Episode 291 - The Quant Winter, and is Canada Pension Plan a Scam?

28:05It stopped bleeding out. The multi-factor industry stopped bleeding, but the money hasn't come back. And it'd be interesting to see, after AQR has had some phenomenal years, but I think most people have had pretty good years, whether that starts coming back. And again, I think because of that algorithm aversion issue I talked about, it'll probably be pretty slow. But maybe that's a good thing for the performance. If it was a fundamental issue that this stuff just got overmined and overused, maybe that is a good thing. But the longer people stay away, the greater the pain, the greater the premiums for the people that either stuck to it or go in opportunistically.

28:41But I think you'll have another hype cycle, maybe caused by financial journalists like me. But I hope that people remember this as an example that there is no free lunch. You can't just say, oh, small stocks have done really well over the past century. So, ergo, they're definitely going to outperform big stocks over the next century, because there is no law of science that says it is so. Classic case of this, this was Paul Samuelson. And we talk about like in the long run, stocks always do well. Not if you're investing in stocks in Russia in 1914 or 15. Those stocks went to zero. So I think we need to be humble about what we know about these things.

29:21But as a bounce, as a component of the portfolio, some of these things do well when everything else stinks. It's really interesting that, for example, that a lot of AQR's more hedge fund-y strategies, at least, did really well in 2022 when everything else snuck out of the place. So they would say this showed that you should have not all your money in AQR's strategies. even they wouldn't say that. But should you have some of your money in some of these strategies that, yes, can kind of lag behind the broader market when everything is going well, but when things like 2022 happen, they tend to do less badly or maybe even well if it's a more hedge fund strategy.

30:01That makes sense to me. But I think if you're a sovereign wealth fund, you can look at these things a little bit more holistically. You're an ordinary investor. I'm levered along Norwegian property and in index funds. And I quite like not having to think about it from year to year at all. Yeah. Tracking errors are really hard for people. Yeah. Just literally, people will say that you'll have a look at five different value ETFs, and they'll perform radically different, subtle differences. It's just messy. And this is why, even somebody like, if you talk to Bill Sharp about this, who the guy who invented the term beater he absolutely hates the term smart beater because it implies that normal beat is dumb and this is smart it really isn't it's just marketing to be since i've been somewhat nice a do i can say that one thing that is really good at is marketing they've marketed this i mean it's partially like the cliff asses brand he's a brilliant guy but they put a lot of paper to the credit fantastically transparent including when things go badly and frankly as a financial journalists can tell you it's very rare that people talk about stuff when things go badly and i'd say asus and the aqr crew actually were better in talk about this and picking out the scabs of their wounds when things were bad than most people are when things are doing well to the credit but it's marketing i think should you put all your money in a value etf or a value strategy or even a multi-factor quant fund i'd struggle with that but some people like manchester united some people like liverpool speaking of things that are maybe not doing so well what do you think about all the hype around private credit yeah i mean it's fascinating i wrote that private credit was just like just an incredible bubble five years ago i think it was when i started getting cold calls in the united states when i lived there people were literally trying to sell me a credit a corporate credit line it won't shock you to know that journalists and journalism is not very credit worthy.

32:00If they are cold calling to try and generate supply, there is way too much demand out there. But lo and behold, it's just gone even more nuts since then. I'm getting now like cold pings on LinkedIn for people that are asking me if I would need any credit. And given everything else we can see going on in the credit world, that's pretty wild to me. Against that, I think it seems bubbly. I've written about something called the email index indicator, how much emails I get. Whatever I get the most emails about is usually the most spurious bullshit going on in the markets at any given time. For a long time, obviously, it was anything crypto.

32:37It was wild. Crypto is still annoyingly persistent in my inbox. ESG was pretty high for a period. AI recently, definitely a big index and the light flashing. But private credit is frankly the worst one. I can literally write columns saying this is stupid. And people will say, oh, you should write back my credit, private credit strategy. Against that, and it sounds very negative because I think it is crazy. There's definitely some pain already happening now because private credit is floating rate. So as interest rates have gone up, it's increased. And that's why the returns probably look okay so far.

33:13It's not like fixed income that goes down in value when interest rates goes up. Private credit yields better when interest rates go up to a point when that company is basically just blown apart. If you borrowed at 500 basis points, 5 % above LIBOR, it was LIBOR five years ago, today you're paying 10%. All of these companies are not going to be able to stomach that. And also these companies are not very asset rich. So private credit funds will say that we do lots of credit work, we have bespoke loan docs and all sorts of things, which I completely agree on that they do work for these things. But the docs won't help you if this company just goes belly over.

33:49And that is already starting, and it's probably getting it quite gruesome. And there's still too much money chasing too little. That said, I think the broader trend is really cool and kind of interesting. I actually think that more lending should be done by the markets. And that doesn't mean that that is a million times better. Essentially, a loan is risk, and the saying goes, you can't destroy it. It just changes its form. But actually, I would rather that risk of that corporate loan being in the market or an investment fund, an unlevered usually, or modestly levered investment fund, than in a bank that even after 2008 is still heavily levered and is holding my deposits, essentially.

34:28I want that risk in the markets, in the capital markets. And private credit, bond market is really good at big, chunky stuff. If you're IBM, you don't give a crap about private credit. You can issue$10 billion tomorrow. No problem. The bond market, even after Lehman Brothers went bust. IBM and some of these other big companies, it's almost as if signed a phrase to show that they could. They did issue 10-year bonds. And they paid 5%, 6%, 7%, 8%, incredible prices. But they could do it, even weeks after Lehman went baby up. But smaller companies have a lot harder time because banks can't or won't lend as much to them.

35:08So can, in theory, private credit fill that void? And that's what we've seen so far. I think a lot of the talk of this is mostly, again, marketing. In reality, if you look at the private credit world as it exists today, it seems overwhelmingly to be private credit funds scratching the backs of private equity funds. It's overwhelmingly supplanting leverage loans and high-yield bonds as a component of the broader leverage finance machine. So it's basically just helping other private equity funds. They're lending to each other's deals. It's fine if sometimes a little bit iffy. But in an ideal world, this phenomenon would go through a credit cycle or two, and maybe it might evolve into something that is genuinely a new valuable addition to the financial system, especially in the United States, where smaller companies that don't need to borrow, because the bond market won't take a$50 million bond anymore.

36:02They want$200 million at least, ideally sort of half a billion at a time. They want the liquidity. But if people are willing to accept the liquidity of private credit, suddenly you're opening up a lot of companies that normally can't go to the bond market and might be disenfranchised by the big banks can suddenly have raised capital. And that'd be, I think, a positive thing. So that's a very long answer to say, I think it's an incredible bubble, but out of bubbles, sometimes positive things do emerge. That is true. The theoretical future state, I agree, does sound interesting. As it exists now, though, who do you think stands to benefit most from private credit?

36:44Well, the private credit funds. I mean, these are incredibly fee-rich products. Some of the asset management, you can see there's a reason why a Blackstone is worth more than Goldman Sachs now. It's worth more than BlackRock, even. The rest of it is almost 10 times the assets because these are very expensive products. but the saying in the industry, there will be differentiation. The one thing that scares me as a journalist, when I've talked to people in this world, is that most of them will admit, say, look, yes, things are going crazy. People are doing dumb things and you'll come back to haunt them.

37:20But we're not doing dumb things. It's everybody else. And that's what everybody's saying. Everybody's saying that everybody else is doing dumb, but we are remaining super disciplined, conservative. And this is when real credit work, due diligence, legal finessing that will really make the difference we will differentiate ourselves and i'm sure some of them will i have no clue who it will be but there are some of the bigger firms that you can see have more experience with these things but there'll be some accidents the problem is for a journal like me is we won't see them i mean these are private credits it's really annoying trying to find out even when there's extending and pretending going on which I gather there is a lot of finding those concrete, juicy examples you can splash on the front page of the FT is just very hard.

38:07If you're a rubbernecker like me, you like looking at accidents, financial accidents. The problem with private markets is that they happen mostly in the shadows. I also agree with the email index. This is the one that's, like you said, it's crazy how much emails I get and how I went to a couple of conferences last year. And the number of times I was approached to, you got to look at our private credit fund. It's like, man, how many of these things are there? I think people know it's crazy, which makes me almost wonder why are you still pushing this? And the only example I could think of was private credit is a legit asset class that I actually hope will grow and become more important because I think it has potentially a huge role to play.

38:48But it reminds me a little bit about the worst of the crypto excesses. That won't probably shock you by saying I'm not a big believer in magic beans. I once wrote a column saying that crypto was like an Albanian Ponzi scheme, because there's some really fascinating parallels between this massive outbreak of Ponzi schemes in Albania after the fall of the Iron Wall, the Iron Curtain, and that basically just ruined the country. It caused a civil war. It's just incredibly dramatic. But how something that was entirely outside the financial system wormed its way in and cause carnage, wrecked political accountability, very sensitive time, and just cause damage.

39:29And this was quite incendiary of me writing this. I still got 100 emails saying, oh, you should write about my coin because my coin is super good. And this is really good. And my blockchain project is the best in the world. It's going to revolutionize whatever. And people don't even read what you're writing. They just read that you're writing about it. You should get in touch. Private credit has been a little bit like that. Even when I write mean things, people tend to say, oh, you should talk to my people about this, which is good. But I do want to talk to these people about it. It's going to be fascinating to see how it plays out.

40:01The only worry I have is that I like to be publicly proven right. And maybe with private credit, we'll really only know in five years time when we see the actual investment returns, the net IRRs of some of these funds when they start trickling out from institutional investors. speaking of fascinating can you share with our audience what you're working on now for the people who can see me i've got a very rustic background because i've locked myself into a wood log cabin outside oslo we don't have running water but it's because i can spend this solid amount of time working on a book on the history of the bond market so i'm a bit of a history buff i love history and i like especially when you can use sort of an unlikely hero to tell wider story about how the world is the way it is.

40:47So my first book was about index funds and really tried to write about the evolution of investment management and markets over 100 years. But I love bonds. It was my first job as a financial journalist was covering the bond market. And as Cat Stevens sang, the first cut is the deepest. So I'm now writing a thousand year history of the bond market and how it shaped the world that we live in today. And I was going going to continue to shape it because for the first time in history, bonds are actually half of all global credit. So for the first time, they've beaten back bank loans since they both basically emerged in the Renaissance Italy a thousand years ago almost.

41:26That's why I'm going unshaven and unshowered for a few days to break the back of that project. Well, we look forward to that book. And if it's as good as trillions, which we absolutely loved and our audience loved it, it'll be a great read. So for sure, we'll have you back when that comes out. Robin, great to see you. No, thanks so much for having me on.

41:49All right, Mark McGrath, welcome back to the Rational. Do I even say welcome anymore? You're kind of just a fixture. I know. Well, it's been a while over the holidays and in Mexico visiting in-laws. So it's been a while since we've done one of these. Plus our schedule has been kind of off so far this year with guests and whatnot. So we're kind of getting back to the normal group now. So what you got? So I'm going to talk about the Canadian pension plan today, CPP. I'm going to try not to get too far into the weeds on this. It's an incredibly complex topic. There's a ton of math involved. I don't want to get too deep into that.

42:21I'll explain it still at a high level. But I think what I want to get into is why I think at least CPP is a huge benefit for many, many Canadians. And maybe just talk about some of the common criticisms that I hear from opponents of it and address those. So I posted something on Twitter the other day. about CPP, and it got quite a bit of traction and tons of comments. And there was a lot of comments in there about how it's theft, and the government's stealing our money, and you should just be able to opt out of CPP for some if they choose to, and invest the money themselves however they want, and all these things.

42:54And I just don't agree with that take, and I'm going to explain why in a minute. Ben, I know you've been thinking a lot about CPP lately, so if you have anything to add or to correct me on, by all means, just jump in. So CPP, yeah, so it started in the mid-60s, I think it was 1966, and it was primarily designed to address the economic instability of retirees. I think OAS had been around for a long, long time by then, but that was intended to be just a band-aid solution until something more structured could come along, and so CBP was launched. And the way it's designed is it's designed to replace 25 % of your earnings up to certain earnings limits.

43:27And there's an enhancement that's just come out, and we'll chat a bit about that as well. But what they call the YMPE, the Year's Maximum Pensional Earnings, is a number that's set every year and it's indexed to inflation. And so your income up to that level is intended to be replaced at 25 % replacement rate by CPP. So it's not meant to fund your entire retirement. It's significantly lower than social security in the US, for example. The YMPE is not necessarily indexed to CPI. The yearly maximum pensionable earnings is based on wages, which don't, historically at least, have not grown in lockstep with inflation.

43:59So So like you said, I have been looking at this recently. Going back to 1990, the yearly maximum pensionable earnings has grown about 50 basis points annualized faster than CPI. And that actually has some really interesting implications for if you look at the internal rate of return, how good of a deal is CPP. The fact that the benefit grows with the YMPE, it's additive to how interesting CPP is. Once you start taking the benefit, it's indexed to CPI. but your contributions and your starting, like when you start taking CPP in the first year is all based on YMP. So when you talk about like the 25 % replacement rate, that's based on YMP.

44:41And so it changes at a rate slightly different from price inflation. From CPI. That's interesting. Okay. I knew that it was indexed to wage inflation, but I didn't know historically what the difference was in the actual rates between the two. So that's really fascinating. So it's a contributory plan. So people, you have to contribute. now 5.95 % of your earnings between$3 ,500. So that first$3 ,500 a year that you earn is exempt from CPP contributions. And then up to that first ceiling, which now is I think 68 ,500. So you contribute 5.95 % of your earnings within that band. And it works out to about$3 ,860, I think right now.

45:20And of course, that'll increase over time. If you're self-employed, you make both contributions. So employers also have to make the same contributions at the same rate that 5.95%. If you're self-employed, it feels like you're making double the contribution because you're seeing that coming out as a payroll tax. I'd argue that regardless for every Canadian, that 11.9 % is being contributed. So if I'm an employee, like I am at PWL, PWL is contributing that 5.95 % on my behalf and it forms part of my total compensation. And this is actually a question I had for you, Cameron, because I got a lot of pushback from business owners saying, well, no, I have to make double the contributions.

45:54And my rebuttal to that has always been, well, no, your total compensation as an employee reflects all the benefits that you get and any pensions you have as well as CPP contributions. So Cameron, when you think about compensation for employees, presumably you factor in that there's a cost of CPP. We call it DAS, deductions at source. We include that whole envelope in compensation at a high level, absolutely have to, because there's also health tax that you pay and other things you have to pay for sure. The idea that business owners pay double into CPP is always something that drives me crazy.

46:26In equilibrium, thinking that money didn't come out of nowhere. I found one empirical paper on this that asked that question, who bears the cost of social benefits? I don't remember the specific details, but it varied by country. And it was something like around 90%, I think, of social benefit costs are borne by employees, like out of wages they would have otherwise earned. Exactly. Because presumably if the employer didn't have to contribute to CPP, then they'd have additional cash left over for compensation in other ways. And it would equalize in some sense. So that's how I think about it. I totally get the feeling that you're doubling the contribution that you have to pay more.

47:02But I just don't think that's true in practice if you frame it that way. So you contribute and they calculate your contributory period as the ages between 18 and when you take the pension, which is traditionally at 65. But you can delay it, you can take it early. So from 18 until you take that pension, that's your contributory period. and they drop out certain years from it to make it a little bit easier on you. So they drop out 17 % of your lowest income years. There's additional dropouts for those who had lower income to raise children up to seven years per child. And then there's a disability dropout provision as well.

47:34So if you're on the CPP disability, if you qualified for the CPP disability benefits, those years are also dropped out from the calculation. So the way this all comes out is your actual contributory years between 18 and let's say 65 are 39 or lower. So 39 because you drop out eight years as the general dropout, that's 17%. And if you raised kids or were on disability, then your total contribution period is less. So at a high level, that's how it works. You can take it at 65. If you take it early, there's a penalty of, I think, 0.7, no, 0.6 % per month to take it early, if I'm not mistaken. And if you delay it, there's a benefit of 0.7 % per month.

48:10So there's an incentive there to take it at 65 or later. and because it's indexed to CPI, by delaying it past 65, you get that higher starting base and then it compounds it at a rate of CPI. So usually, if you're projecting a long enough lifespan, then delaying it usually can make sense mathematically, but we don't know. So that's generally how it works. The payments that you get right now, I think the maximum CPP payment is$13.64 per month. As some commenters said, it's not even enough to pay my rent. I was like, well, that's true, but imagine if you didn't have it, it'd be a lot harder to pay your rent if you didn't have that money coming in.

48:43It's real money. We've all dealt with retirees. I've never met a retiree who didn't love their CPP. It's that steady inflation-adjusted income. It takes reliance off of other sources of risky assets like a portfolio. And when markets are down, they know they're getting that steady income check. And all the risk has been transferred to CPP. And in my experience, retirees love it. So now for business owners, you only contribute to CPP if you've paid yourself a salary. I was actually talking to two accountants the other day about this. And they had a client primarily, not primarily, exclusively on a dividend compensation model.

49:11So if you're a business owner and you have a corporation, you can compensate yourself by paying yourself a salary or by paying yourself dividends. And if you pay dividends, it's considered investment income. There's no CPP deduction for dividends. So what a lot of accountants, in my experience, will recommend is you just pay dividends and then that way you don't have to contribute to CPP. You save that money instead and do something else with it. And there's a lot of downside to that in my experience. One, you don't get CPP. And I just think CPP is great. So yeah, you don't get it. But two, a lot of people don't do a great job of taking those savings and actually investing them appropriately over long periods of time and actually compounding that savings into a sum that would be greater than what they would receive by CPP over the long run.

49:49And I think for me, the biggest one is you get no RRSP room if you do that. So if you only pay dividends, there's no RRSP room given to you. You have to pay salary to get that. And so what often ends up happening is you have corporations that don't have individuals that can contribute to an RRSP and they haven't contributed to CPP. and you end up with what I consider is a bit of a concentration risk. You end up with too much in the corporation and not enough diversification of other sources of retirement income like RSP income and CPP. So I'm a big fan of it from that perspective. But I think the biggest thing that I realized while I was reading about this over the past couple of days is that this concept of being able to opt out and save the money and invest it yourself, I think is a very dangerous suggestion.

50:28I'm sure there's people out there who could just absolutely nail this and do it properly and they would be way better ahead. But in looking at some stats, from StatsCan and a couple of surveys over the past couple of days, Canadians are not doing a great job on average of preparing for retirement themselves. And CPP as a form of forced savings, for a lot of people, it's going to save them. So I just want to talk about some of these stats, which blew my mind. StatsCan said that the average Canadian saves 6 % of their disposable income per year. So that's after-tax disposable income. They're only saving 6%.

51:02And that's from that's Canada. So that's a very, very low savings rate. So people are already, and the argument can be made, well, we can't save as much because we have to make these CPP contributions. Sure, but on average, people are not saving a lot as it is. There was actually a study that came out today from the National Institute of Aging. And it said only 33 % of Canadians over the age of 50 say that their income is high enough to let them save at all. Over 50, only a third say their income is high enough to let them save. So people are not doing a great job of saving. And this is, to be clear, I'm not blaming anybody.

51:35I get it. Life is expensive. Housing costs here are expensive. Maybe wages aren't as high as you'd like them to be. But the reality is people have trouble saving for a variety of reasons. And 70 % of that same age group, Canadians over 50, said that they are afraid of running out of money in retirement. So these are big numbers. CPP works in favor of people who are in those situations. It's a guaranteed indexed pension for life. Doesn't matter if you live to be 120 years old, that money is going to keep coming in. And if Canadians have trouble saving already, this forced savings program to me is going to save a lot of people.

52:08A couple more interesting stats. Deloitte did a survey and found that only 14 % of near retirees are expected to be comfortable in retirement. 14%. So the rest are expecting a drop in their lifestyle of varying degrees when they retire. So very few people are going to be able to continue the same lifestyle in retirement as they've become accustomed to during their working years. Oh, this one is interesting. I found this today. There's a lot of reasons for this, I'm sure, but the median net worth of a family that has an employer-sponsored pension, we're not talking CPP, this is your classic defined benefit plan from an employer.

52:41The median net worth of families that have a defined benefit plan was seven times higher than families that don't have one. Now, there's some causation correlation issues there, I'm sure, as well. Maybe higher income jobs have better benefits and more pensions, but I thought it was very interesting stuff. That's basically counting the present value of that pension, I guess, the commuted value, perhaps? Yes, exactly. So I think the point there being that those who don't have a pension, all things held equal, are not doing a good job. Because so much of this is behavioral, and we know from talking to clients and people all the time about money, that people have a tough time saving adequately.

53:15And these stats, I think, bear that out, right? So with all that in mind, I think CPV is a great thing. I think, yes, there's absolutely some people who would do better on their own by not having to contribute. I saw a lot of comments saying, well, the government should put it in an account where you get to control the investment options. And I just know enough people who just blow that up entirely by buying all sorts of irrational stuff. So you'd have to put very serious restrictions, I think, on the investment options that are available. The enhanced CPP, the new contribution plan, is going to, after 40 years, the maximum CPP benefit is going to go up by over 50%.

53:50And so I think that's very meaningful. You won't get that benefit until the year 2065 or later because it's being phased in over 40 years. But the improvements to the plan are going to replace up to 33 % of earnings instead of 25%. And I just think that's great. I think that's it. At the end of the day, it's a very controversial topic. It's a very complex topic. I think Canadians aren't doing a great job for a variety of reasons, not necessarily their own fault, but they're having trouble saving for retirement. CPPX is a very good filler for maintaining a certain basic minimum level of index retirement income.

54:23That enhancement is the base CPP is 4.95 % of your earnings on both the employer and employee sides. And then there's the initial enhancement, which is the extra 1%. So like you mentioned earlier, the contribution is 5.95%. Some of that is base CPP. Some of that is the additional CPP. And then now there's another additional CPP. There's another contribution ceiling, which is this year, 2024, 7 % above the yearly maximum pensionable earnings. And then in 2025, when it's fully phased in, it'll be 14 % above the YMPE. We're making now 4 % on both sides. So 8 % total of the additional ceiling to get to that 33 % replacement rate.

55:06That's exactly right. So the 5.95 % contribution goes up to that first ceiling. Then there's a second range, a second ceiling. And income between that range, you're contributing 4 % instead of 5.95%. That's primarily how they're able to increase the benefit to 33 % in the future. Yeah, there's tons of interesting stuff in there too. Our friend and fellow advisor, Aravind, has done a bunch of work on this. I'm working on something with him on it now that the base CPP results in a tax credit, which reduces tax at the lowest marginal tax rate. And then the additional CPP results in tax deductions.

55:41So that makes the cost of additional CPP lower for people in higher marginal tax brackets because it's a deduction rather than a credit. Anyway, so this is a really interesting curve of the total cost of contributing to CPP, depending on what your income is. And then likewise, for the employer side and the corporation, the cost of CPP also depends on what your corporate tax rate is, whether you're a small business or not. Like you said earlier, Mark, there's so many different layers of nuance and complexity to CPP. I think based on the work that I'm doing right now, even from the perspective of investment return, is this a good investment?

56:16I think depending on how long you live, it can look very, very attractive from the perspective of IRRs, from internal rate of return. Also, it's the only way to get an inflation indexed annuity in Canada. You can buy an annuity and purchase indexing at a fixed rate. So you can buy an indexed annuity at 2%, which you pay a lot for, and you get a 2 % increase to your annual annuity payments. But that's not inflation indexing. If inflation's 8%, your 2 % indexing doesn't save you, whereas CPP is indexed to CPI. So if we get runaway inflation, which is the biggest risk for retirees. CPP is designed to keep pace with that.

56:56And you just can't get that asset elsewhere. CPP is the theoretical risk-free asset and you cannot get it anywhere else. So why anybody would avoid paying into it is just beyond me. Totally. And I think most people, most opponents of it, they complain about the return that they get on the contributions, but the return is not calculable until after you've died. You have no idea what the return is going to be because you don't know how long you're going to live. There's also disability benefits. There's child benefits too. The CPP contributor passes away and has a child under the age of 18 or 18 to 25 if they're at university.

57:33There's benefits there. There's a small death benefit. There's a survivor benefit as well. So you can pass part of that CPP onto a surviving spouse. So the IRR calculations just are so difficult because the variables are so far out in the future for most people and you just don't know what path it's going to take. To your point, Ben, I just think it's not even an apples to apples comparison to compare something like CPP to an investment portfolio that has risky assets, volatile returns, sequence of returns, risk, variable withdrawals. Like it's just not the same animal at all. The happiest client I ever had did have an indexed pension and he had nothing else.

58:05And this is a private pension, but he was in his eighties when I started working with him. And at that point, his monthly pension was over $8 ,000 a month and he had zero portfolio assets. And he just had that and his house. And he was the happiest client I ever had in my entire history as being an advisor because he just didn't care about anything at all because that income was coming in and he was just happy as a clam, didn't care about the markets, volatility, risk, headline news, none of that stuff. Just got his pension, got an index and loved it. Yeah. So I think CPP is incredible for all those same reasons.

58:35You mentioned how long you live. You don't know what your rate of return is going to be until you die, which is true. The other piece that matters is what inflation experiences over your lifetime. Because if you live long and inflation is high, the other thing we got this when Scott Sederberg has been on Rush Reminder and we've talked about his work, domestic stocks don't do well when domestic inflation is high. International stocks give you a little bit of protection against domestic inflation, but CPP is a risk-free asset in real terms. If you get high domestic inflation and you have a Canadian home bias, like most Canadians do in their portfolios, Canadian stocks probably aren't going to do great over that period.

59:10Whereas your Canada pension plan benefit, assuming the government stays solvent, even beyond that, CPPs and independent assets are managed by an independent body. I don't understand why anybody would be opposed to having that asset. It's inversely correlated in that sense, or negatively correlated when inflation is high to domestic stocks. So you've got this other asset that's actually increasing in value as your monthly payments go up while stocks go down. I think the other thing that people don't like about it is the death benefit is very small. I think it's$2 ,500. And I totally get that. People are saying, I paid into it my whole life, and if I die at 64, my heirs get nothing.

59:40And that's true, but I mean, the actuaries know that. The CPP math is based on exactly that. And if you wanted some sort of additional death benefit, the contributions would have to go up so significantly that I think there'd be no appetite for it anyway. You mentioned Arav and Ben earlier. We should give a shout out to the podcast episode that he did with our mutual friend, Jason Pereira, called The True Cause of CPP. That was on Jason's podcast, Financial Planning for Canadian Business Owners. It came out last week. Good episode. If someone wants to dig into the real details and they get pretty passionate about the math on this, of course, knowing those guys.

1:00:16The reason that I've been digging into this is that we're doing an episode on, for MoneyScope, we're doing an episode on how to compensate yourself from your corporation. And so, of course, CPP is a big part of that because it plays into the decision on whether you should take salary or dividends. So I've been talking to Ervin a lot and then I've been modeling that decision. So do you pay yourself a salary and pay into CPP or do you pay yourself a dividend, which lets you leave some money in your corporation. Because instead of paying into CPP, you've got this extra bit of money left over, which some people view as a tax, but as we've just talked about, it's not.

1:00:48You're paying into a valuable pension. If you compare taking a salary and paying into CPP to paying yourself dividends and leaving a little bit in the corporation and investing that, how do those things compare? So far, preliminary findings, CPP looks very attractive for a business owner relative to keeping money in the corporation to invest. That's interesting. That's going to come out in the paper that you're working on with Aravind? That's what the paper that we're going to work on is going to be, yeah. I look forward to that. And Aravind loves CPP. So if listeners know him, reach out to him on Twitter or LinkedIn.

1:01:18He'll talk your face off about CPP all day long. Like I said, it's a complex topic, but I think maybe we leave it there for today. And if listeners have questions or want to reach out to me, they can find me on Twitter or look me up and happy to chat about it as well. Great to see you. Thanks, Mark. Awesome. Likewise. Okay, guys. See you soon.

1:01:37Great to have Mark back on. I thought that was a great conversation. I really like when we just riff on cool stuff and to hear stuff you're working on and whatnot. But I think that conversation does link to one of our earlier guests on the podcast. And I remember the day I was actually in New York City and you had texted me saying, we're just kind of getting in the rhythm of getting guests on the show. And I remember you saying to me, who are we going to get for a guest next? And I just for some reason thought of Alexander McQueen. So she joined us on episode 59. And Alexandra is a terrific professional in our space and very serious person as well in our space.

1:02:15And she's currently the vice president of learning, development, and professional practice and head of the FP Canada Institute at FP Canada, which is very cool. I knew her from the book Pensionize Your Nest Egg, which she wrote with another past guest, Professor Moshe Malefsky. He was on with us, episode 122. And just thinking about the book inspired me to reach out, so she agreed to come on early. So the episode was called Financial Economics and Annuities, Rational Planning for Retirement. And it was a fantastic episode about annuities. We talked about the distinction between financial economics and financial planning, financial economics being a branch of finance that is about the efficient and rational use of resources and conditions of uncertainty.

1:03:05And Alexandra highlighted that while this might sound like financial planning, planning is not advanced to this level of an academic discipline yet. And this goes the route of any discussion that you can have about annuities. While it might be sensible and rational, and we talked at length about this, and you and I live this often with clients, often it's very hard to actually get people to implement from a behavioral standpoint an annuity. for all kinds of reasons. And Alexandra talked about the rules of thumb in our industry that often discourage people from doing or implementing things like annuities.

1:03:38She talked a lot about product allocation and how that's different from asset allocation. Annuities can be a very important product to consider in retirement income planning. They're very efficient, they're very cheap, and in Canada, a popular one is the single premium income annuity. It's worth noting that a simple annuity in Canada is very different than the complex ones in the US. So she also highlighted that. So she went back to basics explaining what an annuity is, how they work, and how they can really improve, to Mark's point earlier, how they can really improve your retirement income situation.

1:04:10And she also talks about the profile of a person that might be best suited for an annuity. So if you're interested at all in this or anywhere near retirement, I would also highlight with higher interest rates now than they were five years ago when Alexandra was with us, I think it's worth checking out our conversation with Alexander McQueen back on episode 59, which I know, Ben, you remember that episode pretty well. All right, let's go to the after show. We talked earlier about Leadflow. It's cool how that's all been working out. It's been super fun to see people just automatically just coming into orbit, which is really fun to have that experience.

1:04:47It's been incredible to see. Okay, so you got to give us an update. What's going on with the money scope? You're up to 33 ,000 downloads already. 2 ,000 subscribers? Well, this is all news to me. I knew we were over 2 ,000 subscribers. I didn't know the total audio downloads. That's pretty good. And it was ranked, still ranked really well, still ranked above this podcast in the Apple rankings, which is cool to see. And you were number one for quite a while, you and Mark. Yeah, it hung on for a long time. The top spot on investing and it was up super high in business. It's still ranking well on the Apple podcast charts, whatever that's worth.

1:05:23you're gonna be too humble to promote it i'm gonna promote it i think it's fantastic i think you and mark the chemistry is fantastic it is a financial literacy course that is so beautifully done like building blocks that the way you just it compounds at such a nice rate of being straightforward but in depth on topics and you're not rushing you just you give it the proper amount of time and i know you guys are reading notes but you can't tell it's really good so if anyone out there is interested in going through a systematic financial literacy course, I highly recommend you check it out. Speaking of checking things out, for the month of January, we made available with our friends at Dimensional the Errol Morris movie, Tune Out the Noise.

1:06:07That site was visited 17 ,000 times. The movie was watched over 6 ,000 times, which I didn't know what to expect but i think it kind of blew away people's expectations which is pretty cool speaking of movies you and i talked about griselda blanco anyone hasn't seen it yet it's what six episode series on netflix it's wild yeah we haven't finished watching it but we watched the first three episodes i think but i know her i don't know if i listened to a podcast about it or i knew who she was though before we started watching the show so it's that show's well done I was talking to Angelica, so she also recommended Cocaine Cowboys.

1:06:44And I also like Queen of the South, which I don't know what platform is on, but that's, we're checking out. Five degrees in Ottawa today, not helping your ski season. Okay. It's one degree where I am. I haven't skied this year. My kids have skied a bunch of times. Oh, I thought you went. No, I've been taking the kids. Oh, you take them. It's a bit tricky right now because two of our kids are on the lift. One of them is just now going the lift. So like the next time we go skiing, I will probably have to ski because the five-year-old needs someone to go on the lift with her and she doesn't want to go on the magic carpet anymore because she's tried the lift.

1:07:19But then our youngest one is just on the magic carpet. So it's been hard for my wife and I to ourselves ski because we're kind of supervising all these different levels of skiing skill. But now that our five-year-old is on the lift, I'll be able to ski next time and go with her if it gets cold enough. I don't know if the ski will be open or it'd probably be pretty icy. I don't know. I haven't checked it out. I haven't just skied it all this winter either, but it's not been a great winter for it. I finished at your recommendation as well as Morgan Housel's recommendation. I finished this morning the book, Fortune's Children, The Fall of the House of Vanderbilt.

1:07:54And I know you talked about it very early on in the podcast. What a book, what a story. The wealth that they created early on and completely blew it. And this is a 600-page book. It is so interesting to see. And you follow along the family tree, you get to know the names. And then it ends with the story of Gloria Vanderbilt, who is Anderson Cooper's mother. And so I knew about the Anderson Cooper side of it, but I didn't know the story of the wealth. You just assume Vanderbilt, there's wealth. It's like, wow, not true by the time you got through the family tree. So I highly recommend that book if you're interested.

1:08:29I listened to that on audiobook years ago, like you said, we talked about it earlier on the podcast. It's an incredible story. The wealth they had in the late 1800s, it was unbelievable. And now like you read all the mansions they had on Fifth Avenue, everything is gone. All that's left from then and it's been renovated, it's Grand Central Station. All the cottages, everything else has changed and gone. Speaking of reading, you and I talked about this as well. I decided to chill a bit on reading with a little wacko last year, the number of books. You just realize that it's just like this cascading a waterfall of information.

1:09:01It becomes a cognitive burden to try to optimize what you can do with all this information. So I'm sticking with the 24 and 24, which is still a lot of books. Shane Parrish's Farnham Street blog, I'm pretty sure it started out as him reading just like a ton of books and writing about them or summarizing them or whatever. And then he realized exactly what you just said, that you can't read that many books and actually retain anything and actually change how you think. And so he started reading fewer books, but reading them more deliberately. And I think he has a blog post on the FireMixBlog about like how to read a book in a way that you retain the information.

1:09:35And then you also realize that, yeah, you read whatever 60 books, but it's probably 6 ,000 books published last year. So you're still only ever scratching the surface. And then when you start planning out the year and looking at who's coming on for guests and those books. The 24 slots fill up pretty quick and there's a few books I want to go back and reread, but it's just been more chilled about it. Speaking of reading, the 24 and 24 reading challenge is on this year. So it's our third year doing this challenge. So if you want to register, go to rationalreminder.ca and there's a tab at the top 24 and 24, very easy to join.

1:10:09Set up your Readwise account. You can see what other people are reading and it'll track your books that you've read. And there's book reviews in there too that you can post and you can check out. So far, we have 121 people registered for this year's challenge. Already, there's been 80 active readers that have read 202 books. Get this, Ben, since the contest started with the 22 and 22, 7 ,481 books read. That's a lot of books. Okay. You want to rip through some of these reviews? Yeah, wow. I guess because we haven't done an episode where we've had an after show for a while, there are a lot of new reviews.

1:10:45As we have always done, we will read them. As awkward as that is. Remember there was a time when we were going to stop reading them and then we decided to just keep reading them. We've never gotten the feedback that people don't like hearing us read the reviews. We've never gotten the feedback that people like it either. There's only three people here, so I think we're good. That's a good point. Michael from Chicago says, best finance podcast available. This podcast is a masterclass in how to think about investing, but beyond that, it's a masterclass in how to apply the scientific method, how to learn from those who don't share your views and how to clearly present technical information.

1:11:21Ben and Cameron are open-minded, polite, empathetic, willing to learn from those who don't share their views and open to changing their views in the face of new evidence. It's an oasis of civility in today's polarized hot take social media culture. It's a very nice review. We are polite, yes. Deeplo John from the States said, best personal finance podcast out there. Hey, Ben and Cameron, I've been a loyal listener since day one and I really admire the show's evolution over that time. The rigor and academic basis is crucial, but I've appreciated your open-minded approach to disparate sources and evolution of low-cost index funds or bust approach.

1:11:56As a DIY investor, recognize Ben's work on dividends. I still value dividends for the ability to grow a small portion over time through a drip would welcome your views on drips for investors starting with small initial investments and holding for the long term. You're no better off with a drip than you are with an asset that never paid the dividend in the first place. But you know what? If it's working for you, John, I think that that is perfectly fine. Dividends are one of those things that they're super fun to argue about because people get so upset about it, but it doesn't really matter. If you want to have a dividend-focused portfolio, okay, so you've got maybe a value and a profitability tilt.

1:12:30Maybe you're a little bit less diversified than could alternatively be. But if it's going to help you stick with the portfolio, I don't care. People just get so upset. It's always a fun topic to talk about. I was actually looking around fund returns versus investor returns, which is a data point that you can get out of some of the software that I have. I'm torn on whether I should say this or not, because people are going to pile on it. But we've talked about on past podcast episodes, the return gap between investor returns and fund returns. The return gaps for dividend funds are tiny. If you want an argument for dividend investing, it is that it improves investor behavior.

1:13:04I should formalize that. It'd be interesting research to show for what purpose, I don't know. It'll encourage people to have suboptimal portfolios for behavioral reasons, I guess. One more off-track comment. We were having a conversation a while ago. You had met someone and you had talked to them about how they had met someone else who they discovered was also a listener of our podcast. And then those two people bonded over the fact that they were both podcast listeners. And for some reason that it's hard to comprehend the impact that us sitting here talking has on other people. It's something that I still struggle with.

1:13:37And people will tell me occasionally how impactful whatever podcast has been and stuff. I always have trouble internalizing that and really grasping it. That story you told me about other people completely separate from us in another country connecting over us talking. I don't know. That just made the impact kind of hit home for me. They said at their work, they all listen to the podcast at work. Because it's still just me and you sitting here talking on Zoom. Anyway, Clint from the United States of America says that this is his favorite podcast. I started listening to Roush Remind around two years ago and recently made my way through all the episodes to date.

1:14:14I've learned so much on topics ranging from personal finance and investing to finding and funding a good life. The Ben and Cameron only episodes are always interesting and insightful, but when they do bring on their A-list guests, especially appreciate the interviewing style they employ. They ask pointed good questions rather than allow their guests to answer with little to no interruptions. Rash Reminder also inspired me to become a more avid reader through its reading challenges, along with their book summaries slash recaps on the show. I look forward to the new episode each week. Keep up the good work.

1:14:42Yeah, we've had some feedback lately that we should or have the opportunity to push back sometimes or some follow-up questions that perhaps could have been better in their eyes. It's always a balancing act and we never profess to be professional interviewers either. We get that comment when someone disagrees with the guests or whatever view. I disagree with their view, you should have pushed back. Maybe I didn't disagree. How about that? But it's also the questions are structured in such a way to help tell a story. So we try not to mix it up too much and kind of lose the flow of where the structure is intended to take us.

1:15:17It's all quite deliberate. I mean, we're talking about financial economics and psychology. You could get into a mucky debate with anybody on anything that they say. There's no point. 8009 from the States, by far the best personal finance podcast. Ben and Cameron do an incredible job presenting research-based insights and frameworks in an approachable way. I've learned so much from listening to them over the last year and really love how they spotlight short summaries of past episodes to help listeners dig into their back catalog. The guests are terrific in the discussions with listeners on their website is engaging in educational.

1:15:51Look forward to the next episode every week. Scott from Elora, Ontario says, tuning out the noise. Cameron and Ben, thank you so much for the time, effort, and passion you put into all that you do. I just watched tuning out the noise and it reinforced again what I've learned from listening to the RR podcast. Providing a link for your listeners is very thoughtful. Thank you. For the time being, I'm going to stay true to VGRO across all my investment accounts. VGRO is a Canadian asset allocation ETF. It's market cap weighted with a home country bias toward Canadian stocks. It's a Vanguard product, just for listeners context.

1:16:23I am intrigued about an all equity portfolio like VEQT, which is VGRO's 80 % stocks and VEQT's 100 % stocks, both asset allocation ETFs after a recent podcast, but I just can't let go of some bonds. Fair enough, no problem. You should not feel like you have to be all stocks just because Scott Cederberg's research says that you should be. Although that research, man, that impacted a lot of people. I'm not saying that's a good thing or a bad thing. There's a whole thread in the Rashomider community. How did the Scott Cederberg episodes change your portfolio? I didn't change my portfolio, but I was already all stocks.

1:16:59So I guess I didn't have much to change. Babo Cho from the States, amazing podcast. As a Wall Street veteran and professor of finance, I find the episodes that explore recent scholarship to be interesting without being overly technical. In fact, it inspired me to launch my own podcast on what any educated person should know about markets to be a good citizen. Love your work guys. Keep it up. Simone Ferrero from Denmark, weekly companion in commute times. The rational reminder is a great podcast to increase your financial knowledge regarding personal finance. While the topics are fairly complex to a complete beginner, Cameron and Ben do an amazing job at dissecting each topic with the help of their guests.

1:17:34In a world full of noise and continuous research of alphas, this podcast tackles reality with great humbleness without asking anything in exchange. Thanks for this amazing free resource, a European personal finance aficionado. This last one, a bunch of consonants followed by gloss from Sweden said, Not bad, not bad at all. I remember seeing that review and I was like, you know what? That's nice. I'll take it. We also discovered this week that this podcast is in the top half of 1 % of 3.2 million podcasts based on what's called the Listen Score, which is, as we understand it, to be a metric that shows the estimated popularity of the podcast compared to other RSS-based public podcasts.

1:18:20so i don't know what goes into that algorithm but it's more than just downloads so that's cool but the median podcast if i remember correctly has 32 downloads in the period after launch it's like a month after so the vast majority of podcasts do not have a lot of downloads so i think it's an extreme skewed data set all right last review amazing podcast could benefit from more female guests. Incredibly insightful and interesting discussion on a wide range of financial topics. I especially love the episodes focus on happiness and psychology overlap with money. My main feedback, which is especially obvious when listening to the year in review, is there are pretty limited female perspectives brought onto the show.

1:19:02Would be great to find a way to more consistently bring on female guests to round out the perspectives and insights. Yep. We noticed that too, but we noticed it too late. Yeah, and we have a lot of female guests coming up, thankfully. I've been joking to my wife that I'm not convinced that 2023 actually happened. It just flew by so fast. Everything's flying by fast. We heard that feedback in the RationalMinder community too. We have been more deliberate in the guests that we've booked this year to get more female perspectives. I think that's a valuable feedback and it's definitely something we're going to take into account.

1:19:35Had a cool conversation last week with a listener, Gavin, who is going to be a future member of our community, our industry. And so he was speaking with another listener and that person encouraged him just to reach out to talk about our industry and career paths. So it was super fun to talk to him. And I'll start from Evan, who is in our industry here in Canada, and reached out on LinkedIn to say he loved watching the retirement gurus two weeks ago, who were so good. Up next week, many listeners will be familiar with Bridgewater Associates and his founder, Ray Dalio. This story is written up in a book by Rob Copeland called The Fund, Ray Dalio, Bridgewater Associates, and the Unraveling of a Wall Street Legend.

1:20:16Pretty incredible conversation about a pretty incredible company, personality. Some really interesting perspectives that new information, I think, at least from what was previously publicly available about Dalio and Bridgewater. It was an interesting conversation. In two weeks, we're joined by two experts in the ETF arena, Dave Nodig, who was here in the past, as well as Eric Balchunas from Bloomberg. They're going to be here to talk about ETFs in general, but also specifically about the recent launch of the new Spot Bitcoin ETFs, which have been a blockbuster success from what I can tell so far in the first few weeks of being available.

1:20:55And in three weeks, special guest coming on, the man behind the 10 % happier movement, Dan Harris will be here. So we did a book review of 10 % Happier a few years ago, and there's also the app, but Dan has agreed to come on, which is pretty cool. Anything else, Ben, you want to highlight before we bring this in for a landing? No, I think we can bring it in. I see in your notes that we're getting vests in the store. Is that real? Apparently, as Angelica says, we're woefully low on merchandise. So if you check out in the store, there's a lot of sizes not available. There's still some stuff there.

1:21:28and I know Jackie is topping up every order with the bucket hat and socks. So if you make an order now for what is there, you're going to get lots of freebies. So I guess we could promote that. What kind of vest are we getting? Not Patagonia because the price point of Patagonia, although they're beautiful, is pretty high and I'm not sure there'd be a lot of demand for it. But they found another alternative, which apparently is quite appealing. I've not seen them. That's Angelica and the team are on that. I'm heading to Norway in October. So if there's any listeners in October want to suggest a meetup, going to be in Oslo the last week of October.

1:22:06So reach out if you have an interest in helping me set up a meetup. If there's any demand, we'll see what we can do. Okay. As always, you can check us out on LinkedIn, reach out anytime on X. We both have The Calbi links in our X profiles, as does Mark. So reach out anytime. All right. Thanks for listening.