Episode 70: Fee-only Financial Planning, Home Country Bias, and Big RRSPs

On today’s episode, we cover a variety of topics, such as some tips for DIY investors, highlights from a conference Cameron recently attended, home country investment bias and whether it’s possible to have too much money in your RRSP. We begin first by talking about what DIY investors can do to ensure that they are investing to the best of their abilities. As people who work in investment daily, we often forget how tricky a terrain it can be to navigate if you are not armed with all of the knowledge, so we hope to pass some of it on to you. After that, we move onto the lessons Cameron learned from the Dimensional Advisors conference. We unpack ideas such as why he believes the world is ‘running towards factors,’ how Dimensional is leveraging academic research to inform their work along with some other highlights. Following on from that and picking up on what was spoken about at the conference, we delve into the pros and cons of home country investment bias. In some instances, this bias makes perfect sense, both from a returns and tax perspective and in other instances less so. We take you through some of these scenarios and what they mean for an investor looking to diversify.  And finally, in the planning portion of our show, we tackle RRSPs, whether it is possible to overinvest in them, how they compare to other investments and much more. To learn more, join us today!

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Key Points From This Episode:

• Our team is growing and we are looking to add some extra positions at PWL. [0:01:32.0]
• There are many challenges that DIY investors face not having access to professional advice. [0:05:00.0]
• How to overcome asymmetries of financial knowledge between spouses and within families. [0:07:30.0]
• Some of the fee-only planners available in Canada that we recommend. [0:08:49.0]
• Robb Engen’s services and his discount for Rational Reminder listeners. [0:09:42.0]
• What factors are and why the world is ‘running towards’ using them. [0:12:38.0]
• Dimensional provides a framework for investing but does not guarantee answers. [0:14:09.0]
• Has the value-add factor become obsolete? [0:14:55.0]
• Highlights from Robert Novy-Marx’s presentation at the conference. [0:16:18.0]
• Insights into and trends in the fixed income market. [0:20:31.0]
• What peer to peer bond trading is and why it has seen such huge growth? [0:21:17.0]
• All countries in the world, except for one, have a home country investment bias. [0:22:36.0]
• Factors to consider when deciding how much to allocate to home country investments. [0:23:58.0]
• Buying and trading costs and taxes are drivers to own more home-country stocks. [0:26:19.0]
• The difference between tax payable on international versus Canadian stocks. [0:27:50.0]
• An explanation of unrecoverable foreign withholding tax related to non-taxable accounts. [0:31:50.0]
• Some of the ways to get around the foreign withholding tax. [0:33:08.0]
• How the S&P 500 has been performing in Canada over the last ten years. [0:35:29.0]
• Why we are comfortable having a third of investments in Canada. [0:37:00.0]
• Is it possible to have too much in an RRSP? [0:39:40.0]
• Understanding the differences between an RRSP and a taxable account. [0:41:57.0]
• Which tax conditions make it better to use an RRSP. [0:44:00.0]
• The conditions under which your OAS will be clawed back. [0:48:07.0]
• The one exception where you may not want to contribute to your RRSP at all. [0:51:40]
• This week’s piece of ‘bad advice.’ [0:53:12]

Tweetables:

“All a factor is just a difference in an expected return and what causes that difference.” — @CameronPassmore [0:12:53]

“If stocks have different expected returns, then there must be a value premium. It’s like gravity. It’s undebatable.” — @CameronPassmore [0:14:57]

“Canada makes up just over 3 percent of the global stock market by capitalization. Most Canadians have way more than that.” — @benjaminwfelix [0:22:36]

“Betting on one country is effectively a bet on that economy, which isn’t necessarily a good bet.” — @benjaminwfelix [0:25:46]

“If we assume the same expected return before cost and taxes, then you would definitely have a bias towards owning Canadian equities.” — @benjaminwfelix [0:34:19]

Links From Today’s Episode:

Rational Reminder Website — https://rationalreminder.ca/ 

Boomer and Echo Blog —  https://boomerandecho.com/

Spring Financial Planning — https://springplans.ca/ 

Robb Engen on Twitter —  https://twitter.com/RobbEngen

Robb Engen on LinkedIn —  https://www.linkedin.com/in/robbengen

Robb Engen’s email —  robbengen@gmail.com

Dimension Fund Advisors —  https://us.dimensional.com/

Professor Robert Novy-Marx —  http://rnm.simon.rochester.edu/

Journal of Finance —  https://afajof.org/journal-of-finance/

International Diversification Works (Eventually) —  https://www.aqr.com/Insights/Research/Journal-Article/International-Diversification-Works-Eventually

Download the transcript of this episode here: Rational Reminder Podcast – EP. 70 – Transcript