We have a jam-packed episode for all of our listeners today, with two guests, a lot of news, and many great resource recommendations. We start off by rounding up some recent updates from the world of finance and the Rational Reminder community, and spend some time talking about Ben's recent paper, titled 'Finding and Funding Good Life'. We are then joined by Robb Engen, for his third appearance on the show, to talk about how he helps his clients move on from unhealthy advisory relationships. Robb shares some of the surprising, disturbing, and ridiculous rebuttals that he has come into contact with over the years, and we reflect on the recent Twitter storm that occurred as a result of Robb sharing some of these. After this great chat with Robb, we are very happy to welcome back author of How to Change, Katy Milkman, who was recently a guest on the show, to discuss her reading habits, tips for memory, and how she balances producing and consuming both podcasts and books. To take part in this bounty of great information and inspiring ideas from these two guests, please make sure to join us today.
Key Points From This Episode:
Reflecting on and investigating Ben's paper, 'Finding and Funding Good Life'. [0:10:59]
How this podcast has increased our interest in learning about and sharing non-financial ideas. [0:15:30]
The part that hindsight and regret play in our estimations of happiness. [0:20:08]
Looking forward to our podcast miniseries in which we explore cryptocurrencies. [0:22:41]
The basics of the blockchain and digital cash in light of new technology. [0:29:02]
The context that sparked today's conversation with Robb. [0:35:49]
Robb explains his typical client, their portfolio, and why they contact him. [0:38:30]
How Robb approaches assessing a portfolio and communicating possible drawbacks. [0:40:43]
Ways in which active managers are practicing bad investment habits themselves. [0:44:02]
Tracking the progress from active to passive for those that Robb works with. [0:47:09]
Advice from Robb for managing the end of a relationship with an active manager. [0:48:15]
Robb shares some examples of how advisors have responded to 'break-up notices'. [0:52:07]
A round of Talking Cents cards with Rob; addressing social issues in a new business, quitting a job, saving versus spending, and more. [1:02:26]
Katy describes her reading habits and her use of audiobooks. [1:08:15]
Tips and tricks from Katy for information retention and idea compilation. [1:09:20]
Thoughts on the connected nature of the behavioural science community and the benefits that Katy sees in this. [1:13:39]
Some of the classic behavioural science books that Katy recommends. [1:15:07]
How Katy approaches podcasting, writing, and consuming the different mediums. [1:17:05]
Advice from Katy for anyone wanting to increase the amount that they read. [1:21:00]
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 are hosted by me, Benjamin Felix and Cameron Passmore portfolio managers at PWL Capital.
Cameron Passmore: Welcome to episode 203. Sunday afternoon yesterday Ben, guess where I was?
Ben Felix: You already told me you're watching a movie.
Cameron Passmore: Yeah. Hats off to Lisa Gulliver for bringing me up to the movies. Movies are not my most favorite exercise for all different reasons, but Top Gun: Maverick came out and we got seats and wow, what a movie. Fantastic. As someone said on Twitter, which I got to kick out of it, this movie deserves the reputation that the first one got.
Ben Felix: That's pretty funny.
Cameron Passmore: Pretty funny. Another thing I want to highlight for listeners, if they haven't checked out this interview yet Tim Ferriss interviewed Edward O. Thorp. I don't if you've listened to it yet, Ben or not, but it was a pretty amazing interview. A good friend of mine Mark reached out and asked me if I had listened to it. I had never heard of Edward Thorp before. And he's an American math professor, 89 years old. And you would never guess he was even in his 60s in this interview. It's incredible. He's the author of the book Beat the Dealer. Former hedge fund manager, mathematician, had incredible returns as the hedge fund manager. His work was a precursor to the research of the Black Scholes, which is crazy. He knew Warren Buffet before Warren Buffett was Warren Buffett and said that, "This man will be the richest band on the planet." In the sixties. He spotted the Madoff fraud, get this 17 years before it blew up. He spotted it.
And since he was the lone voice on that, no one listened to him. But he said just by testing the trades, he knew it was a fraud. But what's really interesting is that you go through this mathematical hedge fund manager career and he ends up now later in life, quite wealthy. By some estimates that I saw online, it's sum around a billion dollars. But he talks about in the end, the power of markets, the power of index funds, knowing when is your enough number and live a good life and keep things simple. He doesn't do any more private equity, doesn't do hedge funds at all anymore. I think he said, this only one manager that he would work with now, but even that he says, "I'm just enjoying my life." I thought that was a really kind of also interesting segue to our book review this week too.
Ben Felix: That is really interesting. On movies, I've got a much firmer stent than you. I will not go to movie theaters. You said you don't like movies, but you still went. I won't. I just won't. I won't do it.
Cameron Passmore: Yeah. Me it’s the whole and it was so loud. And as you know, I've got tinnitus. The sound levels here end with my mask and my earplugs. I'm quite the sight in this movie. But for me, it's the popcorn. I can't stand popcorn.
Ben Felix: Yeah. I can't stand any of it. You sitting there, I never fit in the seats properly. The snacks aren't that good. I like snacks, but I also like doing other stuff. If I'm watching a movie, I've probably got my laptop or a book and I'm flipping back and forth between the two. I don't know, sitting there or watching a movie.
Cameron Passmore: I have a sneaky suspicion this could end up becoming TikTok or those reels are that Angelica and Sandrine are doing. Anyways, they may have gotten a good sound bite there. Update on the 22 and 22 reading challenge, 502 participants, 1,787 books read so far, 2,400 badges, eight people, eight of us have completed the 22 books for this year. Lots of people ordering merch in the store with the discount code, which is fantastic. And this month, this show Katy Milkman is back joining us as a special inspirational guest for the reading challenge. She was our guest back in episode 161.
She's the author of the popular book in the challenge How to Change: The Science of Getting from Where You Are to Where You Want to Be. She is the James G. Dinan Professor at the Wharton School at the University of Pennsylvania. And she's also host of the Charles Schwab podcast Choiceology. She's an awesome special guest. She's on later on at the back end of today's podcast. And remember if you do order something in the store, put a note in the comments at checkout, just asking Jackie for free toque. We'll keep that offer going. And there's still some toques left. I realize it's really hot here in Ottawa today, but we're still moving the toques for next one.
Ben Felix: Toque is a beanie for anyone listening who may not know what a toque is. I remember when I moved to Bostons, toques weren't a thing. It's a beanie. Yeah.
Cameron Passmore: I didn't even know it was called a beanie.
Ben Felix: Toque is a Canadian word. Maybe beanie is just a Boston thing, I don't know. But what is it toque? What are you talking about?
Cameron Passmore: All right. Maybe Ben, you can queue up our other guest today.
Ben Felix: Yeah. Robb Engen, who blogs at Boomer & Echo and has a fee only planning service that we often direct people to if they're not a fit for PWL. And Rob came to talk to us about he's got a blog series called something like it's a SHIT advisors say, where he documents the rebuttals that advisors give to his Rob's clients. When they say that they're going to leave the advisor and go invest their money in low cost index funds. Somebody shows up to Rob and says, "Rob, I feel like something's not right with my investments." Rob takes a look they're in 2% plus high fee actively managed mutual funds. Rob says, "Okay, well here's an alternative low cost index funds. Here's how you do it." The client goes and breaks up with the advisor. And then the advisor comes back with some generally ridiculous rebuttal. Rob has this little blog series where he documents these rebuttals and he came on to talk to us about some of those today.
Cameron Passmore: They're pretty funny if you follow him @boomerandecho on Twitter, they're pretty funny. The comments are pretty funny afterwards, because a lot of other advisors just pile on. Upcoming guests next week, John List professor from Chicago and author of the recently released book The Voltage Effect will be here, excellent interview. And in three weeks, Rebecca Walker, a writer and activist and author of the book, Women Talk Money. And the week after that, Dan Solin a very good friend of us in our firm and author of many books, including most recently the book Ask, we'll be here to talk about his reading habit.
And then the week after that, so in five weeks, Vanessa Bohns, who is a social psychologist and professor at Cornell and author of You Have More Influence Than You Think. It's a great book. I finished it. You might want to check that book out ahead of the interview. Had a ton of people reach out on LinkedIn. Maybe I'll just go through these quickly. Ryan from kamloops reached out, said he loves THE show. Leonard from Frankfurt, loves the approach and sends his wishes to us. Daniel from Seattle loves us so much, it's making him want to work in finance. John from Pennsylvania says we become his go-to resource. Hatim in Vancouver, say he loves what we're doing.
James and advisor in the UK reached out. And to prove that their fans of Fama, actually their advisors in the UK actually sent a picture of the film that people put on their office windows. This got a quote from Fama. That's also got the five factor formula all along their wall in great big massive letters. Alexios who is one of the moderators in the community from the Netherlands reached out to offer up his observation that Ben you're the play by play announcer. And I'm the color commentator. Had a bunch of reviews. This was Required, which I realized is not his name of course, from Estonia said very kind words. But he had a tip for us actually that I think we're going to try to implement Ben.
Ben Felix: Yeah, well we've done it in the past naturally. I don't know I guess we haven't been doing it lately. But they suggest that reiterating what the other person has said if it's a complex topic, paraphrasing and summarizing to solidify the concept for the audience.
Cameron Passmore: We'll try to remember to do that. Paul from San Francisco says, "Excellent, new to the podcast and really enjoying it." Works as a tax lawyer and have an accounting finance background, but not investing. The insights make him think and spur to do more finance and investment reading. And then Zedeska from Canada, easily the best podcast in finance. It's very kind. I don't know if it's true, but it's very kind. It's funny a personally disagree with a lot of the strategies expressed in the podcast. (I love dividends and I'm an active investor, but I still listen to them every week because if I'm wrong in my investment strategy, I want to know why?) That's good to be open minded, keep up the great work. Zedeska says, "And the Oulch from the state says set the bar high. This podcast is so well done, crisp, concise, and interesting." On that Ben, I went back as you know, I'm listening to a lot of the older episodes and to your credit, the questions have gotten much shorter, which I know is delivered on your part.
Ben Felix: Yeah. I try and make the question short.
Cameron Passmore: Nanotime 42 from the Netherlands says, "Great work, love all the episodes. Watch them multiple times. Best wishes from the Netherlands. Please do one with the nerdy details on ETF mechanics."
Ben Felix: Yeah, I think that Nanotime 42 might want to check out episode 71 with Dave Nadig. I think we got pretty nerdy and pretty in the details of ETFs on that episode.
Cameron Passmore: I re-listed to that one. It was good.
Ben Felix: Is it nerdy?
Cameron Passmore: It's nerdy. Had some really good insights. I remember talking to him about the pricing of bonds and how this information and the price of ETFs. Because people were saying it's trading inefficiently. It was quite the opposite.
Ben Felix: People were saying it's a dislocation.
Cameron Passmore: Correct.
Ben Felix: And Dave's saying, "It's a more efficient pricing vector because the ETF is liquid, but the bonds aren't."
Cameron Passmore: Right. Also, wanted to give a special shout to one of our biggest supporters of the podcast on Twitter, Luke Swanson from Tulsa, Oklahoma he's always very kind putting us on. A bunch of people on Twitter asked for your favorite podcast the week. And he's often in their promoting our podcast. Also, he put a Tweet out a few weeks ago showing the mug and I sent him off a hoodie a few weeks ago in a pair of socks. He was all fired up about that and said, he was looking forward to the Fama episode, which was just about to come out. Thanks Luke for being such a kind supporter. Do you want to talk about this next one because he's in the community?
Ben Felix: Someone in the community, they let us know that they've listened to the podcast to episode 143 specifically, and the episode with Ashley Willems and her book. They influenced this person to take a break in their career. And they said, they've gotten a lot from the podcast and the community that goes beyond personal finance. We thought that was pretty cool. Just getting the information that we talked about in those episodes caused them to take some time away from work, which is the whole idea within enjoying the time being the scarce resource and making sure that you're enjoying what you're doing with your time.
Cameron Passmore: Exactly. That Ben you're good to go to the episode.
Ben Felix: Let's go ahead. Welcome to episode 203 of the Rational Reminder Podcast.
Cameron Passmore: Instead of a book review this week, I wanted to focus on something that I think is far more important. This is the 203rd time Ben that you've said, "welcome to the Rational Reminder, a weekly reality check on sensible investing and financial decision making." You came up with that four years ago. And I don't know how deliberate it was, in hindsight it looks brilliant. But it really captures the why of the podcast and the why of investing in totality. I think we really nailed it, but we keep saying it. And to me, this idea of why came to life, what about? Three weeks ago when you dropped a paper and it's PDF on our website and of course we'll link to it in the show notes here. But the paper finding and funding a good life. And it's just such a great collection of very precisely written concepts that you've studied. We've talked about. We've had guests on the podcast, but you brought it all together.
And I think just a brilliant piece again, called finding and funding a good life. And it's just far too good just for it to sit as a PDF on the website somewhere. I just thought be fun for us to chat about that today and really highlight this. I think it's incredibly important paper, because it really is all about the why do we do all this? To try to help people make better decisions. Why do you invest? That you can have more happiness in your life. And this paper does such a great job of giving an overview of all non-financial considerations when you're making financial decisions. Because when we make these decisions, there's so many things going on and we're so busy that often our intuitive sense of what is the right decision is not the decision that will give us the greatest long term satisfaction.
What I find so cool about this paper is that you've collected all these things. And there's I don't know, a couple dozen concepts in there that it's just worth reviewing it, keeping it handy and just reading it periodically just about all these different topics that are so important, right? And there's just so much research that can help us make better financial decisions. Research that we should be aware of as financial advisors, people should be aware of as consumers, we're making financial decisions all the time. And that's exactly what this paper does. It helps you make better decisions that are more likely to lead to greater happiness or more life satisfaction. Super clean, super well written. And our good friend Peter, as soon as you put it up, he read it. I think it was on LinkedIn he posted saying, "I'm printing this off hard copy and putting a copy on my fridge." I think that's exactly how good this thing is. Let me ask you first. Because I think this has been cooking in your head for a while, the idea of producing this paper, talk us through the creation of the paper.
Ben Felix: Well, we were very deliberate if you remember learning about these concepts, not just on the podcast, but our business. We were like okay, we've got all these clients assets that we're responsible for and where we've got all these people relying on us for our advice. Is it enough for us to know a lot about asset allocation and insurance and tax when we decided, you know what? It's not enough. And we ended up getting connected with Dr. Morris Summers and with Brian Portnoy. And we've been on a multi-year now endeavor to get our advisors very well educated on these concepts, by experts in the relevant fields. And then of course we've also done that exploration on the podcast. But the thing that's really hard, even with all the training that we've done for our advisors is we've done hundreds, not hundreds, many tens of educational sessions with Brian Portnoy and Morris summers and other people.
And it's like, what do you do with all that? It's not super easy to think about. And then plus all the stuff we've talked about on the podcast. I was trying to think about how do you take all that information that we've learned over the last few years and make it practically useful for someone who's trying to make a good decision? And that was the idea. That's why I tried to tie together all of the concepts that we've learned about and that we try to implement when we're speaking with clients. But then I also, for each section of the paper I added in these questions that if you're sitting down making a financial decision about something, you can actually go and look at these questions and it'll help you reflect on the relevant non-financial aspects of the decision. That was the idea that I had. It took a long time to do it though.
Cameron Passmore: How has your appreciation for these non-financial aspects changed over the past four years, so life of the podcast?
Ben Felix: It was a ton when we decided hey, we need to learn about this stuff. None of us knew a whole lot about it really, right. I remember the first times we started speaking with Brian Portnoy, we had them on our podcast. We started doing training sessions with him with our PWL team and all of this was brand new back then. I don't know when that was exactly. But whatever that was this is all new to me. And even then it was you had the information and it still wasn't obvious. Even reading Brian Portnoy's book, you take that and it's like okay, that's really interesting. How do you use this with a client or even as an individual making a decision? And it still wasn't obvious. Again, I was trying to take all that stuff and make it a little bit more practical.
Cameron Passmore: I think that's why I like these papers so much is that it's usable, right. Part of my habit is I've been collecting ideas and I've got four or five separate pieces that I pull together ideas in different topics. And this becomes another standalone piece that's easy to reference periodically. I will print it off and put it with my collection of other hard copy things that I use regularly. It keeps it top of mind. That's what I like so much about it. And it's just so sharp. And if you want to dig into things, you've got the links to the research underneath it. And as people know, I'm kind of obsessed with how people capture information and use it in their daily lives to become better at whatever their objectives are. One of the big things that's jumped out of me over the past four years is the whole notion. And you talked about this at the front of the paper is how we adapt to both good and bad outcomes. And this is what leads to the hedonic treadmill. It's a huge part of satisfaction is realizing that.
Ben Felix: Yeah. Well, some of my first exposure to that one was Jonathan Haidt book, The Happiness Hypothesis. I can't remember when I first read that, but I know I've talked about on the podcast a bunch of times. Yeah. In that book, they talk about how stable life circumstances are not predictive of happiness. And then that's a lot of stuff. Health, income beyond a certain point, wealth, where you live, your geographic location, the size of your house, what you look like, your physical appearance, gender, age, those are all things that you see them. And maybe there's some comparison stuff going in there too.
But it's like, you look at somebody else that maybe lives in a nicer place or is wealthier or you think is more attractive looking on the outside or they live in a bigger house or whatever. You look at someone like that and you think wow, they must be happy. But the reality is those things are not predictive of happiness. I think that's probably related to people living very pretty lives that are heavily financed. You see a lot of very nice cars and think like wow, that person must be successful. That person must be happy. But I always think now I wonder how they paid for that. Do they pay cash? Do they finance it? What are the payments?
Cameron Passmore: Yeah. And every dollar of persistent spending need to have whatever $40, $50 of assets to back it up perpetually. You start framing things that the amount of capital you need, it becomes a whole different game.
Ben Felix: On the financial side. But then the other piece of it is are they happier? Is the person with a luxury car, are they happier? And we can talk specifically about luxury vehicles, but I think the answer probably no.
Cameron Passmore: Yeah. Luxury vehicle is interesting one to me because you talk about in the paper, when you're actually driving the vehicle, you feel exactly the same regardless of what kind of vehicle you're driving. I'll debate that a bit. But it's interesting perspective from the science. Or it's studies of linked hedge fund managers that drive performance vehicles end up becoming much riskier type investors, gravitate towards lottery type stocks, trade more frequently. There's so much signaling and reflection on vehicles.
Ben Felix: I just thought the hedge fund one was just interesting. I was saying with that, I think my point was if you're trying to signal, what are you really signaling? Here's what the data say about the type of people that drive fancy cars.
Cameron Passmore: The other part that I think is cool is things you can avoid, make a difference too it. To look at your surroundings. Are you in a noisy environment? Does your commute drive you crazy? Are you in a stressful environment? Things you can do to eliminate, if you take that out and reduce stress that will also lead to happiness. To me time shifts, so you're not driving to the office or maybe you're working from home a certain amount of time. There's things you can do to eliminate that make you happier.
Ben Felix: Yeah, for sure. And feeling in control is one of the biggest ones. That's the fascinating studies from Langer and Rodin where they set up situations where people had more and less control just over their physical environment, where they were able to place a plant in their room or something. I think that they did this with retirement homes, I believe. And it had massive differences on happiness, but also on physical wellbeing presumably by way of happiness. It's fascinating.
Cameron Passmore: Because very late in this paper writing came up the idea of regret and Daniel Pink's research on regret. How big a deal is that in your thinking?
Ben Felix: Oh, I don't know. It ended up being a big chunk of the paper, but I don't know if that was intentional. Might have been recency biased because I just picked up Daniel Pink's book when I was finishing the paper off. But I don't know, I just think it's an interesting perspective because it's like we can talk about all the stuff that makes people happy. But reflective happiness when you're sitting down and all reflecting there's experience happiness and reflective happiness and there are different things. But I think regret is related to reflective happiness. And if people have lots of regrets, they might not be as happy. I don't know. I just thought it was interesting to think about what do people regret and why do they regret those things? And what can be learned from that? And I think it ends up tying pretty well in with all of the other happiness literature. When you look empirically at what people do regret, it looks very similar to the things that also make people happy. They're related, if that makes sense.
Cameron Passmore: Yeah. Shadow for that book as well, so good. Then you also cover off Seligman's famous PERMA V Model for good life, which we've talked about many times. We've also talked about goal setting and this links to our project to get people to share their financial goals so we can help people set a goal, then double the number of goals that you set. And then when you're exposed to another set of goals to help improve that goal list again.
Ben Felix: Yeah. It's a cool exercise. I still encourage people to go in the Rational community, but people have also posted it on LinkedIn, on Twitter. We're getting close I think to 200 responses now. It's a survey that we've made available. And we're going to eventually, I don't know at what point, but when we have enough responses, whatever enough means, we'll pull all those together and see what the common themes are.
Cameron Passmore: Cool. Anything else you want to highlight about this paper?
Ben Felix: No. I was glad that you wanted to talk about it. My plan was not necessarily to talk about it on the podcast, just because we've already covered every section of the paper was basically a podcast episode that we'd previously done and I just wrote it all up as a paper. But I don't know I wrote it and I still find value in going back to read it because it's a lot of stuff and I'm not an expert in any of this. Yeah, I think it's a nice little reference just to remind you about a lot of the stuff that we've talked about related to happiness on the podcast.
Cameron Passmore: Well, the why matters at ton and we can't lose sight of that. That's why I wanted to make sure we gave it the light of day that it deserves so great paper. All right. We move on to other big news.
Ben Felix: Yes. We are tomorrow being the day after your hearing this episode because we're recording it a couple days before that. But tomorrow as of the release date of this podcast episode, we will be releasing a new weekly podcast series on crypto. And some people may be rolling their eyes, but it's not that kind of crypto podcast.
Cameron Passmore: It's the podcast that you said you would've wished you had found when you were doing research on crypto.
Ben Felix: Yeah. It is the podcast series that I wish I could have listened to when we decided that we wanted to take a serious shot at learning about crypto, but that podcast didn't exist. We made it. I think it's pretty good. It's not done yet, but we've recorded seven episodes and we're going to record a few more so that the Genesis of this is that back in 2021, we had Cam Harvey on our podcast. We had a two hour episode or our longest episode ever. And half of it was on crypto and DeFi and Cam was super passionate about it. And how big of a deal this is and all this kind of stuff.
He's got a book on it. That's I think why I had tried to get Cam on podcast previously, but he wasn't available. But then he had a new book come out. When people have books out, they always wanted talk about the book. When I saw the new book, I had reached out and he agreed to come on. The preface to Cam's book is written by Vitalik Buterin, who is one of the co-founders of Ethereum. He's a big deal in the crypto world. The book paints crypto and DeFi a very positive light I think. Is that fair to say? You read it?
Cameron Passmore: I think so. I read it. I can't say I understood it all, but I read it.
Ben Felix: Yeah. And it gives a lot of detail and complexity, but I also think there's an undertone of this is good and a revolutionary. Now, reading that from someone like Cam Harvey, who is a serious like one of the top academics in financial economics. He's a former president of the American Finance Association. He's published over 150 academic papers. I've referenced a ton of his financial economics research on emerging markets. And in skewness we grew heavily on that in our podcast episode and YouTube video on that topic. But he's written a ton about the factor zoo as well, and then the multiple testing problem with all of the factor research that's going on highly respected academics. After seeing someone like Cam Harvey having the enthusiasm that he has on crypto and DeFi, we thought okay, we should probably just at least give this a serious look. I wouldn't say that we had completely dismissed it before that, but we had not really sat down and tried to fully understand what's going on.
Cameron Passmore: That's a fair assessment.
Ben Felix: CFA Institute had material on it. We'd gone through that. But even that, it paints it all in a very positive light and we're naturally skeptical people. We hadn't embraced crypto, but we realized okay, Cam Harvey's telling us this is important, we should learn about it. And then we had Marco Di Maggio on our podcast to talk about crypto. And again, very positive spin on everything. And I picked up on that. I don't know how to say that objectively or quantify it anyway, it felt too good to be true when Marco was on. Yeah. I don't want to throw Marco onto the bus here, but this is public information. He co-authored the Whitepaper on Terra, which is a stable coin pair thing that just recently collapsed pretty dramatically.
Anyway, when we had Marco on, we learned a lot. I thought that was valuable, even though I thought there was a positive spin on it. Good basic information. I thought Marco was great for that. When we did that though, we got a lot of feedback from the podcast community that like, "Hey, we're not here for crypto. I don't want to hear about this." And even in the Rational Reminder community, there was one topic where crypto and stuff was discussed and it wasn't discussed anywhere else. And there were even some concerns from some of the most active members in the community that they raised to me that, "Hey, this crypto topic is dominating." For I don't know, a week maybe there was a lot of discussion in there and it was the top thread.
And so a few people said to me like, "Hey, do we really want this to become a place where all we talk about is crypto or where crypto dominates the discussion." There's this consistent feedback from the Rational Reminder listeners and community that we didn't want to go down this crypto direction, but we'd committed to learning about it. I had committed to learning about it. And one of the ways that I've become accustomed to learning about stuff is by finding people who know a lot about it, reading their research or books or whatever, and then talking to them about it on a podcast. Cameron and I talked about it and we decided we would let's just do the same thing. We'll continue how we learn about stuff, but we'll do some stuff on crypto. We did. That's exactly what we've done.
We've talked to or we'll be talking to in the next few weeks economists with varying specialties, software engineers, database architects, privacy experts and even some sort of OG Bitcoin got there in 2011 community members with some pretty interesting perspectives. I think it's safe to say, Cameron we have learned a ton. I think our biggest takeaway, and we were talking about this after the last episode we recorded for this series, we were talking about how none of this is straightforward. There are no obvious truths, everything's nuanced. When you often hear stuff, that's maximalist in any direction that like "Hey, this stuff is completely stupid." That's probably not true. And "Hey, this is going to completely change the world." That's probably also not true. I think there's a lot more nuance in that. And I'd probably personally err on the side of this isn't going to change much of anything. And a lot of people are probably going to lose a lot of money as we're already seeing.
Cameron Passmore: There's such a fog. One of the guests said, "There's a fog of speculation around this whole area." Assuming there are good components to this. It's this fog of gambling and speculation that's clouding the whole area?
Ben Felix: Yeah. I don't even know how like what is a good component? There's certainly a very specific innovation, which is the ability to interact with the database without a trusted third party. That's pretty cool. Whether that's revolutionary or meaningful for the world in any way, I think that's a question that remains very much unanswered. What has allowed is unregulated speculation. That's an innovation in its own way, but I don't think it's the type of innovation that people think it is. It does offer censorship resistance because you can communicate with the database without a trusted third party. There's interesting applications for that, but most of them tend to be related to acting outside of laws and regulations. Whether that's a good thing or not is a big open question that we actually have an episode where we haven't recorded that one yet, but we have an episode with someone who is an expert in cryptography and privacy. And that's one of the things we want to ask them about.
This concept of digital cash is not new at all. I think it goes back to the 1980s as a concept, I think. But it's like money, what is money? We don't know. Nobody knows what money is. Give me a definition of money. Yeah. Good luck. We'll do a whole episode on what is money, but that's one of the things you realize when you start looking into crypto and Bitcoin and stuff like that. Nobody actually knows what money is and people that talk like they do or that like it's a thing like gold as money, that's not quite anyway. Electronic money in a bank account has a history from a privacy perspective. There have been concerns since the 1980s about the ability to transact, to have economic relationships without being surveilled by the government or by whoever. Because as more transactions move into electronic banking, everything can be surveilled because the bank has all of your transactions and the government can access it. And whatever.
There's concept of digital cash is how do we have economic interactions without them being traceable? Which is why all of these ideas for digital cash have been tossed around. Anyway, Bitcoin is the first one that was really successful in terms of both adoption and effectiveness. Anyway, the intention was not to go down this rabbit hole of talking about digital cash. I'm just trying to introduce this crypto series. We're going to be releasing episodes weekly in the Rational Reminder Podcast feed. If you don't want to hear about crypto, the episodes are going to be very clearly labeled, just don't listen. But honestly, even if you're not necessarily interested in crypto, a lot of this stuff it covers just well money, which I think is interesting in general, but also touches monetary policy, touches wealth inequality, touches technology like this. We've had some really interesting conversations. Anyway, feel free not to listen if you're not interested. That's why we're doing a separate series.
These are all going to be guest episodes except for the last one. Whenever that is, we don't know exactly how many episodes we're going to do for this series. But the last one will be us recapping all of our learnings. It'll probably run for 12 weeks. 12 episodes-ish approximately, we've got seven done like I said, but we have another two booked and another I don't know, two or three or four or five or something that we think would be interesting conversations. The first episode comes out tomorrow. The first episode is with Daniel Mescheder who's a software engineer at Amazon. He works on architecting data systems. He's also a listener to this podcast. Well, you can hear the story of how we got connected with him if he listened to the episode. But that was very interesting. That was an objective engineer's perspective on what this technology is? What the innovation was? Why it's interesting and why it's maybe not interesting for some of the applications it's currently being used for? I enjoyed that.
And then the week after that we have Igor Makarov who's an economist at the London School of Economics. He did his PhD in financial economics at MIT. And we spoke with him about the economics of crypto and DeFi ecosystems. He's got a paper Blockchain Analysis of Bitcoin Market I believe it's called. It's fascinating. They built algorithms to peel back the layers of not secrecy, but it's hard to see what's going on in Bitcoin if you just look at the blockchain, which of course is public. But they build algorithms to deconstruct that into something that's you can actually see what's going on from an economic perspective. He had just fascinating insights.
And then the week after that, we have professor Eswar Prasad from Cornell. He wrote the book, The Future of Money. We talked to him about Bitcoin, banking and the future of money, another great conversation. It's like the Rational Reminder, but about crypto, which is exactly what it is. Yeah. It is still fun to make. And it's a very interesting topic to learn about because it touches so many different areas. Just reflecting on it now, probably the most interesting part about it is that there's so much honestly incorrect information that exists out there in the world about these topics right now. And much like many of the things that we've covered in the past, like dividend investing or even just index investing, it's fun to say, here's the thing that a lot of people believe, and here's why it's not necessarily true or completely incorrect. And there's so much fodder for that when you get into the crypto space.
Cameron Passmore: Well, that's what we said after last week's conversation. I think it was with Daniel Mescheder. And you link it back to dividend investing something is straightforward to us in finance is that subject, right. Seems to be pretty cut and try. The amount of misinformation and the amount of information you need to know. This stuff is for me, maybe I'm just old and dumb I don't know. It's really hard. These conversations are really interesting, but it's like really so much of the stuff you see promoting crypto, do you know all this stuff? Have you done this research? Have you talked to these people? It's incredible wealth of knowledge of these people that we've spoken to.
Ben Felix: Well listen, we have an episode that we haven't recorded yet with David Golumbia who's a professor I can't remember which university, sorry David. But we've got an episode of him coming up. He's got a book on the basically The Politics of Bitcoin and the underlying right wing political environment that backs most of the Bitcoin rhetoric. And you read that and it's just like wow, okay. A lot of the stuff that's spoken about is truth in the crypto world is basically conspiracy theories. And then you start digging into actual economics and it's like oh yeah okay, nobody talks about this stuff because it was dismissed 50 years ago because it was false. Yeah. Anyway, like we mentioned earlier, if when I had decided hey, I really want to learn about crypto if this podcast had existed, it's the podcast that I would've listened to. Hopefully other people enjoy using it to learn.
Cameron Passmore: All right, let's go and tee up our next conversation. We have another special guest coming out. As we mentioned off the top, Robb Engen is here third time on the podcast, I believe. And this comes from there was a Tweet storm last week where he was basically sharing stuff. And I'm using the polite way of saying this stuff that advisors say, when they choose to leave their current advisor, they're said to clients that are leaving their current advisor. We reached out to Robb last week to see if he'd come on just to talk about that. That's what the Genesis of this conversation is it's really fascinating to see people that are making this shift from active to passive is a lot of it, right. And segregating out the cost of advice from the cost of the investments. And the feed of ill-informed nonsensical in some cases, counter arguments to what these people are doing is incredible coming from the advisor community in many cases. And anyways, on Robbs Twitter feed, he was showing examples last week.
Ben Felix: We said this during the conversation with Robb too, it's not an advisor bashing session. And we've talked about the paper and we talked about it with Robb too, the misguided beliefs of financial advisors where it's in a lot of cases, there's a lack of education. That's a much larger problem. That's probably a regulatory problem. And the objective here is not to poke fun at people. I think it's important though. And I think it's important because we have data in our passive active fund monitor that Raymond at PWL does every year. At the end of 2021, 86% of mutual fund and ETF assets in Canada were in actively managed funds. I don't have the percentage on how much of that is in commission based funds, but it's going to be a big chunk of that.
There's probably some people listening or at least people listening, who know people that are still invested that way, just statistically. And they may have had similar conversations with advisors, or they may have family members who they've like maybe you've mentioned to your family member, "Hey, you should look at index funds." And the family member goes and talks to their advisor and they hear one of these things back as a counter-argument. We know, because we've heard from people that listen to Rational Reminder. We know that there are people who are still invested and actively manage funds while they're listening and they're trying to educate themselves. And after hearing our podcast, they eventually make the switch to index funds. I do think not from the perspective of it's the same reason we killed bad advice. We didn't want to be poking fun of people. But I do think that genuinely hearing these conversations is important for a lot of people who are processing their own situation and trying to make real decisions about how to invest their money.
Cameron Passmore: I agree. Let's go over our conversation with Robb Engen.
Ben Felix: Robb Engen, welcome back to the Rational Reminder Podcast.
Robb Engen: Oh, thanks for having me guys pleasure to be here.
Cameron Passmore: Yeah. It's great to have you back on.
Ben Felix: First time, we've had a... What is it? A three P at this point?
Robb Engen: Very honored.
Ben Felix: All right. Robb, can you explain how you would characterize the typical client that gets in touch with you?
Robb Engen: For sure. I think I'll start off by saying, I like to help regular people with regular problems. I think first and foremost, I'm usually dealing with salaried T4 employees. Some life stage has triggered them getting in touch with me. That could be anything from getting married, having kids, changing careers, buying a new house, wondering about different scenarios. And more often than not, it's around retirement planning. They're most likely a few years away from retirement.
As far as the type of investors, I would put them in maybe three different camps. One, they're happy indexers. They've been reading my stuff. They've been maybe listening or watching your stuff and they understand low cost investing. And so they're happy, but they're looking for broader financial planning needs. I'd say others are most cases they're long time mutual fund advised clients. And maybe just coming to realize that are they getting value out of that advice and what they're paying in terms of mutual fund costs? And then others I'd say maybe DIY investors who've made a bit of a mess of their portfolio. That could be jumping into individual stocks or chasing sector or thematic ETFs, things like that.
Cameron Passmore: What would the portfolios of those first two groups typically look like?
Robb Engen: The happy indexers are using broad market ETFs or asset allocation ETFs, so those are great to see. The mutual fund investors, it's funny I was looking back Dan Bortolotti had a great article. This was maybe 10 years ago called the advisor six-pack. And those portfolios are still true to this day. This could look like a balanced fund mixed with a dividend fund or two mixed with a monthly income fund, probably all having very similar holdings, just different waitings, a global equity fund and then some bond funds. Usually a lot of just overlap, right. You've got a Canadian equity fund and then a Canadian dividend fund and then a Canadian monthly income fund.
Cameron Passmore: Now, are they typically bank advised or independent advisor advised? Is there a theme that you see?
Robb Engen: Probably big bank or some of the regular investment firms like a Sun Life and Edward Jones, those kinds of places.
Ben Felix: Someone shows up with the advisor six-pack portfolio or something similar. How do you explain to them why their portfolio may be suboptimal?
Robb Engen: I think we start by looking at the fees. We look at the asset mix, making sure that's in line with their age and stage of life, their risk tolerance. We might be looking at different geographical waitings. When I describe you were holding a Canadian equity fund, a Canadian dividend fund and a Canadian monthly income fund, you're overlapping a lot of holdings here, right. And so easy examples to share because I'll often do a lot of Zoom meetings where we can share screens and whatnot is I can show them a Morningstar comparison that shows their fund. How it ranks to its benchmark and other funds in its category.
Just to really be able to show them the fee, the strategy itself might not be performing as it should be, right. And so ask also when it comes to the fees, if they're getting the advice that comes along with that, right. There's an embedded trailer in those mutual funds and it's supposed to be for ongoing advice. And so are you getting advice and value for the fees that you're paying or are you getting a phone call once a year at RSP season? If that right, and so in a lot of cases, the clients think they're paying for investment advice, but really what you have is a bunch of closet index fund, mutual funds paying 2% or more. And so there's a real misalignment of the fees, the advice and the investment strategy.
Ben Felix: What you just said there, that's the real ticket. It's the misalignment. We all here talking agree that it can make sense for people to pay for investment advice. We all do that. That part's not crazy. But yeah, it's the misalignment where people think that they're getting primarily portfolio advice and therefore don't expect planning advice. Then they're paying a really high fee for that portfolio advice when really the portfolio advice is questionable.
Robb Engen: Right. And I think for a lot of years, and I'm guilty of this too, just being a critic of that industry and the fees that are too high comparatively to another type of portfolio that you could build and chalking that directly up to conflicts of interest and bad behavior, or even maybe malicious behavior. And I don't think that's the case. And I think the paper came out maybe five, six years ago about the misguided belief of financial advisors. And I looked at two pretty big size Canadian firms of 500,000 clients. And I looked at the type of portfolios clients were recommending, or they were being recommended to these clients and the type of portfolios that the advisors themselves were invested in. That was really interesting.
And they were very much the same. The average MER on each of their funds was in the 2.3%, 2.4% range on each of their portfolios. The advisors are eating their own industry cooking, so to speak. And just really buying into the idea of active management works because it can steer you around good and bad markets and pick winning funds and avoid the losers. They really buy into that and that's how they invest their own money. Instead of this conflict of interest in this, maybe a malicious intent on behalf of the advisors no, it's just either lack of education or training, not following the evidence that really weighs into the low cost type of portfolios.
Ben Felix: Yeah. It's a great paper. It did come out a while ago. It was published in a journal fairly recently though. But Cameron and I both lead that. We were at a point in time, those advisors selling the non-ideal products. Now, why did we see the light so to speak and many other people haven't? I don't know. I do not know the answer to that question. If I remember that paper correctly, they also found that the advisors were actually the bad behaviors that you wouldn't want to see investors exhibiting the advisors were doing worse. They had higher fees in their portfolios and they were turning funds over more often than the investors.
Robb Engen: Yes. It was pretty eye opening. And it changed the way I look at these. Now when I see, and I know we'll get into the rebuttals to moving from a managed portfolio into a lower cost portfolio, and you see these types of rebuttals from the mutual fund advisor, it really lines up with this paper about just misguided beliefs and lack of education and training.
Cameron Passmore: What do you offer up as an alternative and how do you bridge from this conversation to that alternative?
Robb Engen: One, I take a page out of Ben's playbook, which is investing has been solved with low cost indexing. But I recognize that not everyone is on the same playing field when it comes to their knowledge experience or willingness to manage their own portfolio. And so for a lot of people, this could mean staying within the safe confines of a big bank environment. But insisting on the index funds instead of the closet balanced fund charging two plus percent MER, right. You could lower your fees maybe in half or a little more. It's not as far as you could take it, but you stay within that environment and maybe the client feels more comfortable there and they've saved quite a bit on fees.
For others that kind of recognize that they could move around and save a little bit more money. A robo-advisor might seem ideal because they'll get this broad globally diversified risk appropriate portfolio. They'll reduce the fees even more so than most bank index funds. And there's some automation there as well, right. You can automate contributions or your contributions get automatically distributed amongst the diversified portfolio. For retired clients actually works out to be a really nice setup because you can automate the withdrawals as well, and the rebalancing happens. There is a niche there that the robo-advisor still fits in nicely.
There's now of course, I take Ben's investing has been solved with low cost indexing, one step further and say investing complexity has been solved with asset allocation ETFs. They're doing everything the robo-advisor does, but cuts those fees in half again or more. And just a really nice all in one product that you can manage on your own. And then there's others that really they maybe devout Rational Reminder listeners and they don't mind holding a more complicated portfolio of ETFs. Maybe they want some small cap value exposure. And so then you put out your do it yourself five factor portfolio, which is a great starting point to look at building your own multi ETF portfolio. Lots of different options depending on the client. I try to meet them where they're at.
Cameron Passmore: How many people in that middle category, so the people that had advised active funds, how many of those might go all the way to their own one decision ETF, something from iShares or Vanguard, do many people go that route?
Robb Engen: They do. And they're starting to see that it's not as difficult as it might seem, and I can help follow them along the way. I've got accounts everywhere, so I can show you how the investment platform works. How you transfer funds over and just show you that take that complexity or confusing nature of this out by just setting up a playbook that says, here's how you do it. Here's how you trade a single ETF. And the beauty of these asset allocation ETFs is that you take the ongoing management and monitoring out of the equation. If you can get over that initial hump of transferring money over, setting up your contributions, purchasing one single ETF. That I say, it's one step further than what you do with a robo-advisor. And the savings are there if you're willing to do that.
Ben Felix: Because we're talking about this objectively, but there's often pretty deep personal or at least longstanding personal relationships that people have with their advisor. How do you suggest that they have that breakup conversation?
Robb Engen: Well, I start by saying that it's not necessary to have that conversation because like a transfer by nature begins at the receiving institution. If you're going to Questrade or your big banks discount brokerage account, you open the account there. You open the appropriate account types that mirror what you already have and you initiate the transfer from that platform. And then I tell them that their back office goes to work and contacts your bank's back office. And they initiate that transfer. Now of course, when that's happening, your advisor's going to take notice when they see that transfer request. And so expect a phone call or an email or something along those lines. But you're exactly right Ben, there's a lot of times it's a long term relationship. It could be a family friend for all we know, and those are difficult, they're awkward.
But again, they've reached out to me for a reason. I always tell them that it answers the question, are you getting advice? Well, if you're reaching out to me, you're probably not getting broader financial planning advice. That's on the one hand. And then so is paying 2% for your investments worth it in the end. And so we go through that exercise depending on how they want to move forward, whether it's index funds, robo-advisor, or do it yourself. It adds up to significant savings. I break that down into dollar terms, right?
It's often hard to conceptualize 2% versus 0.2%. But I break it down into look, $500,000 portfolio, you're paying $10,000 a year versus paying $1,000, $2,000 a year, right. We look at it that way, where they can break it down into dollar terms, are you getting that value? And then if they want to go ahead and have that conversation, they're at least armed with the reasons why? But I always go back to, I collect these responses or I like to hear these responses. I'm curious by nature. I like to know how these conversations go. There's always some very interesting rebuttals that come out. Oftentimes, they're from the same playbook. Cameron, you might know this playbook from back in the day on why you might not want to move into ETFs or different solution?
Cameron Passmore: I bought part that of that playbook in the mid 90s yes.
Robb Engen: Yeah. Right. I caution that you may get some pushback. And so sometimes they say, "Look, I reached out, I had this conversation. I didn't really get any pushback." I understand these things happen all the time and you're getting some guidance from a fee only advisor. And so the conversation went fine and that's okay. And then oftentimes you get some wild rebuttals that are really trying to scare you away from doing it saying it's too complicated, lots of different reasons why you shouldn't be doing this. That could lead to many different follow up conversations.
Ben Felix: We're going to touch on some of those, but I just want to say that playbook Robb, that's not ancient history. When I came to PWL the first few months that I was there, somebody that I had previously worked with sent me a PDF document from a fund company that was literally a playbook on how to argue against index funds. And they were saying like, "Oh look, you shouldn't have gone to this index fund firm. Look how bad it is." And you read through it. And the arguments are ridiculous. Well, that's I guess nine years ago now, but it's not ancient history. The current advisors that are out there that have been recently trained are still being given information on why index funds are bad investments.
Robb Engen: Yeah. It still exists. And part of the problem, I think in going back to the misguided beliefs is that these advisors are 99% of their research or guidance they get is from their own companies, their own industry research. And so of course, it's biased towards what they're doing. Again, it's not painting advisors with a bad brush or anything like that. It's just like this is literally how they were trained.
Cameron Passmore: For anyone who does not follow you on Twitter, how do advisors generally respond to the breakup notices?
Robb Engen: Well, there's some pretty wild ones. I've got some examples here that I can share. One recent one was moving from a balanced closet indexing, balanced mutual fund portfolio into an all in one asset application ETF and a balanced one, right. A 60, 40 portfolio. Basically moving from an expensive balanced portfolio to a pretty cheap balanced portfolio. And the message was going into ETFs puts you 100% in the stock market because ETFs are traded on a stock exchange. If the market goes down 20%, your ETFs will too. You're much more protected with mutual funds. And so again, the idea that ETFs are traded like stocks, therefore you are in the stock market 100%, even though you're actually in a balanced portfolio. Just not understanding what these ETFs were even all about.
Cameron Passmore: And how did the client react to that?
Robb Engen: It was funny because we were getting some back and forth. This is all happening over email. There's some time to think responses through.
Cameron Passmore: But you equipped them right with the information to be better informed?
Robb Engen: I did. Absolutely. And the client knew right, that they were moving into a balanced portfolio. There was nothing more risky inherently than they were doing in the high fee portfolio. I don't know. It's hard when the advisor's coming at you with all of these different rebuttals because they are designed to scare you into thinking am I making a mistake? But yeah, I try to arm with the knowledge of the fee savings, the risk appropriate portfolio right, that aligns with their goals and just to be prepared for all kinds of different objections from the existing advisor.
Ben Felix: Let's do some more. I think it's important to reiterate that's not meant to bash advisors, but we know because Cameron and I got a letter in the mail, like Paper Mail, I guess a couple years ago at this point, where somebody had said basically that they'd heard all of these types of counterarguments from their advisor, but then they started listening to our podcast and armed themselves with the information to finally make the decision to move into index funds. But I'm sure there are people listening who have heard a lot of these.
Robb Engen: Yeah, these are the ones that we hear about. This stuff is happening all the time that we don't get to see. Another one that was good was lower MER equals you get what you pay for. Active management moves with the market conditions, like having a coach managing the players on the team. Okay. The idea being you're paying for someone to actively obviously manage your portfolio, even though it's a closet index balance fund, but that's okay. I don't know if you hear that one again about you get what you pay for. This is not about buying an expensive name brand pair of shoes versus a cheap pair of shoes.
Ben Felix: Yeah. Well, I think on the coach analogy, it's funny, right. Because stock price movements or asset price movements are pretty much random. It's hard to coach that even if you're a good coach, which is what we see in the evidence.
Robb Engen: I guess it would be like LeBron James's coach just saying, "Go out and play your LeBron James." That's how the passive management would work. Just go out and do your thing because we know that you're better than the competition versus someone trying to actively manage it.
Cameron Passmore: The world of asset management is also pretty well coached, right? That's who you're competing against.
Ben Felix: Right. Yeah. Everybody's got a pretty good coach. I think the other thing that's interesting over this point though, is because I have heard you get what you pay for, for sure. Morningstar has done research a couple different times where they looked at what is the best predictor of future fund returns? And costs is one of the best predictors, not the only predictor, but definitely one of the best predictors. You do get what you pay for, but what you're paying for is lower returns.
Robb Engen: Or as they say, you get what you don't pay for. Another one was underperforming investments are what you want to purchase because they have not peaked. You buy low and sell high. I was going to throw that one in there. When an investment is a five star, not sure what this is referring to, it's reached its peak. When something's underperforming, you buy that, so you get the rise in value. And then trying to go back to something like did you go back to 2008 on Morningstar? That was the last proper market correction and you outperformed everything in its category by a huge margin. Its return was over 25% that year. Well, that's interesting. Why? Because that's what it was designed to do. Save portfolios in market crashes. I think again, the idea of active management having this protection on the downside, I hear that one a lot. Maybe you're not getting the higher returns in the bull market, but you're safe in the bear market because you've got this coach, this active manager. I don't know what you guys think about that.
Ben Felix: I remember making that argument when I was being trained to sell mutual funds. But I also remember not long after I came to PWL, I'll have to try to see if I can find the blog post. But I did a blog post comparing active manager returns in bear and bull markets and found that there was no relationship, no downside protection. This one's an interesting though, because it's kind of true with the advisor saying, "You do want to buy low and sell high." But I think they're talking when they say, "Five star." I think they're probably talking about Morningstar ratings, which are not predictive of performance. There's been studies on that. Yeah. That's funny. But it also seems like they're trying to say in this case that, "Yes, your fund has underperformed, but that's-
Robb Engen: By design and now in a bear market or down market, it's going to shine. I'm not sure.
Ben Felix: Yeah. It seems strange either way the arguments don't bear out in the data.
Robb Engen: All I know is that the fees you're going to pay are the same, whether your fund is going up or down. And so that's really what the goal of the client was, is to reduce those fees and same risk appropriately.
Cameron Passmore: They're really appealing to the client system when thinking, right. Intuitively you do want downside protection. Who doesn't want downside protection? And it's intuitively very appealing.
Robb Engen: Yeah. I want all of the upside and none of the downside. Absolutely.
Cameron Passmore: But that's our job, right?
Robb Engen: If you got time for another one or another couple here I have tons of clients with assets over $500,000. I must be doing something, right?
Cameron Passmore: Okay. Ben, you want to bring up the study on that?
Ben Felix: I don't even know what to say to that one. That's just a bad argument. I don't know.
Cameron Passmore: Okay. Keep going, let's go through these.
Robb Engen: Yeah. This one was an older one, but you probably remember this one Cameron. ETFs, aren't all that great. When you buy an ETF, you buy the whole fund. Okay. In the late 90s, when Nortel owned 30% of the TSX, it crashed. If you had purchased that ETF, you'd be down 30% too. But with a mutual fund, you can't buy that much. You were only able to purchase up to 10% of any one company. You would have been fairly safe with the crash of Nortel. I haven't heard this one in a while, the Nortel argument, but I'm interested to hear your thoughts on this.
Cameron Passmore: If you were properly diversified and there were Canadian alternatives that did not have that much in Nortel and anybody that was in the index space knew this through that period.
Robb Engen: Yeah, that's why typically I like the broader all cap or all stock. For the TSX you end up with 200 or so companies instead of top 60. There are ways to diversify that individual security away.
Ben Felix: Don't we have regulations for mutual funds and ETFs? ETFs are just mutual funds. People don't often realize that ETFs are mutual funds. They just trade differently. But we have I think it's a 10% concentration cap on individual security positions. And then back then they had the capped composite index to deal with it, right?
Cameron Passmore: Yep.
Robb Engen: Yep. My advisor told me she basically worked for me for free over the past eight years and accused me of dumping her just as my assets were growing. The idea that yeah, this embedded commission and this total fee that you're paying is you're not physically writing a check. My advisor's working for me for free. And then as your assets are growing, you're dumping the advisor.
Ben Felix: They took on a client that had lower assets to start. And then when the assets grew they left. Yeah. But that's just bad business planning.
Robb Engen: Yeah. And I'm not so fussy on young clients. That's where a lot of people get started, is you go to your bank and you get set up on monthly purchase plan. And at that point in your life, a 2% fee is not the end of the world. It's your savings rate that matters more. But the longer you wait, the more you get embedded in that financial inertia, you don't want to move. And so, okay yeah, exactly it's bad business planning if your clients are leaving once they've built up and realize the fees they're paying.
Ben Felix: That also sounds like a guilt based argument. Do you see that from advisors?
Robb Engen: Yes definitely. Yeah. And that's why the breakup is so hard especially when it's a close family friend or some close long term relationship. It can be really difficult because you do feel the guilt trip in moving over. That's some of their earnings you're taking off the table. But I would say, no one cares more about your money than you do. And you have the right to do this, to move your money around. Last one, we can go through people think, the difficulty ones, so people think they can trade mutual funds or ETFs on their own, but it's not as easy as you think. Plus you don't have anyone like me to call up and ask if you're doing the right thing. Rebalancing a portfolio is easy if you have the background.
But doing it like you're thinking about, which was indexing is very tough without the training and knowledge. For one, I think I agree somewhat that rebalancing a portfolio can be more complicated than you think, especially as what looks good on a spreadsheet suddenly gets thrown off course when you start making new contributions, when markets start moving up and down. I agree with that when you have multiple accounts and account limits and contribution limits in various accounts. That's why I argue for the simplicity of an asset allocation ETF. It's going to rebalance for you. You can hold the same mix across all accounts and just keep your life simple. I think that's a good rebuttal to this rebuttal is we've solved this with either a robo that's going to do it for you or the asset allocation ETF.
Ben Felix: Yep. I think it makes a lot of sense.
Cameron Passmore: We agree. Robb, can you stick around and go through some talking sense cards with us?
Robb Engen: Oh, I'd love to.
Cameron Passmore: We're going to do this totally randomly here. Going to pick some, all right. I go to the middle of deck, this one's for you Robb. Some businesses consider ways to address social issues as well as making a profit. Imagine you are starting a new business, how important would it be to you that your company addresses social issues?
Robb Engen: I don't think you could start a business today without thinking about the so-called triple bottom line or thinking about the societal issues, environmental issues. I think it's just the right thing to do. To want to not just be thinking about the almighty dollar and profit for your shareholders or for yourself, but thinking about doing good in society. I think we need to start seeing more and more of that. And we certainly would. That's how I would approach starting a new business.
Cameron Passmore: Ben, anything to add?
Ben Felix: No, I totally agree. I think we're at a place right now where thinking that way is in itself I was going to say competitive advantage, but it may not even be that anymore. It's just table stakes.
Robb Engen: Yes. Absolutely.
Cameron Passmore: Ben, I'll give you this one. Why might you or someone else quit a job or stop working?
Ben Felix: If you don't enjoy spending the time doing the work, maybe, probably seems like a pretty good reason to leave a job.
Robb Engen: Yeah. I quit a job recently because I didn't enjoy that work as much as I enjoy this work I'm doing now. I think that's a fair answer.
Cameron Passmore: Yeah. If you've reached clearly the financial independence point, you can stop working all together. That gives you the choice. But again, you got to find something that's fulfilling on the other side of it, right?
Ben Felix: You might choose to work even if you are financially independent, if you enjoyed spending the time.
Cameron Passmore: Exactly. I should have said off the top. These are the talking sense cards from the University of Chicago Financial Education Initiative. Let's do a couple more. All right Robb, do you prefer to save or spend?
Robb Engen: This is interesting. I am actually learning how to spend more and actually talk to my clients a lot about this too, where we can go through a financial plan. It looks like they have more than enough resources to live a good life, the life they want to live without worrying about running out of money. And I'm encouraging them to spend a little bit more and starting to think about matching your spending with your values. One of the goals, when I quit my job to be able to do this full time is I do it anywhere with an internet connection.
And global pandemic aside, I'd love to be able to do some more traveling. That was the intention. And we got to go to Italy and we're doing a few more trips this year. Trying to open up and spend a little bit more on things that are really important to us. Even in the pandemic, it was like, we spent a little more on say like grocery delivery, because you don't want to go out and spend an hour of my day out during the week when I was working or wanting to spend time with my kids or my wife. Starting to spend more a little more strategically.
Cameron Passmore: Yeah. I wanted to ask you about your trip because you were quite public about sharing incredible photos of your family in Italy. Did you have an impression of the experiences from that trip? And it was well worth it I assume.
Robb Engen: It was. This is something that we had canceled in April 2020. And so we were really itching to go back and do it. I feel like our kids are in this age where one they're older, so it's not like we're carting around strollers and organizing around nap time and things like that. But they're not old enough that they still enjoy being around mom and dad. There's this zone that we're in right now, which I think is just so important to get out and see the world. And they'll remember these trips forever. It was such a great experience that trip. And we hope to do a few more.
Cameron Passmore: Ben spend or save?
Ben Felix: I think some level of saving is a necessity, but given spending on stuff that is meaningful, I would prefer to spend. But it's discounting given some level of experience or utility from spending. You'd rather have that now than later because the future's unknown.
Robb Engen: You're right.
Cameron Passmore: Here's one for you. I'll let you go again Robb, first as our guest.
Ben Felix: Wait, you didn't add answer that question come on.
Cameron Passmore: Oh, I don't have a ton to add to that. I prefer to spend when I was younger. I don't get the same enjoyment out of spending now as I used to, which is interesting how it shifts over time. I'm actually enjoying simplicity more, just getting rid of stuff in the house for example. Just simplifying things everywhere. Doesn't give me the same charge as before.
Robb Engen: That's interesting.
Cameron Passmore: Robb, what is a resource in your community that you value?
Robb Engen: Oh, we're big library junkies. I think this has probably been answered before on the podcast I think too. And I just gave the same answer, but we live really close by to the public library and are probably there every couple of weeks. Our whole family loves reading. That's a great one.
Cameron Passmore: Ben?
Ben Felix: Well, I live in a place that has trails and a river that are all pretty well maintained. That's pretty awesome.
Cameron Passmore: That's crazy. We voted on the weekend to go and vote is that the local community center which is 500 meters away, beautiful facility, full of people doing swimming lessons and everything else. And then 500 meters the other way is a fantastic kayak boat launch. It's amazing the infrastructure and it's a relatively urban community. There's a lot of simple stuff that we really value here. That was great. Robb, it was great to have you back.
Robb Engen: My pleasure.
Cameron Passmore: All right. Well, let's go to our conversation now with Katy Milkman. Katy, it's so great to welcome you back to the Rational Reminder.
Katy Milkman: It's so great to be back. Thanks for having me.
Cameron Passmore: Excellent. We now have 501 people that have joined our 22 and 22 reading challenge, which is pretty incredible. And I think it's safe to say many joined because they want to read more. And our objective is to try to give a bit of inspiration to the group to reach those goals. And you literally wrote the book on how to change. It's so awesome to have you join us again.
Katy Milkman: It's so awesome to be here.
Cameron Passmore: Off the top, can you just describe your reading habit?
Katy Milkman: Oh yeah. Sure I'd love to. Well, I have a six and a half year old. I have actually two distinct reading habits. There's my reading habit with him. I read to him every night before bed for about 45 minutes. Right now, we're making our way through the Harry Potter series. That is my favorite reading habit. But I also have a reading habit that's adult reading. And actually the way I do it is by listening to audio books. I find that I have a lot of time in my life when I'm commuting or getting ready for work ready for events. And I almost always have earbuds in and I'm listening to an audio book at that time. And so that's one of the ways that I get to read some of the most interesting books in my field and outside of my field.
Ben Felix: Is that your main format or do you read hard copy books as well?
Katy Milkman: I read hard copy books occasionally mostly when I'm on vacation, if I'm on a beach or on an airplane. But my main format is I'm an audio book consumer when I'm not reading books to my son.
Cameron Passmore: I've become obsessed with understanding how people retain what they read. What tools are they using? What hacks do they have to capture to retain the information? Do you have any tips on that?
Katy Milkman: Oh gosh. Well, I think it depends on what kind of reading you're doing. Back when I was a student, then I definitely wasn't listening to audiobooks, then I was reading everything at my desk. I was a big fan of highlighting and also taking detailed notes on the key takeaways. But at this stage in my life, it's more that I'll jot myself an email every once in a while when something I read gives me an idea that I want to think about and ponder later. I shoot myself a note often on my iPhone, which is where I'm listening. I shoot it and then when I'm next at my desk, that email is waiting for me to reflect on. Sometimes I move the notes that I've sent myself into a word file, a Word document, or a Google Doc of ideas. Because often what I'm noting is that something I've read gives me a research idea and that's the gold currency in my world.
Cameron Passmore: It's interesting because you wrote a book that is jammed with great ideas.
Katy Milkman: Thank you.
Cameron Passmore: I'm curious how people can best retain those ideas without having to reread the book. And maybe it makes sense to reread the book annually or something.
Katy Milkman: Well, I actually very deliberately provided chapter summaries at the end of each chapter, which are basically a bulleted list of the key takeaways. And the goal with doing that was that people wouldn't need to reread the book if they just needed to remember what some of the key ideas were, if they didn't want to revisit the storytelling that is fun and hopefully made getting through the book more enjoyable. But if they just want, what was that hack that Katy mentioned that might help me improve my memory or what was that tool that might help me build a habit?
Those triggers are there for that reason so that a reader can just flip to the end of a chapter and review. And then that may trigger like I want to go back and see a little bit more, but then at least where in the book you're constrained. And I'm really glad I did that. I should say that one of my good friends, Dolly Chugh who's the author of a brilliant book called The Person You Mean to Be, she's the one who as an early reader suggested that would be super helpful. And it's one of the most consistent pieces of feedback I've gotten from readers that's positive is they're so grateful that exists. I'm very grateful to Dolly.
Ben Felix: Yeah, that's cool. I do audio books too. If I really like an audio book, I'll buy the Kindle copy because then you can go back and control F or search a keyword.
Katy Milkman: I should have said that too. If I love an audio book, I normally buy the hard copy as well. I have lots of hard copies of books, but I'm not sitting there normally reading the books. It's rather I listen to it and then I have the hard copy so I can flip through it or visit the references or look at summaries from chapters when it really connects with me.
Ben Felix: Yep. Sounds similar. I also find that like you said, Cameron rereading books, if I do an audio book a second time, it seems to be a lot easier to retain.
Katy Milkman: It's interesting.
Cameron Passmore: So interesting.
Ben Felix: Do you Katy have a favorite genre of book?
Katy Milkman: Oh, that's a good question. I think I have a most frequently listened to genre certainly, which is the behavioral science genre. Because I do really love hearing how people in my field are articulating their ideas for a broader audience and also organizing them. Because when I read research papers by my favorite scientists, they're very narrow in scope and focused on methods. And there's not much of a zoom out to say like, here's the big picture. Here's the arc of all my work and how it connects, whereas reading a book gives you that.
I find that to be extremely fun and important. I do listen to a lot of books that are behavioral science books, even though I know a lot of the material already. I discover new things and I find it enriching. But that's probably not my favorite. I would say my favorite is fiction. I've always been a huge fan of fiction. And within the fiction genre, I like a really diverse range of authors from your classics, Dickens, Jane Austen. I like that stuff. I love modern stuff. I love Haruki Murakami. I like beach reads Jennifer Weiner. I like all fiction Da Vinci Code, you name it. I like it. I really love fiction.
Cameron Passmore: I've been getting a lot of book ideas from your Instagram feeds. They are in that genre of behavioral science. Where do you get your ideas from?
Katy Milkman: About which books to read?
Cameron Passmore: Yeah.
Katy Milkman: Yeah. Well, one really fun thing about my field is actually it's tiny. Even though it's big, there are thousands of people who study behavioral science. We're really interconnected. We know each other through... I've collaborated with you or your student or we've been in a conference together, or I reviewed one of your papers. It's actually like Kevin Bacon, 6 degrees of separation. And I shrink that down a lot. It's like one degree of separation, two degrees of separation. It's a very tight knit community. And one of the fun things about now having a podcast of my own and having written a book is that when people are thinking about how to get the word out about what they write? They tend to pain me and tell me it's out there because it's a small community.
I actually don't have to do that much work to find these books. They're mostly brought to my attention. And a lot of my friends will even send me an early copy, so I can comment on what they've written before it's published, which is also extremely fun. I realize isn't super helpful to your listeners, but hopefully it gives you a little sense of this knit community that really is in constant conversation with each other, that a lot of this work is coming out of. And then it's a pleasure for me to get to post about it and share the books that are on my bookshelf that I'm looking forward to reading in the weeks and months ahead.
Ben Felix: Are there books that you do commonly recommend other people to read?
Katy Milkman: Oh yes, absolutely. I have lots of classics. In fact, I was just on a call with a student at Penn this morning who had reached out and said, "I'm interested in getting involved in your research. I love behavioral science. What can I do?" And I was telling her about all these things and I was like well now let me give you your reading list. For anyone who's interested in behavioral science, there's a list of your basics. Nudge by Richard Thaler and Cass Sunstein is one of the most basic and important books in behavioral science. You can't miss Thinking Fast and Thinking Slow by Daniel Kahnneman. You can't miss Influence by Robert Cialdini. The Psychology of Persuasion is the subtitle of that one. I'm a big fan of Thinking in Bets by Annie Duke who's not a behavioral science researcher, although she actually is ABD. She's done everything, but her dissertation and a PhD program. She's most famous for being a world poker champion, but it's a great book.
And then I think Dan Ariely's book Predictably Irrational is terrific. And of course I recommend my own book into books, How to Change: The Science of Getting from Where You Are to Where You Want to Be. And I have lots of other favorites too, depending on the subcategory. I really love Good Habits, Bad Habits by Wendy Wood, Get it Done by Ayelet Fishbach, The Voltage Effect by John List and Grit by Angela Duckworth, Mindset by Carol Dweck. And I'm sure I'm forgetting lots of others. Anything by the Heath brothers is great. Yeah, there's tons of books, but that's maybe a good basics starting point. Oh, and I missed Misbehaving by Richard Thaler, which is a history of the field of behavioral economics. And anyone who's actually thinking they might want to have a career in this will find that tremendously enjoyable. And scarcity by Sendhil Mullainathan and Eldar Shafir. Okay, now I'm done with my classics.
Cameron Passmore: Those are but a great list of books. I've read most of them I think. There's a few in there I haven't. I couldn't write them fast enough, so I'll have to go back and re-listen to get the list. I'm curious, you host the excellent podcast Choiceology. You're also an author. Can you talk about the role that two mediums fit into your learning habit? Because I consume a lot as has Ben, podcast and read a lot of books. How does it fill in your matrix of understanding about different things?
Katy Milkman: Yeah. That's a great question. Let me make sure actually that I fully understand and I don't give you a tangential answer. You're asking how does hosting a podcast and writing a book relate to my habit of ingesting content?
Cameron Passmore: Actually that even broadens the question. You produce both these things, how do you think about crafting them to give the most value to the audience? But also as a consumer, do you read a book and then look for that author perhaps on podcasts? I do that. I recognize names at all. And just I find the different mediums, like the conversations in a podcast fill in and bring the book more to light. That's how I view it.
Katy Milkman: Those are great questions. Okay. Let me start with a crafting. For me, I found the podcasting and the book writing very complimentary, but distinct. In that the book gives me the scope to have a very long conversation with the reader and to lay out a range of ideas and have it all tie in one basket and know that I'm going to spend seven hours roughly with them. And that is a very different genre than a podcast where I feel like it's got to be bite sized, like 30 plus minutes-ish. They're on a commute, they're probably multitasking. They're probably not going to write notes the way that they might in a book. And maybe I try to have one takeaway from each podcast episode, one nugget. Whereas in the book it's an arc and a set of ideas. I think of them very differently and the structures were different.
The podcast we've structured where there's a story, my podcast is storysology. We tell a story that illustrates a behavioral bias that we want to teach listeners about, that we think will help them make better decisions in their daily lives. And then I interview an expert on the science of that bias that the story has illustrated. It's a very clear formula story that gets you engrossed and shows you what we mean, science that explains what's the evidence based? What is the definition? Why does this happen? How do you fix it? I like that. I think a podcast can have more of a formula. A book to keep somebody engaged, the stories need to ebb and flow. The different chapters can't all have the exact same structure. It gets repetitive. I think the genres are really, really different. But a lot of the stories in the book came from characters on the podcast. There's a lot of relationship between the two.
And then in terms of your second question, which was when I read a book, do I look to listen to a podcast featuring that author? I don't, but I actually have a pretty limited set of podcasts that I listen to. And I don't always listen to new episodes. I listen every day to The Daily from the New York Times. I listen to Steve Levitt has a podcast called People I (Mostly) Admire. I love People I (Mostly) Admire. And A Slight Change of Plans by Maya Shankar. That's my rotation and occasionally post reports, which is The Washington Post Podcast. And I listen to my own because I just want to make sure I didn't say anything embarrassing.
That's mostly my rotation. I pick at some other things occasionally, but that's mostly my rotation. But I still don't even have time to listen to all of those when they come out. And so I make sure I prioritize particularly if Maya or Steve ever interview someone whose book I've been really curious about or whose work I'm really curious about that goes right to the top of the queue. But sometimes I miss their other episodes if it's not on someone whose work I'm as interested in. But that's the degree of skimming I do. I don't know if that may have been oversharing.
Cameron Passmore: No, it's interesting. There's so much great content out there that's a reality.
Katy Milkman: I'm missing so much of it, but my filter is working to keep me happy.
Cameron Passmore: Excellent. Our final question Katy, and you're possibly the best person to ask this since she wrote the book, How to Change, what advice would you give to someone who does want to read more?
Katy Milkman: The first bit of advice I would give is break down that read more into a much more concrete goal. How much more? How many books do you want to read this year? How many hours a day do you want to spend reading? Think about what's your exact goal? Be precise and think about the daily or weekly amount. Maybe it's not going to be daily. Maybe it's weekly, because you're not going to read every day. But then what days a week are you going to read? And for how long? And then go look at your calendar and block some time and try to build some consistency.
Although always have a backup plan, because that's important. But some consistency into what is your reading ritual? Is it going to be that every night you block off 45 minutes before you go to sleep? And that means you need to be in bed at 9:15 and set an alarm. And then you're going to go to sleep at 10 and you're going to read for 45 minutes beforehand, but you need to make those detailed plans to fit it into your life. And so you don't forget and you don't flake out. And so instead of just saying, I want to read more you to really break it down and get into those reads and that's how we get things done.
Cameron Passmore: Katy, this has been fantastic. I'm so happy you could join us.
Katy Milkman: Thank you so much. Thanks for having me.
Cameron Passmore: Our pleasure and everybody out there. Thanks for listening this week.
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