Latest / The Chiro Money Show / 035 | The Best of Both Worlds: A Smarter Way to Invest (Part 3/3)
Transcript
- Chris: Welcome back to the Chiro Money Show, where we're helping chiropractors make better financial decisions so they can build stability in their finances and a lifestyle that they love. We're your hosts Chris Scheele and Scott Campbell, financial planners with Align Wealth. Scott: Welcome in Chris. How we doing today? Chris: Doing good, Scott, how are you? Yeah, you had a good weekend, hey? Scott: good, doing good. Get Yeah, a really good weekend. ⁓ I out ⁓ in taking part in the AFC spring conference, their day and a half event out there. Awesome conference. Got to meet with a lot of great chiropractors, had some great conversations, but best part that I always love to do is sneak in the back and try and take part of of hearing some of the speakers and I get a little bit. I don't get it all, but I get I get bits and pieces and I always enjoy that part of going to these conferences. Chris: So always fun. Yep. Yep. Yeah. ⁓ to dive in. Trying to close the loop here on investing, hey? ⁓ three of our of our probably three part series ⁓ in on investing. Yeah. Scott: Yep. Ready to dive in? Miniseries. Yeah. This should be the last one. Yeah. we planned it that way. Chris: It won't be the it won't be like the final final, like we'll always be talking about this. ⁓ Like it'll continue to come up over the over the years, assuming we're be podcasting for years, hey Scott? Scott: Of course. Of course. Log it in, Chris. Chris: Yeah, lock it in. Okay. What do you want to say before we dive in here? Scott: Yeah, so we we probably should mention this episodes one and two, but even more so today as we talk a little bit more about the philosophy that we really have a lot of conviction in that we implement with our clients in terms of how we put together their investment portfolio. episode and everything we're talking about today, this is all just for educational purposes. This is not specific investment advice. So ⁓ gonna be sharing a philosophy But at the end of the day, ⁓ you need to talking to a qualified financial advisor, your planner, who knows you and your situation before making any changes to your own portfolio. ⁓ Alright Chris, why don't you get us caught up Chris: Mm-hmm. Scott: Obviously you haven't watched or listened to the first two episodes of this miniseries, we'd encourage you to go back and and check those out because this will make it'll tie this third episode in much better, of course. But Chris, why don't we kick things off with just doing a super quick recap of what we talked about in those first two episodes of this miniseries we're putting together. Chris: Okay, so episode one. ⁓ We talked traditional active management, which is still ⁓ the most most way that most Canadians are invested. and what we discovered in episode was that You know, about only two percent or two out of every hundred Canadian equity mutual funds beat their benchmark over a ten year period of time. there's so much data, specifically the the Spiva report that that goes into this every year, ⁓ and data's been very consistent over the years. So ⁓ actively mutual funds tend to underperform over the short and long term. That was episode one. Scott: Only thing I'll add there is with the two other things to remember. This is very similar story for US equity funds, international equity funds, and the stats are right now in Canada. If you are an investor, the stats are saying that roughly three out of every four Canadians right now are invested into actively managed funds. Chris: Yep. All right. So then episode two, we said, okay, well if if active management doesn't work and it's you know it's not a it's a losing game, so why why bother? What's the alternative? the most common alternative is ⁓ this big movement into passive. And that's you know Another way to say that is is ⁓ is an index approach to investing. So than ⁓ know making all these active decisions about timing the market and whatnot, we're just buying a fund that that mirrors ⁓ a certain index or a certain market, if you will. And when we talked about that, we we looked at a few interesting dynamics there and and how indexing is a big improvement over active management, but there are some downsides. And even with this passive approach, there is still there are still a lot of active decisions that need to be made, both at the fund level and at the personal level of the person that's purchasing these index funds. Anything I missed there on episode two, Scott? Scott: I don't think so. I think you I think you hit it. At the end of the day I would say that you are you're more than halfway there to write. Like you're eighty to ninety percent of the way there. We have no issues with someone taking the approach of investing into index funds as their primary strategy for for growing their portfolio over time. we're gonna be talking about today is just essentially a a kind of a third door, an option to say, hey, c ⁓ can you do better than just being purely passive? That's where we're gonna dive into. ⁓ there's also gonna be some caveats to the strategy that we're gonna be talking about today as well. So we're So I'm saying this is this is a must avenue that you need to go pursue because indexing can still be the right fit for for some people, right? So we have to say that right up front. Would you agree? Chris: Sure. Yeah, for sure. it's so tough, right? Because like you mentioned in the lead up here, like we have so much conviction in this strategy. you know, there's decades of academic research, which we'll we'll get into a little bit more detail. so why not ⁓ why not out there and say everybody should be doing this? Like I ideally I that's kind of how I want to approach it is but is saying that like, hey, if you're an investor, you have money to invest, you should be investing this way. If there's a better option that's available to you, why why not take that? Even if it's just a slight optimization compared to passive. But like you say, it's got yeah. Yeah. Yeah. Scott: Yeah. I'll I'll come ba I'll come back to your point, Chris. I'll I because I a hundred percent agree with you. I do think this is, you know, again, something that's backed by the data and the research that we've that's why we have this conviction that we do. We I I I'm with you, Chris, of course. Like I do believe that this is a very optimal way and a very sensible way to invest over the long term. But there are some caveats that I want to at least touch on in this episode to say, you know, it is different than being in a purely passive index fund. And we're gonna talk about what those differences are. And if you can't handle those differences, then this then this wouldn't be for you. Even not not to say that it's not optimal, but it might not be for you for for reasons that we'll get into here later in the episode. Chris: Yeah, for sure. Okay, so let's set it up. What what are we talking about here? This is door number three. This is not active, so not not purely an index or passive strategy, but essentially this is an approach to investing that uses all available market data and a systematic approach to investing with the goal of targeting higher expected returns over the long term. compared to a broad index. Scott: Which is generally speaking, when you're when you're invested in a broad index, you are in what's referred to as more of a market cap weighted approach. So ⁓ you own an index fund, there's varying sizes of companies in that in that in that index. And generally you own a portion of certain companies based on the size of that company. So as companies grow larger in size, say just for simplicity, if it's an index fund that matches the SP five hundred, there's some very, very large, large companies at the very tippy top of the SP five hundred. The referred to as the Magnificent Seven right now, like your your Metas and your Nvidia's and Apples. They take up a very large portion of the largest 500 companies in the US. So as they grow in size, you have more and more exposure to those those seven companies and and a proportionate weight of the companies that make up less of the SP 500. Right? That would be referred to as a market cap weighted approach. And the same thing goes for geography and different types of companies around the world. Chris: Yeah. Yeah, just to give you a quick example, say if Apple today is worth I don't even I have no idea. So let's just say Apple's worth a billion dollars and then Apple grows to be worth two billion dollars a year from now, their market cap i has increased and the per the percentage of of your ownership of them through your S B five hundred index fund has increased. Whether you like it or not. Scott: Yep. Apple's worth we're multiples of that, Chris. Apple's worth about four point five trillion dollars right now. Just because you're a little I had to we had to make sure that we were clear. Apple's worth a lot more than that. I think they're worth more than the like the the entire collective of of Canada's Chris: Ha ha ha. Stock market. Yeah. Scott: stock market. Maybe Nvidia's taken up taken that place, but they're they're both up there. Both close. Yeah. Yeah, we're not ⁓ we're not in the weeds following the specific prices of of Apple and Nvidia on a day to day basis, that's for sure. Yeah. Okay. Chris: Yeah. Yeah, it shows how much I know. I really follow this closely. Yeah. No. Yep. Okay. So what's the science behind this? ⁓ tal us through it, Scott. ⁓ Scott: I think we should start with with the with the b back up and start with a belief here that I think we would want everyone to collectively say that yeah, that that makes sense. And that is that markets are mostly efficient. The price of a given stock, the price of the market in general, one person can accurately predict where the price of a stock or the market in general is moving at any given time. However ⁓ What the data and the research evidently shows is that the collective wisdom of every buyer and every seller around the world at any given time, their collective wisdom determines the price of of a company or the stock price or the market in general. Or at least very close, right? Chris: Yeah. and information. I think all available information that's available, all everything that exists out there, the market has already taken into consideration ⁓ when price ⁓ of given security or company or stock, whatever we want to call it, is ⁓ picked. that changes based on market information ⁓ or consumer or buyers and sellers in the market. Scott: Next would be when it comes to primary ways you can invest. You can invest into companies around the world, known as stocks or equities, and you can also r invest into bonds, fixed income, It's fair say that most people would expect that if they take a higher risk and invest into stocks. That they're going to have a higher expected return by taking on that risk over a longer period of time than they would into more fixed income bonds, cash, T-bills, that kind of thing. So much like we have that awareness that we have that higher expected return by investing into stocks over bonds, it's also ⁓ known that Companies around the world, different stocks, also have different characteristics that have different expected returns over longer periods of time. And that's really what the core of ⁓ what we're gonna be diving into and talking about today as it relates to this different approach to investing. Chris, why don't you lay it out for us? What are what are the three reasons that ⁓ stocks have these different characteristics that have historically delivered higher expected returns for investors? Chris: So let me just start by sharing the three different areas here. Okay, so value, profitability, and size. These are the three characteristics that have been proven to have higher performance or higher expected returns over the long term. Okay, so let's break it down one at a time. So value. This is simply looking at The relative value for a company versus what they earn. So if if we have a company with like the same future cash flow, so like two identical companies and they have similar earnings, similar expenses, et cetera, they have the same expected future cash flow. The one with the lower price, better value for what you're paying for, is gonna have a higher expected return. Pr pretty intuitive, right? Next, profitability. this one's pretty straightforward as well. If there is more profit, i.e., more cash that's available for shareholders, more cash for at a price is equal to is gonna equal to a higher rate of return, higher expected return. Scott: Mm. for sure. Chris: And then lastly on the size size dynamic here, smaller companies to carry higher risk. So the market pays you more to hold them. It's back to that simple risk risk return matrix that you mentioned earlier, right? Like not all asset classes, i.e. stocks versus bonds versus GICs versus a bank savings account, not all of these have the same risk tolerance. The more risk you take, the higher expect a return. And if you believe that, that markets price risk fairly, that's that's why you would own Scott: Mm-hmm. Mm-hmm. Chris: Like that's why you would own equities or invest in companies in the first place. So if you already believe that like that risk risk reward trade-off is true, we should probably apply that same logic to these three factors, these three premiums that we can tilt our portfolio to, and in in doing so be rewarded for that risk that we're taking. Scott: Yep. Mm-hmm. Yeah, I think you laid that all all very nicely for our listeners, Chris. They are again different characteristics. All these different companies around world all carry different levels of risk based on are they a a gross stock or are they a value stock? Are they high profitability or are they low profitability? Are they a mega cap company like Facebook or are they a small company c that we've never heard of, Intuitively sometimes we think that we w always want that exposure to the the biggest companies around the world, but It's actually the reverse that over longer periods of time we've seen that these smaller companies that do carry more risk deliver higher returns. And we want to look at the evidence and the research and the data to say, yeah, it's it's all pointing us to this direction of saying we want a little bit more exposure to those areas of the market in our portfolio, and which in turn should generate some higher expected returns over the long term. Chris: Okay, now that we've covered these these three different factors, leads us very nicely into the implementation side of of things. ⁓ it only makes sense here that we need to introduce dimensional funds. So Scott, why don't you tell us about dimensional and what they do differently? Scott: Yeah, I'd agree. Probably a great spot to introduce dimensional fund advisors known as DFA. Dimensional has been around for, I believe, just over 40 years, 42, 43 years. They are probably the largest investment fund manager that you've never heard of. They're just crossed over a trillion dollars in management globally in early 2026. Chris: Yeah. Scott: Dimensional has one very, very clear investment philosophy, which is obviously going to be we're going to be talking about how it's tied so closely to these three factors or premiums in the market, and that's what the whole investment philosophy ha has been built on. What I really respect about Dimensional is that they've been around since about 1981-82, in the early days, they recruited some really really people ⁓ onto the to support. diving deeper and getting understanding the market re the market data. Like it's like the scientific approach to investing. they have a team of a number of different Nobel Nobel laureates. But the interesting thing about Dimensional is that a lot of these Nobel laureates that are ⁓ on board of directors and and give counsel to Dimensional, ⁓ they on the on Team Dimensional before they got their their Nobel prizes. ⁓ I'll specifically about Eugene Fama. He's been he's been ⁓ working with Dimensional For a very long time. And again, he kind of goes back to he won Nobel Prize on talking about the collective wisdom of all the buyers and sellers around the world. They collectively, with all that information, they determine the price of a stock, right? But he's also, along with the w with the rest of the team at Dimensional, they understand that there are these characteristics the market. that we've gone through the value premium, profitability premium, and size premium that they want to tilt their portfolios towards these dimensions to give their investors that higher expected return over a longer period of time. Chris: Yeah, it's pretty cool what Dimensional has done over the years. ⁓ they have really been the the leaders in this field of academic research and that to an investment creating a portfolio or a a product that executes that philosophy. done years and years of research on the different premiums you mentioned, value, profitability and size. all of this research goes back to showing that if you if we can tilt towards these ⁓ we can h have a higher expected rate of return. So it's just yeah, it's been really it's really cool to learn more about Dimensional over the last few years here and and see how they take the academic research these from these very smart Nobel laureate prize winning individuals that are part of their team for the long term, have so much conviction and belief in this strategy and this philosophy, and just runs so so true and and like authentic and honest throughout their whole team, like anybody at at DFA that we have ever interacted with, there's no wavering. It's like this is the philosophy, this is the investment strategy. We all share the same belief about this, like all across the world, over their offices, all over the world with Dimensional. Scott: I heard a peer of ours on a podcast talking about ⁓ active management in a bit more detail about how early in his career he would he he would intentionally see as many active fund managers as he could. And what he expressed was that they were all ⁓ really, really smart people. the stuff that they were doing to try and have that edge try and outpred the market essentially, to give their investors a higher return than the market, ⁓ he was impressed. ⁓ Chris: Mm-hmm. Scott: What he did say was that There was never a conviction on the process, on how they invested and how things changed year to year and how funds were managed differently based on maybe fund managers and the team changing and whatnot. Like you never knew what to fully expect from one of these big equity fund managers. But with dimensional, they've stuck to their philosophy. it's been the same core philosophy now for for decades. And obviously they make minor minor adjustments to improve upon that with new research and more data. and as their team grows and they have more access, but the core of it has been the same and it's then easy for us as an advisor planner to understand the philosophy and then communicate and educate that down to the client level so that they understand how they're how and why they're invested. Chris: ⁓ And interesting, maybe this come up later, but ⁓ I fought one thing I find really interesting is that dimensional doesn't market directly to consumers. You can only access DFA products through an advisor. And that's done so very intentionally. and I think it goes back to that same education piece, like All the every employee at DFA has that education and that belief in in the philosophy and in the the implementation of of their products. They train advisors that want to use their products in that same belief and investment philosophy so that they can educate their clients so that the end user experience is better. They basically don't want somebody to come in and and invest in their funds unless they understand it. Yeah. Scott: Sure. And they've had a lot of success with that approach. it is true in Canada that right now in order to access dimensional funds you do need to go through a licensed advisor. ⁓ In the States, I'm not sure exactly year it was, but they did introduce public ETFs in the States, but those aren't accessible in Canada unless you're buying them in US dollar. But what I appreciate about dimensional here in Canada and their approach to it is ⁓ in some ways might people might think, well they're gatekeeping, you have to go through an advisor. But they've they've shown that that has been a successful and result for the end client who's the investor. When they're working with with a a professional who's given them that education on how and why they're invested, that's where when the rubber hits the road and markets do get scary, dimensional or I say I should say clients that are invested into dimensional and the strategy there, they have more conviction that they are going to stay invested when times do get rough, So they have less turnover in their funds. There's less trading costs and activity on the fund level, which is also an end benefit to the client as well. Yep. Chris: Sure. Yep. Okay, let's hit a let's hit again on these three things that dimensional does differently. so already mentioned value, profitability, and size. These are the intentional factors that we tilt a portfolio towards. Okay, so Scott: Sure. Chris: If you can, Scott, you got this great analogy of the ice cube tray, which I'll steal. You know, if you can imagine the ice cube tray is every company that you are invested in in your portfolio to start with. Let's just say it's a market cap weighted portfolio. Okay. And if we know that value, profitability, and size are over here, we're just gonna tilt the ice cube tray. So some of the water is gonna run out of the big mega cap companies. not not all of it, just a little bit of water is gonna run down. to the side where ⁓ the value highly profitable companies lie and we're gonna have a little bit of overweight ownership in those we still ⁓ hold all the mar the different companies in the market or most of them we just intentionally take a little less weight in them okay so that's that's the main thing that they do Scott: This is Chris: Second part of this, of what they do differently, is they're a lot more flexible and patient compared to an index fund or a passive approach. Right? If we think back to episode two, we where we talked about Tesla being added to the index. The index SP 500 says, hey guys, we're gonna add Tesla in six weeks. Get ready to buy Tesla in six weeks. Everybody lines up, buys Tesla in six weeks, they overpay because they have to, because the index fund tracks the market with no tracking error. That's their job. With dimensional, they're never forced to br to buy a particular stock at a bad price. They have a very ⁓ clear criteria and if a company fits that criteria, they can add it to their fund, and if it does not, then they don't add it. Simple as that. Okay, so very great implementation. Scott: Yeah. It goes to the say like in these dimensional funds you're invested in in approximately fifteen thousand companies worldwide. And we think about, say, small cap or smaller companies worldwide. It goes to your point, Chris. If they come across a certain company that doesn't meet their criteria of buying a small cap company that's profitable and of good value, then they're gonna say, ⁓ I'll I'll just I'll maybe I have to just have to wait a few weeks to buy that stock because it's not at a price that meets our criteria but there's thousands of other good c small cap companies that are profitable and and of good value that do meet my criteria and I'm gonna buy them instead and I'll just be patient for the other ones to to meet that criteria which is very different than active management and again very different than an index fund provider where they're mandated to buy it on a specific date regardless of price. Chris: Right, exactly. And yeah, the third point here even speaks a bit further to this is like how they integrate different factor tilts and dimensions. So if we look at let's just say small cap or smaller companies, for instance, you know, there are some small companies out there that are not worth adding to a portfolio. Right? Just because they're small doesn't mean they're great. Maybe they're not profitable and they're losing money. Maybe they're growing too recklessly. So if we can cut out some of the ⁓ the small companies that don't meet the criteria, and same thing with the profitable companies that don't meet certain criteria, ⁓ you know, can increase our expected rate of return. And at ⁓ you know, recent recent we were at, there was an example shared where basically ⁓ two small cap approaches, ⁓ if can exclude the small the small companies that were losing money and growing recklessly, we can we it showed a direct directly showed an a ⁓ higher over the same asset class. just looking at they were just speaking about US small caps as a group, ⁓ the most recent return we were looking at over over a ten-year period was thirteen point seven nine percent. But if we cut out the worst slice ⁓ those small companies that were losing money and growing recklessly, your return increased to just under 15%, 14.99. With this the same asset class, right, still small companies, but a smarter design. Scott: Alright, before we talk next about some the the the caveats to this ⁓ approach, how we implement this and how think about this as it ties into financial planning, I think it's important to mention as we've brought and talked a lot about dimensional is that We really have a lot of respect for Dimensional and their investment philosophy, and we have that conviction which has led us to use their funds in our clients' portfolios. But we have the discretion at align wealth to use whatever and or ETFs we want and we get paid the same way regardless of the funds that we do use. we fee-based accounts for our clients, so we're not using ⁓ funds or ETFs that have commissions. ⁓ we're not getting paid directly from Dimensional. we have a reference to dimensional because of their investment philosophy and their low on cost, much like the index funds that you could alternatively use, but we don't in any way, shape, or form get paid directly by dimensional. Alright, I think next, Chris, let's talk about maybe rec like there's been some recent times here in the last five, ten years, where ⁓ premiums ⁓ performed the way we'd want them to. But that's just because of the certain time period that we have been in most recently. Right? So there is Well I guess the better way to frame this when we're talking about index funds is that if you have an index fund approach, the goal remember of an index fund is to have what's referred to as z zero tracking error. So if the broad market goes up ten percent, you should be if you're in in that in that same approach, you should be earning ten percent, right? And there should be zero tracking error from that. But when you have ⁓ intentional tilt away from the market cap-weighted approach towards these different premiums or factors, you're not going to have the same results. return as a market cap weighted approach. Chris: Yeah, lately I've I've even heard a few people bring up that, you know, these premiums are maybe non existent as of late. Like if we look at value for instance instance from you know twenty seventeen to twenty twenty, it was it was a really really rough stretch in that in that period and it's actually hasn't improved too much ⁓ actually as of late. growth companies like the the big Magnificent Seven type companies are are are crushing it. ⁓ but not a yeah. Scott: Yeah. And doing a lot of the heavy lifting. Like th they're doing a lot of the heavy lifting in a lot of people's portfolios as of as of late. Right? Chris: Yeah. Well yeah, and they they make up five percent, forty percent of a of a S and P index fund portfolio. So ⁓ Scott: Yeah. So if you if you're intentionally tilting a little bit of your portfolio away from those companies, natural to assume that you're not gonna have the same return as a market cap weighted approach. Yeah. Yeah. Chris: Yeah, exactly, which can be tough. But like any any strategy or in general, there's no quick fix, there's no guarantee, there is no you know, we're not talking about gambling here and we're not talking about something that's predictable and gonna happen year in, year out, every year, no matter what. If if there was a strategy that that always overperformed it wouldn't be a strategy anymore. That would just be what everybody d did. That's not that's not the reality. The reality is there are going to be times, there are gonna be years, there are gonna be seasons where these do not do ⁓ what are expecting them to do. That's why the premium exists. They ⁓ right Scott: ⁓ ⁓ It's very natural. Chris: Share share some of those stats with us, Scott, over like rolling ten year periods of time over the last sixty or so years. Scott: Yeah. For sure. So we have to look at the flip side. So we have to r keep in mind that a a one year period, three year period, even a five year period, I would even argue to say a ten year period is not a long period of time. Maybe in the moment, like looking back ten years, like that's been a long it's been a d a full decade, But there can be decades where like you you look at for example, if we just talk about geographically, like over the last decade or so, the US economy in the US has absolutely like crushed it over the last ten years. And a lot of that has come from the fact of like these large cap growth companies ⁓ have dominated in the US. But there's also stretches of where ⁓ Canada's been the leader, or I think it was in twenty five, if I'm not mistaken, it was it was Spain who actually had the highest ⁓ high ⁓ Returns from a global perspective. So we have to keep in mind that things change year to year in terms of different asset classes performing better or worse. different countries, around the world at different times. But again, if we look at the data and look at a longer period, if we go back over the last you know 100 plus years ⁓ and we start looking at rolling 10-year periods, ⁓ that's the evidence starts to tilt towards saying, yeah, premiums do show over rolling 10-year periods, and I'll touch on these that. For example, the US equity side, profitability premium over rolling 10-year periods, ⁓ of the time we're seeing more profitable companies outperform lower profitability companies. And that one's kind of intuitive. That kind of just makes sense, right? Same on the on the on the value side. ⁓ So companies have outperformed ⁓ 77% the time in rolling 10-year periods. And then when it comes to smaller companies versus larger companies As of late, it's those larger companies that have performed well, but the smaller companies, rolling 10 year periods, have outperformed about 68% of the time. So that's that's it's not quite a coin flip, but it's obviously enough data if you go back far enough to say, hey, over a long enough period of time, I I think I wanna put a little bit more of my weight in my portfolio on these smaller companies because sixty-eight percent of the time, over rolling ten year periods, they're giving me some outperformance. But that doesn't mean that the the next ten years ahead of us is going to to give us those premium returns that we're that we're hoping for. Right. Chris: But this is where we have to keep in mind we're not in just investing for the next 10 years. Even if retirement is 10 years away, you're still not just investing for the next 10 years. You need to invest for the 10 years leading up to your retirement and probably 30 or more years of retirement. So you still have 40 years ahead. So why not tilt to these that have ⁓ that they can get you higher expected return? Scott: Yeah. Mm. I this is an interesting stat too that that we pointed out. ⁓ Rolling 10-year periods over fifty years, there's been six hundred and seven of these examples of that time period of these ⁓ we're gonna there we mentioned the three premiums, but the fourth premium is just the premium of investing into ⁓ or companies over fixed income and bonds. There's been zero periods where three or four of these premiums were negative simultaneously. So at least one of these premiums is always working. But the key is that we want we don't want to say just be in small companies or just be in value companies. We want to have a slight tilt towards all these different premiums, companies around the world, in these three premiums, and we know that the you know by spreading across these different factors over the long term is going to give us a higher expected result. Chris: Yep, for sure. So we gotta talk about who who this isn't for because there's a lot of investors out there that just won't won't buy into this and Scott: Yeah. Who who didn't who yeah, who who did not be for? This is what I wanted to get into earlier, right? Like this we have conviction into it. We think it's a very sensible way to approach if you or a sensible way to invest. Chris: Yeah. Yeah. Yeah. Yeah. Yeah. Scott: Because we step back, before you continue on, Chris, I just want to step back and talk about this real quick. At the end of the day, when we're making ⁓ a potential decision to move away from a pure invest pure passive approach, what we're essentially shifting away to is that we still want to remain globally diversified. So when we say globally diversified, we want to be invested in about 15,000 companies around the world. Okay, we want to start there because we believe markets are efficient, and we don't believe that one country or asset class is going to dominate over a certain period of time. So we want to own it all, We also want to keep our costs low. Much like index funds. We didn't mention this earlier, but the cost of most of these dimensional funds that we're using, they're right in line with a lot of those low-cost ETF index funds as well. I think the average of the funds that we use is around 0.28, 0.30 ⁓ from a management expense ratio. So nice nice and just like those index funds, The major thing that we're that we're changing from a pure passive approach is that we want to own it all, but again, we're gonna use that ice cube trade analogy. We're just gonna tilt a little little bit of that weight towards these premiums. Just a little bit. Not a lot. We still want to own our Facebooks and our Amazons and our Nvidia's, but we just want to scrape a little bit off the top and shift it towards these premiums that will deliver us higher returns over the long term. Chris: So this is not for you if you wanna watch the SP five hundred and you want your portfolio to get you a similar return to the S P five hundred. If if that's what you're basing your results off of is is benchmarking to a specific market or index, this is just not gonna work for you because Naturally, with tilting towards these certain premiums, we're gonna tilt away certain securities companies, and we're gonna include others that are not as part of the SP 500, just to look at US equities for an example. Okay, so if that's if that's your preference or that's your like what you want to focus on is how you did comparatively to a very common or specific index, this is probably not for you. That said, you you can still make that comparison, like we did a bit of an analysis this year and looking at US equity exposure in the dimensional portfolio versus US equity exposure through the SP 500. This year the SP 500 outperformed due to the Mag 7s. very excited to continue watching this and see what it does over the next 10 years. And To me, that doesn't doesn't bother me at all that it underperformed last year, because we know that that's part of the strategy, and over the long term we're gonna be rewarded for that. But for some people that just doesn't sit right and they can't handle having a different return from what the market or their friend or neighbor or brother in law had, so it's it's not gonna work. That said, believe so strongly in this that Scott: Mm-hmm. Yep. Chris: Like, we have so much conviction in it. It's just kind of like our chiropractors that are listening. It's like, you went through all of your studies and and do what you do because you you love the impact you can have with your patients. And you don't treat your patients based on hunches. You use an evidence-based approach to to how you how you approach working with that person. You can you control what you can control and you stay disciplined and stick to a long long-term care plan that works for the patient because that long-term outcome is what you care about. is the exact same way we look at dimensional and the way we invest. Scott: All very well said. Any final takeaways that we need to leave our listeners with, Chris, before we wrap things up? I think we I think we've hit all the the primary points that we wanted to make as it relates to our philosophy and the way we're designing portfolios for our clients. Chris: Yeah. Yeah. I'll give a few quick hot takeaways here. Okay. ⁓ This is not active, it's not passive, this is an evidence-based approach that tilts towards what has historically been proven to deliver higher expected returns. Okay. That said, patience is is what matters here. Scott: ⁓ bringing in the hot tags, okay. Fire away Chris. Let's go. Yep. Chris: These premiums show up over decades, not quarters or years. biggest risk is not implementing a strategy like this. It's actually starting it and then abandoning it at the wrong moment. Just like any investment strategy. Scott: Yeah, absolutely. For sure. For sure. and and and patience and having faith in the future that, you know, I think in order to have all those things What's I think really important is the educational piece, which we which we've we pride ourselves on on spending a lot of time with our clients early in that pro in our process of like we want you to understand how and why you're invested the way that we do. markets are good and everyone's making money and returns are good, no one's no one can no one's concerned. Most people are staying in their seat, no problem. It's when markets do get challenging and do get rough and you s and you see your portfolio drop in value, ⁓ where we need to come back to being like, I understand how and why I'm invested. This is part of the process. ⁓ I have faith that we're gonna get through this. I'm gonna stay disciplined in my approach. It's tied to a financial plan that factors in that I'm gonna have these ups and downs in the market and I'm gonna stick to it, right? Chris: Well said. Scott: Alright, well I think this I think we can wrap it up here. This wraps up our our three-part investing series where we kind of touched on all these different ways you can invest and the pros and cons and hopefully we did a good job here covering it and guess to the to close things off, if if you're a chiropractor and you have questions about this philosophy and how we're investing and how it's tied into what we like to call real financial planning. If that's if you're curious about that all of how this all kind of ties together, we'd love to connect with you. Feel free at any time to to go to alignwealth.ca, book an introduction call with Chris and I. We'd love to chat with you and and answer qu any questions you have as it relates to our planning process and how this investment philosophy all ties into it. All right. Thanks Chris. Appreciate the time. We will see you all next week.