The Year End Round Up: Recapping Recent Market Performance (EP.25)

Episode Summary

Executive Summary: The episode blends podcast housekeeping with practical investing lessons: an update on the podcast’s growth, feedback from a client survey, a clarification on permanent life insurance versus investing, a listener question on profitability factors, and a detailed defense of staying invested during market volatility. The hosts argue current declines are normal, market timing is unreliable, and risk must be embraced to earn expected returns.

Main Topics: Podcast housekeeping and audience feedback (Priority: 4/5): The hosts discuss chart rankings, solicit reviews, apologize for a perceived sales-heavy listener complaint, and explain upcoming episodes and the new studio/video plans. Client survey results and advisor-client experience (Priority: 5/5): They review annual survey data comparing their firm to peer advisors, highlighting a younger client base, what clients value most, and persistent pain points in digital service. Life insurance versus investing in taxable portfolios (Priority: 5/5): They respond to commentary on permanent life insurance, arguing that insurance can be part of an asset-allocation strategy but is not generally superior to equities after tax when comparing long horizons and costs. Profitability factor and risk-based explanations (Priority: 5/5): A listener asks how profitability can command a higher expected return if the factor is not behavioral. The hosts explain profitability as a risk-based premium rather than an arbitrage opportunity. Market volatility and what is 'normal' (Priority: 5/5): They contextualize 2018’s pullback as garden-variety volatility, compare it with historical correction/bear market frequencies, and show current declines remain within normal distribution bands. Market timing, social media, and behavioral biases (Priority: 4/5): The hosts caution that market timing is unreliable, cite evidence that best and worst days cluster in bad/good years, and discuss whether social media amplifies fear or market efficiency.

Key Arguments: The podcast is not intended as a sales vehicle; it is a medium for sharing ideas that clients asked to hear, though the hosts will be more careful about that perception. Survey data suggests their client base is younger than the industry norm, which may influence service expectations and technology needs. Clients primarily value advice for experience with similar clients, returns, security, peace of mind, and clarity around their financial situation. Permanent life insurance may make sense when TFSA/RRSP room is maxed, a guaranteed death benefit is desired, or legacy maximization is a key goal; however, it usually does not beat equities on an after-tax basis over long horizons. If insurance is used for wealth-building, it should be viewed as a substitute for fixed income, not as a free add-on; otherwise the portfolio becomes more equity-heavy overall. Profitability can be rationalized by risk: two firms with similar size and price but different profitability can still be priced so that the more profitable one carries a higher discount rate and thus a higher expected return. Behavioral factor stories may be plausible, but they are vulnerable to arbitrage if the edge depends mainly on human irrationality rather than enduring risk. Current market declines are normal relative to history; what feels painful is often well within expected volatility. Market timing is difficult because the best trading days often occur in otherwise bad years, and missing those days can severely reduce returns. Investors should focus on staying invested and rebalancing rather than reacting to short-term volatility; risk is the source of expected return.

Data Points: Podcast chart rank (Canada business category): Peak at #13 - The hosts note the show jumped into the Canadian business podcast charts Podcast chart rank (investing category): Peak at #3 - They reached number three in investing podcasts before dropping back down Client survey responses: 199 responses - Roughly half of their clients participated in the annual survey Total clients in peer survey pool: 6,874 clients - Used as the comparison group across advisors Respondents age 35 or younger: 21% - Their firm's survey responses were much younger than the peer group Peer-group respondents age 35 or younger: 3% - Industry comparison for client age distribution Respondents over age 55: 42% - Their firm's survey responses Peer-group respondents over age 55: 79% - Industry comparison for older clients Average advisor age in industry: 54 - Estimated average age mentioned for advisors generally Stock market return expectation: 0–5%: 35% of respondents - Survey question about expected annual stock market returns Stock market return expectation: 6–10%: 45% of respondents - Survey question about expected annual stock market returns Podcast timeline: Almost 6 months into podcasting - The hosts reflect on the podcast’s early growth Permanent life insurance costs (example): About 2.5% fee - Used as an example of higher costs inside a universal life policy for equity exposure 2018 Canadian stock market performance: Down about 9% year-to-date - Hosts describe the year’s market weakness 2018 U.S. market performance in Canadian dollars: Up a little - Currency effects offset some losses for Canadian investors 2018 international equity ETF performance (XEF): -7.17% - Canadian-dollar return for international equities DFA 60/40 portfolio performance: Just over -5.5% - Used to illustrate diversified portfolio volatility SP 500 annualized return since 1926: Just over 10% - Historical benchmark for normal return ranges SP 500 annualized standard deviation since 1926: 18.62% - Used to define the expected spread around average returns SP 500 annualized return from Mar 2009 to late 2018: 16.97% - Highlighted as an unusually strong post-crisis period SP 500 standard deviation in that period: 12.44% - Shown to be much lower than the long-run average volatility Bootstrap samples created: 100,000 samples - Method used to assess how unusual the 2009–2018 SP 500 experience was Probability of matching/exceeding actual 2009–2018 risk-adjusted returns: 0.57% - Less than 1% of bootstrap samples matched the experience Global stock corrections since 1980: 11 corrections of 10%+ - Using MSCI World Index history Global stock bear markets since 1980: 8 bear markets of 20%+ lasting at least two months - Used to show volatility is common SP 500 drawdown in 2018 from peak to low: 13% - Current pullback discussed as still within normal ranges Best trading days in negative-return years: 12 of the 20 best days - Vanguard data on U.S. markets from 1979–2018 Worst trading days in positive-return years: 9 of the worst days - Same Vanguard data set, illustrating clustering of extreme returns Twitter users in 2008: 6 million - Compared with today to discuss social-media influence on markets Twitter users today: 328 million+ - Used to highlight how information now spreads faster Facebook monthly users in 2008: 100 million - Compared with current scale Facebook monthly users today: 2.2 billion - Used to illustrate modern information dissemination

Pivotal Quotes: "We jumped in the charts. It was kind of fun for Cameron and I to watch, but I think we peaked at number 13 in the business category for all podcasts in Canada." — Benjamin Felix: Opening discussion about podcast growth and rankings "If you think about it from an asset allocation perspective, if you want to add in insurance to your overall asset allocation to build your wealth in a tax-efficient manner, you can do that. But it means that you're replacing fixed income with permanent insurance." — Benjamin Felix: Explaining how permanent life insurance fits into a portfolio "Prices go down, expected returns go up." — Ken Fisher (quoted by hosts): Used to reinforce the principle that lower prices imply higher future expected returns

Implications: Listeners should expect normal volatility, resist market timing, and align insurance and factor decisions with risk-based reasoning. The episode also signals the hosts’ intent to improve client technology and podcast quality while staying anchored in evidence-based investing.