Popular Money Advice vs What the Research Says | Ep. 49

Most money advice is popular because it’s easy to follow — not because it’s right.
 In this episode, I break down what academic research says about personal finance versus what popular financial books and gurus recommend.

What I cover

•  Why “save 10–15%” is simple, but not always optimal 
•  The difference between smooth consumption and rule-of-thumb saving 
•  Why dividend investing is often overrated 
•  How to think about portfolio risk based on time horizon, not just age 
•  Where passive investing beats active management 
•  What the data says about debt repayment and mortgage choices 

Chapters
00:00 Why finance advice conflicts
01:00 The paper comparing gurus vs professors
03:30 Saving 10–15% vs controlling consumption
09:00 The real key: separate income from expenses
18:00 Portfolio mix: age vs time horizon
24:30 Dividend investing vs tax efficiency
31:20 Small value, international diversification, and indexing
35:00 Debt repayment and fixed vs variable mortgages

Good financial decisions usually come from better frameworks, not better slogans.
 Subscribe for more plain-English financial education, and watch the next episode if you want more evidence-based investing and planning conversations.

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Transcript

Tre 0:00

Have you ever wondered why so many different finance professionals give you different advice? There is actually a correct option, but we're also human. During this episode we're gonna look at what the professors say, what their academic community says about finances and compare what financial gurus say, what professors say, and then what I tell people to do. So, hello and welcome to the Plain English Finance Podcast, the podcast dedicated to helping you make smart financial decisions. I'm your host, Tré Bynoe, certified financial planner and chartered investment manager, financial planner, TCU Wealth Management, and Aviso Wealth. Okay, this one is a cool one. so there is a professor that I follow for quite a while now. as you know, a lot of, my learning has been done through. Studies and stuff like that. Anyway, I thought that was a really cool paper that he did. Really cool paper. I,

Sierra 0:59

well, when you started, this is a good episode. This is gonna be fun. I was trying not to smile.

Tre 1:06

Yeah. Anyway, there is a paper that he did that comparing, it's called Popular Personal Financial Advice versus the Professors.

Sierra 1:14

Oh, okay.

Tre 1:15

That's pretty cool. And he goes through, basically compares a bunch of financial gurus and their books and stuff like that and what they're recommended, what they recommend, and what their advice is versus what the academic community

Sierra 1:30

says.

Tre 1:30

Says. And here is something to know about personal finance that many people will say there's not a right and wrong way to do it. There is, it's just that people want to tell themselves'cause it makes people feel better.

Sierra 1:44

Okay. It's

Tre 1:44

if you want to. If you want to go and learn how to be an astronaut, there is a right and the wrong path, if you like. Yeah. There is some leeway there, but

Sierra 1:57

nuances

Tre 1:58

and stuff, there's some small nuances, but not on the scale that people believe there is.

Sierra 2:04

Yeah.

Tre 2:04

And it's very true with with personal finance. Okay. So there is a few different categories here that they, that he goes through. So yeah, we'll go through, I'll read out what their consensus for their popular advice is. Like he looked at the books and stuff like that. We'll look at,

Sierra 2:21

are you gonna, are you gonna source the books? Are you gonna throw shade on the,

Tre 2:26

no, just kidding. I would say so. It was like Dave Ramsey's book.

Sierra 2:29

Good old Dave. He's been featured in our podcast many times.

Tre 2:33

Yeah. so it was, he lists them all, if you want to go check it out, but it's 50, the most co most popular personal finance books.

Sierra 2:42

Okay.

Tre 2:43

So it takes

Sierra 2:43

like Rich Dad, poor Dad.

Tre 2:45

Yeah. All of'em. He's got a list. Whole huge list of them.

Sierra 2:48

Okay.

Tre 2:49

Path to Wealth, Four Pillars of Investing, Automatic Millionaire. Tons is literally,

Sierra 2:54

oh wow.

Tre 2:55

These

Sierra 2:56

are, so he read all of these books? Is that he's saying,

Tre 3:00

that's a really good question.

Sierra 3:01

Maybe that's not exactly what he's saying. Maybe he's just pulling things from the sources.

Tre 3:07

Yeah. There'd be a lot of books to,

Sierra 3:11

yeah, that list looked a little

Tre 3:13

but the saying that you are a professor you don't do it, you just get your. underlings to do it

Sierra 3:17

or your professor, do they just read a lot? Maybe an obscene amount. I don't

Tre 3:22

dunno. But anyway, so this is by James Choi. He's a, he's the professor, a professor of finance at the Yale, at Yale School of Management. Okay. Yeah. So he's a big wig in this world.

Sierra 3:34

Yeah.

Tre 3:34

Okay. First one is talking about saving. Yeah. So the popular advice is save 10 to 15% of income regardless of age and circumstances during work and life.

Sierra 3:46

Right.

Tre 3:47

Okay.

Sierra 3:47

I feel like I've heard that on different YouTube. Yeah.

Tre 3:51

Dave

Sierra 3:51

Ramsey or something's

Tre 3:52

a pretty common. Yeah, it's a pretty common,

Sierra 3:55

yeah. Save 10%. Save 10%. Yeah.

Tre 4:01

By the way, we are both very sick.

Sierra 4:03

We are deathly ill right now

Tre 4:06

deathly, ill

Sierra 4:06

deathly. We're doing this for you. Just kidding. The listeners just kidding. No, we're pretty sick though, to be here.

Tre 4:15

Yeah,

Sierra 4:16

it's been, and we kept, we've been sick for a long time. Not a super long time. This is too, I'm giving too much information, but basically we were like, oh, we'll do, we'll do a podcast today. Oh, we're both feeling sick. Let's do it tomorrow. And it's just been pushed on and on. And somehow we're worse. So now we're just doing it probably at the peak of our illness. So yeah. Sorry about the voices. My throat is so sore.

Tre 4:47

Yeah, that's fine. Sorry, what was I saying? Okay. so saving save 10 to 15%. Don't annuitize. So basically use an annuity to offset the risk. So give it to somebody else, like an insurance company.

Sierra 4:59

It says, don't do that.

Tre 5:00

Yeah, don't do that. It's consensus. Popular advice.

Sierra 5:03

The, sorry. When you are referencing this is the section of the gurus like books?

Tre 5:07

Yeah. The popular advice.

Sierra 5:08

Okay. Popular advice. Okay. Yeah.

Tre 5:10

Regarding saving.

Sierra 5:11

Okay.

Tre 5:12

spend to keep real level of wealth roughly consistent in retirement. So don't draw down too much, basically don't, you're spending what your portfolio is making. Not really more than that.

Sierra 5:27

Okay. Okay.

Tre 5:28

Divide savings into mental accounts devoted to different goals. So saving for my yacht

Sierra 5:34

into mental things. Okay.

Tre 5:36

Yeah, like mental accounts, like this money is here for. This, money is there for that. Yeah.

Sierra 5:42

Yeah.

Tre 5:44

Okay. so that's the consensus, popular advice, and then the academic advice. So smooth consumption over time. So basically you want to keep your, you want to focus on your consumption and you want to keep it steady and give that love, you'll get to what I recommend

Sierra 6:02

No, I'm waiting to hear you say so in other words, don't die to, sorry.

Tre 6:09

Okay. Low or negative savings rate when you're young. High savings rate in midlife.

Sierra 6:16

Okay, say that

Tre 6:17

again, sorry. High savings rate in midlife

Sierra 6:18

what?

Tre 6:19

So low or negative savings rates when you're young,

Sierra 6:23

low or negative Savings rates when you're young. Okay.

Tre 6:26

Yeah. So save less when you're young.

Sierra 6:27

Yeah.

Tre 6:28

High savings rate in midlife.

Sierra 6:30

Okay. Well, yeah.'cause you don't have any money when you're young anyway. What can you save?

Tre 6:34

Yeah. Fully annuitize wealth in retirement. Oh, so basically get rid of the risk.

Sierra 6:41

Yeah.

Tre 6:41

It's

Sierra 6:41

give it to somebody else.

Tre 6:43

give it to somebody else. And it's a different type of risk, but if not annuitized negative savings rate in retirement.

Sierra 6:51

Okay.

Tre 6:52

Which makes sense. All wealth is fungible, so basically it's look at it as the bigger picture. Don't put it into these small mental accounts that this money's for that and this money's for this. Think of it as an overall thing.

Sierra 7:07

Like this is a large sum of money and this is

Tre 7:11

across all my accounts. Everything's in one pot. Yeah. Retirement savings aren't specifically for retirement or this money, it's just savings specifically for this money. It's just assets. Now I just choose how to access those assets based on

Sierra 7:24

Yeah. Stuff. Quick question for a sidebar. Do you think it's just because humans. Do you think this is all tied to people being afraid to run out of money? So they're like mentally trying to track like, okay, I, need this much for retirement. I'm just trying to think of it from that point of view. Does that make sense? Where it's like they need to have like things separated,

Tre 7:47

like the mental accounts you're talking about?

Sierra 7:49

Yes. The mental like savings accounts that they need to have things.

Tre 7:52

Well, people do it all the time. You do it. You did do it.

Sierra 7:56

I'm like, you save for vacation?On?

Tre 7:59

You save.

Sierra 7:59

Who are these people?

Tre 8:00

So you tell me why you would do it.

Sierra 8:02

That's why I am trying to give the perspective.

Tre 8:04

Yeah. I

Sierra 8:05

think I'm like, I think people like to, people

Tre 8:10

alive

Sierra 8:11

like these,

Tre 8:13

who are these people?

Sierra 8:13

Who are these people?

Tre 8:14

Yeah. I think maybe

Sierra 8:16

it's like you wanna know I, okay, I am gonna talk about it from my point of view, I guess you wanna know how much you need for certain things. if I have a savings goal. I want to save this amount for this vacation. To me, in my mind, it's easier if I have a separate thing where I can see it like moving towards that goal.

Tre 8:34

Yeah. cause it gives you probably a little

Sierra 8:36

dopamine.

Tre 8:37

Dopamine hits it gives you, allows you to stay motivated. There's lots of reasons that people,

Sierra 8:42

and then you know, when you've reached that goal versus if it's in a big like universe of money And it's growing Yes. And stuff like that's true. But it might be harder to be like to keep track of what your goals are. That's, I'm guessing that's why the popular advice is that, I guess for that point.

Tre 9:04

Yeah. I think you'll find, which is a theme when you look through this, is that the popular advice is easier. It's a lot easier to just implement for somebody with very little financial literacy.

Sierra 9:19

Right.

Tre 9:19

So save 10 to 15% of your income. It's really easy to. It's really easy to factor. I'm getting ahead of myself. Okay. Sorry. Those are two things.

Sierra 9:28

Yes. I'm, I am already ready to jump down that rabbit hole too. So

Tre 9:32

now mine. So what I recommend,

Sierra 9:34

okay. Yeah.

Tre 9:34

So first off, the 10 to 15% is so I'm definitely more on the smooth consumption over time. Set expenses separate.

Sierra 9:46

Separate your income

Tre 9:47

from your, come from your expenses. Absolutely. The, single most powerful thing that somebody can do to change their financial life trajectory, their tr their financial life is single. No, it is.'cause if you do this, you'll probably step one. The other stuff.

Sierra 10:02

Yep.

Tre 10:02

Is to do that separate your income from your expenses is do not have your income dictate your consumption. And once you do that, life is so different. Because you will build extra money that you can use for other things. Yeah. And when it talks about low and negative savings rate when you're young and high savings rate in midlife, guess where that comes from? It comes from you choosing what your consumption level is. So as your income grows, you automatically will save more. It's a, it is a fundamental approach to money management that, so it, I get that it is harder, and this is what irks me a little bit about my industry is just because it's harder doesn't mean that you should water it down.

Sierra 10:51

So it's like the hard truth is you gotta be responsible for your financial literacy and you need to kind of. Not follow these,

Tre 11:01

build the self-discipline, build the systems in order to, separate your income from your expenses.

Sierra 11:05

It's'cause you're changing your behavior. And again, I think we've talked about this in previous episodes where pe humans love the black and white rules. So if someone is like, as a rule, save 10%, humans are like, ding, ding,

Tre 11:19

Yeah. Love

Sierra 11:19

that. I love that. Because I don't have to think anymore about it. So I, yeah, I know we've talked about that before. I kind of forget where I was going with that. That's the end of my point, I guess,

Tre 11:32

but, you're right. I think that it's just because it's easier, it's,

Sierra 11:36

yes. Oh, so on the other hand, the argument that I'm thinking of this, just because something is easier doesn't mean it's right, but. Are these gurus and I hate that word by the way, so I hate saying it. I hate hearing it anyway. It's just so stupid. Sorry. Anyway, these authors of these books, are they saying it because it's also realistic, so if someone, they know people Again, it's, easy to say you're choosing the easy route, but humans love the easy route. So maybe they're saying this is the popular advice, because at least you're doing

Tre 12:21

that.

Sierra 12:21

The minimum

Tre 12:22

Yes.

Sierra 12:23

Instead of nothing you're doing. You're starting somewhere. Sorry.

Tre 12:26

And so, yeah.

Sierra 12:27

Devil's advocate over there.

Tre 12:28

No, you're absolutely right. My issue is that they don't specify that. So they're not saying, Hey, you should run an exercise every day. But if you're not gonna do that, make sure you get 10,000 steps or whatever it's They're not saying that. But in other things, they do say that you know, that the right thing for you to do is to eat healthy and do all these things. But if you're not gonna do that, here are some good alternatives. That's not how it's

Sierra 12:56

portrayed.

Tre 12:56

Portrayed. Oh, okay. It's portrayed as, no, the right thing for you to be doing is to be saving 10 to 15% of your income.

Sierra 13:03

Ah.

Tre 13:03

It's no, that isn't the right thing. The right thing for you to do is to control your consumption and save everything else.

Sierra 13:10

Yeah.

Tre 13:11

But

Sierra 13:12

people

Tre 13:12

don't wanna hear that if you're not gonna do that than do this. So I'd much rather that be the approach of, this is the right thing to do. We know this is the right thing to do. If you're not gonna do that, here's plan B,

Sierra 13:24

do you find that's because that's actually building financial literacy? Similarly to the health example, if a doctor is saying, you know what? As long as you stand for a few minutes in between sitting all day, you should be fine. And you're like, that's good advice, doc. I'm gonna take that. And now I'm a healthy individual. Not understanding the standard, actually the right thing to be doing for a healthy life is to be doing these things. The doctor isn't being responsible and telling you the actual information and then letting you choose what to do because it's your life and your health and blah, blah, blah. Is it similar where an author saying this is the right thing to do, but that's a lie. It's not building their financial literacy and understanding what is actually going to benefit them. And then allowing them to make that choice. Am I actually capable of making the hard behavioral changes and implementing my consumption rate and all

Tre 14:22

these things using it differently, because next part is, so the. All wealth is fungible part, right? all wealth. Think of it as one thing.

Sierra 14:33

What was that word?

Tre 14:35

fungible.

Sierra 14:36

Interesting.

Tre 14:37

Yeah. Only a professor would use that.

Sierra 14:39

Yeah. I'm like, that's a new one.

Tre 14:41

And so thinking of everything as one big thing.

Sierra 14:44

Yeah.

Tre 14:47

By committing to smoothing your consumption over time, you have to understand your whole life and how it plays into, you know, it's like you're setting a framework for your whole life. And that's very different than just saying, okay, well right now today I have x amount of dollars hit my bank account, so I'm gonna save 15% of it, or 10% of it. Yeah. I think that's a much, much harder for a lot of people, a lot of people to do, is to think themselves. Okay. I'm not, you know, I am a I'm, a, I wanna be a pilot. I know that in piloting I'm gonna make roughly this much of my income. I know that it's gonna take me six years to get there, though. Well, for these six years, I'm not gonna able to save as much. I wanna live it. This lifestyle. This lifestyle. But that means that when I make, when I'm making$150,000 a year,$200,000 a year, it means during those years I'm gonna have to maintain this same lifestyle until I've caught up. That is a much bigger thing to commit to, to get your mind over. That will allow you to spend more now when you're younger, that a lot of people just aren't willing to do and commit to.

Sierra 15:57

I was gonna say as soon as you started though, okay, I want to be a pilot. A lot of people don't even have that. Do you know what I mean? if people go to school and they're, what do you wanna do? I'm just taking business. I'm sorry, I'm not trying to offend. Maybe that was a little offensive. Nothing wrong with taking business.

Tre 16:16

The best school for business is go out and do business.

Sierra 16:18

Well, but do you know what I mean? a lot of PE people don't have their whole lives planned out, and I think they get overwhelmed with. You can plan, but things are also changing. So you do need to be flexible in some regard. And I think that could be a very overwhelming thing to ask a 20 something year old, think about your career, what do you wanna do? Make sure you're doing all these, do you have your financial literacy in order? Do you have the, because in your midlife that's I would guess thirties, forties for For finances kind of thing. So you're asking a 20 something year old to be,

Tre 16:55

yeah.

Sierra 16:56

Lovely. That's, I, again, I'm trying to think of it from all the facets.

Tre 17:01

That's why they might just say take,

Sierra 17:02

just save the 10, 15% year.

Tre 17:05

It's just, again, I wish, because it almost. Let's say the common knowledge was that's what you should do. It means that people won't go through their twenties and say, oh, well everybody does that, so

Sierra 17:19

yeah,

Tre 17:19

it's fine. Everybody blows their twenties. Like everybody. It's no, The common knowledge is now that your twenties matter a lot. A lot, a lot.

Sierra 17:30

Yeah.

Tre 17:31

So you need to be making a plan for them as well. I think it puts the onus back on the individual and there are people out there that do want to do, have big goals and dreams and stuff with their finances, that it would, instead of them having to sort through all the crap To find out what they should be doing, you know, I think it would help those individuals. But yeah. Anyway, we're gonna get way too. Okay. The second part

Sierra 17:59

I'm sorry.

Tre 18:02

Yeah. Shake. Shake, yeah. okay. Portfolio equity share. So, popular advice, hold money that might be spent in short term, entirely in cash. Money that won't be spent in the short term, maybe invested in equities. Equity share should be hump shaped with respect to age. So as you are younger, you'd hold more in. As it, as you get older, you would hold less

Sierra 18:29

taper off. Yeah.

Tre 18:32

Makes sense. This is gonna be a lot more complicated. is there,

Sierra 18:39

you were trying to

Tre 18:40

academic advice,

Sierra 18:41

you were trying to find a better word.

2026-03-18 21-46-41 18:42

Yeah.

Sierra 18:43

No, it's just complicated. Good.

Tre 18:44

Okay. So invest money that will be, that will fund near term consumption more conservatively than money that will fund consumption far into the future. Sorry. So

Sierra 18:57

I'm,

Tre 18:57

it is not entirely in cash. It is the fact that it should be held in things like fixed income.

Sierra 19:04

Okay.

Tre 19:04

More conservative type investors.

Sierra 19:07

Bonds.

Tre 19:08

Bonds, yeah. Fixed income. Yeah. Okay. Okay.

Sierra 19:10

Stocks and bonds.

Tre 19:12

Yeah. equity share should be hump shaped in, sorry. Equity share should be hump shaped with respect to age. As a caveat, equity share should depend on how quickly marginal utility diminishes and how much stock returns will be impacted with marginal utility. So basically, as you lose the ability, you yourself are an asset. So as right your assets, you, yourself, your asset diminishes, then you would diminish, reduce the amount of equity that you would hold. Because you, if you think of you as a fixed income, you need to replace your fixed income ness. Does that make sense? So if you think of portfolio, let's say a portfolio is a million dollars.

Sierra 20:09

Yeah.

Tre 20:10

And of that portfolio, the hundred thousand dollars of it is my value.

Sierra 20:15

So your income of whatever

Tre 20:18

my future earnings, my, that's what I'm assigning my personal value.

Sierra 20:22

Yeah.

Tre 20:23

So we're saying this is, but we're including in this portfolio my personal value. If I am and I'm fixed income, so if I am early on, everything else that I have needs to be in equity. Because I want my portfolio to be long term growing, to grow and things like that, but as my value, let's say from that million dollars as my value goes to$200,000 that last, that a hundred thousand dollars difference Should now be in fixed income.

Sierra 20:53

I see.

Tre 20:54

Because it needs to replace my

Sierra 20:56

value.

Tre 20:57

My value.

Sierra 20:58

Yeah.

Tre 20:59

So it's a really important point here that it's not necessarily about age. It's something completely outside of age. It is about the utility, which, is why things like trusts and like long-term money and things like that, when the money is not going to be used in your lifetime. It's about when that money is going to be used, not when it's going to be passed on to the next generation.

Sierra 21:28

It's

Tre 21:28

about when you are gonna take that money or somebody's gonna take that money and exchange it for something else. And that's a really important thing to think about, especially when you're investing with much older ones that have more than enough money that they'll ever need. You are trying to minimize different types of risk. So therefore. The time horizon is extended well beyond that age of these type of people.

Sierra 21:55

Right.

Tre 21:55

Okay.

Sierra 21:56

But again, how would you know, I guess that you would put it in a trust and be like, whenever the next generation needs it, how?

Tre 22:04

No, it wouldn't necessarily go in a trust. I'm just saying for, that's why. So let's say I am 95 years old and I have a million dollars and I spend$10,000 a year. Okay. That means that realistically, if I live to 110 years old, it's 150 grand. There's another millions of dollars left.

Sierra 22:25

Yeah.

Tre 22:25

How do I invest that money? Just because I'm old doesn't mean that I have to put all that into a GIC or in cash or something like

2026-03-18 21-46-41 22:32

that.

Sierra 22:33

I see.

Tre 22:34

Because that money is not going to be spent.

Sierra 22:36

I see. The

Tre 22:38

time frame for that money is

Sierra 22:40

unknown right now.

2026-03-18 21-46-41 22:41

Yeah.

Tre 22:41

It's.

Sierra 22:43

So far away that who knows, you should always be putting it in equity. So it

Tre 22:46

should be

Sierra 22:46

per se.

Tre 22:47

Yeah.

Sierra 22:48

Okay. That makes more sense.'cause people are tying it so much to individual use and retirement I think.

Tre 22:53

Yeah, they do

Sierra 22:54

individual use, retirement

Tre 22:56

wealth.

Sierra 22:58

Wealth is,

Tre 22:59

that's a hope. And that's what people miss. It is tricky. That's what people miss is that it's not about you are same with when you pass it and it's on that, that, that principle is also very important when you're passing wealth onto the next generation. It's often something that, sorry, is that you have a responsibility to the wealth to manage the wealth properly.

Sierra 23:21

That's so funny.

Tre 23:22

And'cause people, we were so individual.

Sierra 23:25

Yeah.

Tre 23:25

But, and that's why money that is passed on generations, I think it was by the second generation. Most, of that money is gone. It's because you don't, that there's that value there that people don't pass down properly. A lot of what you spend your time doing with very wealthy families is working on the next generation.

Sierra 23:46

Crazy

Tre 23:47

for that very reason because it's, more money than they're gonna spend, than they won't know what to do with. And you need them to have the same values and stuff like that,

Sierra 23:56

huh?

Tre 23:57

Yeah.

Sierra 23:58

That's a very interesting, I don't know why I've never thought about that a little bit more. You're responsible to the wealth. That was such a funny saying. It's like a

Tre 24:07

job.

Sierra 24:08

Yeah. It's like a responsibility. It's like

Tre 24:10

a to the job

Sierra 24:11

child. You know what it actually makes me think of like a board of directors.

Tre 24:15

Yeah. Abso, that's exactly, I, think people would be better with money if everybody at some point was responsible for managing money that wasn't for them.

Sierra 24:27

you liked that point. That

Tre 24:28

was a

Sierra 24:28

good point. That made me feel good that you were so happy about it.

Tre 24:33

Okay. dividends.

Sierra 24:37

Yeah.

Tre 24:37

Consensus? Shiver there. Okay. So the popular advice, high dividends are attractive. This is for dividend investing. There is a huge following for dividend investing. What do you think the academic advice is?

Sierra 24:57

Stop caring so much about dividend

Tre 25:01

investing, I think dividends are unattractive.

Sierra 25:03

Wow.

Tre 25:04

Polar

Sierra 25:04

people Opposite.

Tre 25:05

Complete opposite. Now that you've put right back down. What was I saying? Oh, I was saying about, the dividends. So the dividend Oh boy. the dividend strategy of buying companies that have a historic pattern of raising dividends so that even when they drop, they'll be paying dividends and you can use that to buy the stock. It's a really powerful. Reasoning because it makes sense. it makes a ton of sense when you actually look into the numbers, though, the dividend itself is a terrible measure of the outperformance of a stock or not. There are other things that are absolutely to do with profitability to do with the size of the company. There, there are things that, that there is the research down there is proof that these things can better predict how a company is going to perform.

Sierra 26:13

Right.

Tre 26:14

Dividends are not one of them. So in a world where there is no taxation and no costs or anything like that, it is neutral dividends, heavy dividend portfolio versus a non-dividend portfolio in a world. We have taxation.

Sierra 26:35

Yeah.

Tre 26:36

The dial swings and the dial swings hard.

Sierra 26:40

Okay.

Tre 26:41

it is significantly better that a company buys its own stock back in the market and increases the value of my stock so that when I sell it, it is a capital gain

Sierra 26:55

Right.

Tre 26:56

Than to pay out dividends to me.

Sierra 26:58

Yeah.

Tre 26:58

So from a,

Sierra 27:00

so you're saying they should take the money and invest in the business so that it's more valuable for the shareholders?

Tre 27:09

They don't even have to do that. They could just buy back their, it's called a stock buyback. I'm not gonna go into that, but yeah, they can just, instead of giving it to shareholders, they can just buy shares so they can just buy shares from the open market and naturally will increase the value of the shares that are left over.

Sierra 27:29

Right.

Tre 27:31

so it's by the same amount, like it's, it is, very obvious on paper which one is better. This is editing Tre here. If you're struggling to understand this concept, think of a capital gain strip. So this is a, a transaction that the government has been attacking lately trying to stop corporation owners from being able to do, and the essence of this transaction is it turns dividends into capital gains. And that is, in essence what a stock buyback does is it takes dividends. Money that would be, dividends would be taxable in that year and converts it into a capital gain that could be taxable at whatever point in in the future. So that is the, that is similar. The only reason that that type of transaction was very attractive is because capital gains in the current Canadian tax system are superior. To almost any other type of income, it's the best tax treatment. So when you are picking between a dividend or a capital gain, under the current tax code, the right decision is a capital gain.

Sierra 28:45

Okay.

Tre 28:47

For some reason though,

Sierra 28:49

people want the dividend.

Tre 28:50

We are obsessed with dividends. We're obsessed with this idea that we, companies are paying out dividends, forcing us to pay taxes, when we don't want to Right now is the right approach. And yeah, so hence we're in a, an environment where it's, I think the last time I checked, I saw numbers somewhere. It was about 50% of companies choose buybacks now versus dividends. So it's definitely increased dramatically. It used to be way smaller. because I think as, investors are getting smarter and more educated, they are like, if, it doesn't matter to me, which one you pick.

Sierra 29:30

Why not pick

Tre 29:30

the right one? Why pick the right? Yeah. Why not pick the one that's gonna put more money in my pocket?

Sierra 29:34

Yeah. but is it again, because a dividend is like an instant gratification thing for

Tre 29:40

you? Yeah. It's, it is like a, feel good, right? Yeah. It's stocks is down, but it's still paying me five, 6% dividends. Yeah. I'm just buying more shares within everything and Yeah. If you actually really think about it and have to pay tax on that and all this stuff, but at least it's hitting my account. I feel good about it.

Sierra 29:54

Yeah. It's a human thing again.

Tre 29:56

Very much so. And the reason I was saying that was it, and I'm saying it is this way of thinking, permeates all levels of income or levels of like smartness, I guess is what I say. Yeah.

Sierra 30:10

Because it's not about knowledge or, well, it is partly, but again, it's the, it's our human instinct.

Tre 30:16

Yeah. And it's a great story that the, I was gonna say that there's a, potential client I'm working with right now and. I say, I did some brief numbers when this family retires, if they, if I had what they have and invested it the way that I would invest my money, it'd be worth about 35 to$50 million by the time he retires this, family. Oh

Sierra 30:40

my. Okay.

Tre 30:41

And when I say they have been sold this dividend investing approach, but their income is so high that it is brutal. Like they are throwing away thousands and tens of thousands of dollars to taxes. Oh. For no reason. Because they've been sold this heavy dividend approach. And it's it's one thing to do it when you're in a low tax bracket. Yeah. It's quite another to be doing it in a much, much higher tax bracket. It's just constant. This. Just,

Sierra 31:15

that's tough. That's a tough one. I hope they're not listening right now. Sad.

Tre 31:22

Yeah. Okay, next one is equity style. So popular popular advice, value stocks and small stocks are attractive. Academic advice, value stocks and small stocks may or may not be attractive.

Sierra 31:35

Yeah, kind of. It's, it depends.

Tre 31:37

It depends approach,

Sierra 31:39

yeah.

Tre 31:39

I'm gonna say much of that. The data shows that if executed well, it's attractive. Small stocks are inherently a lot riskier.

Sierra 31:49

Yeah.

Tre 31:49

Than

Sierra 31:49

for sure. This is the same thing about the, isn't there, we're invested in a portfolio of like smaller businesses,

Tre 31:57

but it's tilted towards smaller value. So that, and that speaks to the dividend side, is that the companies that tend to pay higher sustainable dividends tend to be smaller because they need to attract. So tend to be smaller'cause they have to attract investment tend to be value because they are, they have a sustained cash flow.

Sierra 32:21

Oh,

Tre 32:23

what just happened?

Sierra 32:25

the camera disconnected.

Tre 32:27

Okay. So, yeah. So, okay. Value stocks move on. International diversification to hold international stocks, but far less than in proportion to their global market cap weight. How big the company is Is you own the company by, if it makes up 5% of the total stock market You own 5% of the stock.

Sierra 32:50

Okay.

Tre 32:50

Yeah. Okay. Is what market cap weight means. Great. and then the, academic approach, it's holding international stocks in proportion to their global market cap weight. So that is so the, tradi, like the consensus popular advice is not in proportion to the global weight. The academic advice is in, accordance to their global weight.

Sierra 33:20

Yep.

Tre 33:20

Okay. Active versus passive mutual fund management. The popular advice, what do you think it is?

Sierra 33:29

I would feel like these get, they would agree on this one, hopefully.

Tre 33:33

Yeah.

Sierra 33:34

Ah,

Tre 33:35

so invest only in index funds, passive index funds.

Sierra 33:38

Yeah.

Tre 33:39

Academic advice, invest in passive index funds. It doesn't, when you look at the, when you look at the data, I'm having this conversation with none other potential client, but it's a case of the returns are what the returns are. And when you look at the data Yes. Some active managers outperform the index.

Sierra 33:58

Yeah.

Tre 33:59

The, it is a, lose. It is a bet you expect to lose.

Sierra 34:05

Yeah.

Tre 34:05

And the cost of picking one of those ones that significantly underperforms the index is too much.

Sierra 34:12

Yeah,

Tre 34:12

it is. And because of the, because of, because you don't expect to win the fight and the consequences of losing the fight can be pretty bad. It isn't worth it to pick that fight.

Sierra 34:25

Yeah. Don't enter the fight.

Tre 34:27

You don't enter the fight. Yeah. and that's what it is ultimately comes down to when you're looking at active versus passive measure. Not to say that there, there will be 20% of the people or so will beat the index. The issue is that you could be part of that 20% that beat the index or you could be part of the 20% of the people that underperform the index by 60%.

Sierra 34:48

Yeah.

Tre 34:50

Not worth it to even flip that coin when they're the two options.

Sierra 34:54

Yeah.

Tre 34:55

So

Sierra 34:55

too much of a gamble.

Tre 34:57

Way too much of a gamble. Okay. Non-mortgage debt. So the traditional advice either prioritize paying highest interest debt or low balance debt. So snowball or avalanche method.

Sierra 35:10

Yep.

Tre 35:11

Co-holding low interest assets and high interest debt may be a good idea.

Sierra 35:17

That's the popular advice or academic?

Tre 35:19

The popular advice.

Sierra 35:21

Interesting.

Tre 35:22

Which is a weird one. I don't know why. Anyway. Benchmark advice like academic advice, prioritize paying high interest debt. Do not co-hold low interest assets and high interest debt. I would be interested to

Sierra 35:35

understand that one more.

Tre 35:36

I'm sure that he like breaks it down further in the, it was a while ago, I read this, but I might have to wonder why that would ever be a good like

Sierra 35:45

Yeah, like even for

Tre 35:47

holding low interest assets and high interest debt,

Sierra 35:51

they're like, just for fun. Just for fun. Zs, you know, and they want the payday loan with their yacht.

Tre 36:01

Yeah. I dunno. Okay. Mortgage choices. Choose a fixed rate mortgage.

Sierra 36:08

Choose a fixed rate mortgage. Okay.

Tre 36:10

Choose an adjustable. So variable mortgage.

Sierra 36:13

Oh, this is, so the popular advice is fixed.

Tre 36:16

Yeah. you should pick a variable rate mortgage unless interest rates are really low. So Interest rates are really low, then it's okay, it's. You know, you could go fix, but the majority of the time you would be better off having an adjustable rate or variable mortgage. And this speaks to, Canadian mortgages as well. Like

Sierra 36:38

Yeah.

Tre 36:39

You are better off in general to go with the variable even through the,

Sierra 36:45

for ours. Oh man.

Tre 36:48

Yeah. It jumps significantly.

Sierra 36:50

Yeah.

Tre 36:50

But when I did the numbers, I looked at the math, we were still ahead because we'd been paying for low interest rate mortgage, a lower interest rate mortgage than what the fixed five year was for the preceding seven years or whatever. So,

Sierra 37:05

yeah.

Tre 37:06

And

Sierra 37:06

this, and just people again, when, you're in it,

Tre 37:10

and this is where looking at the whole picture

Sierra 37:12

Yeah.

Tre 37:13

I talk about for a lot of people is so difficult. Yeah. Because in order to make good financial decisions, you do have to be able to look at the whole picture.

Sierra 37:20

Yeah.

Tre 37:20

And to understand that a decision that you make, isn't.

Sierra 37:25

Because of today and how I feel right now. Yes.'cause the numbers are high at the moment and blah, blah, blah,

Tre 37:29

and you're trying to guess what's gonna happen in the world. Yeah. And it's just

Sierra 37:33

yeah. Predicting, and

Tre 37:34

I don't do that. That it's not how I make decisions or teach people to make decisions.

Sierra 37:39

Yeah.

Tre 37:39

It's based on, okay, what is the right thing to do here?

Sierra 37:42

Yeah.

Tre 37:43

This is what the data says. Okay, now let's work backwards. Why shouldn't I do this? If people made these type of decisions like that,

Sierra 37:51

yeah.

Tre 37:52

You would get, you'd become more comfortable With them. But that's it. They're the areas that he does break it down.

Sierra 37:59

Oh. good paper to look at. I mean, maybe other people wouldn't read the whole thing, but it was pretty interesting. I will say I was into it.

Tre 38:11

Cool.

Sierra 38:11

Yeah. it was a good episode. It was a cool paper. You were right. Heck

Tre 38:17

yeah.

Sierra 38:17

And I'm not a nerd. Just kidding. I am. Oh. Oh, sorry. I thought, is this not focused or am I just,

Tre 38:26

who knows? At this point, everything's working.

Sierra 38:28

This has been a rough, one. Physically, technically, mentally. Just kidding.

Tre 38:38

Okay. Anyway, that's it. So thanks for listening and we'll see you in the next episode. Bye

Sierra 38:44

Thanks for listening to this episode of the Plain English Finance Podcast.

Speaker 38:49

Thanks for listening to this episode of the Plain English Finance Podcast. Trey BYO, certified Financial Planner. Chartered Investment Manager is a financial planner with TC Wealth Management and a Visa wealth. You should always consult with your financial, legal, and tax advisors before making changes. This podcast is provided as a general source of information and should not be considered personal investment advice or solicitation to buy or sell at any securities. The views expressed are those of the individual and are not necessarily those of a Visa Financial Inc. Mutual funds and other securities offered through a Visa wealth, a division of a Visa Financial, Inc.