Short Takes: Factor Investing, Delaying CPP and OAS, and more

I haven’t written much lately because I’ve become obsessed with a math research problem. I’ve also had an uptick in a useful but strange phenomenon.  I often wake up in the morning with a solution to a problem I was thinking about the night before.  Sometimes it’s a whole new way to tackle the problem, and sometimes it’s something specific like a realization that some line of software I wrote is wrong.  It’s as though the sleeping version of me is much smarter and has to send messages to the waking dullard.  Whatever the explanation, it’s been useful for most of my life.

Here are some short takes and some weekend reading:

Benjamin Felix and Cameron Passmore discuss two interesting topics on their recent Rational Reminder podcast.  The first is that they estimate the advantage factor investing has over market cap weighted index investing.  They did their calculations based on Dimensional Fund Advisor (DFA) funds used in the way they build client portfolios.  They also take into account the difference between DFA fund costs and the rock-bottom fund costs of market cap weighted index funds.  The result is an expected advantage of 0.45% per year for factor investing.  Others would be tempted to try to justify a much larger advantage, but to their credit, Felix and Passmore came up with a realistic figure.  As far as I could tell, this figure doesn’t take into account their advisor fees.  So they still have to sell the value of their other services to potential clients rather than claim these services come “for free” with factor investing.  The second interesting topic is a discussion of a study showing that “couples who pool all of their money (compared to couples who keep all or some of their money separate) experience greater relationship satisfaction and are less likely to break up.  Though joining bank accounts can benefit all couples, the effect is particularly strong among couples with scarce financial resources.”  Although my wife and I never joined bank accounts, we do think of all we have as “ours” instead of “yours” and “mine”.  For example, which one of us gets cash from a bank machine or pays the property taxes is determined by convenience rather than some division of expenses.  However, it appears that this study would lump us in with the group that didn’t pool their money.

Robb Engen at Boomer and Echo does an excellent job illustrating the power of delaying CPP and OAS to age 70 for certain retirees.  However, this creates what he calls the Retirement Risk Zone, during which the retiree spends down assets in anticipation of large CPP and OAS payments at age 70.  This approach makes a lot of sense for those with average health and enough assets to get through the Retirement Risk Zone, but most people are very resistant to this idea.

Neil Jensen announces that Tom Bradley of Steadyhand Investment Funds was inducted into the Investment Industry Hall of Fame.  Tom Deserves it.  He created an investment firm that focuses on client success rather than treating client assets like an ATM, and he regularly writes articles that teach important investment concepts in an age when we see so much useless commentary on stock prices.