DeepSummary
In this episode, the hosts Benjamin Felix and Cameron Passmore, along with Mark McGrath, discuss the most important lessons in investing. They present a list of 20 lessons compiled from contributions by the Twitter community and the Rational Reminder Community, covering topics such as the difficulty of outsmarting the market, the role of narratives in market crashes, the importance of diversification, and the superiority of low-cost index funds over actively managed funds.
The conversation explores the misconceptions surrounding economic growth and stock returns, the significance of risk-return trade-off, and the impact of fees and taxes on investment performance. The hosts emphasize the importance of good financial planning over portfolio management and the need to tailor investment strategies to individual objectives and circumstances.
In the after-show segment, the hosts delve into the quality of financial advice provided by Canada's big banks, discussing a recent CBC feature that highlighted misleading practices and conflicts of interest. They also share listener reviews, upcoming podcast episodes, and personal updates, including Benjamin's experience with sleep restriction therapy and Mark's virtual reality exercise routine.
Key Episodes Takeaways
- Outsmarting the market is extremely difficult, as you're competing against the collective intelligence of highly skilled institutions and individuals.
- Narratives and emotional factors often drive market behavior during crashes and bubbles, but empirical evidence shows markets recover over the long term.
- Most actively managed funds underperform the market due to higher fees, lower tax efficiency, and lack of persistent outperformance.
- Expected economic growth and stock returns are not strongly correlated, as growth expectations are priced into the market.
- Good financial planning, including saving habits, tax optimization, and insurance, is more important than portfolio management for achieving financial goals.
- Higher expected returns in financial markets require taking on higher risk or volatility, and this risk-return relationship changes with time horizons.
- Simplicity, low costs, and broad diversification tend to be more effective than complex, expensive, and concentrated investment strategies.
- There is no single optimal investment strategy; the best strategy is tailored to individual objectives, constraints, and preferences, and is one that can be consistently followed.
Top Episodes Quotes
- “Like I said, if you want to pay less tax, just go make less money. Like, take all your money and stick it under your mattress. You'll generate zero income, you'll pay less tax. What you should be concerned about is the after tax outcome of all of this, right? And if you can put together a better portfolio that might pay a little bit more tax, but that gives you a better after tax outcome, that's obviously better than just being tunnel vision, laser focused on paying the least amount of tax possible.“ by Mark McGrath
- “If you want to earn higher expected returns, you need to be willing to take on more risk or at least more volatility. Measuring risk is a big mess. You got to be able to take on more volatility if you want higher expected returns.“ by Benjamin Felix
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Episode Information
The Rational Reminder Podcast
Benjamin Felix & Cameron Passmore
4/4/24
In this episode, we unpack key tenants of investing and the quality of financial advice in Canada's banking industry. In our conversation, we present a list of lessons we have learned about investing, which has been consolidated from contributions by the Twitter community and the Rational Reminder Community. In our conversation, we discuss ways to beat the market, how narratives can impact the economy, and why timing the market is a bad investment approach. Discover why performance chasing is not a successful strategy, why incentives matter, and why economic growth is a poor predictor of investment success. Learn about the nuanced relationship between expected economic growth and stock returns, why wealth does not give you access to market-beating investments, and the effectiveness of investing in low-cost total market index funds. Finally, in our after-show segment, we delve into the quality of financial advice provided by Canada's six big banks, investment strategies, listener reviews, and much more. Gain valuable insights into navigating the complexities of investing and learn why simplicity, discipline, and skepticism towards overly complex or costly strategies are vital for financial success. Tune in now!
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Key Points From This Episode:
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(0:00:00) Introduction and outline of today’s topic: The Most Important Lessons in Investing.
(0:04:55) Why you cannot outsmart the markets and what it takes to beat the market.
(0:07:47) The notion that "this time is always different" during times of financial upheaval.
(0:10:45) Explore the forward-looking nature of markets and their impact on decision-making.
(0:12:08) Unpack the unreliability of market forecasts for making investment decisions.
(0:14:48) Hear why time in the market beats timing the market.
(0:16:11) Important aspects of funds and why investors should not chase portfolio performance.
(0:19:20) Learn about the role of incentives in the distribution of financial information.
(0:25:09) Common misconceptions about the link between economic growth and stock returns.
(0:27:28) We discuss the importance of good financial planning over portfolio management.
(0:30:51) Uncover the relationship between risk and expected returns in financial markets.
(0:32:33) How the risk-return relationship changes over different time horizons.
(0:34:59) Why fees and taxes matter and the nuances of permanent insurance.Â
(0:41:55) Find out why there is no such thing as a perfect investment strategy.
(0:44:51) Tailoring your investment portfolio to meet your goals and sticking to it.
(0:46:48) Investigate why there is no such thing as a passive investment.
(0:50:59) Understanding why wealth does not provide access to market-beating strategies.
(0:53:22) Why diversification is the only free lunch in investing.
(0:58:58) Recommendations and pitfalls to avoid when assessing investments.
(1:01:02) What the structure of a financial portfolio looks like for most people.
(1:03:11) The aftershow: the state of Canadian banks, investment advice, and more.
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Links From Today’s Episode:
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Rational Reminder on iTunes — https://itunes.apple.com/ca/podcast/the-rational-reminder-podcast/id1426530582.
Rational Reminder Website — https://rationalreminder.ca/Â
Rational Reminder on Instagram — https://www.instagram.com/rationalreminder/
Rational Reminder on X — https://twitter.com/RationalRemind
Rational Reminder on YouTube — https://www.youtube.com/channel/
Rational Reminder Email — info@rationalreminder.ca
Benjamin Felix — https://www.pwlcapital.com/author/benjamin-felix/Â
Benjamin on X — https://twitter.com/benjaminwfelix
Benjamin on LinkedIn — https://www.linkedin.com/in/benjaminwfelix/
Cameron Passmore — https://www.pwlcapital.com/profile/cameron-passmore/
Cameron on X — https://twitter.com/CameronPassmore
Cameron on LinkedIn — https://www.linkedin.com/in/cameronpassmore/
Mark McGrath on LinkedIn — https://www.linkedin.com/in/markmcgrathcfp/
Mark McGrath on X — https://twitter.com/MarkMcGrathCFP
The Economist — https://www.economist.com/Â
ARK Invest — https://ark-funds.com/
The Canadian Investor Podcast — https://thecanadianinvestorpodcast.com/
Episode 257: Giorgio Ugazio (Mr. RIP) — https://rationalreminder.ca/podcast/257
Mr. RIP on YouTube — https://www.youtube.com/@mr_rip
The Money Scope Podcast: Episode 9 — https://moneyscope.ca/2024/03/15/episode-9-taxable-investing-in-canada/
Book a meeting with a PWL Financial Planner —Â
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Books From Today’s Episode:
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A Wealth of Well-Being — https://www.amazon.com/Wealth-Well-Being-Holistic-Approach-Behavioral/dp/1394249675
Wealthier — https://wealthierbook.com/
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Papers From Today’s Episode:Â
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‘Where’s the Beef?’ — https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4035890
‘SPIVA® Canada Scorecard’ —  https://www.spglobal.com/spdji/en/documents/spiva/spiva-canada-year-end-2023.pdf
‘2018 Paper’ — https://doi.org/10.1093/rfs/hhy046
‘CBC Article’ — https://www.cbc.ca/news/business/marketplace-hidden-camera-banks-1.7142427
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