Episode Summary
Executive Summary: The episode covered three big themes: the show’s shift away from repeatedly discussing Dimensional toward new factor-tilted ETF model portfolios; a review of rising competition in Canadian asset-allocation ETFs and the small real-world costs of using them in registered or taxable accounts; and a deep dive into safe savings rates, arguing that saving should be planned across the full life cycle rather than separately from retirement withdrawals.
Main Topics: De-emphasizing Dimensional and introducing ETF model portfolios: The hosts respond to feedback that Dimensional is mentioned too often, explain why it remains relevant to clients, and say future episodes will focus more on their own factor-tilted ETF model portfolios and the evidence behind them. Explosion in asset-allocation ETFs in Canada: They discuss new all-in-one ETF offerings from iShares, Vanguard, Horizons, and BMO, noting that these products simplify portfolio management but can create behavior problems if investors chase the best recent performer. Tax and implementation trade-offs in one-ticket portfolios: The conversation compares registered-account foreign withholding tax, the possibility of using U.S.-listed ETFs, and the tax treatment of premium bonds in taxable accounts, concluding that the convenience of all-in-one ETFs usually outweighs relatively small cost differences. Factor investing evidence and investor behavior: They review a paper showing factor fund outperformance exists, but investors in those funds often underperform due to performance chasing. They also discuss why low-beta factors look different in long-short research versus long-only products. Safe savings rates versus safe withdrawal rates: The main topic explains Wade Pfau’s framework: instead of separating accumulation and decumulation, plan saving over the full life cycle based on historical worst-case periods and desired retirement replacement income. Behavioral and planning implications of process-based saving: The hosts emphasize that safe savings-rate planning shifts focus from hitting a portfolio number to maintaining a disciplined savings habit, which may better support clients who struggle with uncertain retirement targets.
Key Arguments: Dimensional is relevant to the hosts’ client base, but they will increasingly talk about evidence and their own ETF model portfolios to avoid excluding non-client listeners. All-in-one asset allocation ETFs are a net positive for investors because they reduce complexity and make asset allocation the main decision rather than fund selection. The performance differences among Canadian all-in-one ETFs are usually small; much of the debate over account placement and fund choice involves relatively minor basis-point differences. Using U.S.-listed ETFs can reduce unrecoverable foreign withholding tax, but the savings may be modest relative to added complexity, currency conversion, and mental overhead. In taxable accounts, premium bond tax inefficiency exists but is temporary and likely to diminish as bonds roll down and rates normalize. Factor premia appear real in the data, but investors often fail to capture them because they chase recent performance rather than buy and hold. Long-short factor research and long-only smart beta are not the same thing; low-beta factors can look strong in long-short form but weak in long-only implementation because market exposure is reintroduced. Safe savings-rate planning better aligns with real life because it accounts for the relationship between accumulation returns and retirement withdrawal conditions instead of treating them separately. A process-based savings rule may be more behaviorally effective because it removes the obsession with a portfolio target and focuses on consistent saving. A large apparent retirement portfolio may not be a cue to retire early if it was achieved during unusually strong return periods, since forward returns may be lower.
Data Points: Episode number: 34 - Rational Reminder Podcast episode discussed in the transcript Global long-term fund flow share captured by BlackRock and Vanguard: 57% - Financial Times article cited by the hosts Total funds in global database: 95,000 - Funds counted across roughly 4,000 companies in the FT article Passive-to-active flow ratio in the U.S.: 5:1 - Hosts describe U.S. flows as heavily favoring passive funds Unrecoverable foreign withholding tax on 80/20 Canadian all-in-one ETFs in registered accounts: ~20 basis points - Their estimate for holding Canadian-listed balanced ETFs in registered accounts Foreign withholding tax using U.S.-listed ETFs: ~5 basis points - Estimated lower tax drag if investors build the portfolio with U.S.-listed ETFs Tax inefficiency from premium bonds versus par bonds/GICs: ~14 basis points - Estimated temporary tax inefficiency in taxable accounts due to premium bond holdings Historical share of traditional active mutual funds with positive alpha after fees: 17% - U.S. funds in the CRSP survivorship-bias-free database Factor funds with positive alpha: low beta: 52% - Proportion producing positive alpha after fees in the cited study Factor funds with positive alpha: small cap: 53% - Proportion producing positive alpha after fees in the cited study Factor funds with positive alpha: value: 52% - Proportion producing positive alpha after fees in the cited study Factor funds with positive alpha: momentum: 40% - Proportion producing positive alpha after fees in the cited study Factor funds with positive alpha: profitability: 57% - Proportion producing positive alpha after fees in the cited study Worst-case safe savings rate from Fau’s framework: 37.7% of income - Described as the savings-side analog to a very conservative withdrawal rule Safe savings rate, 30 years saving / 30 years retirement: just over 16% of income - Base-case example in the discussed table Safe savings rate, 40 years saving: 8%-9% of income - Hosts compare this to the popular 10% savings rule 50% salary replacement, 30 years accumulation, 20-year retirement, 40/60 portfolio: 15.64% - Example safe savings rate mentioned in discussion 50% salary replacement, 30 years accumulation, 40-year retirement, 40/60 portfolio: 22.19% - Example showing higher savings need with longer retirement horizon 50% salary replacement, 30 years accumulation, 40-year retirement, 80/20 portfolio: 16.54% - Example showing lower savings need with higher equity allocation 50% salary replacement, 40 years saving, 20 years retirement, 60/40 portfolio: 7.5% - Illustrative savings rate for a long accumulation period 50% salary replacement, 40 years saving, 20 years retirement, 80/20 portfolio: just over 6% - Illustrative savings rate for a long accumulation period with more equity Conservative Fire-style scenario, 20 years saving / 40 years retirement, 40/60 portfolio: 47% of salary - Example of a very high required savings rate in a conservative case
Pivotal Quotes: "Our intention is to de-emphasize talking about dimensional funds and instead talk about the Rational Reminder model ETF portfolios." — Benjamin Felix: Explaining the planned shift away from repeated Dimensional references "This is the other side of the coin. It’s both sides of the coin." — Cameron Passmore: Describing safe savings rates as the complement to safe withdrawal rates "The only thing we care about is how much you save." — Benjamin Felix: Summarizing the safe savings-rate framework as process-based rather than target-based
Implications: Listeners should expect more evidence-focused ETF portfolio discussion and less product-specific Dimensional talk. For planning, the episode encourages a lifecycle savings habit over fixation on retirement portfolio targets, while reminding investors that implementation complexity rarely justifies chasing tiny cost differences.
From the Episode
Going forward, our intention is to de-emphasize talking about dimensional funds and instead talk about the rational reminder model ETF portfolios. And talk about the evidence around this because basically, dimensional uses evidence. So we're going to stick to the evidence side of this. Yeah. So we're getting away from the product, moving more toward the ideas, but we've given ourselves an alternative product that we can talk about without stopping talking about the factors that we believe in. So We think this is going to be better for the overall audience. Now, I guess the thing to keep in mind is that the podcast was still built for our clients, and we're not taking funding from advertisers or anything like that. So, our primary audience is still our clients. We're going to do our best not to alienate non-client listeners, and we're doing that by talking about our new model ETF portfolios, which we'll launch in a future episode. I've always found it interesting how dimensional is such a polarizing character in the
Welcome to episode 34 of the Rational Reminder Podcast. We have a main topic that we want to go through today, which is safe savings rates, which is a really interesting topic that we think you'll find informative, I guess. Yeah, most people are aware of safe withdrawal rates. This is different. This is the other side of the coin. It's both sides of the coin. I think that's the key thing. Yeah. So it's like the 4% rule is how much you can spend from a portfolio of X amount once you have. Retired, but the safe savings rate looks at the full life cycle. So instead of just looking at once you have a portfolio and you're retired, how much can you spend, it looks at how much you need to save for 30 years such that you can spend a desired percentage of your income for the following 30 years. But we'll get to that. Yeah, we have a couple of things we want to go through before we get there. So we had a bit of feedback this week from someone that feels that we're talking too much about dimensional fund advisors. And it's not the first time this has come up.
Up until retirement, which means we have higher expected returns going forward. It completely flips financial planning on its head, completely ignores wealth accumulation targets, completely ignores spending rates. The only thing we care about is how much you save. And we make the assumption that if you follow that, if you save whatever that number is, you'll be okay. It's worth really quick just running through the, if we look at the 50% replacement scenarios here, we're saying that you need to replace 50% of your final salary and say you're accumulating for 30%. Years, the safe savings rate is 15.64% of income for a 20-year retirement and a 40-60 asset allocation. And then, if we say 30-year pre-retirement, 40-year retirement, safe savings rate goes up to 22.19%. But there's a massive impact from asset allocation, too. So, that was for 40-60. If you're 80-20, 80 stocks, 20 bonds, for a 30-year accumulation and a 40-year retirement, the safe savings rate.
About The Rational Reminder Podcast
A weekly reality check on sensible investing and financial decision-making, from three Canadians. Hosted by Benjamin Felix, Cameron Passmore, and Dan Bortolotti, Portfolio Managers at PWL Capital.