Fee-only Financial Planning, Home Country Bias, and Big RRSPs (EP.70)

Episode Summary

Executive Summary: Episode 70 covers listener feedback, hiring growth at Rational Reminder, and two major educational topics: how to advise DIY investors who want low-cost help, and how to think about home-country bias and whether RRSPs can ever become “too big.” The hosts also share takeaways from a Dimensional conference and end with a critique of tactical inverse-ETF advice.

Main Topics: Listener feedback, show length, and hiring updates (Priority: 3/5): The hosts discuss comments on the site, acknowledge feedback on interruptions and episode length, and announce hiring plans: an in-house insurance specialist, experienced advisors, and a marketing leader for podcast/YouTube/social content. Fee-only advice for DIY investors (Priority: 5/5): A listener asks what a financially literate spouse should do when the other spouse is uninterested and professional advice seems too expensive. The hosts argue that third-party advice can reduce mistakes, improve adherence, and even prevent oversaving. Guest spot: Rob Engen and accessible financial planning (Priority: 4/5): Rob Engen of Boomer and Echo describes his fee-only planning service, emphasizing objective advice on cash flow, debt, saving, retirement, CPP, and pension timing, and offers a discount to listeners. Dimensional conference takeaways (Priority: 5/5): Benjamin summarizes five lessons from a Dimensional Fund Advisors conference: the growth of factor investing, the limits of frameworks, the persistence of value premiums, the importance of profitability signals, and ongoing innovation in fixed income/trading. Home-country bias in Canadian portfolios (Priority: 5/5): The hosts debate how much Canada exposure is appropriate, weighing diversification against tax, fee, trading, and behavioral advantages of Canadian stocks. They land near a one-third Canada allocation as reasonable. Can you have too much in an RRSP? (Priority: 5/5): Using simplified examples, they show RRSPs and TFSAs are equivalent at the same tax rate, and RRSPs usually beat taxable accounts unless future tax rates are far higher. The main exception is low-income investors who may lose GIS. Bad advice of the week: inverse ETFs and the 'death of 60/40' (Priority: 4/5): They ridicule an article recommending tactical single-inverse ETFs as protection against the supposed end of the 60/40 portfolio, contrasting it with academic skepticism about market timing.

Key Arguments: A third-party planner can reduce pressure on the financially engaged spouse and improve decision quality when one partner is uninterested or overwhelmed. DIY investors can oversave; an outside review may reveal that they can afford a better lifestyle without compromising goals. Dimensional’s approach is not passive indexing: it is research-driven implementation of academic findings to improve expected outcomes and trading efficiency. The value premium has not disappeared; weak recent performance does not invalidate the long-term case for factor exposures. Canada’s market weight is only about 3% globally, but taxes, withholding, and low domestic trading costs make some home bias rational for Canadians. Behavior matters: Canadians are more likely to notice and react to domestic market swings, so very low Canada weights can create adherence risk. RRSPs and TFSAs are economically equivalent when contribution and withdrawal tax rates are equal; RRSPs generally outperform taxable accounts unless future withdrawal tax rates are much higher. Large RRSPs are usually not a problem because future tax rates would have to rise dramatically for RRSPs to become inferior to taxable investing; GIS eligibility is the main exception. Inverse-ETF tactical market timing is presented as unreliable and contrary to the evidence shown by academic research on forecasting and expected returns.

Data Points: Episode number: 70 - The Rational Reminder Podcast episode discussed in the transcript Canada share of global stock market: just over 3% - Used as the market-cap-weight benchmark for Canadian equity allocation Average Canadian equity allocation: 60% - Vanguard study cited as evidence of strong home-country bias among Canadians Suggested Canada allocation in model portfolios: about one-third - Rational Reminder references common Canadian model portfolios like Vanguard, Wealthsimple, and Canadian Couch Potato Mean-variance sweet spot for home-country allocation: around 50% - Vanguard modeling and historical analysis cited for volatility minimization XIC MER: 6 bps - Canadian equity ETF cost cited in the home-country bias discussion XUU MER: 7 bps - U.S. equity ETF cost cited in the home-country bias discussion XEF MER: 22 bps - International developed ETF cost cited in the home-country bias discussion XEC MER: 26 bps - Emerging markets ETF cost cited in the home-country bias discussion Ontario eligible dividend top-tax rate: 39.34% - Tax rate on eligible Canadian dividends at the highest bracket in 2019 Ontario foreign dividend top-tax rate: 53.53% - Tax rate on foreign dividends at the highest bracket in 2019 XIC yield: 2.86% - Used to estimate tax drag on Canadian equities in taxable accounts U.S. equity yield: 1.8% - Used to show U.S. equities can be more tax-efficient than Canadian equities at the top rate Estimated extra tax drag from international developed stocks: 26 bps - Dividend yield times tax rate compared with Canadian equities Estimated extra tax drag from emerging markets stocks: 30 bps - Dividend yield times tax rate compared with Canadian equities U.S. withholding tax in RRSP/TFSA via Canadian-listed ETF: about 27 bps - Estimated unrecoverable foreign withholding tax on XUU in registered accounts International developed withholding tax in RRSP/TFSA: about 22 bps - Estimated unrecoverable foreign withholding tax on XEF in registered accounts Emerging markets withholding tax in RRSP/TFSA: about 70 bps - Estimated unrecoverable foreign withholding tax on XEC in registered accounts China share of global fixed income: 10% - Conference takeaway about China’s importance in bond markets China bond issuance: over $5 trillion - Shows China’s large role in global fixed income markets RRSP-to-TFSA equivalence example: $100,000 vs $50,000 - Illustrates that a pre-tax RSP contribution equals half as much in a TFSA at a 50% tax rate RRSP example future value at 5% for 20 years: $265,329 - Value of a $100,000 RRSP contribution growing at 5% with no tax until withdrawal TFSA equivalent future value: $132,664 - Half the RRSP amount under a 50% tax assumption Taxable-account future value example: just under $100,000 - After 20 years at 5% return with 2% taxable income and 3% deferred capital gains at a 50% tax rate RRSP future tax-rate threshold vs taxable account: 63.5% - Future withdrawal tax rate required for RRSP to match taxable-account outcome in the example OAS clawback threshold: $77,580 - Income level at which old age security clawback begins in 2019 OAS full clawback threshold: $126,140 - Income level at which OAS is fully clawed back RIF minimum withdrawal at age 72: 5.4% - Minimum annual withdrawal rate discussed for RRIFs RSP balance that could trigger OAS clawback in example: $1.045 million - Illustrative balance at age 72 with only CPP and OAS income Max CPP benefit: $1,154/month - Used in the RRSP/OAS clawback example Ontario effective tax rate with OAS clawback at threshold: about 45% - Combined tax and clawback estimate near the clawback start Ontario effective tax rate with OAS clawback near top: about 58% - Combined tax and clawback estimate near the top of clawback range ALDA contribution cap: $150,000 or 25% of registered plans - Deferred annuity feature that can postpone RRIF minimums to age 85 GIS threshold: around $21,000 - Approximate income level mentioned for guaranteed income supplement eligibility Bank of America claim: 1,100 stocks yield more than global bonds - Referenced as part of the “death of 60/40” discussion Dimensional research team size: 90 people, over 20 PhDs - Illustrates the scale of research support behind the firm’s portfolio process

Pivotal Quotes: "if stocks have different expected returns, then there must be a value premium" — Benjamin Felix: Explaining why the value factor should still exist despite a decade of weak performance "global diversification works eventually" — Benjamin Felix: Summarizing AQR’s argument that diversification may not help in crises but matters over long horizons "think less about owning positions and more about renting positions" — Rob Isbits: Quoted in the bad-advice segment as justification for tactical inverse ETF use

Implications: Listeners should expect nuanced, case-by-case guidance rather than one-size-fits-all rules. Canadian investors can justify some home bias, but behavior and taxes matter. RRSPs are usually more valuable than taxable investing, and tactical inverse-ETF market timing is not a sound retirement strategy.