Episode 76: Over the Horizon: Forecasting Tips on Expected Returns, Property Cap Rates, and Capital Leveraging.

Welcome to another episode of the Rational Reminder Podcast. We kick off the show today with some great listener feedback before diving into the content of a new podcast by Dr. Laurie Santos called The Happiness Lab. In a recent episode of her show, she gets into the idea of human adaptability to fortuitous or catastrophic events. Our capacity to regulate back to a default state has big implications for dreams of greater happiness through wealth acquisition. Next, we move on to three great listener questions, which by the way will be replacing the investment topic segment of the show from now on. We answer questions about the merit of Ray Dalio’s all-weather portfolio, fall back rules for prospective rental property owners, and whether the Smith Manoeuvre is a good move for high-income earners. Next up you’ll hear some fascinating statistics about residential property value in relation to homeownership and income in Canada. Rob Carrick’s article about how tax-free savings accounts are the greatest Canadian financial success story of the century comes under our scrutiny after that. Finally, we end off with our bad advice for the week, in which we discuss the recent protest by investor advocates to speed up the banning process for early withdrawal fee-charging mutual funds. Tune in for your weekly reality check on sensible investing and financial decision-making for Canadians!

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Key Points From This Episode:

• Three great reviews from our listeners on iTunes. [0:00:15.0]
• Human adaptability and how bad we are at predicting our future emotions. [0:03:45.0]
• Expected returns concerning risk parity and factor investing approaches. [0:06:32.0]
• Cap rates, leverage, and asset-specific risk regarding investing in real estate. [0:14:02.0]
• The benefits of the Smith Manoeuvre for those willing to be leveraged investors. [0:20:10.0]
• Lifecycle investing and why young people should invest in stocks with leverage. [0:23:59.0]
• Homeownership, income, and residential property value statistics in Canada. [0:25:30.0]
• Different house prices for middle-income earners across Canada. [0:29:25.0]
• Statistics about TSFAs such as who has one versus who has an RRB. [0:30:53.0]
• How to use TSFAs in connection with other investments. [0:32:18.0]
• Rules and cautions about TSFAs such as why not to pick stocks in one. [0:32:38.0]
• Good reasons to use TSFAs such as when one has a low income and is young. [0:32:38.0]
• Why not to buy mutual funds that charge investors early withdrawal fees. [0:38:33.0]
• And much more!

Tweetables:

“In a risk parity world, we’re ignoring expected returns.” — @benjaminwfelix [0:09:52]

“As a landlord, if you can get more than 5% cap rates for your property the expectation would be that you’re getting a better outcome than investing in stocks.” — @benjaminwfelix  [0:16:35]

“You should hold a constant proportion of the present value of your future wealth in stocks.” — @benjaminwfelix [0:24:30]

“The bottom 20% of income earners in Vancouver have a property to value income ratio of 32 times.” — @CameronPassmore [0:26:50]

Links From Today’s Episode:

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

Lessons from your fellow Canadians on how to be successful with TSFAs — https://www.theglobeandmail.com/investing/personal-finance/article-tfsas-are-a-canadian-financial-success-story-and-young-adults-are/

The Happiness Lab — https://www.happinesslab.fm/

Dr. Laurie Santos — https://psychology.yale.edu/people/laurie-santos

Malcolm Gladwell — https://www.newyorker.com/contributors/malcolm-gladwell

Revisionist History Podcast — http://revisionisthistory.com/

Daniel Kahneman — https://kahneman.socialpsychology.org/

Michael Lewis — http://michaellewiswrites.com/#top

The Undoing Project on Amazon — https://www.amazon.com/Undoing-Project-Friendship-Changed-Minds/dp/0393254593

Ray Dalio — https://www.bridgewater.com/leadership/ray-dalio/

Tony Robbins — https://www.tonyrobbins.com/

MONEY: Master the Game on Amazon — https://www.amazon.com/MONEY-Master-Game-Financial-Freedom-ebook/dp/B00MZAIU4G

Larry Swedroe — https://buckinghamadvisor.com/people/larry-swedroe/

Fraser Smith and the Smith Manoeuvre — https://smithman.net/

Lifecycle Investing on Amazon — https://www.amazon.com/Lifecycle-Investing-Audacious-Performance-Retirement-ebook/dp/B003GYEGK2

Paul Samuelson — https://www.npr.org/templates/story/story.php?storyId=121433434

Homeownership, income and residential property values — https://www150.statcan.gc.ca/n1/en/catalogue/46280001201900100002

IPSOS 2019 RBC Financial Independence in Retirement Poll — https://www.ipsos.com/sites/default/files/ct/news/documents/2019-08/rbc_retirement_poll_factum_aug_20_2019.pdf

Investor advocates impatient with lack of reform on mutual fund sales charges — https://www.theglobeandmail.com/business/article-investor-advocates-impatient-with-lack-of-reform-on-mutual-fund-sales/

Ken Kivenko — https://www.canadianmoneysaver.ca/authors/ken-kivenko

Download the transcript of this episode here: Rational Reminder Podcast – EP. 76 – Transcript