UNAFFORDABLE HOUSING (EP.13)

Episode Summary

Executive Summary: Benjamin Felix and Cameron Passmore discuss the podcast’s growth, upcoming guests, and a Chicago DFA conference, then dig into October seasonality, permanent life insurance use cases, Canada’s housing affordability crisis, active vs passive fund performance, and lifestyle/wealth lessons from books and investing commentary. The episode emphasizes evidence-based decisions, skepticism toward financial myths, and practical exceptions where insurance or leverage can make sense.

Main Topics: Podcast updates and upcoming guests (Priority: 3/5): The hosts note the show’s strong download growth, rank in the iTunes business category, and preview future episodes including a retired banking executive with debt expertise and coverage from the DFA Advance Conference in Chicago. Permanent life insurance: when it can make sense (Priority: 5/5): They revisit their Common Sense Investing video on permanent life insurance, discuss the high cancellation rate of whole life policies, and outline narrow scenarios where permanent insurance may be appropriate, such as charitable bequests or corporate-owned policies for retained earnings. Canadian housing affordability and bubble risk (Priority: 5/5): A substantial portion of the episode focuses on severe housing affordability pressures in Canada, especially Toronto and Vancouver, with discussion of RBC affordability data, UBS bubble-risk rankings, and HELOC usage as a potential coping mechanism in expensive markets. October market seasonality and crash psychology (Priority: 3/5): The hosts address the October 1987 crash memory and contrast it with long-run seasonality data showing October has been positive on average over multiple horizons, reminding listeners not to extrapolate one famous crash into a general rule. Active vs passive investing and concentration risk (Priority: 5/5): They examine a WSJ piece on active U.S. fund manager performance and explain that concentrated returns in a few mega-cap stocks make outperformance difficult, especially for diversified or tilted portfolios that rebalance away from winners. Lifestyle, consumption, and long-term wealth habits (Priority: 4/5): Using a Ben Carlson post and anecdotes from a Vanderbilt family book, they discuss how spending creep, envy, marriage, time/health tradeoffs, and contentment influence financial well-being more than small daily frugality tips. Reading and personal development (Priority: 2/5): The hosts share recent reading recommendations including The Four Agreements, Fortune’s Children, and Mindset, using them to reinforce themes of discipline, self-awareness, and long-term thinking.

Key Arguments: Permanent life insurance is usually not sensible for most people, but it can be appropriate when a specific death benefit is needed and timing is uncertain. Corporate-owned permanent insurance can be a tax-efficient way to move retained earnings to future generations when the owner does not need the capital during life. Canada’s housing markets, especially Toronto and Vancouver, show serious affordability strain and signs of decoupling from local incomes and rents. High housing prices may reflect anticipated future income growth in cities with strong employment growth rather than a pure bubble, though affordability remains extreme. October fear is driven by memory of 1987, but long-run data does not support October being uniquely bad on average. Active managers face structural difficulty because a small number of stocks drive a large share of market returns; fees are not the only reason many underperform. Rebalancing in disciplined portfolios means selling winners and buying laggards, which can hurt in the short run when mega-cap growth stocks dominate returns. Financial advice should focus on big levers: avoiding lifestyle inflation, valuing gratitude, protecting health/time, and choosing a compatible spouse. Retirement spending may be lower than people imagine if they do not actually want expensive travel or status consumption. Permanent insurance returns in specific corporate scenarios can be modest on a pre-tax basis, but tax benefits can materially improve the after-tax case.

Data Points: Podcast downloads per episode: Over 200 - They note the show is averaging more than 200 downloads per episode. iTunes business category rank: #16 peak - The podcast reached number 16 in the business category on iTunes. Average October return, last 20 years: Almost 2.5% - Barry Ritholtz’s chart, using U.S. stocks/Dow index. Average October return, last 50 years: 0.84% - Longer-run October seasonality data for U.S. stocks. Average October return, last 100 years: 0.4% - Century-long October seasonality data for U.S. stocks. Whole life cancellation rate: 80% cancel before death - A commenter shared U.S. data on whole life policy lapses/cancellations. Corporate insurance IRR: 2% to 3% per year - Illustrative internal rate of return into the 90s for a corporate-owned permanent policy, before tax benefits. Tax advantage on corporate insurance: 30% to 35% - Accountant-estimated tax savings discussed alongside the policy example. Canadian housing affordability burden: 53% to 54% of household income - RBC measure of typical home ownership carrying costs nationwide. Vancouver housing burden: 88.4% of income - RBC affordability measure for Vancouver. Toronto housing burden: 75.9% of income - RBC affordability measure for Toronto. Ottawa housing burden: 38.6% of income - RBC affordability measure for Ottawa. UBS bubble-risk ranking: Toronto and Vancouver in top five - UBS global real estate bubble index; Hong Kong and Munich were ahead of them. Active funds outperforming benchmark: 36% - Trailing 12-month U.S. active fund performance cited from a Wall Street Journal article. S&P 500 return contribution from mega-cap stocks: 25% - Amazon, Apple, and Microsoft were said to account for a quarter of S&P 500 gains over the past 12 months ending June. XUU allocation to Apple/Amazon/Microsoft: 9.3% - Weight in the iShares U.S. total market ETF. DFA global portfolio allocation to Apple/Amazon/Microsoft: 4.4% - Lower exposure due to value/small-cap tilts versus cap-weighting. DFA U.S. equity allocation YTD return: 9.23% in CAD - Year-to-date return as of end of September. Russell 3000 YTD return: 14.62% in CAD - Benchmark comparison over the same period. Median married household savings: 10x typical single household - Statistic cited from financial advice research. Average wealth decline after divorce: 77% - Ohio University research mentioned in the discussion. Richmond Hill affordability gap: Almost $50,000 annual income spread - Affordability study across 28 Ontario cities; Richmond Hill had the widest gap between needed income and median income. Toronto average sale price: $785,000 - Referenced from recent Ontario affordability data. Ottawa average sale price: $433,000 - Referenced from recent Ontario affordability data. Podcast episode number: 13th episode - Opening housekeeping update.

Pivotal Quotes: "This is a weekly reality check on sensible investing and financial decision-making for Canadians." — Benjamin Felix: Opening description of the Rational Reminder podcast. "80% of Americans who buy whole life insurance end up canceling the policy before they die." — Cameron Passmore / commenter reference: Discussion of whole life insurance lapse/cancellation behavior and its implications. "The term bubble refers to a substantial and sustained mispricing of an asset, the existence of which cannot be proved unless it bursts." — Benjamin Felix quoting UBS: Used to frame the housing bubble discussion in a balanced way.

Implications: Listeners should focus on evidence, not financial folklore: permanent insurance is niche, housing affordability is stretched in key Canadian cities, and market returns can be driven by a few stocks. Disciplined rebalancing and lifestyle control matter more than chasing narratives.