like that, it was simply mind blowing to think of this. Basically a missile going through traffic and there is no one in the driver's seat.
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A
It's crazy and somewhat terrifying.
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B
It is interesting. I think driving from one place to another is a relatively straightforward goal. The inputs and outputs for the Waymar and they're complex for sure. It's absolutely incredible that it's able to do that. But you compare that to personal finance and living a good life, I think it's just a lot more complex. What is the destination? What questions should you even be asking? I think that's a lot harder to figure out.
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C
But if you think about what they claim, this Patrick claim is low net worth. Someone with 300,000, they should be able to get a lot of help in a technology enabled environment. That's all I'm saying.
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B
It should help to scale advice. I don't know man. You try and get information from an LLM and you get a dump of information. It's like okay, now you have to know what questions to ask and you still have to interpret what you get out of it. I'm a little bit skeptical of the role technology will play.
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C
I am also and I'm pretty sure I'll get roasted on wherever this will end up. On my take on this, all I'm saying is it is mind blowing to see what this kind of technology can do. We were even cut off at a red light, no problem. Car figures it out.
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B
I don't think you'll get roasted. I think it's a valid point of view. We'll have to see how the future plays out. I do think that technology will help to scale advice. Although we've been saying that for a long time. You look around the industry, data and technology has not been scaling advice in some ways. In some small Ways.
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C
Well, it's been helping deliver more advice per unit of fee for sure.
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A
Yeah, it might scale the advisor time, but does it scale advice itself? It's hard to say.
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C
Okay, next question. I'm dying to get to. We're fresh off information on this, so.
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B
Yeah, this is a fun one. Should I read the question? You guys have both read one.
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C
The answer is your happy place. You may as well take it all.
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B
Okay, so this is from recently converted cfp. I don't know what they converted from, but welcome to being a cfp. So their question is Dimensional uses mutual funds versus an etf. I am MFDA licensed. MFDA is the mutual fund licensing body in Canada. So someone who's MFDA licensed can only use mutual funds. Although I think they can also use ETFs now. Mutual funds license. So they say this works great for my clients and me. Can you explain the pros and cons of each and why Dimensional has maintained their product as a mutual fund? This is a great question. I think it's one that most people probably don't understand very well, especially for the Canadian market. Like you said, Cameron, we recently learned a lot about this. So I'm fairly confident that what we're about to share is not widely known information. So people should be very excited.
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A
It's a very good presentation at the conference we were just at.
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B
Yeah, exactly.
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C
In a world where it's ETF good, mutual fund bad.
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B
That's right. Many people are aware that Dimensional, whose funds have traditionally only been available as mutual funds purchased through an advisor. That's how they started their business when they started distributing to retail investors many, many years ago. And that's how it's mostly remained up until recently they launched ETFs in the US market. So all of a sudden it went from Dimensional only being available to advisors to being available through the ETF structure, which can be bought and sold on the open market. A mutual fund can be restricted. Dimensional can restrict who can buy their mutual funds, but they do not have that control of an ETF. So as soon as they launch ETFs, anybody can buy them. And they've quickly become one of the largest, if not the largest, issuer of active ETFs in the US. Active meaning that they're not tracking an index. That's pretty cool. Had a lot of success with their ETF business. And so that has led people to ask us, when or why won't dimensional launch ETFs in Canada?
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A
I think it's worth mentioning the active ETFs to expand on that point, they're not a traditional act of forecasting, doing deep analysis. They're still algorithmic based, following the dimensional model. It's just not a plain vanilla broad market index fund.
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B
Yeah, I thought about going down that rabbit hole, but I didn't. But since you went there, Ben, what is active and what is an index fund is a really interesting question. Dimensional, like you said, Ben looks a lot more like an index fund than like a traditional actively managed fund. But because they don't track an index, which in many ways I would argue is a good thing because they're able to be more flexible with their implementation, which we'll actually talk about a little bit later, they are technically classified as active because they're not tracking an index. On the other hand, you can have an index fund that is tracking a proprietary index that looks a lot more like a traditional actively managed fund. It's concentrated, it's got high turnover, it's got a high fee, but it's technically classified as an index fund because it's tracking an index. We had an episode early on in our podcast with Adriana Robertson, who talked about her paper Passive in Name Only, which she was basically criticizing index funds for index washing active management, where they had products that were technically index funds because of the way that they tracked an index, but they looked a lot more like a traditional actively managed fund. Anyway, good point to bring up. I wasn't going to go there, Ben, but I'm glad you did.
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A
There was another great presentation on this at the DFA conference. Basically the punchline was that almost any etf, whether they're considered passive or not, are technically active. If you look at one S&P 500 ETF compared to another one, for example, they're never going to have the same returns and there'll be different tracking error because they're not composed of the same funds necessarily. They're not rebalancing at the same time. So there's always some level of active in any ETF that's on the product shelf.
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B
Basically, there are active decisions that go into index design and therefore there are differences between index funds. We talked to Marco Salmon about this when he was on what is the market and what is passive? Those are really not obvious questions. I think something like the crisp 110 index for the US market, that's pretty close to the market, but even then it's not a perfect reflection of the market every single day because there are whatever buybacks and new issuance and all that kind of stuff. Yes, that whole topic of what constitutes passive and active is a really interesting question, but it's also a total tangent from where we're actually going.
- [28:13]
A
Here could be another full episode.
- [28:17]
B
We've done episodes on a lot of that stuff. We talked a lot about this with Marco Salmon. We talked a lot about this, and we talked about Dimensional's total market fund compared to just a regular market cap index fund. We have dug into those issues. It's a very fun topic to talk about. So why do I not think dimensional will launch ETFs in Canada? I will tell you, but first I need to give some background on the US market so that we can contrast that to the Canadian market. So in the US ETFs are generally more tax efficient than mutual funds. And this is one of the things you said earlier, Ben. There's this perception that ETFs are good and mutual funds are bad. I think that's come largely from two places in Canada. One place being that traditionally mutual funds had really high fees, were actively managed, and were sold on Commission, and ETFs came to the market. There's no commission involved, the fees are generally lower, and a lot of the original ETFs were index funds. That reputation is probably rightly earned in that case. And then the other place that it comes from is the perception that ETFs are more tax efficient. That comes from the US and I'll explain that now. So they are more tax efficient in the US because they're able to use the in kind redemption process and heartbeat trades, which together allow ETFs to sell low basis stocks that stocks with large capital gains without triggering a taxable event for the fund. So this is allowed under Section 852 of the US Internal Revenue Code. In case anyone was curious, that section exempts the distribution of capital gains when the appreciated shares are handed in kind to redeeming investors. Now, ETFs are inherently tax efficient due to that section, because redemptions are generally made in kind with authorized participants, whereas that's part of how ETF units get created is through unauthorized participant. Whereas mutual funds typically engage in cash transactions with their end investors to meet investor redemptions. Now mutual funds can technically do the same kind of in kind redemptions that ETFs do. But because there's no authorized participant, and because mutual funds are generally dealing with retail investors or individual investors in kind, transactions are just much more costly for mutual funds to do. So it's not typically how it's handled so we could go into more detail about how the mechanism is actually applied by ETFs, but it's kind of beyond the point of the episode here. The main point is that the mechanisms exist in the US and they do generally allow ETFs in the US market to avoid distributing capital gains to their investors, which facilitates tax deferral. ETFs in the US sometimes they do, but for the most part they do not distribute capital gains. Because they're able to do this, they're able to kick out their appreciated securities on a tax deferred basis. There is actually an academic paper that shows that a large portion of the shift from mutual funds to ETFs in the US market has been driven by this relative tax efficiency of ETFs, which is interesting up here in Canada, though I mentioned this before, a lot of people believe this is true. ETFs are better because they're more tax efficient. That's so common that happens in Canada, that we just imported perceptions from our American neighbors that are not necessarily true in Canada. In Canada, it may actually be the opposite. So under section 1321 of the Income Tax act, in case anyone was curious, mutual funds and ETFs have access to something called the Capital Gains Refund Mechanism, or CGRM for short. The CGRM allows funds to reduce the amount of capital gains they distribute based on a complex formula. But the important point about the formula is that it's based on redemptions from the fund. So redemptions happen anytime someone sells their mutual fund unit for cash. ETFs are different. A large portion of ETF trading. So if I have a mutual fund, if I've got a million dollars of a mutual fund and I want to sell it, I go to the mutual fund company and I sell it and they give me cash. If I have an etf, a million dollars of an etf and I want to sell it, I go and sell it on the open market. There's a good chance it's not going to be a redemption from the authorized participant. It's going to be a transaction with another person on the secondary market. Cameron, I go and sell my million dollars worth of ETF units and you are buying a million dollars. And so you're the one filling my trade.
- [32:39]
C
Just cross the trade.
- [32:41]
B
That's right. It's not a redemption from the fund company. Because of that, there's generally less capital gains refund available to an ETF than to a mutual fund in Canada. You think about that all the trading that happens in a mutual fund, all of the redemptions are accruing CGRM. And for ETFs, because there are less redemptions and more secondary market transactions, they're just not going to have the same amount of cgrm. So that's important. And then the other interesting thing about the CGRM is that if you don't use it, you lose it. This means that if you have a bunch of cgrm just based on the redemptions that happen throughout the year, a fund can do pretty thoughtful planning. If they have excess CGRM that they know they're going to lose by selling appreciated securities, we have whatever $10 million of excess CGRM that we know we're going to lose if we don't use it. So we can go through our mutual fund portfolio and find appreciated securities, realize the gains, increase the cost basis for that security, and mop up that unused cgrm. So there's some smart tax planning that they can do at the fund level, which Dimensional does do in their Canadian funds. I referred to the benefit of their active implementation earlier. That's one of them. Where they can do transactions for reasons like tax planning. Whereas an index fund would generally do transactions based on index reconstitution more so than proactive tax planning like that. Where this shows up, and it does show up, is when you look at the historical capital gains distributions for mutual funds and ETFs. So the dimensional global portfolios that we use, the distributions have been minimal, really, really small. The dimensional 60:40 global portfolio, for example, launched in 2011. It had small capital gains distributions in 2012 and 2014, and it has not distributed capital gains since. You look at the Vanguard 6040 Asset Allocation ETF. It has distributed every year since inception, and most of the distributions were more than 40 basis points of the fund's net asset value.
- [34:37]
A
Big reason for that and may not last forever is because of the high amount of inflows into the Dimensional fund products year after year. So they don't have to redeem because there's enough cash coming in each year to reinvest and rebalance.
- [34:53]
B
Vanguard's had inflows too. That's probably contributing. It helps on rebalancing where they can just use cash inflows to rebalance. But I mean, I'd have to go pull the data. I'm sure that Vanguard has had substantial inflows since inception. Their asset allocation ETFs have been a massive hit. The flows, I don't know how much is answered by the flows. Worth mentioning that capital gain distributions, which are what we're talking about, avoiding using the cgrm. And just to be clear, I don't know if I said that or not. The distributions I was talking about are specifically capital gains distributions. The Dimensional Fund and the Vanguard Fund would both have income distributions from dividends and interest received by the securities they own. But we're talking specifically about capital gains distributions, which is a non cash distribution that gets allocated to unitholders and you pay tax on as a capital gain. And so Dimensional's had very few. Vanguard has had more since they launched their ETF products, their ETF asset allocation products. So those distributions are a loss of deferral, they're not a net cost. But I think that loss of deferral still matters quite a bit. It does still have a present value cost to it by paying tax on the gain now instead of later. I also looked at the DFA Global Equity portfolio and again, that is a mutual fund. It's a 100% equity asset allocation fund from Dimensional. It has never distributed a capital gain since inception. And then the Vanguard All Equity ETF portfolio, which has not been around as long, didn't distribute for the first couple years. Then in 2021 it distributed 30 basis points, 2022, 80 basis points, 2023, 10 basis points in 20 basis points. So those are distributions that you're receiving that you're paying tax on as a capital gain. Super interesting to see. And that's probably not enough data to say, yep, that's the capital gain refund mechanism at work. But it is very interesting to see. Okay, here we've got a mutual fund, here we've got an ETF portfolio. They're pretty similar in terms of overall asset allocations. Their performance has been pretty similar. But on one hand, with a mutual fund structure, we've seen no taxable distributions, capital gains distributions, and with the ETF portfolio, they've been distributing pretty consistently just on that basis. I don't see Dimensional being like, yep, let's go to this less efficient structure. More broadly speaking, the other difference on mutual funds versus ETFs that applies regardless of where you are is that mutual fund units are bought and sold at the net asset value at the end of the day from the fund issuer. ETFs are bought at the market price on the open market and they trade throughout the day. That difference can come with its own issues. Some people might prefer one over the other for whatever reason, but it's not obvious on that basis that either ETFs or mutual funds are better or worse. So I think the big thing is the tax treatment. And in the US there was a strong argument to move to that structure for that reason. In Canada, not so much.
- [37:40]
C
Good answer.
- [37:41]
A
Okay, should we go to the next one?
- [37:43]
C
Sure.
- [37:43]
A
Fire away from Andrew Are the prices of discount bonds skewed by their after tax behavior? And and then he lists out here's my thinking. A high income earner earns a greater after tax return from discount bonds due to more of their returns being in the form of capital gains. This means a high income earner should be more willing to pay more for a discount bond than a premium bond with the same expected total returns. And they'd be willing to pay more for the discount bond than a low income earner. Presumably, high income earners would wish to own more total bond than low income earners on account of their investment portfolio being larger on average. However, this thinking completely ignores institutional investors.
- [38:26]
B
It is good equilibrium thinking that the listener is applying here. We did discuss something similar in a past AMA about the tax treatment of dividends. If you have more favorable tax treatment on dividends, is that priced in such that you don't actually get a net after tax benefit? If tax efficiencies are fully priced in equilibrium, it's exactly what we'd expect. We would not expect to see any after tax benefits of those tax efficiencies due to prices adapting to reflect them. Like what the listener said, the price would go up to the point where the efficiency is no longer there. There is, surprisingly enough, a 2008 paper in the Canadian Tax Journal. I was honestly like, wow, there's a paper on this. Of course you found it hilarious, right? So this paper finds that for an individual Canadian investor subject to personal income taxation, the after tax yield on a discount bond is always higher than or at worst equal to the yield on a premium bond. So interesting. A discount bond is a bond where the price relative to its par value has gone down and so your total return on the bond is going to consist of a lower coupon yield and a capital gain. A premium bond is the opposite. The price of the bond has gone up and in that case depends on when the bond was issued and what interest rates did afterwards. A premium bond is a bond whose price has gone up and premium bonds are going to have higher coupons and then the price is going to fall as it nears maturity and so you're going to have a capital loss. Premium bonds are less tax efficient for taxable investors. I'm just making sure it's clear. The listener is asking whether that is priced in. And that's also what this paper is addressing. So they say, well, the lower after tax yields on higher coupon bonds might be expected to cause the pre tax yields on these bonds to rise. Which is again what the listener's asking is that what would happen? This paper finds that no evidence of such tax capitalization is found. And they base that on a large data set of matched pairs of Government of Canada bonds for the period 1986 to 2006. Honestly. So interesting. So they do acknowledge that an investor will be indifferent between a bond trading at a premium and a bond trading at a discount if pre tax yields adjust and thereby create an implicit tax which equalizes the after tax yields of bonds with different coupons. Which again our listener is asking is that what would happen? And they quote in this paper, a paper from Scholes and Wolfson. Here's the quote from that paper. The result of taxing assets differentially is the creation of a system of implicit taxes where the prices of tax favored assets are bid up such that their before tax rates of return will fall below those of equally risky but less tax favored assets. That's the premise of the question from the listener. What this study is doing is it's saying, okay, we know that's what we should expect in theory, empirically what is actually happening in Canada. And so they use that large sample of Government of Canada bonds and find that at least in their sample period, for an individual investor paying a higher rate of tax on interest income than on capital gains, which is still the case today as it was when this paper was written, there are clear tax benefits to investing in bonds with lower coupons. Pretty interesting stuff, honestly, because it is a good question, okay, discount bonds are more tax efficient. Is that priced in? It appears at least based on this sample, which is a bit dated at this point, 20 years old, but it appears still to be true. I know Justin Bender and Dan Borbalotti at pwl. They've done lots of work on this with more recent ETF data showing that yes, discount bonds are still more tax efficient. They still have higher after tax returns. There are ETFs in Canada like ZDB from BMO that does focus on lower coupon bonds on discount bonds and dimensional. I've talked to them about this as well. They will always prefer lower coupon bonds, all else equal when they're building out their fixed income portfolios. For this reason they are tax aware portfolio managers. Good question.
- [42:23]
C
Very good.
- [42:23]
A
Question.
- [42:24]
C
Shall I take number five?
- [42:26]
B
Yep.
- [42:27]
C
From Anonymous, what is the biggest investment mistake you have ever made? I've talked about this one before. Sold JDS shares back in 95 for the down payment on the house and a year later it could have bought the house. Of course, it's hindsight buys. The other one I thought about a lot and I actually haven't looked up the price of bitcoin in a long time, but it's like 146,000 today. It's weird. This is the one thing I've got regret over. I have no firm opinion or conviction about bitcoin. But you in hindsight. The story I tell myself is that bitcoin is a perfect tool for someone who has a drive for skewness. That gambling profile, typically, I think young male tech bro thing going on there. You learn about the gambling popularity in the US with FanDuel and other platforms. There's a whole gambling culture skewness thing going on and bitcoin becomes the perfect tool. So in hindsight, the story I sometimes beat myself up as I knew about bitcoin when it was hundreds of dollars that famous bought a pizza with whatever it was story. I remember talking to people in technology back in 2012, 2013 when it was less than a thousand bucks a bitcoin. Now I didn't know what I know now then about skewness and whatnot, but man, what a story.
- [43:44]
B
I wrote that down. I deleted it from my notes, but I initially wrote that down in my notes as my biggest mistake. That's everyone's biggest mistake in hindsight. Everyone should have bought Apple, buy Apple.
- [43:55]
A
Buy Shopify, buy one of the big stocks that performed well. That's obvious now, but not so obvious then.
- [44:02]
C
I find bitcoin different. Yeah, you could have bought Nvidia, but you could have bought all kinds of things. But this is the story, like the gambling part of this. Anyways, that's the story and I'm sticking to it.
- [44:13]
B
Did you just become a bitcoin maxi Cameron? Is that what's happening right now?
- [44:17]
C
I don't own any bitcoin. What's yours?
- [44:20]
B
I wrote down the bitcoin one. I knew about bitcoin super early too. Not because I'm smart, just read about it in a magazine about how you could use it to buy illicit stuff off of the Silk Road. I was like, oh, that's pretty cool. I wanted to check it out. I never bought any bitcoin, but I went and set up the Tor browser so that I could look at what The Silk road was, I read one in a magazine or something. I very well could have bought some bitcoin at that time and I didn't. So I look back and it's like, man, can you imagine? But the counterfactual, it doesn't make sense because if you bought bitcoin back then with any meaningful amount of money, there's no way you held it until now. Unless you're.
- [44:53]
C
No way.
- [44:54]
B
Completely not. Well, true. Takes a special kind of person to do that.
- [44:58]
C
You would have used it for the down payment on your house.
- [45:00]
B
That's exactly right.
- [45:02]
A
Which rolls into his next one, the love hate relationship for buying a house.
- [45:06]
C
Oh, here we go. Cue the therapy.
- [45:10]
B
The most expensive financial decision I've made was for sure buying the house that I live in. I am way richer in the counterfactual financially anyway. Where I didn't buy this house, the timing of it too was right when PWL had started allowing employees to buy equity. And I bought this house and a whole bunch of things went wrong with it. I had to scale back the amount of equity that I bought at the time, it was like, whatever. And then a few years later we were acquired and it's like, wow, yeah, that was expensive. And then all the money we've put into it since we've lived here, it's just brutal and it just keeps going. We had to pause recording a minute ago because they were grinding tiles in the garage, which is great and I'm excited to have a nicer bathroom downstairs, but man, money just flies. If I hadn't bought this house, I'd have a lot more money.
- [45:58]
A
The only example I can think of is related to a house, but it's not really a mistake. When I was fairly young, we saved up and we were determined to put 20% down on a house and we bought in Toronto. So at that time, making 40, $45,000 a year was a lot of money. To buy a 500,000 plus house in Toronto ended up being probably one of the best financial decisions because I bought in 2014, sold in 2017, moved to Ottawa and bought a house that was much cheaper and a lot bigger in square footage, but definitely put a lot of money into a house if you want to enjoy it. Do I regret it? No.
- [46:42]
B
I'm sorry. Ben, are you telling us right now that your biggest investing mistake ever was quadrupling your money on a house in Toronto? Is that what you're telling us right now?
- [46:48]
C
That's exactly what he's doing.
- [46:49]
A
Was not a mistake. I couldn't think of any mistakes.
- [46:53]
C
So we took your biggest win instead.
- [46:55]
B
I don't have any mistakes, but I did buy a house in Toronto in 2014. Thanks. Thanks man.
- [47:00]
C
That's a nice flex.
- [47:02]
B
I feel so much better about mine.
- [47:04]
C
Did I tell you I forexed my money?
- [47:07]
B
Glad we can commiserate.
- [47:08]
A
I did not forex my money. I did.
- [47:11]
B
Well, that was the worst investing mistake I've ever heard.
- [47:18]
A
Honestly, couldn't think of any.
- [47:20]
B
Oh my goodness.
- [47:22]
A
My dad taught me well when I was younger. He taught me to save 50% of what I ever made and I tried to keep that habit for many years, so that really set me up for success. And because he was an advisor, I got into investing early. At the time he was doing active mutual funds, so that's all I knew. But diversified approach.
- [47:44]
C
Dave Tilton would be proud.
- [47:46]
B
Did you own active mutual funds for a while? Maybe that's your biggest mistake?
- [47:49]
A
Yeah, I did own active mutual funds for a while.
- [47:51]
B
There you go.
- [47:52]
A
Thanks to my father, who I highly respect and he's a great planner. But it's just the reality of the times.
- [47:59]
B
You could probably go calculate how much more money you would have if you had bought index funds instead. And that could be your biggest investment mistake. Next time someone asks you instead of doubling your money on your house in Toronto. Oh, that was too funny. Okay, nice one. I'll read it. Curious to hear your thoughts on buffered structured strategies that have found their way into the ETF wrapper. On the surface, I can understand the appeal participate in market gains to a cap by way of options while eliminating some or all the nominal downside risk. However, there is no free lunch and by utilizing this strategy you must give up something. In this case, you're giving up the return in excess of the cap over the predefined time period and or the opportunity cost of not investing in other assets that may outperform overall. Just curious to hear your thoughts. What is the use case, where does this fall short, etc. If nothing else, I suppose that this could aid in protecting investors from themselves if there's a large drawdown or if they're hesitant to deploy capital, et cetera. Cheers. So, buffer funds. Buffer strategies are structured products that have been stuck into an ETF or fund wrapper. You have a capped upside, but you also typically have a capped downside. Which is why they're called buffer funds because you have a buffer on both sides. They are option based strategies. They aim to limit downside risk while capping upside. Like the listener, their intuition suggested these Funds do often underperform their reference assets in both returns and risk adjusted returns. There is a paper from some of the folks at aqr, including past Rational Reminder guests Cliff Asness and Antti Ilmenin. That paper is titled An Empirical Review of Buffer Funds. I am going to do a video on this. We will probably do a full episode on it at some point and dig deeper into the paper. It's a 25 page paper with lots of interesting theory and data, but we'll just do a quick version to answer this question. So the authors say that though positioned as a solution to the emotional and financial challenges of investing, which is what our listener also suggested in the end of their question, there we show buffer funds are less a breakthrough and more a familiar repackaging the promise of comfort, cloak and complexity at the cost of risk adjusted returns. They go on to say that their analysis suggests that despite the modern branding, many of the weaknesses that plagued earlier structured products persist. We did an episode on structured products. We've had a couple guests who are academics who have studied structured products. None of that analysis said anything positive about those products. The main issues they point out in the paper are that options may be naturally too expensive, transaction costs of trading options may be high, and the fees the managers charge for these products may be meaningfully higher than in a passive allocation to the reference asset. And so the main punchline of the paper is that the majority of buffer funds that they study have produced inferior risk adjusted returns compared to their reference asset. They have more often than not realized returns that are worse than what is implied by their payoff diagrams. So that's interesting. So you have this here's what you should expect the payoff to look like from this product based on the options that have been used in conjunction with the reference asset. And this paper's saying that they have often not realized returns that are in line with their payoff diagrams, they're often worse, and they have overwhelmingly underperformed simple, appropriately comparable stock and cash portfolios during the worst drawdowns in their still short history. So they conclude in the paper that these products promise of downside protection and tailored outcomes is rarely matched by their actual performance. And in most cases these products underperform simple transparent combinations of equities and cash. And that reminds me of our recent discussions on covered calls, where I found the exact same thing to be true. If you want to lower your beta instead of using covered calls, it probably makes more sense to hold cash. And this is. I mean, it's the same kind of Thing, this is an options overlay on some reference asset. In this case you've got upside cap and downside protection. In the case I covered calls you have the upside cap. But anyway, I think it's pretty similar conceptually. So the conclusion of this paper. They say that this article adds to a growing body of evidence that much of the innovation in this space is superficial, engineered more for sales than for substance. I thought that was incredible. On the back of our conversation with John Campbell recently. It's just so perfect. Who benefits from innovation in the financial product industry? It's rarely investors, it's the fund companies. And this paper's showing the same thing. So they finish. If the industry is to earn and retain investor trust in the years ahead, it must hold new products to a higher bar. Evidence of improved outcomes, not just clever diagrams and compelling narratives. Buffer funds may thrive for now, but their long term role in asset management will and should depend on whether they can deliver more than just comfort. In the absence of that, the future should favor simplicity over illusion. What a line.
- [52:54]
A
Great line.
- [52:55]
B
I hadn't looked into buffer ETFs. I'd gotten a few questions about them over the last probably couple years. I had it in my list of stuff to look at eventually and then the AQR guys came out with this paper that's better than anything I would have done. We'll do a deeper dive into that paper at some point because it is super interesting stuff.
- [53:11]
A
Simple rule of thumb for products like this is that if it's way too complex for you to understand or even the average advisor to understand, probably a good idea to stay away from it.
- [53:21]
B
Simplicity is one of the most powerful tools in investing. I think it's underappreciated and it comes right back to base rates. Comes back to David Booth's quote about having an investment philosophy that you can stick with. I think that all ties back to simplicity. Complex products tend to perform worse. They tend to have higher costs. Higher cost products tend to perform worse. You have to have a huge amount of conviction to invest in some complex high fee product.
- [53:45]
C
Just think about the beauty of capital markets. You can own multi thousand stock portfolios that trade every day, all day. Full liquidity, transparency in what you own and you buy for basis points. What else do you want? It's truly a miracle. You can buy the most scientifically advanced incredible liquid products for 5, 10, 15, 20, 30 basis points. It's a fraction of what funds when I started and Ben, your dad started used to pay in marketing fees back in the day. It's truly remarkable. Oh no, that's not good enough. We have to go do all these overlays and fancy stuff to generate margin. It's completely insane. Markets work, man, they just work.
- [54:30]
B
What's what John Campbell talked about being the distortion of capitalism where in the case of financial products, people don't know what they should want. And so financial product companies end up creating and marketing products to the investors based on what the investors think they should want when they're affected by all the cognitive and behavioral emotional biases that people are affected by. These buffered products are a great example where it's like, hey, we're going to protect your downside and let you participate in the upside. How compelling is that if you have no idea what the base rates are on that type of strategy.
- [55:04]
C
How about I read the last one for you, Ben? This one's from the notorious Conor McGregor. I understand it is unfeasible for you to keep up to date the RR model. However, it would be very useful for us are our model investors to know what updates would you consider at this point with for example the new DFA Vector ETFs, AVGV, et cetera.
- [55:26]
B
So it hasn't been updated because it's a hard problem. There is no optimal portfolio. To be clear, the original RR model portfolio as it was originally designed I still think is perfectly fine. If that's what you're doing, I wouldn't change it. But when those models were made, Avantis was the only game in town for proper multi factor ETFs. That's kind of why we created those models is because wow, we actually have a five factor ETF that we can use in an ETF model. And we did it back then because we'd gotten some feedback from listeners that you guys talk about the dimensional funds that you like. Cool. But it doesn't really help us listeners because we can't actually implement that. So it's like okay, well why don't we make an ETF model now? These products exist that kind of approximates what we do in portfolios as they were originally designed. They're still fulfilling that purpose. I would say that if dimensional had had their small cap value ETFs at the time when we made those models, we probably would have used them in the model for the simple reason. Not because I think they're better, they are different, but not because I think they're better for the simple reason that the objective of the rational reminder model portfolios was to approximate the PWL dimensional model portfolios this is what we do for clients. Here's an ETF model that sort of approximates that so that you don't feel bad when we're talking about dimensional. If I had invested in the rational reminder model, would I switch out Avantis for dimensional? Now, the products, they're very different. I'll probably at some point do a video on comparing the dimensional versus Avantus small cap value products, but they're quite different. You're getting different exposures, they've got different approaches to how they structure the portfolios, to the universe that they use. Even it's really hard to say you should use this one instead of that one. Really comes down to a preference and what you're trying to accomplish. That's really why those models have not been updated. It's a hard thing to update now that there are so many different products to build a really high quality factor tilted portfolio. And because we don't use them for clients, my level of motivation and incentive to spend a bunch of time designing a new model is pretty low.
- [57:34]
A
Back to the previous question where we said keep it simple. A lot of DIY investors love to tinker and look for ways to optimize. If you can focus on a plan that you can stick with, probably better to just keep a good diversified strategy. And if you've already got that in place, there's no need to overthink it as long as you're sticking to a good quality strategy in the first place.
- [57:56]
B
I did once famously say in the Rapture Miner community that if I didn't have access to the dimensional portfolio that I use through pwl, I would probably just buy a market cap weighted asset allocation etf.
- [58:08]
A
Set it, Forget it. Buy more when you have more money to invest. Super simple.
- [58:14]
B
You know me, Ben. Can you imagine me trying to manage a 5 ETF portfolio?
- [58:19]
C
You'd have Ben do it for you.
- [58:21]
A
As I will have to remind you to do your RSP contributions again next year.
- [58:25]
B
Yes, thank you, Ben. I figured you'd bring that up. I appreciate that.
- [58:28]
A
Well, you left the opportunity open.
- [58:31]
B
Okay, that's it for the main content to the after show. It's a little bare here today. Have you been here for the disclaimer yet, Karen?
- [58:45]
C
Once.
- [58:46]
B
Once. Okay, so we have a few reviews from Apple Podcasts to read. Under SEC regulations, we are required to disclose whether a review, which may be interpreted as a testimonial, was left by a client, whether any direct or indirect compensation was paid for the or whether there are any other conflicts of interest related to the review, as reviews are generally anonymous, including these ones. Sometimes people leave their full name and I'm like, oh, that wasn't really anonymous, but oh well. We're unable to identify if the reviewer is a client or disclose any such conflicts of interest. We are certain there are no conflicts of interest such as us paying for them, because we have never done that and would not do that. Yes, okay. Shall I read the first one?
- [59:24]
C
Sure.
- [59:25]
B
All right, so this is from a very stable genius. I don't know man. If you refer to yourself as a stable genius, you don't seem very stable to me. But anyway, we'll carry on with that. They say the podcast is like a drug. This podcast is so good it makes me sad. I don't know. Questioning the stability I've now finished every episode of Rational Reminder, watched every video on csi, and even read Ben's original Globe and mail article in 2013. Switching from daily to weekly Listening makes me sad as I've enjoyed listening to the wide range of topics from Andrew Chen's cross sectional asset pricing to Ben talking about his man bits and gassy lentil diet. Okay, since listening, I've learned a lot about my own investing shortcomings and utilized the evidence based information in my own portfolio. I don't know if this part's a joke or not. This is why I'm now a dividend investing homeowner employing 5 to 1 leverage. Since the bottom of 2020, I've hacked my psychology by leaning into the irrational psychological benefits of dividend investing provides and using that conviction to balance out the uneasiness of employing leverage. All thanks to Ben and this podcast. I don't know if that was serious. Anyway, thank you for the review.
- [60:35]
A
Come back to the stability comment.
- [60:39]
B
Cameron, you want to do the next one?
- [60:40]
C
Sure. A truly valuable evidence based podcast. This is from Ekoren on X from Sweden. I've been listening to the RationalMiner for a while now and it's become one of my favorite sources of insight on investing, personal finance and decision making. Ben and company, also known as the Bids, do a great job of blending evidence based thinking with humility and curiosity. What I really appreciate is how the show avoids hype. Instead, it focuses on clarity, education and practical wisdom grounded in research. Even complex topics are most of the time explained in a way that's engaging and easy to follow. Each episode leaves me smarter and with something useful to think about, and I found myself becoming more thoughtful and patient in my own financial approach because of it. Highly recommended to anyone who wants to get away from the noise and lead a richer life. Very nice.
- [61:33]
B
Nice.
- [61:34]
A
Very nice. The gassy lentil diet comment has come up so many times since I've been joining on the podcast. That is the number one comment that I've gotten making Ben feel less human or feel more human. Not less human. People think he's less human, but I'm helping to make him feel more human.
- [61:53]
B
I'm glad that the mark you're leaving on this podcast is my gas.
- [61:56]
A
Ben, people love it.
- [61:59]
C
There's more insights in those comments than people deserve to know. Okay, any other great brainwaves to share today?
- [62:08]
B
No, I got nothing else. You don't have any content camera. You're not watching any fun stuff. People used to love your show recommendations.
- [62:14]
C
No. We started watching the new BD below deck last night.
- [62:18]
B
I have no idea what that is. What is that?
- [62:19]
C
It will not improve your life. It's just kind of this fun escapism show that a bunch of us here watch that Lisa and I enjoy watching. It's a new season kicked off last night. Other than that, no other great shows we're watching.
- [62:33]
A
Other than Cameron being a closet Golden Bachelor fan that he says is just to support Lisa, but I'm skeptical.
- [62:40]
C
I appreciate that comment. I'm a very supportive husband.
- [62:43]
B
Ben loves throwing us under the bus. I did want to say something. I missed this all of last year in the Rational Reminder community, there's a thread that becomes active around now called no Net Worth November. And it's a group of people who, I don't even fully understand it, but they get together in this thread in the Rational Reminder community and they support each other in not checking their portfolios for the month of November. I said last year that I would mention it on the podcast and I never did. So I'm doing it now. I guess it's a thing. Wealthsimple is doing a wrapped thing like what Spotify does to show you what you did over the last year, one person posted in that thread that they had checked into their account. I can't remember, 368 times or something like that.
- [63:28]
A
Oh, man.
- [63:29]
B
So I guess people are checking their investments a lot. Anyway, it's kind of a neat idea. So if people want to participate in no Net Worth November and then talk about it, I guess you go look at the thread. Or if you just want to do it, I guess you just do it. I don't really know.
- [63:44]
A
Talk about your anxiety as you're not checking your net worth.
- [63:48]
C
Yeah, I'm now 11 months in January 1st last year I bailed on all social media except LinkedIn because we use it for work. But no X, no Instagram, no Facebook. It's all horrendous and life is better without it. I can tell you that. My life is better. I pass no judgment. I'm just not giving my eyeballs away. The habit is gone. I'm sure I'm missing out on stuff, but I don't care.
- [64:15]
B
You're missing nothing. I promise you, you're missing nothing.
- [64:19]
C
You're still on it actively on X?
- [64:22]
B
Not actively, no. I delete it from my phone and then sometimes re add it because people send me stuff, but I don't post on there anymore. I find it's changed a lot.
- [64:32]
C
I did enjoy Instagram and that's part of it. I just hate that motion of swiping. It drives me crazy. It just feels like such a waste. Like gone, not doing it.
- [64:42]
A
Black hole of sucking your time away.
- [64:45]
C
Agree.
- [64:46]
A
I regularly delete Instagram to avoid the temptation.
- [64:51]
C
But then you come back.
- [64:52]
B
Keeps coming back though, right?
- [64:54]
A
Yes, I come back on the weekend when I'm not working.
- [64:58]
C
I deleted my account and everything. I'm gone. Oh, wow. I got nothing to go back to. I'm not doing it wise.
- [65:04]
B
I should probably do that too. All righty. Well, Cameron, good to see you back in the show. Thanks for coming.
- [65:09]
C
Thanks for having me.
- [65:11]
B
And everyone, thanks for listening.
- [65:12]
C
All right, see ya.
- [65:18]
D
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