November 22, 2018

Episode 21: Buying or Leasing: Weighing the Costs of Real Estate Choices.

November 22, 2018

Today’s episode is focused on the question of investing in real estate. It is still a common conundrum for investors and even those who may not consider themselves active investors, whether to buy or to rent a property. As you may imagine it is not a very simple issue and the answer does require some serious thought and calculation. But our hosts do their best to lay out some of the most important concerns and factors in trying to find the answer. Before getting into the meat of the episode however, we also look at some general recent news from the money world including developments from Investor’s Group, the market’s downturn and the low year we have all had as well as thinking about Canadian small cap stocks. For all this and more, be sure to tune in!

Key Points From This Episode:

The changes Investor’s Group have made to their pricing. [0:01:27.4]
The recent downturns in the market. [0:03:04.8]
Evolving perspectives and long term measurements on your returns. [0:05:00.2]
Looking at the performance of Canadian small cap stocks. [0:09:55.2]
Beginning to weigh the costs of owning versus renting real estate. [0:11:13.3]
Dropping opportunity costs and changes in income over time. [0:16:15.8]
Adjusting your view to your total unrecoverable costs. [0:16:46.4]
The biggest advantage of home ownership. [0:18:26.8]
Some points from Larry Swedroe that we can all adhere to. [0:20:38.2]
Keeping track of your decisions and why you made them. [0:25:41.8]

Read the Transcript:

Ben Felix: This is the Rational Reminder Podcast, a weekly reality check on sensible investing and financial decision-making for Canadians. We are hosted by me, Benjamin Felix, and Cameron Passmore.

Cameron Passmore: So this week, we we're going to have Rob Carrotcom, but he had to defer to another date, which is fine. We'll have him back here another day soon.

Ben Felix: Yeah, it would have been good to talk to Rob, but we still chatted about one of his articles. So it's almost like he was here, sort of. We had lots of other things to talk about. The biggest topic, at least in our minds today, was this discussion on renting versus buying, how to pay for housing. But we talked about lots of other stuff, too.

Cameron Passmore: Interesting conversation, for sure.

Ben Felix: One of the things we wanted to ask is, we're getting around 400 downloads per episode now on the podcast, which is pretty cool. We've only got, on the Canadian iTunes anyway, 35 ratings for the show. So if you're listening and you're enjoying the show, it would be great if you went ahead and gave us a rating.

Cameron Passmore: And we'd love any feedback or questions you might have.

Ben Felix: That's right. So that's it. We'll start the episode.

Cameron Passmore: Have a listen.

Ben Felix: So I took the kids sledding this weekend for the first time ever, which was kind of fun.

Cameron Passmore: So you're going to somehow tie this into the recent market slide, I suspect.

Ben Felix: Slide. That's a good way to tie it in. No, I was not going to do that. I was just saying it.

Cameron Passmore: Did they enjoy the ride?

Ben Felix: They did. All the way down to the bottom. That's terrible. This is a bad joke. Let's stop.

Cameron Passmore: So lots in the news this week. I know you wanted to talk about the Investor’s Group announcement that came across the wire last week.

Ben Felix: Well, it kind of ties into our discussion from last week where we were talking about pricing. So an investors group who's been forever the leader in the high fee mutual fund, commission-based space.

Cameron Passmore: Yeah, high fee, high service, I think, is fair to say.

Ben Felix: That is fair to say. That's very true. They do pride themselves on good service. They're rolling out unbundled fees for everybody, for all of their clients.

Cameron Passmore: Yeah. Starting with over a million dollars and up, and then soon going to half a million, in the first quarter of next year, I think. So it's going to be rolled across their whole platform, I believe.

Ben Felix: Which is good.

Cameron Passmore: Yeah, because advisors won't be paid by the product, per se, be paid directly by the client.

Ben Felix: Which is a good thing, because the advisor's no longer tied to selling certain products to earn the commission. In terms of what that's going to do for the clients, presumably, there will still be a bias toward Investors Group products, somehow. I don't know how. But I don't see why Investors Group as a firm would stop incentivizing, in some way, or at least praising using their own products.

Cameron Passmore: But not a huge difference in total cost I don't think. Initially anyways, they're talking about what three basis points, or 0.03%, expected fall in fees. But perhaps once it becomes clearer, they might have more pressure to reduce the fees. That is what will be interesting.

Ben Felix: Yeah, that's a good point. How good is the high service when you see how much you're actually paying for it?

Cameron Passmore: Right. Because they are... It's safe to say, they are at the high end of the cost range, I think, for service providers.

Ben Felix: Oh yeah. If we look at their fund fees, their fund fees are high. And if they're only dropping by three basis points, I would say that's not a hugely beneficial change for their end clients. But taking away the commissions is a huge step in the right direction.

Cameron Passmore: For sure. So markets are down a bit today.

Ben Felix: Yep. They've been down in November. Well, they've been down for the year, in most cases. I was looking at the numbers earlier. As of today, the 19th, Canada has been pretty flat, for the month. Canada's been flat for the month. US is down another 130 basis points so far in November. So that puts the US market, in US dollar terms, measured by the S&P 500, down into negative territory slightly, but still up 5% for a Canadian investor holding an un-hedged exposure to the S&P 500.

Cameron Passmore: Yeah, you made up what, 5%, I think, on the-

Ben Felix: It's the currency. Yeah.

Cameron Passmore: The currency loan.

Ben Felix: So you're still up on US, as a Canadian, if you're not un-hedged, by about 5%. And then international, again, in Canadian Dollars, is down almost 8% for the year, as at November 19th.

Cameron Passmore: And I think the currency internationally is pretty flat. Maybe we're slightly stronger, I believe, compared to the international basket of currencies.

Ben Felix: Yeah, pretty ugly. And then DFA 60 40, which we always like to refer back to, is down 2.55% for the year.

Cameron Passmore: Yeah. So is that ugly or not? I think back to 2008, and that's kind of like a Thursday, back in 2008, as opposed to for a whole year. I personally don't see it as being too ugly. And it's all about expectations. If you know the potential outcomes going in, and know that this can happen and likely will happen, you should be okay. The problem is a lot of people, I don't think, know what to expect. And they often look to people like us to prevent them from that happening.

Ben Felix: Yeah. This is... 60, 40 was down, for the worst 12 months of the financial crisis, was down 25%. So this is a fraction of that. But I don't think people are panicking. I think people are maybe feeling maybe a little stressed or a little sad that markets are down, but I don't think people are panicking.

Cameron Passmore: No, I don't think so at all. Especially if you have a strategy in place that's taken advantage of this with automatic rebalancing, I wouldn't worry too much about it.

Ben Felix: So that kind of ties into one of the other things that I wanted to talk about, which is the conversation from last week about the client that was concerned about their five-year returns. And we looked at the distribution of returns and showed it was normal and all that stuff. But I started thinking about, okay, so we have one bad month, and all of a sudden the five-year return looks terrible, and people might get upset about that. So if you started evaluating returns at a given point in time, any given point in time, it's highly dependent on the month that you start with and on the most recent month.

Cameron Passmore: Absolutely.

Ben Felix: And it changes hugely.

Cameron Passmore: Because in October, we picked up a bad month. We may have dropped the month that looking back five years ago, if it was a great month, that's now falling off. So you have a higher starting point.

Ben Felix: Exactly. Exactly. So it's essentially useless to look at your five, 10, or even 20 year returns. So I started looking at the data around that for... What was I looking at? I think I was looking at Canadian stocks. No, I was looking at the global equity portfolio. And I looked at going back to 1994, that the 20 years ending September, 2018, the five-year return was 9.68%. And then 10 year was 8.87. 20 years was 8.85. So all great returns. 9.68% per year for five years, 8.87 for 10. Those are great returns. And then we have one bad month in October. So if I shifted over from the period ending September, 2018 to the period ending in October, 2018, which was negative 6.85% for that month of October, all of a sudden, the trailing five-year drops from 9.68 to 7.18. The 10 year actually increased.

And this speaks to the point of, where was your starting point? So it actually increased from 8.87% to 9.98%, per year for 10 years, just by shifting forward one month. And then the 20 year dropped from 8.45 to 7.68. So I mean huge changes. But it's an example of if you're evaluating your returns, at a given point in time, it's almost completely meaningless.

Cameron Passmore: Well, I looked at one this morning. So someone had a five-year return in the global equity portfolios. This is a real person, real money. Their five-year return on January 1st of this year was 12.4% per year for five years. The five-year return at the end of October is 8.44%. So the five-year compound return numbers dropped 4% per year, just in the past, that's 10 months. So just something to keep in mind. And in the end, you have to believe in capitalism, you have to believe in, there will be positive expected returns, and you have to know that this will happen. It's unfortunate. We all get mailed our statements every month or emailed them. And people are more connected to this as opposed to their house, which no one ever looks actively at the value of their house or a lot of other different assets, but that's just the world we live in.

Ben Felix: And the only thing that you really have to worry about is the statistical reliability of the strategy. So whether that's investing in index funds, so just that's the statistical reliability of stocks outperforming bonds over the longterm. Does that change if you have a bad 10 year period? No, it doesn't. And it's the exact same story for size, so small caps beating large cap stocks over the longterm, value, profitability, all the well known factors that have been established with data, but also backed up by theory, it's like, does evaluating your performance matter? Does it matter if small caps have underperformed for 10 years? No. And the factor is still statistically reliable. And that's the only thing that you can base decisions on.

Cameron Passmore: But most people don't appreciate that. So 10 years... Telling someone 10 years is not a statistically reliable dataset, 10 years to wait for small cap premium is a long time. But you talk to academics, and to them, it is not a long time.

Ben Felix: Exactly. That's what Ken French would talk about, the Bayesian way of thinking, which is basically if you take your prior belief, for you to change that, a strong prior belief, which we have for stocks outperform bonds, and size and value and all those different factors, we have a strong prior. To change your prior, it takes, what Ken French would say, an overwhelming amount of data, which 10 years is not.

Cameron Passmore: That's what makes you wonder, right? If someone decides to bail on this kind of strategy, what set of data will you use to decide where you're going to go to? Some great storyteller, stock picking fortune teller? I don't know. I don't know what you would do. Where are you going to find a more robust belief system than this one? And it's not ours. We just implement it.

Ben Felix: Yeah. That's the question that I wrote down in my notes, "What else are you going to do?" If you decide, okay, it's been a bad 10 years for this statistically reliable way of investing that I'm doing now... Even forget about size and value. Just say it's for index funds. Although I guess it's more interesting with the factors because they're different from the market. So let's use factors, let's say small caps. 10 years where small caps underperform, but it's still a statistically reliable evidence. And the theory-

Cameron Passmore: What are you going to do? Just do it on beliefs?

Ben Felix: That's right. What else do you do?

Cameron Passmore: The world has changed, therefore, we have to go to technology or low barrier to entry types of industries. I don't know what you do.

Ben Felix: By changing, you're saying, "I'm taking this statistically reliable strategy that I've been implementing, but I'm going to chuck it and go and do something that is not statistically reliable," which is not rational. And I did look at some data. I was curious what it looked like. So I took rolling 10 year periods starting in 1990 and just looked at Canadian small cap stocks, which people always talk about how they don't actually outperform and they've been bad for 10 years.

Cameron Passmore: Okay, so rolling 10 years means like January to December, February to January, rolling-

Ben Felix: Correct. Shifting forward in one month increments. So over four rolling 10 year periods going back to 1990, small caps have been underperforming. So if we take a given ten-year period, 25% of them going back to 1990, showed small caps underperforming. So 25% of 10 year periods, if you just pick one out of the data, 25% of them, it's like, okay, well, small caps have underperformed the market for the last 10 years. And as an investor, that's probably pretty hard to look at, I guess. But what's bigger than 25% of the time is 75% of the time.

Cameron Passmore: That's right. But it's also why you have to be globally diversified. And also fixed allocation rules in place, so that if it does underperform, you're selling what did perform better and buying more of it. And I think we say this every podcast, is how those fixed weightings and rebalance all the time. It's an automatic sell high, buy low mechanism.

Ben Felix: Yep. So we did have one main topic that we wanted to chew on in today's episode, which is the idea of how to pay for housing. So the classic question of renting versus buying. We've been thinking about that a lot for a long time. And had an article from Rob Kerrick, he's not here, unfortunately, but we can still give him a shout out, I guess. So he had an article last week talking about the cost of renting versus the cost of owning. But in his example in the article, he's comparing the cost of rent, which is a fixed dollar amount that's fairly easy to establish, to the cost of a mortgage there, the cash outflow of a mortgage, which is not the cost of home ownership. So I did tweet this at Rob, so I'm not blindsiding him here.

He had an opportunity to respond. He didn't say anything on Twitter. Would have been nice to talk to him about it today. But one of the wealth management analysts here on our team at PWL, also named Rob, actually, he saw my tweet and he started asking questions about it. So we started chatting. And the conversation, it took me to an understanding or a way of thinking about the cost of home ownership that I hadn't arrived to before. And I thought it was worth, worth talking about. So when we compare, and this is old news, this isn't the new, exciting part yet. But if we compare renting to owning, you don't compare rent to the cost of a mortgage. That's not how you compare it, because the mortgage is not a cost. Some amount of the mortgage, depending on the amortization and the interest rate, is going toward principal. And the interest is an actual cost.

So when we're comparing renting to owning, we really have to compare the total unrecoverable costs of ownership. Renting is easy to identify as an unrecoverable cost. You pay, whatever, $2,000 a month, it goes away to your landlord, you get a place to live, and that's it. Home ownership also has unrecoverable costs.

Cameron Passmore: Without a doubt. As a homeowner, I can guarantee you that.

Ben Felix: Yeah. And this is the part that people don't often think about. It's like, once you own a home, you have property taxes, which, in Ottawa, are 1%. You have maintenance costs, which, again, like in Rob's article, in Rob Kerrick's article, he said you could probably use 1% to estimate.

Cameron Passmore: And I bet that's low.

Ben Felix: Yeah. Who knows?

Cameron Passmore: 1% per year.

Ben Felix: I usually use 1% when I'm doing analysis on this stuff, but I've also had people tell me it's probably low. So that's 2%. Property taxes and maintenance costs. So 2% of the value of the home that you are paying in unrecoverable costs each year. So on a $500,000 home, that's somewhere around $10,000 of unrecoverable costs that are gone. Now, that part's easy. The one that people miss is the cost of capital. So if you're a borrower, if you finance the majority of the cost of the home, you're paying interest on the mortgage debt. That's fairly easy to see because your bank tells you what you're paying in interest, they tell you what the interest rate is, and all that stuff. The one that really trips people up, and that almost always gets ignored when I see people talking about renting versus buying, is the opportunity cost of your equity.

Cameron Passmore: The down payment.

Ben Felix: The down payment, the equity in your home, if you've paid it off. When people say, "Well, I've paid off my home. Now I don't have any more costs." It's like, no, your costs have probably increased, because the opportunity cost of your capital on a $500,000 home with no mortgage, you've now got an opportunity cost on $500,000, which is dependent on your situation.

Cameron Passmore: And it's even more so if you have RSP room TFSA room, right?

Ben Felix: Well, that's what I mean by depending on your situation. So if we take somebody who has... Let's think about opportunity cost of equity capital. So if you have a $500,000 in the home, in the example that we're talking about here, that's $500,000 that could alternatively be invested somewhere else. So if we just throw some easy numbers out, and you can earn 7% on average for stocks, which is probably high, but we'll go with that number. And we expect real estate to grow at 3%.

Cameron Passmore: Which is also, on average, probably high.

Ben Felix: It's probably... Well, if we look at the data globally, real estate's been about 1% in real terms. So 3% nominal and counting with 2% inflation is probably reasonable. So call it 3% nominal. So before inflation. And same thing, 7% nominal. So that means that the difference between those two, like if you could be earning 7% in stocks, but you're only earning 3% in real estate, then you've got a 4% opportunity cost of your equity capital. So 4%, that's a big number, if we're talking about a $500,000 home. That's $20,000 in additional unrecoverable costs that you're paying as a fully paid homeowner.

But the thing that gets really interesting, and this is the part that I hadn't thought about in the past, is that your cost of equity capital, or your opportunity cost of equity, is highly dependent on your individual situation. So that's the thing that you just mentioned, Cameron, about the RSP and TFSA. It's like, if we're saying you've got a 7% expected return, that's pre-tax. You're going to get that in your RSP or your TFSA. But if we start talking about a taxable account, especially for someone taxed at a higher rate, 7% might be, I don't know, 5%.

Cameron Passmore: 3 or 4% after-tax.

Ben Felix: Sure. Yeah, even 4%, depending on the type of income they're earning. So that changes the whole conversation. All of a sudden, if you have-

Cameron Passmore: It's crazy. You start to thinking about how your situation might even change over your lifetime of ownership of the house, that you might start out as a typical person not having a lot of assets scraping together the down payment, but over time, your income changes, so your cost of capital costs would actually be going down in most situations because you get caught up on those other accounts that top up.

Ben Felix: Which means when people usually buy their house, which is early on, is when their opportunity cost of equity capital is the highest. So that's why before I even figured out this way of thinking about this, the plan that Susan and I have always had is max out both of our registered account rooms plus the RESP room, so all the tax-free spots, max those out, and then invest in an aggressive portfolio. And actually, that's, to backpedal, the other variable in this cost of capital conversation is your equity mix. If you have registered account room and you're an aggressive investor, so you've got a 100% equity portfolio, your cost of capital is even higher. Which means owning a home, if you don't have your registered accounts maxed out, is potentially extremely expensive. So anyway, our plan has always been to max the registered accounts with 100% equity portfolio, and then start saving for a house.

Cameron Passmore: It also makes the argument, if you don't need to use the RRSP as a home buyers loan, don't, because you're giving up on that higher opportunity cost, or opportunity benefit of leaving the money inside the RRSP, especially if you're a higher equity investor. A lot of people use the RRSP as a down payment to avoid... Well, first of all, just to get into the house, which if that's a priority, fine. But they also do that to avoid some of the CMHC mortgage insurance.

Ben Felix: Right. So anyway, the whole point of the discussion is when you're looking at that decision of renting versus buying, it shouldn't be about, "I could rent for $2,000 a month, but I could get a mortgage for 1800." That's the wrong way to think about it. I think it's more about looking at your total unrecoverable costs. So with rent, as we've talked about, that's super easy to identify. If rent is $2,000, then you've got a $2,000 per month unrecoverable cost for renting. But for the home, you've got to take your property tax, your maintenance cost, maybe the difference in utilities, like Rob Kerrick, in the article that he wrote, says that as an owner as opposed to a renter, you're probably going to have higher utility costs, because he figures you're renting a town home or a condo when you're probably buying a home. I don't know if I'd include that.

Cameron Passmore: But the biggest advantage of home ownership in wealth creation is you get that behavioral habit. You're never going to miss a mortgage payment. Then over time, over your lifetime, you typically will build up hundreds of thousands of dollars of equity, which you might not have done otherwise. So you have to be extremely disciplined to even do this kind of [inaudible] and keep up the savings rate if you do choose to rent.

Ben Felix: For sure. Well, we think about the cost of equity capital. If you're a renter and not saving, then there's no capital. There's no opportunity costs because you're not saving in the first place.

Cameron Passmore: All I know is it costs a lot to have a house. And you're forever running to Canadian Tire and Home Depot on the weekends. And the money just melts into the house over time. And there's no way anyone ever accounts for all of that. But if you have a high utility, so you enjoy owning your own home, that's a whole different story.

Ben Felix: Which is totally fair. And I've never, personally, I've never felt that. I've never felt the desire to have a home. But I know a lot of people do. And you're right. We've talked about the numbers and the unrecoverable costs and how, in a lot of cases, renting is overall cheaper, especially if you have registered account room and you're an aggressive investor, but for a lot of people, they would hear that and it would go in one ear and out the other, because they want to buy a house. Because they want to knock down a wall and, I don't know, renovate the bathroom. Which is, when we talk about home ownership, that idea of renovating and fixing stuff up and kind of what you're talking about, those weekend trips to Home Depot, that's the stuff that kills you. That's the stuff that kills you.

Cameron Passmore: Yeah, and you just don't pay attention to it. Well, you really have no choice once you own it. You got to fix the dishwasher. Whatever might come up, you got to do what you got to.

Ben Felix: And people will put big money into big projects thinking that they're going to get the money back. They think about it as an [inaudible 00:19:59] investment.

Cameron Passmore: Yeah, in some places you will, depending on what part of town you live. Hot market, perhaps. I know where I am, no. We look back quickly since we bought it 15 years ago, I don't think we've even kept up with inflation.

Ben Felix: Yeah. That's what Alex Avery, the guy that wrote The Wealthy Renter, I think it was called, and he's a real estate analyst in Toronto, but his golden rule of investing in real estate is that buildings never go up in value, land does. The buildings never do. So the idea, he calls it the investment delusion, where if you think you're putting 50 grand into the kitchen to make it look nice before you sell the house, if you're thinking you're going to get that money back and then a premium, he's saying, "Not a chance, or at least don't bet on it."

Cameron Passmore: Right. So did you catch that article that Larry Suedrole put into posting on etf.com last week?

Ben Felix: I saw you put it up, but I didn't get a chance to read through it.

Cameron Passmore: I thought it was a pretty good article, and it summarized nicely, frankly, much of the stuff we've talked about today. So I though maybe we'd go through... A lot of these points are pretty straightforward, but it's worth mentioning. And he quotes right off the top, Buffett's famous quote, which is, "Once you have ordinary intelligence, what you need is a temperament to control the urges that get other people into trouble investing." And we're living that now, right? With the markets kind of rolling around a bit, a lot of people have this need to take action and make a change, as much for their own feeling of control as anything else. So point number one, when strategies are working, it's super easy to stay the course, obviously. As we talked about, that five-year return earlier 12%. You're seeing that as very easy, but you need to understand the risks. Number two, know the investment history, and this is something we talk about a lot with clients, understand the expected dispersion of returns.

What's a normal, great year? What's a normal, not so great year? And know that it's going to happen. And don't rely on your advisor to protect you from that. Expect the advisor to help you behave well through that. Number three, ignore all forecasts. And this is one I think is so hard for people, because someone that's got great confidence and is speaking in the media, making a forecast sounds so compelling, but you never really have the chance to do a real time check on their past forecast to see if it actually added value in the past. And knowing that there's thousands of people like that in the world and great technology and social media and Twitter and everything else, this information is pricing in very fast. So I'm not sure it's very wise to rely a whole lot on forecast. The next one, which we actually talked about with somebody this morning here doing their plan, which is don't take on more risks than you need to.

So someone was asking this morning who was about to retire, "Should we change the 60, 40 portfolio [inaudible 00:22:26] go up to 80, 20 to have a higher expected return?" We kind of flipped it around and said, "Well, you don't have to. In fact, you could lower your return expectations, go to 50, 50 if you wanted to, or even keep a bunch of your funds in simple high interest savings and GICs and you'll be fine." He was so relieved to hear that. And he actually chose to do that, because he wants to reduce the volatility. So in that case, he's not taking on more risk than he needs to. And number five, and this you've talked about earlier, which has to do with small caps, which is even good strategies have bad outcomes. 10 years is not a long time. Just because the small caps underperformed for a decade doesn't mean it was a bad strategy.

Ben Felix: I think about that one all the time, because it's true. You could even have... Fama and French from the episode we did from Chicago, we talked about this... But Fama and French did that paper recently where they showed, I don't remember the distribution of outcomes now, but I think it was even over 30 year periods, stocks had a 4% chance of underperforming T-Bills, or something in that range. So when we're talking about the range of outcomes, it's like, even over a 30 year period, which you'd like to think you're highly likely... Well, that is still highly likely. You'd like to think that you're guaranteed to get the expected outcome over 30 years. You're not. You could still get small caps underperforming, although it's statistically unlikely. You could still get value underperforming, but same thing. You could get stocks underperforming bonds over 30 years, but it's statistically unlikely. And if you get that outcome, that just sucks, but what else would you have done? Something less statistically reliable and hope for a better result? It doesn't make any sense.

Cameron Passmore: And you think of all those 30 year periods, fine. There might be, whatever, 130 year periods in that analysis. But you only get one 30 year period. And if the market tanks in your 30th year, that's where you made the point, stocks don't become less risky over time.

Ben Felix: That's right. Well, he had 100,000. He did 100,000 simulations using bootstrap. That's what Fama said in the end of his talk, he said that over long periods of time, the risk of the average return decreases, but the risk of the return remains constant. Because the return is just the one sample of the 100,000 that you happen to get. And he says, "Returns is what you eat." Or, "Returns is what puts food on the table." Something like that.

Cameron Passmore: Another point that Larry made was minimize how frequently you check your portfolio. I would say our clients are pretty good. I don't think they're too OCD about checking their values.

Ben Felix: It depends. I got an email after our last show from someone saying that one of the reasons that they... And we talked about this on the last show, which is one of the reasons they noted it, but one of the big benefits of having someone doing it for you and having it be hands-off is that you're not going to tinker. If you remember in the last episode, we talked about how, if you're already buying your own ETFs, it's pretty easy to buy Tesla while you're in there. "Well, while I'm here, I might as well buy some."

Cameron Passmore: And you're probably overconfident.

Ben Felix: Right. And you're probably overconfident, because you've self-selected as someone that can do it yourself. Anyway. Yeah. I think, in general, our clients are happy to have washed their hands of this task.

Cameron Passmore: Yep. The next one I thought was interesting, especially thinking back to your discussion with Shane Parrish a couple of weeks ago. Keep an investing diary of your decisions. I've never seen anyone actually do that. But I think that'd be really interesting to go back and... I remember some people made decisions, as the market rolled around, what, early January, a couple of years ago when things weren't so good, I know some people did change and went to have your fixed income with their monthly contributions, which isn't the end of the world. But you kind of wish you'd go back, roll the tape back, and remember those decisions.

Ben Felix: And Shane's whole thing is keep track of your decisions, but keep track of why you made them. Because you may get a favorable outcome for a reason different than what you expected.

Cameron Passmore: That was the point. Exactly.

Ben Felix: Yeah. And you know what? In client relationships, we, in a lot of ways, become that decision diary. Because we document everything, but we also remember everything every time we meet with a client. And as we decide to do things, we are documenting that. And so if someone comes back... It's actually really interesting. It ties back to all the other stuff that we're talking about. If someone comes back and says, "Why are we in small caps?" Because they've underperformed for 10 years, we're there to tell them. We have the data. We know why we've decided to use this approach. And we know why they agreed to it at the beginning. But that ends up being one of the most important parts, for us, I think, of the relationship with clients is that we are that decision diary.

Cameron Passmore: Yep. Absolutely.

Ben Felix: Sounding board to come back to all the time.

Cameron Passmore: So anything else on your mind?

Ben Felix: No, nothing. Nothing really. I thought it was good to get that cost of capital discussion for real estate off my chest. I've been thinking about it all weekend.

Cameron Passmore: So we've got some interesting guests coming up over the next few weeks, and we'll continue to mix in our own conversations and go from there.

Ben Felix: All right.

Cameron Passmore: That's it.

Ben Felix: That's it.