Covered Calls (Plus Robin Powell and Jonathan Hollow on How to Fund the Life You Want) (EP.251)

In short

Episode Summary: Covered Calls (Plus Robin Powell and Jonathan Hollow on How to Fund the Life You Want) (EP.251)

Podcast Information

Podcast Title: The Rational Reminder Podcast
Hosted by: Benjamin Felix, Cameron Passmore, and Dan Bortolotti
Episode Number: 251
Air Date: (Not specified)

Episode Description In this episode, the hosts delve into the complex topic of covered calls, a financial strategy that has garnered significant interest but remains misunderstood. They explore the nuances of risk measurement in investment strategies, particularly how covered calls can appear more attractive than they really are when risk is inaccurately assessed. The discussion transitions to a conversation with Robin Powell and Jonathan Hollow about their book, *How to Fund the Life You Want*, which focuses on financial education and effective financial planning.

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Key Points from the Episode

Introduction to Covered Calls
Definition and explanation of covered calls.
Discussion on the common belief that they produce high yields with lower risk.

Misleading Nature of Yield Claims
High advertised yields (often above 10%) can create a false sense of security.
Importance of understanding that risk cannot be destroyed, only transformed or transferred.

Risk Assessment Challenges
Conventional measures of risk (e.g., Sharpe Ratio) may not accurately reflect the realities of strategies involving options.
Behavioral finance perspective: Investors often misinterpret risk when assessing performance metrics.

Costs and Tax Implications
Covered calls are generally tax-inefficient and may involve higher fees compared to standard asset investments.
Example of XYLD, a covered call ETF, with a significant tax cost ratio compared to an index fund.

Discussion with Robin Powell and Jonathan Hollow
Introduction of their book, *How to Fund the Life You Want*, emphasizing financial education.
Overview of the workbook designed to help readers assess their financial situations and goals.

Key Financial Management Principles
Six rules outlined in the book for successful financial management:
Have a purpose, plan, and method.
Diversify and invest in equities.
Focus on controllable factors such as expenses and saving rates.
Seek guidance from trusted advisors.

Importance of Financial Literacy for Children
Encouragement for parents to teach children about money from a young age.
Recommendations for practical experiences that can enhance children's understanding of finances.

Finding Quality Financial Advisors
Advice on assessing potential advisors, focusing on their qualifications, independence, and investment philosophy.
Emphasis on the need for advisors to listen and understand clients' financial goals.

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Key Takeaways

Complexity in Investing: Covered calls are complex and often misrepresented in terms of risk and yield, necessitating a deeper understanding from investors.
Behavioral Insights: Behavioral finance plays a significant role in how investors perceive risk, particularly with strategies involving options.
Financial Education: The importance of ongoing financial education cannot be overstated, both for adults and children, to foster better financial habits.
Advisor Relationships: Establishing a strong, trust-based relationship with a financial advisor is crucial for effective financial planning.

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Additional Resources

Robin Powell and Jonathan Hollow’s Book: [How to Fund the Life You Want](https://www.amazon.co.uk/dp/1399404601/ref=redir_mobile_desktop?_encoding=UTF8&qid=&ref_=tmm_pap_swatch_0&sr=)
Covered Calls Overview: [Investopedia on Covered Calls](https://www.investopedia.com/terms/c/coveredcall.asp)
Previous Episodes of Interest:
Episode 27 featuring Robin Powell - [Listen Here](https://rationalreminder.ca/podcast/27)
Insights from Professor Hersh Shefrin - [Listen Here](https://rationalreminder.ca/podcast/167)

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Conclusion This episode provides critical insights into the nuances of investment strategies like covered calls and emphasizes the significance of financial education for making informed decisions. With the addition of expert advice from Powell and Hollow, listeners gain practical tools and knowledge for achieving their financial goals.

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Transcript

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0:03This is the Rational Reminder Podcast, a weekly reality check on sensible investing and financial decision-making from two Canadians. We're hosted by me, Benjamin Felix, and Cameron Passmore, portfolio managers at PWL Capital. Welcome to episode 251. After a great episode last week with Professor Campbell, but this week is another great one. I think by popular demand, Ben, you're going to dig into covered calls. This is one that just never died. People have been asking me to cover covered calls for like, I don't even know how long since I started doing my YouTube videos. And it was like here and there I'd get requests for it.

0:45It wasn't like everybody asking all at once, but it's been one of the most persistently requested, even if not the most frequently requested concepts to cover. So I finally caved and spent a bunch of time reading about it. And I hopefully have some interesting commentary. And then much like we did a few weeks ago with Jonathan Clements. We're going to do a review of past guest, Robin Powell. He was guest in episode 27, but he, along with his co-author, Jonathan Hollow, just released a great book called How to Fund the Life You Want, What Everyone Needs to Know About Savings, Pensions, and Investments.

1:20We'll look back on our interview with Robin a few years ago. Then those guys will join us after we do a quick book review. Phenomenal book, by the way. Then, of course, we'll do the after show for the three people that stick around. There should be a shirt for that in the store. The three people? I don't know what it says, but it's a running joke. The last three people. That is true. So earlier this year, Ben, you and I started promoting, I guess, our practice. And since we've done that, we've had a bunch of people reach out to the team, which is fantastic. And it's great to meet Canadians who might want some help with their financial decision-making.

1:52We have a phenomenal team of a dozen or so highly skilled people. So if you're looking for some help and you're Canadian with your financial decision-making, please do reach out. Anything to add, Ben? I was just going to say that's been interesting. I think we've always been a little shy or hesitant about promoting our business. But since we've been doing it, the number of people getting in touch to talk to us about becoming clients has increased pretty significantly. I don't know what's contained there. What information is in there? I guess that we just weren't talking about it enough and that there are people out there who could use the service like the one that we provide, but maybe just needed a prompt or maybe didn't know what we did.

2:31I don't know. So reach out. We're easy to find. Okay. With that, let's get to the episode.

2:41All right. Welcome to episode 251 with the main topic being covered calls. I'll do my best to make sure we go through this slowly and understandably as I try to do. But this one is particularly, I don't know if it's complicated, but I guess it is complicated. I'll let you get going and I'll do my best to help. It is complicated. This is not part of my main coverage of this topic, but just as some commentary to start, one of the things we talked about in a recent episode was the complexity of financial products. There's some really interesting empirical research on how more complex products tend to perform worse and have higher costs for investors.

3:20We also talked about the concept of shrouding, how complexity can shroud high costs where consumers end up paying costs they don't realize. Even fee-conscious consumers might end up paying high costs because the costs are hidden. Just an interesting preface to think about as we dive into this. It is a complex topic when we start getting into options and payoffs and how all that stuff works. I did get input on these notes from a few people who know a lot about this stuff, including some of the co-authors of one of the papers that we referenced in the notes. I also talked to Patrick Boyle, who people may recognize from his YouTube channel.

3:56He's got a very large YouTube channel. He wrote a textbook on options and I know him sort of casually. So I sent him a note just saying, hey, can you look at this? He thought it all looked pretty good. I did try to get a whole bunch of input from people who know what they're talking about. Oh, VinViz in the Rational Reminder community. People will know him by his username. I also chatted with him about it. Lots of input. Okay, I'm rambling on. We'll dive into it. Okay, so covered call strategies, which are sometimes referred to as buy-write strategies, are often sold as producing high income yields and generating equity-like returns with less risk.

4:33But these claims, as you may have guessed, they fall apart under scrutiny, which is exactly what we're going to apply here. The target yields on these products are often above 10%, sometimes way above 10%. And those yields are often advertised in promotional documents and on fund websites and stuff like that. You also see statements like enhances current income and lowers volatility and downside risk. Sounds good. Those are the claims we're going to dive right into. It's going to be a lot of fun. Now, it's important to remember, and this is something that VinViz from our community reminded me about.

5:12I hadn't thought about this statement in a very long time. We got to remember that risk cannot be destroyed. It can only be transformed or transferred. What a line. That comes from physics. It's a play on the law of conservation of energy, which says the energy can neither be created nor destroyed. It can only be transformed or transferred from one form to another, but risk is similar. You can't make it go away. You can just transform it or transfer it to somebody else with a financial contract. Nice way to start thinking about this because you cannot make risk go away. You can give it to somebody else.

5:49In this case, when you're selling calls to somebody else, you're the one taking the risk. Cover call strategies don't generate income in the way that investors imagine. That's a big one. We talked about 10 % yields. That's not really income. I'll explain what I mean in a second. Their risk-adjusted returns, that's one of the other big things. You expect to get, or the pitch is, you might get a little bit lower total return than equities, but with much less risk or with less risk in such a way that your risk-adjusted returns, typically measured by something like the Sharpe ratio or the Sortino ratio, are going to be much more attractive.

6:26Now, one of the things that I'm going to argue is that that is only true when risk is improperly measured. When you use an incorrect measure of risk, it is true that the risk-adjusted returns of covered call strategies can be very attractive, but that's due to an error in measurement, not due to a reduction in risk. Wow. Okay. These strategies are also generally going to be tax inefficient and more expensive to own in terms of fees and costs than simply investing in the underlying assets. That's a pretty good setup. So that's the setup. Now go a little bit into what the assets involved here are.

7:05A call option is a financial contract that gives the buyer the right to purchase a security at a set price. Check. When a call option is in the money, it can be sold before maturity or exercised to purchase the underlying security below its market price from the option seller. Covered call strategies, own securities. So you own the underlying stocks or assets in the index or whatever, and then you sell options on the same security. So you own it, you own the security, and then you sell an option, a call option on the security. Say it owns the S &P 500, then you sell call options on the S &P 500.

7:41It's called covered because the underlying security is owned when the option is sold. A naked call would just mean selling the option without owning the security. And then in that case, you have unlimited downside with a naked call because a security price can go up infinitely, theoretically, unlike a covered call, which can have negative returns only to this point that the underlying security goes to zero. Because if it goes up, you're hedged by owning the security. Due to put call parity, a covered call and a short put have the same payoff. I got that from Patrick Boyle. It's hard to think about.

8:24Options are confusing, but if you look at the payoff diagrams for the two strategies, it's very clear that they're saying that's more just a point of interest. Selling call options does generate income through option premiums. That's one of the things a lot of investors find attractive, but it also puts a cap on the upside of the underlying securities, while only slightly improving downside risk. But when you sell a covered call, you're selling the right to purchase the underlying asset that you already own at a specified price. If the call expires without being exercised, you earn the return on the underlying assets plus the call premium.

9:04Exactly. If the buyer of the call option exercises, the underlying securities have to be sold below their market value. Now, covered call strategies are typically going to demonstrate those high distribution yields that I talked about earlier, which seem attractive to income-oriented investors, but the yields are misleading. This is one of the really important points. When an option is sold, the seller receives income from the option premium and they have a potential liability in the event that they need to sell the underlying shares below market value to the option buyer in the event of an exercise.

9:36The fact that the option premium is distributed as an income yield, like that 10 % yield that I mentioned earlier, that's super confusing to investors and we know about mental accounting being problematic and the whole concept of income investing and dividend versus capital, all that kind of stuff. What selling covered calls is doing is generating current income from the option premiums at the risk of foregoing future capital returns due to appreciation, foregone appreciation in the underlying security. Precisely. When you think about total return on a net basis, we would not expect covered call strategies to have higher risk adjusted returns than their underlying assets.

10:13That's important on its own, unless options are overpriced. I have three references for that statement. One's from an old paper by Fisher Black, one's from Robert Merton, and one's from a paper by a guy named Rentalman. That's not a controversial thing to say. You would not expect higher risk adjusted returns unless options are overpriced. That makes the income yield figure somewhere between irrelevant and overstated. Not completely irrelevant, that's not fair. You know what? It could be relevant to a behavioral investor. One of the things I'll talk about later is that to the extent that income and capital separation can be used as a tool to modify investor behavior, maybe it's not totally irrelevant.

10:55But at least from a rational non-behavioral perspective, it is completely irrelevant. How important is a line unless options are overpriced. The total return of a covered call strategy can be decomposed into a reduced equity beta relative to the underlying and a volatility risk premium, which exists if options are overpriced. Writing options slightly decreases exposure to the underlying equity while eliminating exposure to large positive moves. We'll talk about the effects of that shift in the distribution as we move on to the next section. This is important though, because if you want a lower beta to an asset, you could reduce your exposure to the asset.

11:36But systematically selling options primarily makes sense as a strategy to pursue that volatility risk premium, that option mispricing, but not as an income strategy. So that pricing piece matters because of that, because this strategy is interesting if options are mispriced, but much less so if they are properly priced. Let's jump into the lower risk idea here. Covered calls are often sold as having equity-like returns with less risk. That's one of the big selling points. We have to dive into the measure of risk, which matters a lot in making that judgment. The challenge is that options affect higher moments of the distribution, including skewness and kurtosis being the big ones.

12:21A common measure of risk-adjusted returns like the Sharpe ratio, which most people are familiar with, that's the ratio of an asset's excess return over the standard deviation of the excess return, that's going to be inadequate for assessing the performance of strategies that have options generally due to the effect of options on the normality of the distribution. The Sharpe ratio follows the logic in Harry Markowitz's mean variance framework, which assumes that the mean and the standard deviation of single period returns are sufficient for evaluating the relative attractiveness of investment portfolios.

12:55Now, if you imagine a normal distribution, which is well described by its mean and standard deviation, the distribution of outcomes is going to be symmetrical about the mean. Now, when you write call options, you're going to slightly improve the left tail, the bad outcomes, by the amount of the option premium. And I mean, that's another interesting point is that these are often sold as having downside protection, but you're getting an option premium, which slightly improves your downside, but you're not getting any kind of hedge because if the underlying drops, you're still fully eating the decline minus your option premium.

13:27So right and call options slightly improves the left tail by the amount of the option premium, but it completely cuts off the right tail above the strike price. You do get a lower standard deviation, but you also get much more skewness. Now, if you think about that, you're completely cutting off one tail of the distribution, lowering your standard deviation, measuring the risk adjusted returns of that strategy with something that only takes the first two moments, the mean of the standard deviation into account, of course, it's going to make it look better. Fascinating. There are other performance measures like the Sortino ratio, which replaces the standard deviation in the Sharpe ratio with downside risk relative to a benchmark.

14:04That's also going to be inadequate, again, due to the shape of the distribution because we're really affecting that right tail and the Sortino ratio is not worried about that. There's another metric devised also by Frank Sortino who came up with the Sortino ratio. He devised one called the upside potential ratio, and that replaces the excess return over the risk free rate, like you have in the Sharpe ratio, with the excess return over a benchmark. That ratio is more successful in assessing strategies with skewed distributions. We're measuring, in this case, the expected return above a benchmark over the level of downside risk, rather than the mean above the risk free rate over the level of volatility, as with the Sharpe ratio.

14:45When you use that lens, the upside potential ratio lens, to look at covered call strategies. They're typically going to underperform the underlying index even before fees and costs and taxes are considered. Wow. It's not a perfect measure or anything like that, but it is a measure that has been shown to work with more skewed distributions. When you flip the lens to that ratio, these strategies don't look so good, which just makes sense because of how important the right tail of the distribution is for stock returns. We know that empirically. The best months or whatever are really important to your total return.

15:22If you cap them, it makes sense it wouldn't have a very good effect. When you measure using a ratio that takes that into account, it just makes sense that it wouldn't look so good anymore. Now, Markowitz theory suggests that rational investors are going to weigh single period mean against variance in making asset allocation decisions. It implicitly assumes that mean and variance describe the distribution of returns. In that case, the Sharpe ratio is useful. But if investors care about weighing returns above a benchmark, above returns below a benchmark, and returns are not normally distributed, then the upside potential ratio is going to be more useful.

15:58I think that better describes what most people are trying to do with covered call strategies. Well, maybe they don't realize what they're trying to do. But mean and variance aren't the only things that matter in assessing risk, I think is the main takeaway there. When you account for that, the attractiveness of these strategies changes pretty materially. There's no perfect model for assessing risk-adjusted returns. It's ultimately going to come down to defining the user, the person investing in the strategy's utility function, which does mean that for some investors, covered call strategies could make sense.

16:35It's one of the hard things with investing. What are you trying to maximize? One of the things I've heard Fama say, I can't tell you what the optimal portfolio is unless you tell me what your utility function looks like. Even if we decide what the rational model is for assessing these strategies, and that model suggests that they're suboptimal, it can still be useful for prospect theory investors who are very risk averse for small losses, but will take on investments with a small chance of very large losses. and investors who rely on mental accounting to determine their spending and who want to spend aggressively from their portfolio.

17:09An investor described by those behavioral characteristics, maybe this is a great strategy for them. There's a paper from Hirsch Sheffron, who we've had in the podcast, actually co-authored with Mayor Statman, who we hope to have in the podcast or will have in the podcast. They've got a paper on this, on looking at covered call strategies through this behavioral lens and then say it's not so crazy when you consider these behavioral characteristics of investors, even if it is otherwise a suboptimal strategy. That's also the kind of thing we talked about with upcoming guest, David Blanchett. Totally.

17:40There are all kinds of investor preferences and characteristics that you can try and model that can make any strategy look good given those investor characteristics and preferences. There's no correct model to say everyone should invest this way. Now, all that said, if the objective is outperforming a benchmark or some benchmark level of return, covered calls probably are suboptimal. Now, another approach of assessing the optimality of covered call strategies and the existence of a volatility risk premium is just controlling for the skewness in their return distributions using a couple of different control techniques that a paper that I found did.

18:20When you do that, when you control for that, any perceived superiority in risk-adjusted performance disappears. Another way of saying that and what this paper I'm talking about concludes is that the abnormal performance of covered call writing is largely driven by the disregard of skewness and the measurement of its performance. The information on the shape of the distribution limiting the usefulness of standard performance metrics when options are in play. This has been known in academia for a long time. I remember Cam Harvey told a story about this when he was on our podcast. It's been known in academia for a long time.

18:52But in practice, you look at any fund webpage and you see the Sharpe ratio still for any strategy, maybe the Sortina ratio. And it's a thing where whether they realize they're doing it or not, investment managers can effectively game the system. They can game the performance metrics by using things like options and other complex strategies that will make the Sharpe ratio artificially but mechanically inflate. If you know investors are going to look at that as a metric, then you can market the fact that you have attractive risk adjusted returns if you know people are using the Sharpe ratio to assess risk adjusted returns.

19:35Now that gaming, and there's a paper from Will Getzman actually on this, that gaming works even in the face of high costs, extremely high costs, which can be relevant for this covered call strategy that we're talking about specifically. Now, Getsman in that paper, they did actually devise a manipulation-proof performance measure specifically to get around these issues. It's a little more complicated than the upside potential ratio we talked about earlier. But one of the papers that I'll mention in a bit, they actually use that manipulation-proof performance measure and again show that these types of strategies that use option writing to generate income are suboptimal.

20:15I've alluded to fees and costs and taxes a couple of times. These are major considerations for this type of strategy. When you look at XYLD, for example, which is a US S &P 500 covered call ETF using Morningstar's tax cost ratio methodology for estimating the tax efficiency, you can think about this sort of like an MER that you pay in taxes. XYLD has a tax cost ratio for the trailing five years of 3.49 % compared to 0.65 % for SPY, which is just a S &P 500 index fund. Big difference. In Canada, it's a little different because those option premium income is going to be taxed as capital gains. In the US, I think it's going to be taxed as short-term capital gains, which is less tax efficient.

21:00Maybe not quite as bad in Canada, but you're still getting pretty significant capital gain distribution yields in Canada. Of course, that is an additional liability for taxable investors to overcome. It's important to remember that you're paying tax on that income, but it's not income in the sense that an interest payment or a dividend is income. It's income that comes with an embedded liability that empirically we know actually reduces your total return. You've got this big tax hit combined with a lower total expected return, not the best. It's due to foregone gains in the event that the underlying appreciates.

21:36They also are going to tend to have higher fees products implementing these strategies. If you look at, again, XYLD, it's got a MER of 60 basis points. If you look at Canadian products doing covered calls, they're often similar fee range or maybe a little bit more expensive. Of course, we're benchmarking that against 25 basis points for a VGRO or like three basis points for a VOO. We pay a lot more costs. Now, those costs also don't include implicit costs like bid ask spreads, just for more transactions, you're going to probably have higher implicit implementation costs as well. Now, if you take a step back, so I mentioned a couple of just random examples of ETFs, but if you take a step back and look at the broad sample of mutual funds, live mutual funds using covered calls and covered puts in this sample to generate income tend to underperform, but measured both by their excess return and by that manipulation proof measure that we mentioned earlier from Will Getsman's paper.

22:31On that point for completeness, I do want to mention that DIY investors implementing the strategy aren't going to pay those higher fund costs, but there's also research showing that individual retail investors trading options pay like 12 % spreads and they lose money on average. While it may be true to say that yes, theoretically, you could do this at a lower costs by implementing yourself, you might give up any gains in higher transaction costs than an institution might get. Now, it is true that in a flat market, covered call strategies will outperform because in that case, you're collecting the option premium and it's not being offset by foregone appreciation in the underlying securities.

23:12If you believe that the market or a segment of the market is going to be flat or slightly negative, in that case, covered calls could be interesting. But of course, timing the market is hard at best when you can't predict a flat market and cutting off that right tail of returns is not great because we know how important the right tail is to total stock returns, especially in the long run. We've seen those stats on if you miss the best month of returns, how much lower your total returns is the same kind of idea. So covered calls are sold as high-income strategies with attractive risk-adjusted returns under the hood and when you use the appropriate lenses to assess them and their risk-adjusted returns, they're neither high income nor do they have attractive risk-adjusted returns, and especially net of fees and taxes.

24:04Empirically, when you look at funds that have been around for a while implementing these strategies, they've typically trailed a plain vanilla fund of the same asset class by a very wide margin while having a higher Sharpe ratio. That's the thing, rate is that some people will look at, okay, it's trailed by 3 % a year, but look at that sharp ratio. But as we've hopefully articulated, that's more driven by measurement error than actual reduced risk or increased risk adjusted returns. That's it? That's it. Okay. Good listener. Good viewer. How good was that? That was clean, understandable, concise, gold in my opinion.

24:46Glad you think so. And I'm sure that will be used by many of our fellow advisors or good friends in the community to share with people when they ask that question. I hope so. I'll make this into a shorter CSI videos too. Excellent work. Okay. You're good to move on? Yep. Okay. So let's do one episode in 60 seconds, but I want to give a backstory on this. So the point of these is for regular listeners who may not have been around back in the earlier days to help choose an episode to go back and listen to. We welcomed Robin Powell four years ago, Ben, if you can believe it. He was one of the higher profile guests that we had early on.

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25:29I think he was kind of that interview has convinced us to go to this every other week with a guest episode. I thought it'd be a good idea to highlight this. Robin is an award-winning journalist and a self-described campaigner for positive change and investing. He previously worked in broadcast news in the UK, was also in current affairs. He was a news reporter and documentary maker for ITV for 14 years before joining organizations like Sky News and BBC. He's also the founder and editor of the Evidence-Based Investor, which is a news and content syndication service. He's also the editor of Advisor 2.0, which you can find at advice reinvented.com, which is a blog exploring changes in our sector.

26:13Ben, the financial advice sector is also the founder of Ember Regis Group and subsidiaries Regis Media, which provides content to financial advisory firms and also Ember Television, which produces and distributes video content about our industry. So he's a well-regarded individual. He's got a great background and incredible passion for the difference we're all trying to make. So with that, here is a quick 60-second review. We'll see how well I do on time this week. So episode 27 in January 2019, we welcome Robin Powell. What makes Robin really interesting is that he's a journalist who discovered our shared investment philosophy and now spends an unreal amount of energy spreading that word of this philosophy.

26:55Then he combined his background in television journalism to create a simply remarkable documentary called Passive Investing the evidence. In that, he interviewed people like Bogle, Ellis, Malkiel, Booth, French, Ferry, Bernstein, and Sharp. These conversations he had with them greatly impacted Robin. This documentary, along with a great deal of other content, you can find at sensibleinvesting.tv. In addition to that, we discussed his views on the state of financial advice around the world, including the role of robo-advisors and how so many people think that financial advice is solely about recommending mutual funds or moving money around.

27:32He of course says it's so much more than that. He says we have a large responsibility towards client education. Also being a journalist, Robin was able to speak about the short-term nature of daily journalism which can cause people to lose long-term perspective. That was Robin Powell, our guest in episode 27. He also wrote a book which is our book review this week which will be quick because Robin Powell and his co-author Jonathan Holla will join us in a couple of minutes here. But the book they release is called How to Fund the Life You Want, What Everyone Needs to Know About Savings, Pensions, and Investments.

28:08As part of our Back to Basics this year, we're featuring books and authors if we can get them on to talk about their book to help improve financial literacy. This book, even though they targeted for people in the UK, the material is absolutely applicable to anyone. So we introduced Robin already. So Jonathan Hollow recently worked for the UK government's money and pension service. He worked with leaders and regulators in government and the financial services industry to create the UK strategy for financial wellbeing. He previously worked as editor-in-chief for the cabinet offices online publications before becoming the innovation director at Serco, which is a UK-based global public service outsourcing company.

28:51So incredible background. This book, Ben, is fantastic. It's 277 pages long and it is an incredible resource. I would suggest that you buy the hard copy. I read it on Kindle, but there's workbooks in it that don't really work that well in Kindle. So hard copy, I would say is a must. I really like how they started the book, which is with a chapter called Your Money or Your Life. They encourage you to think about the life you want, what's important to you, the goals that are important to you, and to realize that a happy life is made up of experiences, relationships, and time, which of course is stuff we've talked about.

29:29Aiming for money as an end goal is the wrong target. Obviously, we're in sync with them in terms of investment and planning philosophies, including things like capture market returns, manage your asset allocation, find a good advisor and use conservative safe withdrawal rates. One part I really did like is they highlight six rules that one must follow to be successful. In our conversation, Robin talked about a couple, but quickly the six are have a purpose, a plan and a method. Take a slice out of everyone's business, own the market. Number three, to dilute your risk, add lots of time, focus on the long-term.

30:05Number four, they call it phone a friend, especially when times are taxing. They suggest that someone be it your advisor, your partner, or some other trusted guide to have around to keep you anchored to your plan. Number five, focus on what you can control. These are things like savings rate, your behavior, your spending and your asset mix. And number six, keep your investments simple, cheap, and automated. So if you're looking for what I would call an active resource, a resource you keep on your shelf. I highly recommend this book. Check it out. The workbooks are excellent. With that, let's go to our conversation with the authors, Jonathan Hollow and Robin Powell.

30:45Jonathan and Robin, welcome to the Rational Reminder podcast. Thank you. Well, thank you very much for having us. Great to have you back, Robin. It's super great to welcome you back. Jonathan, great to meet you. I must say, I was asking before we started recording, I asked Jonathan how you guys met, assuming it was a part of your career. And you guys have been friends for over 40 years. That we have. And then we decided to write a book together. It's strange because we've had very different career paths. I've been a journalist and Jonathan has worked in various communications roles, but we've both developed a strong interest in financial education and helping people to do sensible things with their money.

31:29So where did you get the energy and what prompted you to write this book, which is an incredible feat? Well, that's a good question because anyone who's written a book will tell you that it's not a decision you should take lightly. It's a huge undertaking. We really wanted to do this properly. We wanted to research it thoroughly. We wanted something that was absolutely evidence-based. And so it was a huge time commitment. There are lots and lots of books out there, far too many books, let's face it, Cameron, about investing. But we just felt there was still a gap in the market for a book that was, as I say, evidence-based.

32:10But there was also accessible and written with real people in mind, with real lives and hopes and aspirations and so on, and not investing nerds. So many of these books tend to be about which stocks and funds you should buy to become rich and so on. But we really, really didn't want that. We just wanted to help people, as the title of the book implies, to fund the lives they really want to lead. The other thing that's clear from looking at the book is that you wanted it to be practical. I mean, there are workbooks in the book, which is not super common. How do you recommend readers get the most out of the book.

32:51Yes, we were very excited by the idea of attaching a workbook to the book. So you can download it from Robin's evidence-based investor website, print it out and work through it alongside the book itself. And we felt this was valuable and necessary because there are just so many great tools and calculators out there on the internet that will help you with so many different aspects of your financial life and looking at your own behavioral strengths and weaknesses and so on. But we didn't want just to have a kind of index of them back that was a complete jumble. So we put them together in a logical framework that means if you work through the workbook, you're working through the sense of each chapter of the book and trying to apply it to your own circumstances.

33:38And by the end of it, you'll have a good sense of your financial plan and where you stand and have something really strong that you could take to a regulated financial advisor if you want to use one and have a great conversation with them. In terms of getting the best out of the workbook, I mean, I think one thing I would say is it probably is helpful to have a physical copy of the book because then you can scribble on each chapter as you go through it. If you're a procrastinator, it's probably a good idea to work out how long it takes to read the book, add a couple of weekends on after that, and write down a date, pre-commit and say, by date X, I plan to have completed the workbook, having read the whole book.

34:24And then the other thing we emphasize throughout the book is the importance of talking through what you find and what you think with your partner and or with a friend. We absolutely say don't go to your friends for investment tips. But there are plenty of really useful things you can go to your friends for, like how often do you discuss with your friends how much money you think you're going to need to live on when you start working? That's something that everybody can discuss. There's very little harm that can come from that and a lot of benefit. So we recommend that people talk through the ideas and conclusions from the workbook with somebody they trust.

35:07Robin, I really like the six rules you guys highlighted and actually cover them in the intro to this conversation. Are there a couple of those rules that you'd really like to highlight? We really wanted to simplify this whole area of investing and personal finance and particularly saving for retirement. Resimplify it and we condensed it into these six rules. And they're all important, but to particularly resonate with me, first, take a slice of everyone's business. It is just a no-brainer that if we want to provide for our long-term financial prosperity, that we need to invest in companies. Equities, historically, for well over 100 years, have produced returns that are considerably in excess of bonds, of cash.

36:06And so you really need to invest in equities. And all the talk is about, well, what sort of equities? Canadian equities, UK equities, buy them all. You should really diversify across the whole world. I see it as taking a slice of global capitalism, if you like. If you're investing in shares, you're sharing in the profits of human enterprise. If you invest in bonds, you are effectively lending human entrepreneurs money to do what they want to do to make the world a better place to solve the world's problems. But either way, capitalism has proved remarkably resilient. Just look at the last century and the extraordinary setbacks that investors went through.

37:00And yet, if you stayed the course, as Jack Vogel liked to say, you kept your discipline, it rewarded you in the end. The other rule that I would highlight really is to focus on what you can control. Most of the things that we think are important are actually not particularly important in the long run. And almost everything about investing, we cannot control. We can't control the economy. We can't control the outcome of elections and referenda and so on. But we can control how much we pay to invest each month or each quarter, each year, whatever it is. And also we can control our expenses. And as you guys both know, expenses are a really important part of this story.

37:54Jonathan, can you describe the eight keywords that you set out for managing money day to day? Yeah, I certainly can. I mean, we devote a whole chapter in the book to managing money day to day because of this profound truth that when you're earning, every pound or dollar you earn has to pay not just for your current life, but some of it has got to pay for your future life. So you've got to squeeze as much as possible out of every part of your income. So we talk about the eight words are accept, divide, track, stabilize, prioritize, trim, maximize, and teach. I'm not going to go through them all one by one, but just to kind of pick out the themes in them.

38:38The first and the last, accept and teach, are really about you and your emotions and your relationship to money. You've got to accept any past mishaps or fears or mistakes you've made about money. And when you have got a system for managing your money day to day, you really should be teaching it to young people. And we may come back to that later in the conversation. And then in the middle of that, we propose a very simple system. But for some readers of the book, it's still a revelation, which is set up separate bank accounts, divide your money up into separate bank accounts so that when your paycheck comes in, you've got some money going into an account for bills, some for an account for everyday spending.

39:23We recommend a separate account for holidays because a lot of people find it difficult to manage holiday spending. And then you can track the money that's going into those. And that becomes a natural budgeting system. Once you've got that natural budgeting system up and running and your money is stabilized, you've got to think about your priorities. Can you put more into your long-term savings? Can you trim your expenditure? Can you maximize what you're getting out of your savings accounts? So all these things add up to a simple system, which doesn't require endless spreadsheets. It's really about setting money up into different bank accounts, drip feeding it in, and taking care that you know whether the amount you're drip feeding in matches what's going out of each of them each month.

40:18Good advice. In the book, Robin, you guys recommended that people continually keep up their knowledge, up to date about what's happening in the world of money. What's the best way for people to do that? Perhaps maybe I should start this answer by reiterating something I said earlier, and that's that most of the things that we think are important, particularly as far as investing is concerned, are actually not important at all. They might seem really important in the present moment, but in the great scheme of things, they're not very important. So I think you need to think very carefully about what information is really valuable.

40:58I like to make a distinction between business news and money, personal finance news. I mean, we have this catch-all term financial news, which I think is too broad. Business news is really interesting in its own right, how businesses are faring in the cost of living crisis that we've got in various countries, including ours around the world, which sectors are doing well, what are the latest friends and so on. But that's what I call business news. And it's got really nothing to do with investing. And there are lots of investment writers and marketing people at fund management companies and brokers and so on, who will try to turn those stories into investment stories.

41:44So for example, I was just reading this morning, a really ridiculous article about the spending trends of millennials and how you could actually position your portfolio to capitalize on those spending trends, which is complete baloney. I would differentiate between those two things. For personal finance and money news, how much is new? There isn't a huge amount of new stuff to say, particularly about how to invest, as you know. The most reliable newspaper, we find, this is not a plug, I'm not paid by them to say this. Jonathan, I mentioned the FT in our book. There's another very good website, money-saving expert run by a guy called Martin Lewis here in the UK.

42:34In Canada, I'm a fan of Rob Carrick in The Globe and Mail. I can't say I read that publication regularly, but most of what he writes about tends to chime with me. So look for reliable media sources. The other thing I would say is a critical thing that we go to in the book is this whole idea of tax changes. Tax changes are really important wherever you are in the world. And you need to keep abreast of what's going on. What is the most tax efficient way to invest? And the rules change all the time. It's actually really quite hard for ordinary people to stay abreast of all those changes. And I would say that's actually one of the strongest arguments for using a financial advisor.

43:21Jonathan, we talked earlier about day-to-day money management. How important do you think it is to have a regular savings habit? Well, it's very important. In my last job, I worked for a government body called the Money and Pension Service. And we did surveys of thousands of UK adults. And we asked them questions about what they believed, what they did. We set them tests about what they understood. And we looked at details of their bank accounts with their permissions. And what came out of that was that regular saving was the kind of golden lead indicator for lots of other good money behaviors.

44:01People who save regularly were more likely to understand money better, more likely to have a healthy bank account and so on and so forth. But what was really interesting about it was it wasn't about the amount. Even people who were saving really tiny amounts of money on a regular basis, for them, it was still a golden indicator. So I don't think you can say that it's just because people with a surplus of money who are able to save are generally financially well. It seemed to be more deep-rooted than that. Whether it's cause and effect was impossible to untangle with that type of survey. I mean, are people better with money because they save or is it the other way around?

44:45You can't be sure. My hunch, and it's only a hunch, is it's a bit of a two-way street and there's a sort of golden circle of behavior and reinforcement and confidence. So I would say getting into the habit of putting even a pound or a dollar away a month, as long as you stick to it, is going to increase your financial confidence. Obviously, many people can save more and they should save much more, but they shouldn't feel that they need to opt out if the amounts that they can afford are really tiny. Your comment about confidence is really interesting. I agree, we can't find causation with that type of data, but there's a lot of other literature that you may be familiar with about financial self-efficacy and financial self-confidence, and those are related to lots of positive financial behavior.

45:37So that's a really interesting comment. How do you guys think parents should teach kids about money? Well, I'm afraid the first is that they shouldn't rely on schools. We did, again, with the job I worked in, we did a lot of research into what was going on in the schools in the UK, but I was also part of an international network that was looking at best practice across the world. And a lot of schools don't teach financial education. And with the ones that do, what you've got to remember is teachers are human. And a lot of adults aren't financially literate and aren't financially confident. So that is probably going to seep out of the teachers who are actively teaching financial education, but who are not so confident or self-aware themselves.

46:25So it really is much more valuable done at home. I think one thing I would say is think of the age at which you should start talking to your child about money, then halve it. Because most people start far too late. A lot of really important money attitudes and behaviors are formed at an incredibly early age. So beginning to talk to your child about money at the age of five or six is not too early. And even before that, impulse control and self-control is such an important part of the way we manage money in later life. So there are things that happen even before that, that influence things. In terms of what the evidence showed about what parents should actually do, basically, there are three golden experiences at home that if the children were exposed to them, they were generally going to do better with money in later life.

47:22The first one was seeing and handling money from an early age. And don't forget how difficult that is in an age of digital cash, talking about money in the home, what it's worth, what it's used for, how to manage it. And then the third one was that the children who did well received money regularly and took responsibility for it. Now, with that last one, it could be pocket money, or it could just be delegating an area of the household budget to a child and saying, well, we need to get bread every week, we need to get milk every week. How about if I give you this amount of money, you can take responsibility for that.

48:06So pocket money is part of that picture. There are other ways of approaching that as well. If I could just add to that, what an amazing opportunity the current economic and global situation presents us with as far as educating children about money is concerned. I know the situation is similar in Canada. Here in the UK, We've had soaring inflation, higher inflation than pretty much anywhere in Europe, really, and prices in particular going up. Still question about whether we're going to see a recession and redundancies and so on. But people are already starting to lose their jobs. And these are all really difficult issues that Brits particularly don't particularly like talking about, but they are really important to talk about.

48:50And now is a really good time, I would say, to engage children about the value of money, the importance of work, the fact that we can't always rely on work. We have to keep building our skills and employability throughout our lives because that's at the end of the day. Our human capital is our most valuable asset of all. And just encouraging children as well to think about spending. Money doesn't grow on trees and we need to spend wisely. And yes, we need to treat ourselves, but we also need to have savings and investments. And we also need to set aside money as well for helping others less fortunate than ourselves.

49:32So it's a really, really good learning opportunity, I think. Jonathan, something that we've talked about in a few recent episodes is that financial advice theoretically has benefits, but the financial services industry has a lot of really big problems that make it a bit of a minefield for investors. How would you suggest someone go about finding what you call a first rate advisor? We made that the last chapter of our book because we wanted people to be as educated and self-aware as possible before they started to look for a financial advisor. Because really, the first thing you need to do is think about, well, what are my needs?

50:10I mean, Robin mentioned the importance of being up to date with tax advice in the UK, being qualified as a tax advisor is a different skill from being a financial advisor, and they may overlap in the same person or they may not. So you've got to think about the kind of needs you have. Obviously, in different countries, there are different regulations and there are different directories. But at the end of the day, you're going to come up with a short list of people that you think might be the right person for you. One thing I would say is in this age, here we are talking on Zoom, you can have a perfectly good financial advice consultation over Zoom.

50:51So the world is your oyster or your country is your oyster. Don't just look about for people that you might be able to meet locally. And then the other thing we suggest people do in our last chapter of our book is that they prepare what we call a death box. and I got this expression from a very good financial advisor I used in the UK. It's an index of your bank accounts, a state of the nation about all your money, your savings, your pensions. This is what our workbook helps people to put together. But the reason why that's so great to have before you go to see a financial advisor is, firstly, they're going to know that they're not going to have to put that together themselves and spend hours and hours sort of scraping people's money information together.

51:38And then the second thing is in that first meeting with them, because most of them will offer you, say, an hour's first contact for free, you can see whether they come up with some really brilliant ideas about your money circumstances. And they can't do that unless they've got your state of affairs in front of them in a really neat indexed way. Now, the reason why we call it a death box is because when you do eventually die, the people left behind will find it incredibly useful as well. And most people don't do it, or if they do, they do it a long time after they should have done. So we're very keen on encouraging people to think about that in terms of getting their affairs in order.

52:21I can't exercise enough the importance of going to your prospective financial advisor who you're interviewing with a list, a comprehensive list of questions. You really are listening hard. You can record the interview on your phone if they're happy with that, or certainly take notes. And if you're not happy with any of the answers, then you should be very skeptical about using them. What professional qualifications have you got, Mr. Advisor? What qualifications do you have over and above the minimum requirement? Financial regulators around the world actually set a very low bar for becoming a financial advisor.

53:02So what have you done over and above the bare minimum? Here in the UK, we talk about restricted advice and independent advice. And restricted advice is absolutely worth avoiding. It is essentially sales. What you're looking for is an independent advisor who has the whole cross section of investment products and so on to choose from. What is your charging model? Do you charge so-called ad valorem fees, percentage fees, or do you charge an hourly fee, or do you charge a fixed fee? There's no right or wrong way to charge. But there are certainly advisors out there who are charging far too much money.

53:46Generally speaking, paying by the hour, not many advisors will let you do that. But generally, that's the most cost efficient way to go about it. There's also fixed fees, which again, particularly those with larger portfolios can work out considerably cheaper. How much would I pay for your advice on an ongoing basis? That's another critical question. Also, just find out something about their investment philosophy. If the advisor is talking about the markets and his opinions on what's going to happen to UK shares or Canadian stocks or whatever, avoid, because nobody knows what's going to happen to those things.

54:27You really want to find out that this person knows about what Jonathan and I call evidence-based investing, that they know the shortcomings of active fund management. They know the importance of broad diversification and focusing on the long term. So those are really the key questions I suggest that everyone asks an advisor. I think it's safe to say that advisors will not like the last chapter of our book because we set out these kinds of questions. They are harsh but fair questions, but they will ruthlessly whittle down your shortlist quite quickly to the really good ones. And that's why we say, if you're going to pay for it, make sure they're first rate.

55:10The part that I liked about that chapter is you also asked or proposed some more provocative questions. What is the latest evidence on the merits of active and passive? Fine. Then what other new evidence should I be aware of? Are there recent innovations that can help me manage my money better? What mistakes have you made recently? These are provocative questions. I think to tease out more of the character perhaps of the advisor, how is the financial advice profession changing? I mean, this is something that has been alluded to. We've talked about a lot on this podcast, but these are more thought-provoking, provocative questions that someone can ask.

55:43Exactly. We've used this metaphor in the book of saying your financial advisor is a kind of financial bodyguard. They're there to complement you. So if you have particular weaknesses in your ways of managing money, you need an advisor who doesn't have those same weaknesses. So you really do have to get to know their personality and try to predict their behavior. At the end of the day, of course, it's all about trust. There are two components to that. One is getting satisfactory answers to the questions that I just suggested people ask. But the second thing is just a gut reaction to that other person.

56:24Can I really trust this person? Does he really get me? And Cameron, that's such an important point that you make about the changing nature of financial advice. It is not about investment advice anymore. Investing, of course, it's important, but it's a small part. It's a relatively small part of a much bigger picture. The most important thing is that you feel that this person is listening to you, is understanding what you're saying, will want to learn more about you and have an ongoing relationship with you and helping you on your investment journey. And at the end of the day, that's such a subjective thing.

57:06Only you can say having spoken to someone for an hour, if you really entrust that person with your wealth and your financial future. Such a great point to wrap this up. Jonathan, Robin, again, congratulations on the wonderful book and thanks so much for joining us. It's been a pleasure. Thank you very much. Thanks again to Robin and Jonathan for joining us. I thought that was pretty fun. It's also kind of fun that they've been friends for 41 years, which is crazy. It goes back to teenagers. You can kind of tell. Yeah, I thought they were colleagues that met in the biz, so to speak, but no, they'd been longtime friends and thought it was time to write a book.

57:40No, it's nice. You can tell their buddies just from the way that they, I don't know, you just tell. I know I keep mentioning this show, but Succession as a show is phenomenal. Every week, we can't wait for the new episode to come out. You've been watching any shows recently? Nope. Sorry. Yeah, I think now that summer's coming, there's going to be less television, which is not a bad thing. I want to share with everyone that our friend and a fellow financial advisor, Jeff Bernier invited me on his podcast a couple of weeks ago and it was super fun. His podcast is called The Money and Meaning Show.

58:11Jeff's an advisor in Atlanta, really nice and really thoughtful guy in this pod is definitely worth checking out if you're interested. And you and I, Ben, are going on for the first time together on someone else's pod in a couple of weeks. Fellow Canadian, Sean Maslick, who is a financial wellness advocate has invited us on his popular podcast, The Most Hated F Word. So that should be fun. I agree. I think it should be fun. Kind of having the tables turned on us. You wanted to talk about CE credits. Oh yeah. So we talked a while ago about how we were working on a project where we would turn rash reminder episodes into continuing education courses that financial advisors can take.

58:51we have completed 10 episodes as fully accredited CE credits, both for IROC and FP Canada, or it's not IROC anymore. The new self-regulatory organization, Ciro. Ciro. C-I-R-O. So we've been accredited by them and by FP Canada. They're priced for people who need CE credits. If you're a casual user, it's probably too expensive. Ideally, we'll make a product for casual users too, but right now it's just C credits, which are more expensive because we have to pay a bunch of fees to get them accredited. We want to at least recover our costs on that. We're pricing it right now at$150 for the full package of 10 episodes.

59:29One of those episodes is worth two credits. When you look at the price of C credits out there, it's not a bad price at all. I think I have to do the course. We don't get credits for doing the production of this. We don't get C credits for - We have to go take our own exams. Correct. We have to go take the CE credits ourselves. But for IROC, as any IROC advisor knows, we're coming to the end of a two-year cycle this year. There are 11 credits available in there. And one of them is an FP Canada professional responsibility credit and an IROC compliance credit, which on both sides of those are the harder ones to get.

1:00:03So our episode with Harold Geller met the accreditation bar for those types of credits there. Anyway, the courses are great. The questions are really good. Ray on our team here created the questions and I think he did a great job. The interface is nice. So we'll put the link in the show notes, but it's just learn.rationalreminder.ca. You can see the product there. And I didn't mention that for the $150, it's the existing episodes that are in there now, plus any additional episodes that we create between now and it's a year subscription for$150. We're going to release this. We're going to say this on this episode and see what happens.

1:00:37And if nobody signs up, then we're probably not going to do any more accreditations because we have to pay for them, like I mentioned earlier, for the accreditation process. But if enough people sign up and I don't exactly know what enough is, then we'll continue. We'll get back on creating additional courses. I mean, it's a test. It's an experiment. We'll see what happens, but it's out there now. We hope people subscribe. I think it is a nice, useful product, but we'll see. We'll see what happens. I had some good people reach out to me. Benjamin reached out to me from Kitchener on LinkedIn. And he has a book coming out this summer on cognitive and behavioral biases and how they affect long-term investing.

1:01:10So he's going to send us an advanced copy and hopefully it's great and love to have him on as a fellow Canadian and an author, which is nice. And on Twitter, we heard from Michael, who's got a PhD in stoicism. And after listening to our conversation and book review with Lucas two weeks ago on the book, The Obstacle is the Way, he reached out offering to be a guest. I hope to have him on sometime as well this summer. So it's really cool to hear from listeners that are engaged and has something interesting to join us about. Definitely. Meetups coming up LA September 9th, Future Proof Conference in the fall.

1:01:41If you're going, let us know and we're hosting a breakfast. Toronto Meetup September 20th, Edmonton for the IAFP Conference. Our friend Marcus offered to help set something up. So if you're going to that, drop us a note for any one of those events at info at rationalminder.ca. Unreal guests coming up, Ben. We have Burt Malakiel next week, David Blanchett in three weeks, Mayor Statman in five weeks. We have authors Nick Majuli and Jill Schlesinger coming up. Incredible lineup of guests. We've already recorded Burt Malakiel and David Blanchett. Incredible conversations. Those were incredible. We have the fun task now of probably later today after we record this, we're going to map out guests for the rest of the year.

1:02:27That should be fun. I know we've already got some very interesting names in mind. Exactly. As always, reach out to us. We're on Twitter, LinkedIn. We're on Instagram, companies on Instagram as well. Anything else, Ben? No, I think that's good. Oh, something we should highlight is the webinars that the team has been doing. So we've been doing a lot of live events lately and they're going to be posted on the PWL Capital YouTube site. So I see the first one has already been posted there that they did. I mean, it's Canadian centric on some tax updates, but that was a couple of weeks ago. It's there, but more of these events will be showing up.

1:03:01So go and hit subscribe on our YouTube channel. We'll announce any future webinars. The timing hasn't lined up where we were able to mention them on an episode before they happen, but for future webinars that we're planning on doing, we'll mention them here on the podcast and people can check them out. But the ones that we've done that, like you said, we'll post the recordings of, they've been great. Yeah. And if you follow us on Twitter or LinkedIn, we'll repost everything that comes up. the team's really got a format down where it's an active dynamic Q &A type format for a lot of these. And they love doing it in the engagement.

1:03:34There was one last night that the engagement I heard was fantastic. You get into a groove and just prompt questions using a tool they have in this presentation software. Very cool. Anything else this week? I don't think so. I think we're good. Hopefully the covered calls topic was interesting. If people thought it was or wasn't, let us know in the YouTube comments or in the Rashominder community. It's always great to hear from people about what they thought about the episode because that's something that we don't always get. And then we don't know. Was it good? Do people not comment because it was bad or because it was good or because it was mediocre?

1:04:09We just never know. So we always appreciate comments about the content, whether it was good or what resonated or what didn't. Beautiful. Thanks everybody for listening and we'll see you next week.

1:04:24PLOD nam дня Moving thered costs

From the publisher

We all have different levels of risk tolerance. But how is that risk measured for complex investment strategies like covered calls? And how can you be sure it's an accurate reflection of reality? For the first portion of today's episode, we provide a detailed breakdown of everything you need to know about covered calls and why there is no perfect model for assessing risk-adjusted returns. We examine how incorrect measures of risk can make covered calls seem more attractive, what investors need to know about covered calls, and the fees, costs, and taxes you should be considering with these types of strategies. Next, we are joined by lifelong friends and colleagues Jonathan Hollow and Robin Powell to discuss their new book How to Fund the Life You Want: What everyone needs to know about savings, pensions and investments. They describe how their shared passion for financial education motivated them to write their book, before explaining how readers can best use the accompanying workbook to identify and reach their financial goals. Robin and Jonathan then go on to share their advice on day-to-day money management, finding a trustworthy advisor, and why it's never too early to teach your child about money. Tune in for a detailed breakdown of covered calls and how to make informed decisions about your investments and finances!

Key Points From This Episode:

An introduction to the concept of covered calls. (0:02:41)
The definition of covered calls, how risk can be measured incorrectly to make covered call strategies look more attractive, and why risk can never be destroyed. (0:04:22)
A breakdown of the assets involved in covered calls and why their yields can be misleading. (0:07:00)
Why there is no perfect model for assessing risk-adjusted returns and what can be learned from looking at investors through a behavioural lens. (0:16:19)
An overview of why fees, costs, and taxes are major considerations for these types of strategies. (0:20:15)
Introducing Robin Powell, Jonathan Hollow and their new book How to Fund the Life You Want. (0:25:08)
Jonathan and Robin's long friendship, their shared interest in financial education, why they saw a need for their book, and how readers can get the most out of their workbook. (0:30:45)
Insight into the six rules that Robin and Jonathan outline in their book and the eight keywords that they set up for managing money day to day. (0:35:07)
Advice on how to keep up with finance news, including what you should pay attention to and what you can ignore. (0:40:37)
The importance of a day-to-day savings habit and suggestions on what kids should be taught about money. (0:43:20)
Advice on how to find a first-rate advisor based on your needs and what questions you need to be asking of them. (0:49:54)
How your financial advisor should act as your financial bodyguard and complement your weaknesses. (0:56:02)
Ben and Cameron share news about their next podcast appearances, Rational Reminder education courses for financial advisors, and upcoming meetups. (0:57:43)
Learn about the webinars that Ben and Cameron have been hosting and how you can sign up. (01:03:00)