Episode 337 - 2024 Year-End AMA

23:52I thought it was fantastic. Thank you. Mark, you've got a book coming out called Wealthier, the Canadian edition. You're co-authoring with Dan Solon, and I've also read that book. I read the American version before you rewrote it for Canada, and I've also read your Canadian version. Also excellent. Those are two great options from people that I know and trust. That's all I got. thank you appreciate the nod what's the release date mark on yours i'm gonna call dan as soon as we finish recording this so the audiobook has been recorded which is really cool did you read it no i was going to actually i had asked ben to do it originally and he i think reluctantly agreed to do it and then as we kind of got closer i was like hey man like you can be able to get this done on time he's like yeah yeah no for sure and i was like hey we gotta get this done in two weeks he's like not a chance i was like yeah no i figured i wish you just said no in the first place i know how busy you are i thought i would do it later and then later became now and i didn't have time as always happens totally story of my life dan has released obviously several audiobooks himself and so he had a great narrator already lined up and that narrator had it back to us in a couple weeks so really we're just dotting i's and crossing t's now like the website's ready to go i think we're any day now going to hit the go button it's december 9th that we're recording this i'm hoping before the end of the year it's looking pretty good for some stocking stuffers for christmas might actually be out by the time people are listening to this, but this is gonna be a cliched answer, I think, because it's become such a super famous book now.

25:14But I think the psychology of money by Morgan Housel was one of the more impactful books I've read. I'll say virtually none of it was new information to me, but Morgan's writing style is just so incredible. And the way he reframes thoughts into ways that make me rethink my answers to the same questions is just incredible. So I think I highlighted and dog-eared that book more than any other personal finance book I've ever read. I'd say something along those lines too. In fact, I was going to mention that specific title. I mean, another one would be Thinking Fast and Slow by Dan O 'Connor, which is not an investment book.

25:45But once you've gotten to the point where you have an understanding of the fundamentals of investing, and you're going to get to that pretty quickly with any number of introductory investment books, I'll back up and say, for me, in my formative period. It was like John Bogle and Larry Suedro. And I read all the classics of indexing random walk down Wall Street and winning the losers game and all those. Those are out of date now in the sense that they don't offer a lot of practical investment advice, but they do ground you in the theory of just how difficult it is to beat the market and why it's mostly a huge waste of time.

26:27Once you get to that, the stuff that you need to keep reading, even after you think you already know it is the behavioral investing and behavioral finance stuff, because we're all so prone to that. Kahneman talks about it in his book. It's even when you're aware of the biases, you will still fall prey to them. So you have to keep reminding yourself how difficult it is to be an investor from a behavioral point of view. Most of the rest ends up being details once you have a fundamental grasp of the concepts. That's a great answer. I'll throw one more in the ring. and I've talked about this book before.

27:01That's Christine Van Kallenberg's Wealth Planning Strategies for Canadians. She releases an updated version every year. I have it on like subscribe and save basically through Thompson Router. So every March or so I get a fresh copy. It's a reference guide to all things financial planning. So if you're a DIY investor who really wants to get into the financial planning side of things, like I don't think there's much, if anything in that book about investing, but there's lots on family dynamics, tax implications, estate planning, insurance, disability planning, everything you can think of. So it's a thousand pages, but it's also really, really well organized.

27:33The first half is organized by relationship status. So it's like, if you're married, here's a section for you. If you're divorced or separated or widowed, so you can kind of just go to the section that applies to you. And then you can just read through that entire section. And it's really, really enlightening. And as a reference book, I go back to that book almost daily for financial planning questions. It's very well written for a big doorstopper of a reference book like it, you're not going to sit down and read it sequentially, but whenever you zero in on the section you need, it's extremely clearly written.

28:02It's in a pretty invaluable resource, I think, for anyone in financial planning. The end of each section contains a appendix that goes through the differences on a per province basis. So it can apply to you regardless of where you live, which is pretty rare because a lot of things like family law, for example, really are provincial domains. And so if you're reading something on a blog and you don't realize that it's actually written for an audience in a different province than you, you might actually take away the wrong understanding of the answer. I've got the 2024 edition, not 2025. You're going to think I'm crazy based on what you just said, Dan, but I read it cover to cover.

28:35Yeah, that doesn't surprise me actually. It is really well written. So I did too. It's one of the textbooks for the CLU designation. I originally read it cover to cover and that's what led me to realize how powerful of a book it was for a practitioner and I think for DIY investors as well. Okay, next one. I expect Ben's probably going to answer this one, but could you cover the approach on how to assess a value premium within an ETF, please? The only small cap value funds available in the UK are the US and European SPDR MSCI, as an example. Love the content. And that's from Nick. You can assess the exposure to the value premium with an ETF by running a factor regression.

29:14That'll tell you its historical exposure. And then you can also look at its characteristics. So you can look at a value metric like price to book, and you can see how the fund you're looking at compares to the index or to some other benchmark. That's really it. You've got factor regressions for how its exposures have been historically, and then you've got characteristics for how its current exposures look. That's pretty much it. There's a lot more than just looking at those things though that goes into choosing a fund and an investment. Caution is warranted. There's a reason that there are threads in the RationalMinder community with many thousands of posts discussing which value fund you should pick if you're in the uk and there are topics on that topic that are extremely long and there's a reason for that it's not as simple as a single metric and you should do a youtube video one of these days on how to do a factor aggression i tried to figure out on my own with absolutely zero technical background or training in that and couldn't figure it out at all justin bender used to have blog posts on that i don't know if they're still up i think i worked on those with him well basically i just translated but we'll have to dig through and find i'm sure there are better, more efficient ways to do it, maybe better access to data than there used to be.

30:22But that was a fun exercise to do because of course I had no clue and still couldn't do it with a gun to my head. But at least I understand the basic idea of what they're supposed to achieve and the raw materials. There's tools now too. Like back then when Justin wrote those posts, I don't think Portfolio Visualizer existed. Now it does exist. So like how much do you really need to be able to do it in Excel? I don't know. Could be a good video though. I'm sure people would watch it. So next up, this question is from S.A. What is the most profound personal experience you've had that changed the way you guide your clients?

30:55Wow, big one. Who wants to take that first? My mom had breast cancer when I was younger, and that was a profound experience that really changed my perspective on life. She survived, but it wasn't obvious that she would. And then some recency bias. I was playing basketball a week ago when we were recording this a few weeks ago when it comes out, play with the same group of people on Thursday nights all the time. We were in between games, not even playing. And one of the guys that I've known for years now, he was walking toward the end of the court and he just collapsed and his heart stopped. And we were able to revive him.

31:30Two of the guys knew CPR and knew how to use a defibrillator. And he went to the hospital. He was okay in the end, but it was freaking terrifying. Stuff like that. It just really highlights. Life does not go forever. And it comes back to my comment on success. You have to enjoy what you're doing all the time because you don't know how long it's going to last. How does it affect clients? I mean, I think that's why did we do all of this content that we did on happiness and on living a good life and how investing and financial decisions relate back to that. It's for that reason. We don't exist as advisors to make people the most money possible for the sake of having a lot of money.

32:02We tie it back to living a good life. And there's evidence around that to an extent that I think we try to use to help people really get the most out of their lives through their money. Money is such a powerful tool in determining how people are able to live their lives. I think that's the approach that we try to take to giving advice. Yeah, that's a great answer, Ben. I've talked about what happened with my own father on the podcast before, and I've written about it. And I think that was obviously impactful. It's these kind of unforeseen events that you kind of just throw up your hands and go like, YOLO, you got to go and do the things that bring you joy and you can't really wait for anybody else.

32:38And so you kind of learn that just through things happening to you in life. But in terms of how to guide clients, it's difficult because you have to find some balance. You can't plan assuming that's going to happen. We have to, for clients generally plan for, call it worst case financial scenarios, which is like a really, really long and healthy life where you get to spend the money and you're active and everything else. We're looking for financial stability. It's hard to find that balance, I think. But outside of that, Dan, like your blog was profoundly impactful on how I guide clients. And so this is maybe a little bit more quantitative, but your blog was my introduction to index investing.

33:10And that was a full on epiphany for me at the time that I really started getting into it. And it completely changed how I work with clients, not just on the investment portfolio, because that's obvious, but by switching clients into index funds and understanding things like markets work and are relatively efficient most of the time. And you don't need to spend all this time on analysis and stock picking and reading research reports and listening to fund managers, it just opens up all of your time to do other work for clients. That wasn't as obvious to me until it started happening. And I was realizing like, oh, now I can actually spend all this time being a financial planner.

33:41And it was only through that, that it really occurred to me that it's these other areas of financial planning that are equally, if not more important than portfolio design. And so that totally changed the trajectory of not only my own career, but how I actually think about delivering advice and think about what good advice is. Glad to have had a positive impact. It's funny because if I take this question to the second part of it, which is how has it changed the way you guide your clients? I came at this industry the opposite way that you did, Mark. I was, I think, still writing about it, not in the industry while you were already working with clients and I was not.

34:18So I was later in the game. And when I first started doing this, my understanding or my impression was I'd written so much about investing. I wasn't really writing about financial planning. It wasn't really an area of my expertise other than at a very basic level. And I assumed that most clients who wanted to work with me were primarily interested in investing. All of our initial discussions when they were prospective clients and early on was how we're going to build a portfolio and what the strategy was and very much investment focused. and gradually I started to realize most clients, I would say, aren't really too interested in those small details.

35:02And I can remember the first time I worked with a client, it was pretty early on in my career. First time I had a client pass away. And when you work with their surviving spouse, you quickly realize your value is not that you know how to build a portfolio with maximum diversification on the efficient frontier. It's that you're going to be there and offer the comfort and support that people need at a very acute event like that, but also on a much larger scale. Clients want to know they can trust you and that you will be a good steward of their funds and that you will give them good advice that's in their best interest.

35:40And the rest is details. That's 95 % of what we do, I feel, and the value that we add. It took me a few years, though, to truly come around to that and start to focus a lot less on investing and really try to improve my skills, A, as a planner, and B, just as someone who can have some empathy for clients and get to know their lives and deliver our value in that way, rather than just portfolio construction. I've got one more actually to add. I was thinking a different kind of profound, I guess, but I was interviewed for an article in the Globe and Mail in my first year in financial services when I was selling actively managed mutual funds.

36:17I mentioned one of the funds that I liked. I got absolutely roasted in the comments of the Globe and Mail, absolutely roasted. It was a wake up call that forced me to go and look at what I was doing and what I was being taught by the place that I was working at and the fun companies whose products I was selling. So I was eye-opening and that's what led me to discover indexing and Dan, your blog and PWL, different kind of profound, but that definitely had an impact on me. Being roasted on the internet is a great way to learn. Well, it depends on your personality. I know a lot of people that get roasted on the internet and seem to be allergic to learning anything new.

36:55That's true. You were roasted in the early days. You were like an OG victim of internet abuse. I mean, that was pre-social media. It sounds like it was just on the web. On the web, comments section of the Globe Mail. And unfortunately, they changed their comments engine so you can no longer go and find those comments. In hindsight, I wish I'd screen cap them and frame them, but changed the whole trajectory of my career in this industry. All right. What are your thoughts on the concept of return stacking, where products utilize futures leverage to make space for diversifying alternatives, for example, trend following and carry.

37:28Sure. If you're into that kind of thing, I mean, I don't have a super strong opinion on it. We don't use it for clients. Not that interested in starting to use it for clients. People come to us because we manage portfolios in a way that's very, very simple and evidence-based. People that advocate for return stacking might say that it's also evidence-based, but there are levels of evidence that's going to make people mad. I'm sorry. The simplicity of the way that we invest with index funds or dimensional funds. It's really easy to communicate to clients. People get it, people want it. And if the market does poorly, the portfolios do poorly, that's it.

38:04Having to explain something more complex is just not something that I think we need to do. And you said, Dan, in one of your posts, you were talking about factor investing actually, but you said that nobody failed to achieve their goals because they didn't have a small cap value tilt or whatever. It's a really insightful statement. And I think about it a lot. Maybe we could find some better way. Nothing's going to be guaranteed, but maybe we add in return stacking and we start using futures to get access to other sources of expected return on portfolios. How much is that going to change the expected outcome for our clients?

38:35And how much certainty do we have around how it's going to change the expected outcome? I don't have enough confidence in that. What is the risk that any change might be negative? It might be negative or might be perceived as negative. What if the clients can't stick with it because they don't understand the strategy, all that kind of stuff. I know this is kind of hot thing right now, return stacking. It's not actually a new thing. It's portable alpha. It's been around for a long time conceptually. It's being marketed a lot right now, which is fine. People who make these products are very smart.

38:57I follow them online. I like them, but it's not something that fits with the way that we think about markets or our business model or what our clients want. Those are my thoughts. Do you guys have any comments? The people who are largely involved in that story right now, is it Ones and Resolve and Corey Hofstein and Rodrigo. Yeah. Those guys are awesome. They're awesome and they're brilliant. And it's not a knock against them. Love their stuff. I just want to preface with that. I have a ton of respect for them and follow it and have learned a lot from them, but it's more complex. There's additional risks there to your point.

39:32Are our clients going to fail to achieve to meet the outcomes that they want because they didn't add a bit of leverage to their funds? I don't think so. All right. The plan was to not skip any questions, but this next one's like a five-part questions. So I think we can skip that one, unfortunately. It's just too much. One of the things we try and do when we interview guests is we never have two-part questions. If you listen to our episodes, very rarely, if ever, do we have two-part questions because it's really hard to answer them. That question was like five parts. It's not easy to answer. I'll go to the next one then.

40:02Can you speak to the recent changes that Dimensional has made to their vector portfolios? How do they now compare to the approach of a firm like Avantis? So Dimensional hasn't changed their methodology, but they have changed the emphasis that they're giving to the different factors. So the vector portfolios used to have more of a small cap value tilt. They've changed the methodology to have a more equal emphasis on size value and profitability. That's based on their research that shows that the premiums are not statistically different from each other. And so having an equal emphasis on them gives the best expected outcome basically.

40:40There's no good empirical reason to tilt more towards small cap and value than toward profitability. They made a bit of a change to the methodology. How does that compare to a firm like Avantis? I think Avantis did have more profitability exposure, so maybe it brings them closer, but overall they still have differences in their methodologies. The underlying methodologies have not changed. It's just the way that Dimensional's emphasizing different return premiums has changed a little bit. This is a good one actually. I'll read it, but Ben, you'll be the guy to answer. Much of the public discourse involving factor investing seems to concern equities exclusively, yet are there equivalents for bonds and fixed income?

41:17For example, risk factors such as maturity, term length, credit rating, et cetera. How should individual investors consider such factors for bonds, bills, and credit holdings? The expected returns overall are lower in fixed income, so I think they get a little bit less attention. But we did an episode with the head of fixed income from Dimensional, Dave Pleka. We We also did our own episode on factor investing and fixed income. I don't remember which episode numbers those were, but you can go and look them up. There's something there. There's good evidence on a term premium. There's good evidence on a credit premium, although a little dicier maybe on credit, depending on how you look at it.

41:52There are funds now from Avantis and I think Dimensional now has ETFs too that are available that do this. They have broadly diversified fixed income portfolios that do put emphasis on return premiums within the fixed income space. Do you need that? again, I love Dan's point about, is anyone going to fail to achieve their goals because they didn't have a tilt toward credit in their portfolio? Probably not. I think simplicity is super important. But I mean, listen, it depends how much each individual wants to optimize their portfolio, how confident they are in the return premiums, how much time they dedicate to it.

42:26But we use, like in our portfolios where we're using dimensional funds, they do tilt toward different fixed income factors at different times. That's one of the, I guess, unique things with fixed income is that the tilts change over time. The cashflow side of fixed income is much more certain than with equities, which makes you a little bit more confident that differences in prices are all about discount rates. Dimensional does vary their exposure to longer and shorter maturity bonds, and they vary their exposure to different credit rating bonds based on prices. We use funds to do that. Do you need that?

42:57How should individual investors consider such factors? If you want to pursue them, there are products that do it. Do you need them to meet your goals? probably not. PWL does use funds that do consider factors in fixed income. All right. Oh, I love this question. How do you explain the discrepancy between past results are no guarantee for future predictions? I don't know if that's what it means to say, but I think people know what I'm talking about versus the stock market had returned 7 % on average per year, and we'll use that to predict your money's growth for the coming 20 years. Feel free to rephrase.

43:27The question is how do we square the statement of past returns are not a guarantee of future results, which is standard disclosure in financial services. How do you square that with thinking that we're going to get positive returns from the stock market going forward? The first thing that I would say is the stock market had returned 7 % per year. We'll use that to predict your money's growth for the coming 20 years. That's not how we do it at all. That's the first comment I would make. We at PWL look at the global average across all stock markets and make some adjustments for valuations. We net out the portion of return that comes from historical valuation changes.

44:03We also apply a portion of our estimate that comes from the current valuation of stocks. So when stock valuations are really high, our expected return estimate is going to be a little bit lower. We do make some adjustments, I think, to try and be conservative. And we also look at all stock markets across the world, including markets that have failed and closed, to try and not have an upward biased estimate. That's one piece of it. And then that statement is like a regulatory disclosure. So I don't know if we need to square anything we say with it. The general idea that how can we look at past returns of anything and think that it has information about the future, a big part of it is why did that happen?

44:41So there's theory behind that. Stocks should be riskier than bonds. That makes sense logically, theoretically, and empirically all around the world. Directionally, the idea that a riskier asset should have higher expected return, We have pretty good reason to believe that. As a point estimate though, can you look at historical returns and say that's what you're going to get in the future? No, I don't think that's the case at all. What do you guys think? In my view, it's not a prediction about what your money is going to do over the next X number of years. We need to make reasonable financial planning assumptions.

45:10I think, Ben, the description of how you arrive at PWL's financial planning assumptions is just that that's the best way that we are aware of to come up with what we believe to be a reasonable assumption. And that's our starting point for financial planning. But then we also do all sorts of stress testing and scenario testing. And so I don't think at any point I've ever told a client, I predict this is going to happen. It's more, these are the assumptions we're using in this plan. We can look at different assumptions. We can look at what if your portfolio is more conservative or more aggressive or inflation is higher or run Monte Carlo analysis.

45:41But it is largely true that path performance doesn't predict future returns. And that type of disclosure and compliance statement, I think also applies more specifically to very specific products more so than it does to general financial planning assumptions. If you see a fund fact sheet or something like that about a, whatever it is, technology sector ETF, and it's done 18 % annualized for 10 years, there's a reason that disclosure is there is because you can't just assume that that's going to happen in the future. And a lot of people would be sued without that disclosure. So I think that's more product specific.

46:11Whereas what we're doing, I think is more financial planning specific. Yeah, that's a really good point. As a financial planner, you have to use assumptions. What are you doing if you're not going to apply some sort of assumptions? And then so the question becomes, your assumptions just have to be as reasonable as possible, and you have to be able to back them up. You're going to pull a number out of the air and say, stocks are going to return 10 % a year. You need to be able to defend that. PWL now does a really good job, I think, at its expected returns assumptions and the methodology. And I know Ben, you're intimately involved in doing this and maybe you want to share a little bit about that experience compared to the way other organizations do it, which may be better or worse.

46:56I don't know, but I think I've been very impressed with the way PWL has come up with a methodology and we update it twice a year. We use those updates in our financial plans and I feel very confident using them for clients for sure, which I've definitely seen other return assumptions that seem a little bit, let's just call them optimistic. I think it's getting better. FP candidate has been issuing expect return assumptions for a while now. I'm on that committee now. This year is my first year there. We did make some changes to move a little bit more toward what PWL does, just including some input from market valuations, which I think are really important.

47:32But yeah, building the PWL methodology was a great experience. That's something that I spent a ton of hours working with Ray Cazero at PWL, just figuring out we needed something simple that we could explain to clients, but that gave us good information about expected returns, took current market conditions into account. I like her methodology a lot. I think it's easy to explain, gives reasonable estimates and responds to changes in the market, which I think are all important characteristics for expected return assumptions. There are lots of organizations out there now that have, I think, reasonable enough expected returns that are published like BlackRock has them, Vanguard has them.

48:11Conquest Planning, the financial planning software that we use, gives us access to a set of assumptions as well if we didn't want to use our own. They're all within the same kind of range. It's much different from using 10 % a year, which unfortunately, I think some people are still doing. Next one, do you know some tax-exempt ETFs? If yes, what are the pros and cons. It's difficult to find ETF with a built-in capital loss, only return of capital or reinvested distributions, low turnover and less actively managed. And this is from Gerald. That's a French name. I don't know how to say that with a French accent.

48:46I don't know. I think what he's probably talking about is corporate class funds, which I don't know if you've talked about that much on the podcast, Ben, or if anybody has. There's a few ETFs that have launched recently that are like anti-dividend ETFs that aren't holding any dividend stocks to try and be more tax efficient. I don't know about tax exempt ETFs though. It could be the total return ETFs by Horizons or Global X or just corporate class funds in general that try to wipe out any taxable distributions. It could be that. I don't have a ton of experience with them, but I think he's mentioning it's difficult to find an ETF with a built-in capital loss.

49:17So I think what he's talking about is usually a mutual fund is a trust. It can be organized as a corporation where all of the funds that are within that corporation can have gains and losses or income and losses offset against each other. So you might have fund A that's lost a lot of money and then fund B that's gained a lot of money and those losses and those gains can offset such that the taxable investor isn't required to pay tax on the income or gains of the fund. So those are called corporate class funds. I think on the surface, those are really interesting in some cases, but I think there's a trade-off because there's not really a lot of options in that space.

49:49And most corporate class funds are actively managed high fee funds. So what you might gain in tax efficiency, you might lose elsewhere. There is the global X funds or horizons funds, which they've undergone some changes. Ben, you know more about these than I do, but I think primarily now the tax efficiency comes from the corporate class structure, not from their old structure. I don't know if you want to talk about those funds, but. You have to be careful with corporate class in general. Mark, I think you and I looked at a case of this recently where a corporate class fund can look more tax efficient because of distributions that it pays out to you as the fund investor, but the fund corporation can actually end up paying quite a bit of tax at the fund level.

50:25When you combine the two layers of tax together, corporate class can actually look less tax efficient in some cases than just owning the ETF on its own. With the Horizons Total Return Fund specifically, they are still using a total return structure. Their returns are coming from fully taxable derivative income inside the corporate class. They have a big loss carry forward, which they can use to offset net taxable income in the fund. They banked some serious losses during COVID by realizing swap contracts. But as that loss pool gets smaller and smaller over time, the risk with those funds is that if there's net income in the fund, so if the fund corporation has to pay tax on net income, which just means the swap contracts are positive because the indexes have gone up and the fund corporation has to realize the income on one of the swap contracts, that net income is taxed inside the fund and then allocated pro rata to the fund that was responsible for it.

51:26Because of the way mutual fund corporation is taxed, when you net out all of the numbers, it's possible for you to end up worse off for having invested in that corporate class fund than having just held the underlying assets in a mutual fund trust. For different types of income, the threshold for that is different. Mark Soth did a series of blog posts on this that I thought were really good. Him and I worked on thinking through those products together, but our position on them right now is that we're not super comfortable with the risk of that net income happening inside the fund. We're also just a little worried about the longevity of that structure.

52:00I know, Dan, you and Justin talked about this years ago when they had the previous structure before the tax changes forced them to switch to a corporate class. You guys had the same position, which really influenced how we thought about it back then. And I think now with the current structure, it's a different set of risks, but we're still not comfortable with it. Anytime you layer on some tax efficient structure, given the climate in Canada regarding eliminating perceived tax shelters, which are typically assumed to benefit only the wealthy, it just seems like these are in the crosshairs of government.

52:35We've just seen it over and over, over the last 15 to 20 years. Who knows whether such a structure will survive, but it does seem at least possible that this structure could eventually be eliminated by legislation. And then you're in a situation where you might have forced liquidation of the fund. And it's just, again, one less thing to worry about. So far, it's worked out extremely well. I will have to say anybody who's owned the formerly Horizons, now Global X funds for the last 10 or 15 years has deferred a lot of tax, especially on the US side. But US equities right now, what's the yield is less than 2%.

53:12So you're not really paying all that much tax on distributions from a traditional US index fund right now. Most of the gains has been capital gains, even in a traditional ETF structure. So I'm not sure how beneficial it actually is going to be going forward. And they have funds for international stocks and bonds too, which again, the case gets stronger, but the risk still doesn't go away. The problem is in the event of net income, there's potential for the total return to be taxed as income inside the fund, as opposed to the mix of capital gains and foreign dividends or interest that you would have had as an individual.

53:49And so there is a possible outcome where that ends up being less tax efficient. And there's also a possible outcome where if that becomes an issue that these funds, like you mentioned, then could close down, which can cause other problems, that probably wouldn't happen. They probably just switched to being a regular fund at that point. But in any case, is it going to be the difference between our clients meeting their goals or not? Probably not. Does it introduce additional complexity and risks that we'd have to worry about and the client would have to worry about? Yes. Does it make sense for some people?

54:16Sure. I mean, I know Mark South is a fan of them still despite understanding their risks, but him and I have talked about this and we kind of agree that it's very different for an individual to say, yeah, I'm comfortable with these risks than for a firm like PWL to tell our clients, Yes, we are comfortable with these risks. Those are two completely different animals. Next one we can skip because it's very specific to a US account type. Can I ask it and I'll spend 10 seconds on it? Oh, sure. I think there's an interesting answer that's going to be general enough that could be useful to listeners.

54:45So the question is, how would you invest the TSP in parentheses? It's thrift savings plan. It's the federal government's type of 401k. And this is from Keith from Connecticut. So 401k is almost like a group RSP. I think it's like an employer-sponsored tax deferral plan in the US. And I've never heard of the thrift savings plan, but it sounds like it's relatively equivalent. And without getting into the nuances or technicalities of how these accounts work, I just thought it'd be interesting or at least maybe useful to think from a framework of how we allocate assets or investments to our portfolios.

55:16And I think about it as, I think about my portfolio first and then one buckets to use later, not the opposite. So we've talked about like asset location, Ben, and I know you've done a lot of work on this. But for me, if a 401k type plan or a thrift savings plan is a retirement asset, then it follows the same guidelines as the rest of my retirement assets in terms of how I invest them. Again, I don't know anything about the thrift savings plan. So maybe this is a terrible answer, but I would honestly, if it's in that retirement bucket, I'm investing it the same way as all my other retirement funds.

55:44I'm too nervous to know nothing about the account type and say something that doesn't mean anything. You're bold, Mark. Oh yeah. And you could be like, no, actually it doesn't work this way. And your answer is dumb. And maybe that's true. But I get this question in a different way a lot of the times. How would you invest this type of account versus that type of account? Look, it's all fungible. It's all one pot of money for me in retirement. The tax treatments are going to be different, but I'm not going to make different portfolio decisions based on that. I'm allocating everything that's in the retirement bucket gets invested the same way.

56:07Then I choose which buckets, whether it's TFSA, RSP, or what have you, to put that in. But the portfolio for me doesn't change based on the type of account. Maybe there's some nuance on US plans that make that answer terrible, but that's how I think about it. I think that's the right approach. I mean, I remember back when TFSAs were first launched and people would ask questions like that. What should I invest in my TFSA? And it's like, well, what are you investing in the rest of your portfolio? It took us a while to realize asset location considerations do need to be considered, but these are not fundamental questions.

56:38You're not going to use different strategies or hold fundamentally different funds necessarily, depending on the account type. It's important to think of the portfolio as a whole. when making any decision like that. All right. In terms of portfolio construction, is there ever a case for buying anything other than the EQT or the S &P 500? If a higher risk appetite existed, what other ETFs or assets would be recommended? I wouldn't just buy the S &P 500. That's the first thing that I would say here is that even though it has revenues from all over the world, which is the common argument for just investing in the S &P 500, I think it's still got a lot of concentration.

57:16In the US market, it's still companies that are subject to US tax rates and financing costs, which are not diversified even if the revenue streams are. To the specifics of the US market, there's a question coming up, I think, on valuations in the US, which they're pretty high. I'm not predicting that US market's going to crash, but valuations in the US market are very high relative to history. I wouldn't invest solely in the S &P 500. The EQT, on the other hand, is a globally diversified equity portfolio. It still has a decent chunk in the US, but it's also got a big chunk in Canada and in international developed and emerging markets.

57:50That's fine, but it's also a 100 % equity portfolio, which is not going to be right for everybody. You have to be aware of your ability to take risk, also your willingness to take risk, your comfort with volatility, all that kind of stuff. If a higher risk appetite exists, I mean, our view on this is that tilting toward riskier stocks can make sense if you really want to take more risk. You can also use leverage with whatever your optimal portfolio you decide is. If you really want to take more risk, you can borrow a little bit of money to invest more in that thing. Of course, it comes with its own risks and complexities that people have to make sure they understand before doing it.

58:25I agree that I wouldn't ever be 100 % equity in one country. I think recency bias is driving a lot of this conversation about the S &P 500. Yeah, sure, It's been a long time that the U.S. has been doing really, really well, but there's other periods in history where you'd be crazy to invest only in U.S. stocks just based on recent five to seven year performance. So I'm not really convinced that the U.S. is always and forever going to be the source of the highest returns around the world. Something like VEKT is great. And I think, Ben, one thing that should be really clear is when you're talking about more risk, you're talking about more compensated risk.

58:58You can take more risk by holding two stocks instead of 10 ,000, but you shouldn't expect higher returns from that. You should just expect a lot more volatility and dispersion. So how do you take compensated risk, but increase the risk of the overall portfolio? And I think probably leverage is the best answer to that. Not a recommendation because compliance is going to listen to this podcast. I am not recommending leverage. I'm just saying that's how you juice the returns if it worked out in the long run. I will say too, just reading between the lines of this question, when somebody asks or somebody implies that they have a higher risk appetite than a hundred percent equity portfolio, the alarm bells go off for me because I want to know what exactly have you experienced in your investing life?

59:43Because if you lived through 2008 with a leveraged 100 % equity portfolio, I'm sorry, but very, very few people can do that. It's extremely easy to overestimate your risk tolerance. And it's very easy to do it following a couple of years like we've just had in the markets. Have you ever met anybody who you felt in order to meet their financial goals need to leverage a hundred percent equity portfolio? I mean, they don't exist. I don't think if you need to take that much risk, then you got other problems. And I'm not saying that to be derogatory. I just mean, if you can't meet your financial goals with the expected return on 100 % equity portfolio, then the problem is more likely that you need to save more or expect to spend less or invest for a longer period of time.

1:00:34Taking more risk is not the answer there. I agree with that. I will mention it's worth giving a nod to Scott Cederberg's research here just on the question of what is risk. In this case, at least the way I read the question, it's asking about risk framed as volatility, but Scott Cederberg's research and then also David Blanchett has a recent paper out looking at how risk changes over very long periods of time. At very long horizons, like 30-year horizon, volatility becomes a little bit less important, and the higher expected return of stocks actually, in some samples, makes them a little bit less risky than bonds, which tend to be more affected by inflation risk.

1:01:12Stocks tend to have negative auto-correlation, which means that after a recently bad period of returns, you tend to have a good period and after a recently good period, you tend to have a bad period. That negative autocorrelation makes stocks a little bit less risky at long horizons. Bonds tend to have positive autocorrelation, where you have negative bond returns in real terms, usually due to high inflation. That tends to be persistent, meaning you tend to have a few years of really negative bond returns, which makes bonds a little bit more risky at very long horizons. While bonds may be less volatile in the short term, they can actually be riskier at long horizons.

1:01:43But to your point, Dan, you still have to be able to live with your portfolio. And I don't know if people always appreciate what it feels like to live through a proper long-term downturn. A lot of people live through COVID and we're like, hey, that wasn't so bad. It was three months. It lasted three months. By the end of the year was highly positive. That's not what we're talking about. It's a great point though about risk equals volatility. There are many types of risks, but I think volatility is the risk that makes people behave badly. that's the reason why you temper an all equity portfolio with fixed income it's not because you want to reduce your long-term risk or you want to enhance your returns because you won't be doing either of those things but you will be dampening your short-term volatility which is what gets most investors into trouble i think the other thing you pointed this out dan is it gets you thinking like what have they not been through what are they not seen in their portfolio and i think often this type of question comes from somebody who usually is younger, just getting started and is trying to figure out how they can accumulate as much wealth as possible.

1:02:45Somebody like that, who does go through that type of event in the near term is likely going to do so with a smaller portfolio. And so even if they have gone through some kind of market volatility, the dollars may not have been that impactful. And they think to themselves, oh, that's easy. I lost 50 % of my portfolio is only$3 ,000 at this point. Once you go through that with a seven figure and eight figure portfolio, if you get there, the conversations with my clients are in dollar terms. It's like we're down 40%, that's$4 million. They don't think in percents as much as they do in nominal dollar terms, I find.

1:03:14I think there's very few people who are saying, how can I increase the risk on my portfolio if you've gone through an event like that with a reasonable sum of money? For sure. I'll take the next one. This question is from Al, but I have to admit when I first saw it, I thought it said AI and I thought it was like a chat GPT generated question, but it sounds like it's from a real human. Al says he's 34, planning for the long term and just starting his investing journey this year. And his question is on a lot of people's minds, I think. He says, given the overvaluation in the S &P 500 and the significant returns over the past few years, does it still make sense to stick with the asset allocation approach of allocating around 45 % to US markets, or would it be prudent to reduce this exposure?

1:03:58Probably the most popular question most of us are getting these days from clients and otherwise. Ben, I bet you're going to have the longest and best answer to this. So I'll just go quick here. I think one, we don't know that the US market is overvalued. I think we can probably only really say that it's highly valued, historically speaking, but overvalued, I think you can only really identify in hindsight. So I think that's an important distinction. We know it's expensive historically, but we don't know that it's overvalued because overvalued assumes a correction is coming. We don't know that that's going to be the case.

1:04:25And the rest of the question is kind of leading that idea. Should we reduce risk because we're expecting a correction? We just don't know. The US market has been expensive for many, many years and still continues to go up. So by reducing your US equity, there's potentially an opportunity cost if markets do keep going up. The other thing I think that is perhaps more important is that this individual is 34 planning for the long term and just starting their investment journey this year. And so if they're really just getting started, going back to what I said in the previous answer. Even if you're right, and the US market crashes 50 % tomorrow, the actual dollar term exposure that you have to that crash is not likely to be meaningful to you over the long run in terms of your financial plan.

1:05:04So if I'm just getting started in my journey, I wouldn't start trying to think about tactical asset allocation in my portfolio. I mean, we don't really use that even ourselves. And I don't think investors like that should get hung up on questions like this. I think just get started, just go with an asset allocation ETF for some fund of your choosing and just start putting money into it and then see how things go. Even if the market crashes, it's not likely to be meaningful to your long-term goals if you're just getting started. If it were obvious that the US market were overvalued, its value would decrease and we would see a correction back to whatever it should be.

1:05:35I agree with you, Mark. You can't really say that it's overvalued relative to its own history. It's highly valued. I was looking at the numbers for Japan this morning because this topic is coming up a lot right now. I did actually do a Twitter post that maybe I shouldn't have done because it probably exacerbated this type of thinking from people, but I showed that there's only a few months in history where US equity markets have been as highly valued in terms of their Shiller CAPE ratio, the cyclically adjusted price earnings ratio. Only been a handful of months in history where they were at their current level of valuation, at least on the day that I did the tweet or higher.

1:06:10All of those months were concentrated around the 1998 to 2000 period where US stocks went crazy during the dot-com, what ended up being bubble. You didn't necessarily know that at the time. On average, in all of those handful of months where valuations have been as high as they are now, the 10-year forward return, the 10-year return following that starting month has been on average negative. It was negative 1.29 % annualized for all those periods. That's scary. But to your point, Mark, we don't know if current valuations are high relative to the future. We only know that they're high relative to the past.

1:06:47My little example there is a tiny sample. It doesn't mean that much. I was poking around the data for Japan. I just want to share a couple of interesting points there. Japan, of course, famously had insanely high valuations, at least in hindsight, in the 80s leading up to 1989 in December is when they had a crash. I don't know if people are familiar with the story, but if you invested in Japanese stocks in December 1989 and held them until now, I think your annualized return in nominal terms was about 1%. I think it might have been 1.19 % annualized. In any case, very, very low. Adjust for inflation, adjust for treasury bill returns, it was a negative return.

1:07:27So not very good over such a long period of time. That's December 1989 until November 2024. So that's a very long period to not get any returns from stocks. On the way up though, and this is the part that's interesting to think about in the context of US valuations. If you look in June 1985, Shiller Cape for Japanese stocks was about 38, which is roughly where it is now. If you look at the 10-year returns starting from that point, Japanese stocks actually beat world excluding Japan stocks for the following 10 years by about 90 basis points annualized. Valuations can be really high and you can still have positive returns.

1:08:12And in that case, you can still have returns that beat other geographic regions. And that assumes you invested your entire stack all at once in Japan and never bought again, especially with this individual asking this question, they're 34 and just getting started. Ideally, you're going to be putting money to work every single time you have available money to invest. And so if the US market does have a correction in a big way, you're going to be accumulating, hopefully. You should almost be happy. Exactly. You're going to be hopefully buying at those levels and it's the average price over time that really matters.

1:08:44Unless you just received a$10 million lottery win and need to allocate all of it today. I just don't think it's an impactful outcome over the long run, even if the markets do correct. My Japan example just kind of shows that yeah, US market is very expensive in terms of its valuations relative to its own history, but that doesn't mean they can't go higher and there's a non-zero chance that they go a lot higher and you end up missing out on a bunch of returns. We can't predict the peak. We don't know when it's going to turn around or if it's going to turn around. The other possibility is that the fundamentals, like the earning side of that equation of the Shiller Cape, grow so much that valuations aren't so high anymore and we don't have a big crash.

1:09:23Lots of different possible outcomes. I think people worry a lot about this, but it's probably not as concerning as people tend to imagine. or that could happen and the Canadian dollar could drop more than USD which offsets some of the losses too if you're holding US risk there's other potential sources of returns and risk there that can offset was it 2016 or something 2015 I think US markets were flat but USD was up 20 % so you're up 20 % just on the currency lots of stuff that can happen all right should we do like two more questions sounds good we've gotten to 18 so we definitely wouldn't have gotten through 161 there was no hope there no I think we were like oh we can probably get through half and like make get a two-part episode.

1:10:00No, we got through, what, an eighth? I think what we can do is we can make a segment going forward. We can add a segment on AMA questions and we can just pull from this list until it's exhausted and then maybe refresh it. I don't know. We'll see how long that lasts us. All right. What have been your most significant investment mistakes and what valuable lessons did you learn from them? You guys want to go? I've never made a mistake. Nice. Not surprised. I was actually fortunate just the way my life unfolded was I didn't really have much money to invest until I had already learned about it. In other words, I didn't invest a lot of money when I was young and then realized 20 years later that I was doing it all wrong.

1:10:42But I would say when I first started to learn about sensible investing, my biggest mistake was tinkering. I was in pursuit of what's the optimal portfolio. And of course, at that time, asset allocation ETFs didn't exist. So I was building my portfolio from individual ETFs. And I was like, I have to have 7.2 % commodities and I have to have this, that. And I had a 10, 12 ETF portfolio with my $50 ,000 or whatever I had at the time. And eventually I realized this is all a massive waste of time, energy, and money. And I needed to focus on simplicity, saving more, and sticking to a discipline plan without tinkering with it.

1:11:29And it took me a little while to get there. But once I did, I have found it very easy to stick to it. Because intellectually, I know why it's the right thing. And also, I happen to not have that gene. I've never bought an individual stock. I'm not interested in speculation of any kind. So that part's easy, but it did take me a while to get used to the idea that most of the tiny details don't matter as much as the big picture does. Great answer. Mark? Triple leveraged Bitcoin. Have either of you guys ever been margin called before? No. Really? No. Just me. There was a period in my life where I was selling put options, cash secured puts, without getting into a big explainer about it.

1:12:11Basically, if you're selling a put you are selling the obligation to purchase a stock at a certain price let's just say you love apple i'm just making up numbers i don't even know what apple trades for but you love apple at a hundred dollars a share you sell a put at 80 and you collect a premium so you collect two dollars on that and it's a four-week contract let's say and as long as apple doesn't go to 80 or below during that four weeks you get to collect your two dollars in premium and you move on to the next contract if it does go to 80 you get exercise and you have to buy the stock at 80 bucks, which actually the narrative goes, that's a great thing because now you're buying a stock that you like anyway at a steep discount, what could go wrong?

1:12:47Well, the stocks can stay down for a very significant period of time. The stocks can blow through$80 and you're buying them at 80, but now they're trading at$50 and they stay there perpetually. And it's one thing if you're doing this cash secured, meaning in that example, you have the$80 available to actually buy the stock when it's assigned to you. And so that would be the more intelligent way I would suggest to do something like this but you can also do something called naked selling in case you guys didn't know this you can do that and not have the money if it goes to 80 and you don't have the money to buy the stock in your account then you can get margin called and margin call means basically you need to put more money in your account over liquidating you and you're going to lose a lot of money so i've been through that which is really fun for me not stressful at all i thought i might lose my house and my family's going to disown me but other than that came out of it okay and here we are.

1:13:36Don't sell naked, put options on stocks, especially if the market's going to crash. We'll have a bad time. Pop that one, Ben. I think I might have a worse one. Oh yeah? Uh-oh. In two instances, people that I knew well enough who have had successful exits before, meaning that they started a company, raised money, and then either went public or otherwise sold and did quite well for themselves, were raising capital for new businesses. I knew these guys had had exits in the past. I knew they were very financially successful because I knew them well enough, I guess. They asked, do you want to invest in this thing?

1:14:11We're doing this thing. They told me what the company was about. This is years ago now. I don't know. I felt like that was kind of a cool thing to do. And I had a little bit more income than I'd had when I was younger and I couldn't afford to do something like this. So I thought I'll do this. This is what smart people do. Both of them went to zero. Very unsuccessful. I guess an angel investment type thing. I don't want to describe the types of businesses they were. I'm a very unsuccessful angel investor. But without describing the type of businesses, would you say, is that outcome bias in that lots of businesses go to zero, not because they were terrible, but just because they were unsuccessful and that's part of the risk of investing in a startup doesn't necessarily mean you made a profound mistake based on the information you had at the time?

1:14:59Or was it more that just, I trusted these guys, I didn't even look at the business plan? I looked at the business plan in both cases. In one case, there was a, I'd call it a company specific issue where they raised money for one business and then they were acquired by another business. And then there was a conflict between management of those two firms. And that caused enough issues that they had a lot of trouble. That company still exists. At one point they were listed and delisted. And anyway, it's currently worth nothing. It might be great outcome. That was a very company-specific issue. Then the other one was an industry issue where they were building a business in an industry that could have done very well and that asset prices in that industry just completely tanked for a period of time while they were building their business.

1:15:45That, I think, really decreased their ability to access capital. They ended up having to do another raise at some point and there was just nothing there for them. They ended up folding for that reason. So two different reasons for the bad outcome. I think both were smart business ideas and they were being run by groups of very, very smart people. But yeah, I mean, just goes to show you that there are a lot of things that can go wrong when you're investing in one thing, especially in early stage company. The cool thing though, is that you can put angel investor in your LinkedIn bio now, Ben. Yeah, I could do that.

1:16:14People might ask me about my investments though. True. Unsuccessful angel investor. Only talk about your winners. That's rule number one. we're doing one more yeah there's two insurance questions here back to back so i don't know if you want to just take both of them and then call it a day yeah sure what are your thoughts on life insurance would you recommend young canadian couple with a new baby who have not yet maxed out tfsa fhsa and rrsp room no r esp to implement what we call infinite banking with life insurance i already know your answer but was hoping to understand your rationale on this So Ben, I know you've been working on something with respect to infinite banking.

1:16:51I've got my own thoughts on this as well, but I think Ben, that's probably pretty fresh for you. What do you think about infinite banking? So infinite banking is the idea that you can buy a participating whole life policy and you can overfund it. You can put more money in than is required to pay premiums. Those deposits, the cash value of the policy will then accrue participating policy dividends, which increases the overall cash value and that compounds over time, which is great. Then you can borrow against your cash value from the insurance company. The amount that you borrow, you pay interest on to the insurance company, and that interest goes back into the participating pool, which is why it's called infinite banking, because you're paying interest to yourself is the way that it's sold.

1:17:34I don't think it's much more complicated than that, but that's the way that it's sold. In the modeling that we've done on this, it is really, really hard for an insurance policy to come close to matching the expected outcome of any of those account types, TFSA, FHSA, RRSP, and RESP. The reason being that the expected returns inside of an insurance policy tend to be relatively low. A participating life insurance policy can look a little bit better, but there's also risk in that case because the participating policy dividends are not necessarily going to be as high as they have been in the past or as they're currently illustrated at.

1:18:11When you purchase one of these policies, it would be shown what's called an illustration, which is like a projection of how the policy is going to look in the future. That'll be based on the current dividend scale, which is like the participating policy rate, dividend rate that was most recently paid, I think. But it's always really important to ask to see those illustrations at current dividend scale minus 1 % and current dividend scale minus 2 % because the current dividend scale is not guaranteed. Over the last 20 or so years, policy dividend rates have decreased. They've actually come back up a little bit now, but it's not a guaranteed thing.

1:18:46The idea is everybody needs financing throughout their lives and the best way to do it is through this. I don't think that's true. I think that you can invest in your registered accounts, which are tax preferred in various ways. The RESP, you get additional grants and bonds in some cases from the government, which make it really, really hard for an insurance policy to match it. You can meet your financing needs with traditional means of financing, like taking a vehicle loan or leasing a vehicle instead of taking a policy loan. I think that's a perfectly reasonable alternative. When you read the book called Becoming Your Own Banker, that's the whole foundation of infinite banking as a concept.

1:19:27This isn't the best way to argue against it, but I think it's important. The thing that I found most striking about it is that it's extremely ideological. It's not so much about this is a really smart financial strategy and this is going to give you a better expected outcome. It's like, you don't want to pay interest to the bank, you want to pay it to yourself. There's a lot more anti-government, almost conspiracy level language in that book. I think that colors a lot of the logic of the strategy as a whole. But when you run the numbers, which we've done for a paper that I'm working on with Jason Pereira, it's really hard to make insurance match the expected outcome of investing in registered accounts.

1:20:03That paper is still a work in progress. Hopefully, we'll do a more detailed explanation of our results, we've still got to work on a few modifications to the cases. In general, I think the statement that it's difficult for a permanent insurance policy to match the expected outcome of investing in a registered account and accessing financing through traditional means, I think that's going to hold true in most cases. Looking at the first part of this listener's question, what would you recommend for a young Canadian couple with a new baby who have not yet maxed out registered accounts, et cetera, et cetera, get cheap term life insurance.

1:20:39That has to be your number one consideration, disaster proof your life as Preet Banerjee used to put it in his book, because that's the idea is that you've got to look after that before you start investing. If you procrastinate on the insurance until after you've maxed your registered accounts, you might never get there. And then of course, the other encouraging part about all this, it's a lot easier to get cheap term insurance when if you're a young, healthy couple with a new baby, then it is to start worrying about maxing registered accounts. So don't get fancy with this, get cheap term insurance to cover all of the contingencies that you can imagine.

1:21:18And you can worry about these more advanced strategies later if they're really that important to you and if they really turn out to be advantageous, but it's not what you need right now. Yeah. I think the other thing I'll say, and this is maybe some kind of logical fallacy, but I'll say it anyways, of all of the great fee only or fee-based financial planners I know, and I make that distinction because I mean of all the great planners I know who are not purely insurance sales folks, I don't know a single one that has an infinite banking policy themselves. I don't have one. I don't have permanent insurance myself.

1:21:48I see no need for it. And I find it's very telling that the people who know about financial planning and not just insurance generally, and I'm sure there's people who are going to message saying, that's not true and i have a policy but i've never met somebody who does use infinite banking and these are from people who could sell you infinite banking if it was optimal but also are not biased towards it because it's not their only source of income so i think that's a very telling point tfsa fhsa rsp resp you don't need to jump through hoops to use these accounts they're right there for you they're very easy to open you can implement these in a low-cost way for the most part these are very very liquid as well and you're not locking yourself into any sort of long-term contract like you are with whole life like there's a lot of downside to the lack of flexibility that comes with these types of policies and yes the liquidity comes from you being able to borrow against it but then you're just introducing interest rate risk to your plan as well because if interest rates go up in dividends and paid up insurance amounts don't keep up you can end up in a problem where you're starting to exceed the allowable level of cash value and interest in the policy so there's a whole bunch of downside risks that i think in my experience those who sell this type of stuff rarely talk about like lower than expected dividends, interest rate risk, lack of liquidity, and being locked into something for a longer period of time.

1:22:57There's very few circumstances where I think it's optimal. As we've said all episode, do you know anybody that didn't meet their financial goals because they didn't implement infinite banking? No. I will say that it's not a totally insane strategy. In the modeling that we've done on it, it's not horrible. You're not necessarily throwing your money away. and it can work, I'm sure, for the right person. If it's a strategy that really speaks to you for whatever reason, and it's going to allow you to be disciplined more so than you would otherwise, hey, that's fine, I guess. But I think it probably is suboptimal for most people most of the time.

1:23:28And I think it's really important. You mentioned it, Mark, that a permanent insurance policy is a contract that you're entering into. And breaking that contract, like if you decided to cancel the policy, it can be really expensive, especially early on. Those considerations are really important. buying cheap term insurance for your life insurance needs and investing in your registered accounts is much more flexible. You don't have a contractual obligation. A counter argument to that is that you don't have a contractual obligation. The insurance policy might encourage discipline, which for some people, maybe that's important.

1:23:58But that philosophy, that strategy is generally oversold by people who are, in my experience, only insurance licensed. And if it works for some people that's fine, but I think it would be wise for people who are being pitched that strategy to look for alternative perspectives just to understand the potential downsides. Not that it's a terrible strategy that nobody should ever do, but you have to hear information about it from someone who's not biased to give you a certain view. Last one. You can answer this one. Parents bought whole life insurance for their child. The child is now an adult, 33 years old.

1:24:32Should the child take over the policy or do a cash surrender? What Or is there someone unbiased that we can recommend they talk to? I actually got whole life quotes for my own two kids last year. There's a point where this becomes an interesting strategy. They've already done it. Parents bought it for their child and the child is now 33 years old. So one of the things that's really, I think, potentially attractive about this type of thing is that the policy can be transferred to the adult child. They can take over ownership of the policy. And that's not a taxable disposition necessarily. Oftentimes, if you were to transfer an insurance policy between arm's length parties or between a corporation and an individual, it's a taxable disposition.

1:25:09But in the case where you're transferring it to children, I think as long as they're the ones who are insured under the policy, I want to say, going from memory there, then it's not a taxable disposition. So you're getting permanent life insurance for your kids at a very young age, which makes it relatively cost effective, ensures that they have some insurance in case, you know, something happens health wise as they get older, and they're young adults, and they have some kind of health problems and wouldn't otherwise qualify, well, at least you've got this insurance in place, and then you can transfer it to them, and they can take over the policy.

1:25:34And that's not a taxable disposition. We can't say for certain because we don't have the full picture of why this insurance was purchased in the first place. We don't know anything about their financial situation. What would they do with this policy if you were to transfer it? Would they keep it? Would they borrow against it? Would they cash it in? Are you concerned that they might do that and you want to hold it back and make sure that they don't have access to the money? We don't know. It's certainly a consideration. I think in the right case, assuming that that child who's the life insured has reached some kind of financial maturity and if there's still premium payments required, they can take over the premium payments.

1:26:04I think it's totally reasonable to transfer it to them, but this was ideally bought under some kind of goal or plan. So I'd be curious to know why they bought it in the first place and if it makes sense to transfer it to them. Tons of great insurance advisors out here. I won't name drop on this episode, but this is a question from Alexis. Alexis, if you're listening, feel free to reach out to me on LinkedIn or Twitter. Just send me an email. I can give you some recommendations to unbiased advisors that you can talk to about that. Dan, I don't know if you've got much experience in these types of policies.

1:26:32Your comment about this was obviously done with some kind of long-term plan. I mean, maybe, or maybe the policy was just sold to them inappropriately. I mean, who knows? Insurance is one of those things too, that the answer is virtually always, it depends in the sense that the 33-year-old in question here, I mean, what's their situation now? Do they need permanent life insurance? What's their health like? Obviously, if you've had a diagnosis in the past or you find yourself more or less uninsurable, of course you should take the policy, take it over and continue it. If you don't need permanent insurance and you're in a situation in your life where it might make sense to take the cash surrender value, get cheap term insurance, do something productive with the cash surrender value, that's important too.

1:27:18There's lots of possible answers here that we can't possibly know without understanding the circumstances. Agreed. One thing maybe to consider is that to surrender the policy and withdraw the cash value could be taxable as well. Basically, the cash value of the policy minus its adjusted cost base. And if the policy has been enforced that long, it's likely the adjusted cost base is relatively low. And we don't know how big this particular policy is. But the excess of the cash value minus the adjusted cost basis is taxable when you withdraw it as taxes income, not a capital game. So surrendering, it could be a tax event that they aren't aware of or weren't prepared for.

1:27:54So something to keep in mind. so we got through 20 questions we'll save the other 141 for future episodes how long have you been recording for almost two hours 20 questions in two hours how many did we get 160 161 in total oh man this is 16 hours to get through all of these questions if we were to sit down and do them one by one if we made one episode that long people would actually listen to it though that's the crazy thing some people would we could do a whole episode about your hair almost yeah i don't know about a whole episode maybe half an episode maybe half an episode should we go to the after show we have a couple reviews sure

1:28:35all right so we got one from grouty 11 from great britain they say i listened to the end and i hate the show five star review though i think it's a play on mark and i talking about how if you're listening to the end and hate the show, that's on you. So they clearly were listening to the end and hate the show, but gave us five stars. That's great. I appreciate that. And are no doubt listening to the end of this show as well. Of course. Yeah. So this one, insightful, funny, and factual. They say, truly one of the best podcasts I've listened to. Cannot think of a better one to recommend. The quality of content is incredible and it is presented in an enjoyable matter.

1:29:17Over the years, this podcast and the community have had a significant and positive impact on my financial position and ambitions. A big thank you to the entire team. Finally, I want to express how amazing Mark's beard truly is. One of a kind, if only the other hosts could keep up. The latter part is true. I don't foresee you guys keeping up, but there's not much to it really. It's a nice beard though. Thanks. I couldn't grow a beard like that if I tried for sure. I couldn't either. I take it for granted. My hair grows like almost up to underneath my eyes. So I have to shave like here. If you look close enough, it kind of connects to the eyebrows on the side and I got a pluck in the middle too.

1:29:54So it's like literally goes like all the way around. And so it's like the bane of my existence. But to those who can't grow a beard, they're like, oh man, that's sick. Like you can grow a great beard. I'm like, I don't think you understand how much work it is just to not look ridiculous every day. Maybe I do look ridiculous every day. I don't know. But thank you. You look great. I have no hope of growing a beard like that. but it's super patchy. During COVID, I grew it because COVID was crazy. Saved 20 bucks? I shaved it myself. I never paid it to shave my beard. The hair thing was never about saving the 20 bucks.

1:30:22It was just about the hassle of getting change. And I don't know, man, I didn't mind paying. If I could have used a credit card, I would have kept going. To your point, it was just the change situation just was killing me. Have you guys seen me with a bigger beard? Have I ever showed you pictures? I've seen pictures. Before you came here, before you started with PWL, your Twitter picture was you with that gigantic beard. and you hired him anyway it's been bigger than that actually i should grow it back out there's been some heft to it back in the day but i get this you can tell here but it's gray here and it's like a racing stripe that goes right down the center like zz top kind of thing i think it looks weird but i don't know maybe i'll bring it back people like it you can bring it back wait for the playoffs there you go i'm a vancouver fan though so it's like you never know so there won't be any playoffs that's the problem all right since this is our year end episode do we have parting words, anything that you guys can think of to say to our audience before we end the year?

1:31:12I don't get to engage with the audience probably as much as you do, Ben, because I know you spend a lot of time in the community, but I do hear from a lot of people online who reach out directly to me and are super appreciative of the show. So for me, it's been an honor and a pleasure and honestly still kind of pinching myself that I'm here co-hosting this podcast that's been so influential in my life. So big thank you to all of our listeners. With Dan too. Yeah, well, I know. Not just on this podcast, but on this podcast with Dan. with the couch potato too. It's ridiculous. So I'm just super grateful to be here.

1:31:39And obviously this opportunity exists because you guys did such a great job with it for the first many years and it built such an incredible community of people and listeners. So thanks to everybody who's involved in the production and getting it out. And thanks to all the listeners for sticking by and putting up with me over the past few months as well. I would echo that as well. I mean, as I know you guys know, I was just sunsetting my own podcast when Rational Reminder took off. You guys have had just incredible longevity. And I know how difficult it was to just crank out an episode every month or two, to be able to do what you do every week for as many years as you've done it has been amazing.

1:32:15And it's been a great opportunity for me to get on board and feel like back as part of the community again and generating the content that PWL has been well known for. Nice to be back in the seat. yeah it's awesome having you guys here i think that's it i mean thanks to everyone for listening and we'll be back in a week we're not taking any time off the podcast isn't we will we pre-recorded episodes though so there will be an episode coming out but i don't know about you guys i'm probably going to take a little bit of time to relax over the holidays i'm going to mexico my wife and kids are there right now and i'll be joining them for a couple weeks nice you do anything dan no i'm not going away.

1:32:52Might take a few days off, but staying close to home this year. Me too. There's a small ski hill, not like where you live, Mark, but there's a small ski hill where I live. My kids enjoy that. Last couple of years, we've stuck around here and just kind of hung out, but it's nice that things slow down around the holidays. Even if you don't take time off, I could still come to my office and do work, but there's nothing else happening. Clients tend to be pretty quiet around the holidays. They got better things to worry about, especially this year. It's been such a good year for markets. I think there's a little bit less anxiety than there has been in the past.

1:33:23All right. Well, we'll leave it there. We appreciate everyone listening throughout the year and we'll see you in the new year. Enjoy the holidays. All the best.