Guest User

November 2, 2023

Episode 277: The Cash Wedge w/ Phil Briggs, and the Four Ds of Tax Planning

Guest User

November 2, 2023

During this episode, Financial Advisor and Associate Portfolio Manager Phil Briggs joins us to discuss the ‘cash wedge’ financial strategy. He also shares his motivation for joining PWL Capital after kicking off his career in the banking industry. Next, Mark McGrath unpacks the four D’s of tax planning and how to implement them in your future planning. We review a much-loved past episode featuring Dr. William Bernstein and unpack the principles taught in Seth Godin’s latest book, The Song of Significance. During the aftershow, you’ll hear about our recent explorations in the world of infinite banking, Admired Leadership, and more. In closing, we share some of our favourite reviews from guests all over the world and offer a glimpse of what’s to come in upcoming conversations. Thanks for listening!

Key Points From This Episode:

(0:02:19) Phil’s introduction to financial services and his decision to join PWL.

(0:07:06)The role of the podcast in helping Philip to take the plunge and leave his role at the bank.

(0:09:35) What the ‘cash wedge’ strategy is and how it supports financial planning for retirement.

(0:22:41) Stress-testing financial plans using the Monte Carlo simulation.

(0:25:10) Mark McGrath joins the show for this episode’s Mark-to-Market segment.

(0:29:54) Assessing which category RSPs fit into.

(0:32:02) Past episode review: episode 108 with Dr. William Bernstein.

(0:34:22) Reviewing Seth Godin’s book, The Song of Significance.

(0:29:11) Seth’s principles on the road to significance.

(0:39:53) The aftershow: infinite banking, Admired Leadership, and more.

(0:42:43) Reviews from Canada, Australia, San Francisco, and beyond.

(0:47:44) A teaser for two upcoming episodes.

Read the Transcript

Ben Felix: This is the Rational Reminder Podcast, a weekly reality check on sensible investing and financial decision-making from two Canadians. We're hosted by me, Benjamin Felix and Cameron Passmore, portfolio managers at PWL Capital.

Cameron Passmore: Welcome to Episode 277. Another week, Ben, and this week is a terrific episode where we welcome off the top our colleague based in Toronto, Financial Advisor and Associate Portfolio Manager, Phil Briggs. He's going to talk a bit about his decision to join us, as well as he'll talk about the cash wedge. Then after that, Mark McGrath will be here for this week's mark-to-market. He's going to be covering the four Ds of tax. We'll do a quick look back on Episode 108, where we welcome neurologist author and financial advisor, Dr. William Bernstein, such a great episode. Then I'll do a quick review of the most recent book from Seth Godin called, The Song of Significance. Do you want to add some colour commentary around all this?

Ben Felix: I don't know if I have any colour commentary. I think that's a pretty good setup. I mean, you described everything in the episode. The second was, Phil is great. It's good to hear from one of our financial planners who's in a ton of client meetings, and seeing a lot of people, and hear the questions that he's being asked, and how he's addressing them. I thought that was a really cool perspective. Also hearing about Phil's journey to PWL was good. I like Mark's four Ds of tax planning. It's a nice way to frame, thinking about how to deal with tax with respect to investment planning and financial planning. Good episode. But that's more than enough for an intro.

Cameron Passmore: All right. Then after that, of course, we have the after-show for the three people sticking around. Okay. Let's go to the Episode 277.

***

Cameron Passmore: All right. Welcome to Episode 277. Ben, wanted to cue this up with Phil.

Ben Felix: So we're joined today by Phil Briggs, who's a Financial Planner and Associate Portfolio Manager at PWL. We've got some questions for Phil about PWL, and then, Phil's prepared some notes on the financial planning strategy of the cash wedge, which we're also going to ask him about. Phil, welcome to the podcast.

Phil Briggs: It's an honour to be here. Thanks so much for having me on.

Ben Felix: Great to have you. To start, Phil, how did you find PWL?

Phil Briggs: Let me give you a little bit of background. In terms of my career, I basically stumbled my way into financial services. I did not end up here due to any type of grand plan or anything along those lines. My undergrad degree is actually in philosophy. I've always really been interested in studying life's big questions like, what does it mean to live a good life? I've always been fascinated about how people make decisions around how they allocate their time, and resources, in pursuit of whatever it is a good life looks like for them. So you can see like my interest crossover a lot with some of the content that the firm has been putting out over the last number of years. But believe it or not, guys, having a philosophy degree didn't exactly present a clear career path for me. After I finish school, I just got a job as a bank teller, while I tried to figure out what I wanted to do when I grew up.

It was initially working at the bank that I discovered that there was this entire world that I really did not know a lot about. I met a lot of financial advisors that worked there and learned about what they did, and started to become really interested in this world of money, and investing, and retirement planning, and taxes, and so on, and so forth. That interest grew, and grew, and actually culminated in what has been over a decade now of studying, and doing courses, and professional designations, and building a career.

Along the way, I've also consumed a ton of personal finance books, and podcasts, and naturally ended up finding out about PWL through all the content that you guys have put out over the years. So I've been listening to the podcast, I think I was listening maybe a year or so before I actually joined the firm. Went back all the way to episode number one and caught up while I was out running in the morning, and listen to all the way through. And watch your YouTube videos as well, Ben. I think the first thing that I ever did find that exposed me to the firm was our colleague, Dan Bortolotti's Canadian Couch Potato blog. So yes, that's how I discovered PWL.

Cameron Passmore: Incredible. How did you decided to move from the bank and join us over here?

Phil Briggs: As I was doing all of this reading and studying, it became pretty clear to me early on that there were some really big discrepancies between what I was reading for all of these resources outside of the bank versus what I was being told at the bank itself. I had my eyes open to the fact that using low-cost index funds, for example, was a much better investment strategy for the majority of people compared to the high-fee active funds that I was being encouraged to sell. I wanted to be able to recommend products to people that I believed in and that I thought were in their best interests. I wanted to be able to give advice to people that was truly going to be helpful for them.

That really caused some feeling a bit conflicted, in all honesty. I also wanted to work at a place where the definition of success was the same for me as it was for the organization. I'll give you an example. When I was at the bank, I would sometimes have these meetings where I would make a great personal connection with someone. I would learn about their goals. I would learn about what was important to them. And I'd have the opportunity maybe to provide them with some education and have them feeling comfortable and confident with financial concepts that maybe they hadn't understood before. We'd work together in partnership, and develop a great plan, and lay out some clear steps for what they needed to do for success in the future.

Everyone would come away from that meeting feeling great. I would feel great, the clients would feel great. But the reality was, that if there was no product sale that resulted in that meeting, it was almost like I had done a bad job or that I had missed out on some opportunities in some way, so I found that really tough. I love learning how to do financial planning and make these great connections with people. But the environment that I was in was one where you were only doing a good job if you were hitting your sales targets, if you were topping the leaderboards, that sort of thing.

After doing that for about 12 years, honestly, I got to a place where I started to think I either need to change careers completely or I need to find a place, I need to find a company, a firm that does evidence-based objective financial planning, that recommends that their clients invest in index funds, and that sort of thing. I will say, the podcast played a role in this because the tipping point for me was actually hearing Jordan Tarasoff's first appearance that he did a number of years ago. His journey to PWL, and his experiences in the industry really resonated with me, and mirrored a lot of the experiences that I was having as well. I think, honestly, it was shortly after hearing that episode that I reached out to you guys to see if there was an opportunity to come on board.

Ben Felix: How long have you been at PWL now?

Phil Briggs: January will be two years. It's gone by quickly.

Cameron Passmore: It's nuts.

Ben Felix: What's your experience at PWL been like so far?

Phil Briggs: I will say, as someone who worked in the industry for a long time, and listen to the podcast every week, I started to develop these ideas or these expectations of what it might be like to work at PWL as an outsider. I have to say that my actual experience of working here has exceeded what were very high expectations coming in. I am part of an absolutely amazing team of people that work together and support one another. Quite frankly, just like get along amazingly well and are just great people. I'm learning new things all the time. I feel motivated to keep pushing myself to learn more, and to grow, and to keep getting better. Because I know that everyone else around me is doing the same thing. So being in that kind of environment is super inspiring.

The other thing that I'll say is, there is an amazing freedom in working at a place where you truly believe in the mission of what everyone is trying to do. The analogy that I would use is almost like when you have a great meal at a restaurant, or you hear a great band or something like that, and you go out and you're telling other people about that. You don't feel like you're trying to sell them anything. You're literally just telling them about something that you think will make their life better. For me, that's what it feels like to work here and to interact with people. I'm just sharing what I truly believe will make their lives better. There's an amazing freedom and being able to do that. I've never enjoyed my work more. I've never felt more professionally fulfilled. It's been a great change for me.

Ben Felix: Incredible. Really cool to hear you talk about all that.

Cameron Passmore: Sure is.

Ben Felix: You did come with a planning topic today, so this is something that I think you and I have chatted about a few times as you've gotten questions about it. I think you've got some pretty cool thoughts. What is the cash wedge strategy?

Phil Briggs: You're exactly right. I wanted to come on here and talk about this, because it is something that consistently keeps coming up in meetings over and over again. I thought I'd come on and share some thoughts and get some perspective from you guys as well. A cash wedge, what it is, it's a strategy that is used in retirement during the deaccumulation stage.

The idea is that rather than having all of your money invested in a portfolio of stocks and bonds, you slice off a portion of the portfolio, and hold it in cash-type products like high interest savings accounts, or short-term GICs, or a combination of the two. You hold something like one to three years' worth of expenses in cash. The idea behind this strategy is that this is supposed to protect you against sequence of return risks, which is the idea that if early in retirement, the markets have a big downturn, and you're having to sell out of your portfolio, while it's down, that that could have a really, really bad impact on your plan overall. The idea behind holding the cash is that you can avoid selling from your portfolio, you draw from the cash instead, and give your portfolio time to recover.

Then the flip side is, that if the markets are doing well, you still have the cash position in place, but you've just salved and draw from the portfolio while it's appreciating. Then if you need to, in the good years, you can also sell and refill the cash position as necessary. That's kind of the basics of how it works.

Cameron Passmore: It might seem like a dumb question, but why do you think people find the cast wedge appealing?

Phil Briggs: I don't think it's a dumb question, because a lot of people do seem to find it appealing recently. I think it feels like it's a safer strategy, especially for retirees. I hear from people all the time, "Hey, we were focused on growth while we were working and accumulating. Now, we're retired, we're decumulating, so we need to shift into something that's more conservative. We need to protect ourselves." I do get it, the idea of drawing from a portfolio that's declining in value could feel scary for a lot of people.

I think it's that, it's the feeling of safety, in combination with, and I think part of the reason why it's coming up more and more often is because of the current environment that we're in. Cash is paying higher interest rates than we have seen in a very, very long time. The markets are coming off a pretty lousy 18-month stretch. I think it's natural to say, "Hey. Why am I holding these stocks? Why am I holding these bonds? I'm not doing great. I see 5% on cash. Why wouldn't I want to include some of that in my portfolio?"

Ben Felix: What problems do you see with the strategy?

Phil Briggs: There definitely are problems with the strategy. The main one being the fact that you are going to get a lower expected return from cash over the long term. I know this is something you guys have already covered recently on the podcast. I looked it up. It was back in Episode 265. If anyone hasn't listened to that, go back and check that out for Ben's deep dive on why you maybe don't want to hold cash for the long term.

But just to reiterate some of those thoughts. Holding cash in the portfolio is generally okay if you're going to use that to fund some type of short-term goal. So if you've got a car purchase coming up, or a large renovation that you're going to do on your house, sure, raise that, hold some cash, use it within a year or two. That totally makes sense. But if you're going to commit to holding cash in your portfolio for the long term, that's likely going to make you worse off than being fully invested in stocks and bonds, because you're going to get a lower return. Why is that?

Well, the reason is, cash isn't going to fluctuate at all in value. Its nominal value is guaranteed. It's safe. The reason that anyone would even consider investing in something that doesn't have a guarantee, where there is some uncertainty like stocks, or bonds, it's because they're going to demand a higher expected return in order to do that. I think, probably, everybody listening to this podcast understands that concept, that you would expect to get a higher return from stocks and bonds over the long term compared to cash.

But when it comes to the cash wedge strategy itself, I think the key question is, understanding that you're going to get a lower return from cash over the long term. Is that offset, by the fact that you can time those withdrawals and not have to withdrawal from your portfolio during a downturn? Is the impact of being able to do that enough to offset the lower expected returns from cash?

To me, that was the key question as I looked into this, and I found a couple of good resources where that exact question actually was analyzed. The first one was an article called Sustainable Withdrawal Rates: The Historical Evidence of Buffer Zone Strategies by Walter Woerheide and David Nanigan, which was actually published in the Journal of Financial Planning. That article outlined the details of a study that they did where they tested out decumulation strategies. Holding anywhere from one to four years' worth of cash reserves, so the cash wedge strategy. And the remainder of the portfolio was then invested in stocks.

They tested out a few different things. They looked at different withdrawal rates, so withdrawing anywhere from as low as 3% of the portfolio to as high as 9% of the portfolio. They also did it over different periods of time, as few as 15 years, up to as long as a 30-year time horizon. The way that it worked was, they assumed that if the portfolio was down, they withdraw from the cash. When the portfolio was up, they would replenish the cash position. The key findings in this study was, ultimately, that the cash wedge strategy did make people worse off and had a higher failure rate than the non-cash wedge strategies.

The biggest negative impact of holding cash was experienced at the higher withdrawal rates and the longer time horizons, which I think intuitively makes sense. Cash will be expected to have more of a negative return over a longer period of time, certainly, but also if you have a much higher spending rate from your portfolio. Then in terms of the exact question that I was interested in, they did conclude that the drag on returns from holding cash had a bigger impact than being able to time your withdrawals and not having to sell from your portfolio when it was down. You were actually better off just being fully invested, selling from your portfolio during the good years and bad years. And holding cash and being able to avoid selling during a downturn didn't make up for the lower expected returns. That was the first resource.

The second was an article, Ben, actually, that you sent me when we were chatting about this, which was called The Bucket Approach for Retirement: A Suboptimal Behavioral Trick by Javier Estrada, who is a professor of finance at the IESE Business School in Barcelona. In this one, again, this was another study, they did a similar type of test. They looked at the differences between a cash wedge strategy versus 11 different portfolios that had a static allocation of stocks and bonds, and was just rebalanced regularly. Essentially, they found the same thing that actually having a fully invested portfolio, and just rebalancing that on a regular basis resulted in lower failure rates, fewer shortfall years.

If you think about rebalancing, rebalancing is essentially doing what the cash wedge purports to do. If stocks have a great year to maintain your 60-40 allocation, for example, you're selling from stocks. If stocks have a bad year, and unlike say, last year, where both stocks and bonds were down, but normally, you tend to see bonds maybe don't decline quite as much as stocks. To maintain your 60-40 allocation, you're selling from bonds in years when stocks are down.

Rebalancing meant that it wasn't necessary to implement a cash wedge strategy. Again, according to this study, you were better off just being fully invested the whole time. The broad conclusions of both of these studies were, having a cash wedge might make you feel better, there may be some psychological benefits to implementing a strategy like that. But more than likely, it's suboptimal and is going to make you worse off over the long run.

Cameron Passmore: Therefore, what do you tell clients who want to put a cash wedge in place?

Phil Briggs: For me, my number one goal always is that my clients can achieve their financial objectives. If they can still do that using a cash wedge strategy, and that's going to allow them to sleep well at night, and they're going to feel good about their financial plan overall. I'm totally fine with that. The best financial plan is one that you can stick with and actually execute on. If you feel better about doing a cash wedge, then I'm good with that.

I feel the same way. It's like when people ask us about, should I lump sum investors? Should I dollar cost average? Lump sum investing has been shown to be the optimal strategy. But if you feel better about dollar cost averaging into the markets over time, even if it's suboptimal, as long as you can still achieve your objectives, and you feel better about doing it that way, then I think it makes a lot of sense.

Ben Felix: I love that answer to the question, would you explain to the client that it is logically suboptimal, however, if it feels right?

Phil Briggs: One hundred percent. Of course, you want to say, this isn't necessarily the strategy that I would recommend, but this is where you've got to understand both sort of the quantitative and the qualitative factors that go into developing a plan. Me giving a whole bunch of recommendations that just don't quite feel right in the back of your mind, we want to try and find a solution that we can actually implement and feel good about.

Ben Felix: Other than the cash wedge to address this concern, what else do you think investors can be doing?

Phil Briggs: I've been thinking a lot about, for the folks that ask questions like, "Should we be implementing a cash wedge? Should we hold cash?" I think that part of where this comes from is a desire to feel in control over your money. I don't know about you guys. I've been getting a lot of questions like, "In this current environment, should we be doing anything different? Should we be holding cash? Should we be revisiting our asset allocation? Is there any change?" You hear this all the time.

Ben Felix: That is something that I learned very quickly. I'm sure you've had the same experience, Phil. I've been in financial services for 11 years now. At first, I was hearing that question and was thinking to myself, this must be a crazy time. This must be unusual. Then you eventually, quickly realize that all the time, people frame questions that way. Given all of the uncertainty that's happening right now, or given this thing that's going on right now, there's always something happening in the world that people fixate on. But it's just the nature of markets, because they're forward-looking, and the future is always uncertain. So there's always going to be something. The big uncertainty that's on people's minds, anyway.

Cameron Passmore: Trust me. Thirty-three years in, that's an absolute truth.

Phil Briggs: I totally get it. It's not fun to hear, like, "Hey, don't do anything. I know you feel worried. I know you feel worried about your plan, or you're watching the news, and it sounds scary. But don't worry, you don't actually need to do anything." My suggestion would be, instead of tinkering around with the investment portfolio, which there's a truckload of evidence at this point that suggests that we started making active decisions and messing around with the portfolio. It's probably going to make us worse off over the long run. So instead of doing that, let's take that desire for control and apply it to things that we have more direct control over.

Things like how much are we saving, or how much are we going to spend out of the portfolio. If we have the ability to have some flexibility in our retirement plan around how much we're taking out of the portfolio, that will make actually a really, really big difference. For example, if we can spend less in years when the markets are doing poorly, or maybe just not increase our spending with the rising cost of living as an example for a year or two to give the portfolio some time to recover. In years then, when the markets are doing better, we could spend more.

What we have found in doing financial plans is that, having that kind of flexibility actually gives you the ability to spend more on average over the life of your plan. I think if we can apply that desire for control to things like that, where we have more direct control, maybe that helps us feel safer and better about the plan. But it doesn't make us worse off by making a bad decision with the portfolio. I'd be interested though, do you guys have any additional thoughts beyond that, around anything that people should be doing?

Ben Felix: I think one thing that we do always is we stress test, is what we call it. We stress test financial plan. We use Monte Carlo simulation, which is imperfect in many ways, but it does give us some level of information about what happens to this financial plan if returns are not what we expected them to be. Monte Carlo is not perfect, like I said, but it's always helpful to be able to say to a client, listen, we have tested your financial plan in scenarios that are much worse than what we're actually living through right now, and you're still in great shape.

I like having that as a component of the analysis to be able to tell a client that we tested for situations like this, and you're still going to be okay.

Phil Briggs: I agree. The thing with Monte Carlo that I find is in our plans, oftentimes, we've stressed tested it, and we've just assumed that you're going to keep spending the same throughout the life of your plan. If it's a situation where we've run Monte Carlo, we've stress tested the plan, the plan is still successful at your current spending rate. Well, then, you can probably proceed with confidence that you're still in pretty good shape. But if you're able to be flexible with your spending, it's likely to make you that much better off. So yes, it's a really great point. The combination of those two, I think are very helpful for sure.

Cameron Passmore: The current spending rate is the thing that I really fixate on, like to understand what is your base spending needs and what's your supplemental once on top of that. You should have a very clear knowledge of what those two numbers are. If things do get rough, what do you absolutely need per month or per year so that you can drop your spending down? Because we all know that variable spending over lifetime means greater total spending over the lifetime, but you need to know those numbers.

Phil Briggs: That's exactly it. If you can take a look at your budget, and track, and make sure you have an understanding of where everything's going, that would also be a helpful exercise, rather than getting in there and messing around with your portfolio for sure.

Ben Felix: The uncertainty thing, you can try and solve with asset allocation, which is tricky. Probably more realistically, you can solve it with spending. But those are two different ways to solve the same problem. But I think, like you said, Phil, that the spending side is much more in our control than outcomes from varying asset allocation approaches.

Phil Briggs: Absolutely.

Ben Felix: Cool. All right, Phil, that was a great topic. It was awesome to hear your thoughts about finding PWL and your time at PWL so far. We really appreciate you coming on the podcast.

Phil Briggs: Yeah, it was a pleasure to be here. Thanks again for having me on. Really appreciate it.

Cameron Passmore: It's super fun to have you on Phil. With that, let's go over to our other colleague, Mark McGrath for this week's mark-to-market.

Ben Felix: Mark, welcome back to the podcast.

Mark McGrath: Thank you. Thank you. Good to be back.

Ben Felix: What are we talking about today?

Mark McGrath: What are we talking about today? We're talking about tax.

Ben Felix: Awesome.

Mark McGrath: One of my favourite topics. We're not going to go too detailed today. I'm going to try to keep it high level. I'm going to talk about something that I call the four Ds of tax planning. This isn't something I made up. If you Google the four Ds of tax planning, you'll find lots of stuff on there. There's three Ds of tax planning, or five Ds, or whatever. But the four that I'm going to talk about today, I think, are kind of the core idea.

I use this when I'm doing financial planning work for clients, when I'm trying to think about the tax planning for their situation. I try to kind of run myself through this four D checklist just to kind of make sure I'm not missing anything, and to make sure that I'm framing, and thinking about their tax situation correctly. The four Ds are deduct, defer, divide, and decrease or diminish. What that means is, there's essentially four high-level ways that you can save tax, but they operate all differently.

The first one is deduct, and I think this one is fairly common and a lot of people understand this just intuitively. Think about your RSPs, deductions, reduce the income on which you're going to pay tax. So simple scenario, you earn $100,000 per year, you're going to pay tax on $100,000. If you contribute $20,000 to an RSP, you get to deduct that $20,000 from your income, and you only pay tax on $80,000. That's how a deduction works. It reduces the income on which you must pay tax. RSPs aren't the only way to do this. There's a number of other deductions that people can claim, self-employment expenses, childcare expenses. The Government of Canada actually maintains quite a nice list, that you can kind of just go and look up if you just Google the canada.ca list of tax deductions, you'll find a whole page on there. Deduct is the first one.

Defer is the second one, so defer taxes into the future instead of paying them today. Because of the time value of money, a dollar in the future is worth less than a dollar today. So if you can avoid paying tax today, and push that tax bill into the future, you can reduce or eliminate the tax drag effect of paying that tax bill today and having less money compounding. So think of a non-registered portfolio of global stocks, and you've got an unrealized gain. Meaning they've gone up in value, and you haven't sold them yet.

Let's just say that gain is $100,000. If you trigger it today, assuming you're at, let's just say a 50% tax bracket to keep the numbers simple, you'd have a capital gain of 100,000. Half of that is taxable, and so that's going to result in about a $25,000 tax bill. So if you did that, you'd only have $75,000 left of that gain to invest. But if you defer that into the future, of course, you have the $100,000 compounding over a longer period of time. Tax brackets tend to go up in a lot of provinces as well. So from a tax efficiency standpoint, you want to give your money to CRA I think as late as possible as a high-level concept.

The third one is divide. Really, this is just income splitting. Try to divide the income on which you have to pay tax among as many family members as possible. The most common one is going to be a spouse and there's a couple of ways to do that. The simple one is spousal RSPs. So you make a contribution to a spousal RSP, where let's say, my wife has a spousal RSP. I make the contribution, I get the tax deduction. But when she withdraws from that RSP down the road, ideally in retirement, she's going to pay the tax. So I'm taking my income, getting a deduction and pushing that income into her hands.

Number of other ways to do it, you can do it with education plans or ESPs. You're basically splitting income with your children now, because you're taking your money, putting into an education fund, and they pay tax on the growth down the road. That's a great income-splitting tool. More complex ways to do it involve corporations, depending on if you have a spouse that works for the corporation or after age 65. You can pay dividends to a spouse in most cases, or prescribed rate loans where you lend money to a spouse and they invest. Essentially, what you're trying to do is take advantage of their lower tax brackets and spread the income across as many family members as possible, reducing the ultimate tax bill. That was the third one. That's divide.

The last one is decrease, and this is probably tougher to accomplish than anything else. It's just reducing the dollar amount of taxes you've got to pay to the government. The common way to do that is through tax credits. I mentioned deductions, which reduce the income on which you must pay tax, a tax credit reduces the tax bill that you owe. So if you've gone and done your taxes, and you owe, let's say $10,000, but you've got a $2,000 tax credit, it's going to reduce your tax bill from $10,000 down to $8,000 in that example. Number of tax credits out there, tuition tax credits come to mind for students. There's pension tax credits, probably dozens of them, lots that I'm not aware of. But again, the government maintains a great list of these. If you're working with an accountant, I mean, they should be up to speed on which credits you can apply for and you're eligible for. That's it. That's the four Ds of tax planning; defer, deduct, divide and decrease.

Ben Felix: Cool, I like it. I was thinking about use RSP as the example for – is that a defer or deduct? Is it both? I don't know.

Cameron Passmore: It could be both.

Mark McGrath: I guess it's both. At the end of the day – today, it's a deduction. Today, you're reducing your tax bill, but you are of course deferring taxes into the future. So good point, it is a combination. Other deductions, I guess probably don't work the same way. They're just pure deductions.

Ben Felix: I pulled the list up while you're talking, so there's like exploration and development expenses. That's a whole other topic flow-through shares. We won't go there for now, but that would be a deduction. Carrying charges like investment management fees or interest. Those are deduction. Childcare expenses, that's another deduction. Cool. I like it. Four Ds, it's good.

Cameron Passmore: Before we go, Mark, I want to give a shout-out to the podcast that you are on, came out this week actually, The Most Hated F Word episode. Where you're along with other good friends, Jason Pereira, Aaron Hector, Preet Banerjee, past guest, and Dr. Meghaan Lurtz. I thought the conversation was phenomenal.

Mark McGrath: Thank you.

Cameron Passmore: People should check out that podcast episode. It's really thoughtful, and you all contributed so much to the conversation. I really enjoyed it.

Mark McGrath: It was just cool to be in a room with those folks. They're so brilliant, and they've done so much research on different areas of financial planning, and risk, and behaviour. It was really, really neat to be able to get into a room. So big shout out to Sean who organized the whole thing and got us all together.

Cameron Passmore: Also, the meaning of money. I thought a lot of the answers, and I wasn't prepared. You could tell, these were not scripted responses. Everyone contributed very meaningful contributions to it.

Mark McGrath: It just felt like a friendly conversation. To your point, there's no scripting, and I don't even know if Shaun gave us much in terms of leading questions before the podcast. We all just gotten a room, and mic'd up, and just went with it. I thoroughly enjoyed that conversation.

Cameron Passmore: So it's called The Most Hated F Word, good podcast.

Ben Felix: Super. Meghaan, who has not been on the podcast. I was at the same conference where they recorded that and talk to her. She's going to be a future guest to talk about her research on risk for individual investors. Interesting stuff.

Cameron Passmore: Certainly is.

Mark McGrath: Definitely. Cool. Okay, guys.

Ben Felix: Thanks, Mark.

Mark McGrath: Thanks again. See you in a couple of weeks.

Cameron Passmore: Great to have mark on again, of course. It's been a while, Ben, we're rusty. At least I'm rusty. We haven't done a book review in a long time or a review of the past episodes. So we'll start with the past episode review, one of my favourites, Episode 108. A bit of a backstory on this. William Bernstein, Dr. William Bernstein joined us in the summer of 2020. This is one of the first bigger-name guests that felt like way to get on our own, to get on my own.

I reached out to a friend of ours who knows Dr. Bernstein and said, "Any suggestions how to get him on?" And they said, "Just email him. He's just such a great guy. He'll probably say yes." I'd known Dr. Bernstein's work for a long time. His books, The Four Pillars of Investing, and The Intelligent Asset Allocator really helped transform our thinking back in the late nineties, early 2000s, thinking around portfolio management, and portfolio structure for our clients. This was remembered just as the indexing revolution was getting going. This was early in the game, and these books were just terrific.

I got the email, he accepted, and the rest is history. For those who are looking for which episodes to go back in time to check out, that's the point of this. With that, let's do a quick review of Episode 108.

In Episode 108, we had the great fortune to interview Dr. William Bernstein, who is someone that I've admired for many years. Dr. Bernstein is a retired neurologist who brought his medical training to finance, authoring many, not just the two I mentioned earlier, but many best-selling books on finance, and history, and also to his financial advisory business. He's a brilliant student of financial history, and suggests investors need to appreciate this history if they want to be successful investors.

If you're wanting higher returns, you must understand and expect periodic poor returns. You must also understand the inverse relationship between how good the economy is looking and what future returns are going to look like. He also interestingly enough encouraged young investors, those who have high human capital to pray for extended bear markets, low returns in their early savings years. You have to look at this as an opportunity. But that is very hard to tolerate, and investors are very bad at evaluating their risk tolerances. Dr. Bernstein then shared his thoughts on factors, return expectations, concentration of portfolios, dollar cost averaging, fixed income allocation, and also annuities. It's a real pleasure to welcome Dr. William Bernstein on Episode 108.,

Ben Felix: Great episode.

Cameron Passmore: It really was great. He was such a good guy too, interesting conversation. Okay. A book review for you this week, Ben. Book is called The Song of Significance: A New Manifesto for Teams by Seth Godin. I'm sure many, if not most listeners are familiar with Seth Godin, and have probably read one of his 21 best-selling books. I really enjoy his style of writing and the structure of his books, short chapters, very creatively written. I find that they really make me pause and stop and think as I go through them. This book is in that styles. There's 144 short segments in this book, and it's about being significant at work. As Seth Godin described on the very first page, and I quote, "This is a short book about a fork in the road, about a decision we all get to make. Each of us can show up in our own way, but the choice is the same. To lead, to create work that matters, and to find the magic that happens when we are lucky enough to co-create with people who care."

The point is, we all have the opportunity, or many of us do every day to do better. To create the best jobs someone ever had, to create the best experience a customer ever had, and to build great organizations. That's what I think he means by calling it the song of significance. Many of us have this choice every day. There's 144 chapters, and it outlines his view on this way of thinking. We've talked about this a lot. We've talked about, for example, the Seligman PERMA Model. In fact, engagement, meaning, and achievement are three of the letters in the PERMA Model. That's what so much of this book is about.

Seth Godin describes how value creation has changed over time, and now, it is created by personal interactions, innovation, creative solutions, resilience, and the power of speed. This is the knowledge economy. We're no longer living in a world by traditional measures of productivity, like how many widgets you're making per hour in a factory. That was about efficiency and producing more. Leadership is the art of creating something significant, which is the opportunity many of us have, like I said, to do every day.

Here's another quote from the book. "The only way a business is successful and productive, is if employees feel that sense of empowerment, that sense of energy, and connection for the company's mission, and are doing meaningful work." It's interesting, once again, I just thought of this now, Ben, but this links right back to what Phil was saying at the top of the episode.

I also want to highlight and describe what Seth Godin said in the middle of the book is the crux of this whole rant. He describes a trap that most people fall into, a trap that is based on fear, it's how he looks at it, and how fear is undermined our ability to do work that really matters. He says, "We have a deep fear of rejection and isolation. These fears have helped us evolve." However, to be significant now, he argues, these fears are working against us. So industrialists, manufacturers, and factory leaders knew of these fears and maximize the organizational structures to alleviate these fears, which ultimately benefited the workers and accompanies. But most of us don't make widgets anymore, we make decisions. The rate of decision-making is ever-increasing. In the knowledge economy, we need to put these fears aside and not allow them to paralyze us.

Another quote from the book, "Management is not the same as leadership. Management is the hard work of getting people who work for you to do what they did yesterday, but faster, and cheaper. It requires authority, a hierarchy that gives the manager the power to insist." He continues, "Leadership is voluntary, voluntary to perform, and voluntary to follow. It's the work of imagining something that hasn't happened before, and inviting people to come along for the journey." I think that's really interesting to think about.

Many of us are programmed to wait for instructions and get the clear deadline. If we do not have these, we meander or get distracted. We've talked a lot about distractions, Ben, in this world of social media. This book is really about focusing on the significance you want to create with others, and embracing the fear that has been part of us forever, to not wait for instructions, to not wait for the deadline.

A cool example he gives me to think about it is Netflix, and most of us use Netflix. In hindsight, it's so clear, but just imagine creating all that Netflix has become. Netflix was never a widget factory, you'd never would have gotten a Netflix out of a widget factory. It needed extreme levels of engagement, creativity to create something that is just so ubiquitous today. So they needed all of this from their leadership as well. He's not necessarily referring to senior leadership, but rather that everyone has role in leadership, and can demonstrate behaviours of leadership, and how they engage at work.

I thought I'd finish up by sharing his principles on the road to significance. Just a quick list here. Important organizations make change happen. Humans are not a resource. Management is not the same as leadership. Enrollment is more powerful than coercion. Culture can amplify enrollment. Leaders create the conditions for culture. It's the work, not the worker. Embrace uncertainty. Seek out the benefit of the doubt. Rigorous standards. Scale is not the point. Hiring is not dating. That's the book, Song of Significance by Seth Godin, a new manifesto for teams. I loved it. Easy read, short read.

Ben Felix: Cool.

Cameron Passmore: There we go. All right. Let's go to the after show. Maybe you kick it off. Some recent content, anything I've been watching lately, or engaged with lately. I'm like completely tuned out on any shows of late.

Ben Felix: The thing that – accidentally is not the right word, because it wasn't accidental. I fell into learning about infinite banking, which is this idea that you can over-fund permanent life insurance policies, and then finance your consumption by borrowing from those policies through policy loans from the insurance company. It's a philosophy more than it is a tactic. I make that distinction, because there are many non-financial motivations for the infinite banking philosophy.

I would call a tactic something that is used to express or achieve an objective or philosophies, a way of thinking about the world. Anyway, I don't know if that's interesting or not. But with infinite banking, it's like, as a tactic, probably suboptimal. But as a philosophy, it appeals to people who view the world a certain way. Learning about that view has been very interesting. I think it's borderline. I'm not going to elaborate there. We'll do a deep dive on this one day. I don't have many good things to say about it, though. But I'm trying to restrain myself until I've done more research.

Cameron Passmore: But you're learning a lot.

Ben Felix: Yes, but more like, how is it possible that people view the world this way, as opposed to, "Wow, I learned something new"? But, yes.

Cameron Passmore: Interesting. It kind of illustrates kind of our behaviour outside of work, which is just to continually learn. You and I are talking about these kinds of things back and forth quite often. My big interest of late kind of dovetails with Seth Godin book has been just leadership in general, I find the topic so fascinating. I have been exposed to a company called Admired Leadership, which is led by Randall Stutman. I've been a big Randall Stutman fan for many years. He's been a guest on Ted Seides' podcast, as well as Shane Parrish's podcast.

I really liked the philosophy of the company, Admired Leadership, which is all about, they've learned the behaviours of great leaders over the years, and they teach people these behaviours. I had the good fortune of being able to go on a four-day course with Admired Leadership last month, and it was fantastic. I really appreciate how they bring these ideas together, to hopefully make a difference in how I view the world, and how our team is able to come together to create some of the things that Seth Godin talks about. If you want to learn about Admired Leadership, check out the conversation with – it was on Ryan Holiday's podcast, Shane Parrish's podcast, and Ted Seides' podcast. They have a free service that you can get from Admired Leadership, called Daily Field Notes. You can find it easily, admiredleadership.com. The field notes are excellent. If you have any questions, reach out to me, but I think the world [inaudible 0:42:40] the kind of service that they do provide. Do you want to dig in the reviews, Ben?

Ben Felix: Dominic, who's an advisor that we know in Eastern Canada, they wrote a comment that says, "Superb content. One of the best podcasts in finance. The variety of topics and guests makes this podcast a real gem for people eager to learn. Keep up the great work Cameron and Ben."

Cameron Passmore: We have some nice emails as well. "Just want to reach out and say hello, and thank you for the podcast. Can't even remember how I discovered it, but had been listening since season two. I've heard almost every episode. It's been a true pleasure listening. The show has grown at the top, and it's deepened with each year, and it finds a great balance between academic rigour, lifestyle, context and storytelling. It's rare that a podcast stays fresh and relevant for so long, and this is an endorsement of your commitment to quality. The Rational Reminder discusses fascinating subjects with great guests in a unique way. It's interesting, educational, and thought-provoking. You guys have helped me design my own life in so many new and positive ways. I can hardly express how grateful I am. My life is meaningfully better for having listened to Rational Reminder, and I think of no more sincere compliment. Warm regards from Jared in Australia." Thanks for reaching out.

Ben Felix: That's pretty serious compliment. My life is meaningfully better for having listened to Rational Reminder. If we wanted to make an advertisement for our podcast, that's about as good as it gets.

Cameron Passmore: Yes, I agree.

Ben Felix: You want to hear the next one?

Cameron Passmore: Sure.

Ben Felix: "I've been listening to the RR podcast for three years now. I look forward to every Thursday morning when a new podcast is dropped. I'm one of the few listeners who listened to the Chris Hadfield podcast on the morning it dropped. I loved it, and couldn't believe it was a low-volume podcast for RR. I've been slowly catching up on past episodes prior to my discovery of RR. Fantastic show. Sometimes I find that content gets too deep into the weeds, but for the most part, I find your topics very engaging and interesting to listen to. The guests you interview are second to none, and I appreciate Cameron and Ben giving them the opportunity to speak without interruptions. I'm a retired CPA and have been interested in financial planning my entire adult life. Being a nerdy bean counter, I instituted a pay-myself-first financial plan when I was 25 with a goal to retire at 60. True to my plan, I retired two years ago at age 60. One of the most influential financial books for me was The Wealthy Barber by David Chilton, which I read in 1989. I've read so many financial books over the years, but I find the RR podcast to be such a valuable and varied source of financial information. The podcast format is easy to listen to while working out or walking the dog. I was converted to the couch potato portfolio years ago after many years being invested in high-fee mutual funds. I like that RR is a proponent of low-cost ETFs or index funds. Keep up the good work, Cameron and Ben."

Cameron Passmore: From Steve. On LinkedIn, I had a number of people reach out lately. Justin, who was a portfolio analyst in San Francisco reached out to say, "I'm a fan of the podcast and listen to it during my commute. You guys have amazing guests in your show and appreciate the insights that you and Ben bring." Paco in Paris reached out, "You and Ben have been treating us with great podcast episodes lately. Thank you. I love how you touch on different but relevant topics such as storytelling with Matthew Dicks."

Joseph in Atlanta reached out saying, "I'm just reaching out first to say how the episode with you and Mr. Felix at the CFA Conference in Toronto was very great. As it really brought up some more basic things that I need to consider like reading habits and just general daily consistency." Andred from Czechia, "Thank you for accepting my requests. I'm reaching out as a super fan of your podcast. I love listening to both of you every week. I'm a computer science student from Slovakia, currently studying in Czech Republic and I discover your podcast through our faculty discord, where we have a channel called finance. CSI, and RR, along other resources constantly recommend as the most popular resources for anyone interested in personal finance. Thanks for your podcast. I got my personal finances in order. I'm reading more and also trying to educate my friends on this topic as well. My personal favourite episodes are the one with Chris Hadfield. Recently read his book, which was incredible. Episode on unexpected returns of financial literacy, and the one where you explain the factor investing to Ben's mom. Forward to the next episode."

Ben Felix: Nice.

Cameron Passmore: Jack from Portland also reached out saying., "I'm a big fan of the podcast by you and Ben. Keep up the amazing work. I'm always looking forward to every week's episode." Yes, it's very kind of these people to take the time to reach out and pass along such thoughtful comments.

Ben Felix: Very cool.

Cameron Passmore: And everybody loves Ben's mom.

Ben Felix: Just speaking of favourite episodes, there's a topic that somebody started 11 days ago in the Rational Reminder community. The topic was about evergreen podcast episodes. What are the episodes that you could always go back and listen to? People effectively started listening to their favourite episodes, I think roughly. I think it's kind of what it's turned into, but it's kind of neat to look at what different people have appreciated about different past episodes. There was one really funny one, Justin in the community said, "Yow, Fama. I'm really happy for you. I'm going to let you finish. But Scott Cederburg has one of the best episodes of all time." It's a pop culture reference.

Cameron Passmore: And we're a big fan of that episode.

Ben Felix: Both great episodes.

Cameron Passmore: Love it.

Ben Felix: If people want episode ideas to go back and listen to, there's a nice topic happening in the community.

Cameron Passmore: Upcoming guests, next week, we welcome Darin Soat. Ben, you want to do a teaser for that one?

Ben Felix: So Darin is a friend of mine who runs the – YouTube channel. I mean, I guess we're kind of giving away the big reveal of his name.

Cameron Passmore: You just revealed it. Maybe we could block that out.

Ben Felix: Well, you said it.

Cameron Passmore: We will beep it out.

Ben Felix: Let's beep it out. It's a cool episode. We talk about the economics of running a YouTube channel and how it sort of incentivizes basically producing information that's bad for people. And also, how YouTube as a platform, I think just social media as a platform is a medium, makes it easy for people to find the information that they're looking for. Then people who figure out how to create content that matches what people are looking for can be very successful. It's not usually the type of information that's actually part of a healthy information diet. Really interesting conversation to hear about that directly from someone who is creating what I would say is good financial educational content and doing it in a way that's entertaining. He's been quite successful at doing that. For people who may not know that – YouTube channel has around – so it's a very large channel. Unique episode, I think different from the kind of things we usually talked about, but really worthwhile for people to hear.

After that, we have Professor [inaudible 0:49:05], a phenomenal episode. Another great researcher. After that, we have Shane Parrish, who just released his book, Clear Thinking. All three of them are incredible conversations. [Inaudible 0:49:17] Shane, really cool to welcome him back on the podcast for a second time.

Cameron Passmore: Quickly, the store is running out of hoodies. The hoodie that you're wearing, Ben, there's no longer any medium or larges in stock. So if you're not that size, it's time to grab them. Super comfortable and pretty affordable. Every order comes with free socks and a free beverage koozie. Update on the 23 in 23, and I talked to Angelica today. We're going to continue the reading challenge into next year with the 24 in 24. Twenty-eight people have already completed the challenge of 23 books this year, 282 active readers, 519 total readers. Over 3000 badges given out, 145 book reviews, and almost 3,000 books read in the competition this year. As always, you can connect with us on LinkedIn, on X. Ben. you're on TikTok now?

Ben Felix: Wow. I mean, I posted a few videos, and then got busy with other stuff, and stopped. But I made a bunch of short videos for TikTok, and then I ended up posting them on Twitter, and LinkedIn, and YouTube too. Yes, I am technically on TikTok.

Cameron Passmore: Awesome. Anything else to wrap up the episode?

Ben Felix: I think this is a cool episode. We have to hear from a couple of other PWL people other than us.

Cameron Passmore: That's good. All right, as always, everybody, thanks for listening.

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