The Truth About Leveraged ETFs | #430

Welcome and listener feedback on marriage

0:00Welcome to episode 430 of the Rational Reminder podcast. We're hosted by me, Benjamin Felix, Chief Investment Officer, Dan Bortolotti, Portfolio Manager, and today joined by Kelly Thomas, Associate Wealth Advisor at PWL Capital. Good to have you, Kelly. Thank you. I'm glad to be here. By request, Kelly, you're here from the audience. We'll talk about that in a second. I do want to mention before we get into the main part of the episode that we are hosting a private webinar

0:32to celebrate the launch of David Booth's book, Stay Calm, which you heard him talk about on a recent episode. That webinar is going to be hosted by me and Cameron. It's on November 4th at 12.15pm Eastern Time, and the first 250 Canadian residents to sign up for the webinar event will receive a free copy of David's book, Stay Calm. Nice. Really cool. Yeah, kind of a neat little event and an opportunity to get a free copy of his book. That should be cool.

1:05In the main part of the episode, we are going to talk about leveraged ETFs. It's a very nerdy discussion. We will get to that in a second, but before we get into that, I do want to debrief our recent episode on the finances of marriage. We received what I would call a comically accurate comment about the content of that episode. So I'm just going to read the comment. The commenter says, guys, I respect you a ton, but this conversation would be much more interesting if you added at least one woman. I read that and I was like, oh yeah, that's so obvious. What are we

1:39doing? Even better if she was a financial advisor or financial services professional, because what you often label so easily as crazy is just not from another point of view. And you do have a ton of blind spots. For example, to a woman spending two months salary on a diamond might not seem crazy. Also for a woman who might have stepped into marriage with over $1 million in assets, she is the one who has to pause her career to do IVF to expand her family. It doesn't matter if she has more money. Certain things just matter to women and you guys are not ladies, which is in fact true, Dan. Undeniable. Yes. Undeniable. So to address that feedback,

2:14we are joined by Kelly Thomas, who is an associate wealth advisor at PWL. Kelly, you and I chatted about this when we worked together in person recently at a PWL event. You have listened to the marriage episode. You also read that comment. We laughed about it together. Can you help us with

Addressing blind spots with Kelly Thomas

2:31our blind spots? Talk us through it. Absolutely. So it was a really interesting episode and it brought up some really interesting topics. The first one that I had some insights about was spendthrifts, tightwads, and the mental load of spending. So we talk about people being either a spendthrift or a tightwad, but I think there's more to it than how easily someone spends money. What is the money actually being spent on? Who is responsible for household spending? Who thinks of do your kids need

3:02clothes, groceries, birthday presents, school supplies, activities, all of the little random things that keep the house running? One spouse may look like the spendthrift simply because there's the person doing most of the spending on behalf of the family. Meanwhile, the tightwad might just have fewer household purchases running through the account or the spending might be mostly personal discretionary. So are we really comparing apples to apples in this situation? And then how much of what looks like a spending personality is actually tied to household roles and the mental load. So when we

3:36talk about financial compatibility, we should look at how much someone spends, what they're spending it on, why they're spending it, and who is carrying responsibility for making those purchases. Makes sense. So are spendthrifts and tightwads actually personality types, or can the roles people take on in a household make them look that way? Hmm. Yeah, it's an interesting perspective. I think that's a great point. As you know, it may just be one partner or the other is just responsible for more expenses that are family related as opposed to individual. And those are

4:10very different things. I certainly know of people who spend quite generously on their kids or on family priorities, but don't spend a lot on themselves. So where do they fall in that tightwad spendthrift continuum? I don't know. It's a good perspective. Really, we have other blind spots.

4:31Another of the topics that I thought about was the prenup and the cost of career sacrifices. Prenups absolutely focus a lot on the wealth that you bring into a marriage. But what about the financial inequality that develops during the marriage? So one partner might take parental leave, have reduced hours, or pass up on promotions and opportunities, take on more child care. Cost is much bigger than today's lost income. So there's career progression, future earning potential, retirement savings, CPP and pension implications. So while it often is a joint family decision,

5:08the financial consequences may fall disproportionately on one person. So how do we account for that in financial planning? The standard law, I think, does make some effort to go in that direction and account for some of that. But what I've seen really productive prenup or marriage contract discussions among clients who are getting married, that has tended to be a big part of the focus and a big part of the sort of acknowledgement in the way the document is being drafted. Definitely a big one to keep in mind. Another one of the topics that was an interesting one, and it just had me thinking about how joint

5:43finances are addressed. And so you mentioned financial infidelity, but then there's also financial autonomy. It's an important distinction to make having someone keeping secrets about their money or looking at as I have financial independence. Transparency doesn't mean that your partner knows about every dollar that you're spending or needing to approve every purchase or every purchase needs to be a joint discussion. It's that both partners should have access to money that's in their own name,

6:14have credit in their own name, and then understanding of the full financial picture. Because we look at the situations, what happens if the marriage or relationship ends tomorrow and everything is in one person's name. That puts the other person at a huge disadvantage going forward on their own. While on paper, having things separate can come across as secrecy. It's all about that communication and having that open communication, connecting on what you think is an appropriate amount to spend,

6:45like you guys mentioned in that episode, but also having that space to have the financial independence as well. That's interesting because there is financial infidelity. So like hiding, doing stuff that you know your partner wouldn't like you to do and keeping a secret, there's also consideration for financial abuse, where if one partner has, for whatever reason, control of more of the finances and they're using that to control parts of the relationship, that can also be very, very unhealthy. So it's one thing to say, well, you shouldn't hide stuff from your partner, but it's another thing. There can be some

7:17very unhealthy money relationships in marriages. Yeah, I remember a therapist friend of mine made a comment about this where she said, if you have the money available to leave, but you choose to stay, that's when you know that you're in a healthy relationship. But if you don't have access to the money and you can't leave, it puts you in a really tough spot. So having that ability to stand on their own two feet, if something were to happen is so, so important. Good perspective. We should have just

7:48had you with us when we did that episode. We're figuring that out now. Yeah. In hindsight, it's obvious, but glad you came on to help us with our thinking on those. And we do appreciate the comment from the listener pointing out what is in hindsight, very obvious. We should have you on Kelly to talk about other topics, not specific to, from a female's perspective, but just from another advisor perspective. Cause I think it's always helpful to have different voices. It's one of the things I think that the way the podcast has really changed over the last little while is just the number of

8:22different people we've had on from the firm. All of those perspectives, I think really add to the whole constellation of opinions we're trying to offer here. Yeah, I would love to. And it's just getting into those conversations and getting more people engaged, hearing something from one person can make a lot of sense to some, but not others. And then hearing it a different way in someone else's words can really help that understanding. It speaks to an interesting thing, which is that like, and maybe you would have reached it anyway, Kelly, but it's less obvious that this would have

8:53happened if we had not been together at PWL summit. We kind of read that comment at the same time and we were both talking about it, laughing about it. Then it was just like, well, you should come on the podcast to talk about it, but I don't know if those same types of conversations happen as naturally when you have to send a message on teams or send me an email or whatever. All right. Should we get into our main topic? Leverage DTFs? Let's do it. Absolutely.

Revisiting leveraged exchange traded funds

9:19So back in episode 379, which is a while ago now, this is episode 430. I had mentioned just like offhand. It was an AMA episode and I just made this kind of throwaway comment about how leveraged DTFs with daily resets suffer from something called decay. And I was attributing the decay to the daily resets specifically. The idea is basically that daily rebalancing of the leverage ratio in a leveraged DTF causes this adverse effect called decay that makes leveraged

9:49DTFs with daily resets bad long-term holdings. They give you daily leverage 2X or whatever, but if you hold them for longer than that, there's the story that they're bad. That at the time was just this fact that existed in my head. There had been previous academic papers on it. It's something I've read about and I just thought I knew. I made that comment and then in the Rational Reminder community, user Pernito pointed out that that idea had been debunked and I was like, whatever I did. Okay. And then IP Parkos is the other user who then very patiently kind of walked me through why

10:25the daily resets didn't matter. And he had done all this in his own analysis using simulations with different rebalancing frequencies to show that the rebalancing frequency doesn't really matter on expectation. So I had that in my head and I was like, that's pretty interesting. And then we had Hank Bessembender on in episode 397 and he had a paper on single stock ETFs, but he had done a bunch of math around and actually he had directly refuted this idea that daily resets are a bad thing. And then we had James Choi on episode 399 and he also made pretty favorable comments about

10:57these things as long-term holdings and about how the daily resets didn't really matter. And so I was like, okay, there's something here. The daily resets and these leveraged ETFs are not as bad as I thought at least. So I started looking for research on it and I ended up starting that literature search right when Marco Simon and Chris Murray had released a new paper on leveraged ETFs. And they talked about a lot of the same kind of stuff is really interesting paper. And we are actually going to have Marco and Chris on to talk about that paper, but we went back and forth over a few emails, had a really good discussion. I learned a bunch. So then that all culminates in

11:29kind of the notes that I have to talk about in this episode. Before I continue, any comments from you guys on leveraged ETFs? Did you have preconceived notions about leveraged ETFs like I did? Yep, definitely did. The idea of leverage always makes things riskier, bigger swings. And so the potential for a loss is much larger. So I had the same thoughts as you that it didn't make sense. These ETFs have been around for a long time and I can remember doing a blog about them way back in

12:00the day. Like when it was a Horizons ETFs here in Canada that I think had the first ones available, at least in the Canadian marketplace. I remember having the exact same discussion that you had been or with somebody who had pointed out to me, it's not just the leverage, it's this daily reset. It's that if it's like up 10, down 10, up 10, down 10, you think you're coming out ahead, but you're not. I had assumed, frankly, that that was just a fact, just the math until, as you said, you pointed out

12:32that apparently in the real world, it's not proven to be the case. We're going to get into it in a lot more detail. The more volatile the markets are, the more these ETFs are likely to deliver surprising returns. But that's not the same as saying right off the bat, daily reset equals a loser's game. It's quite a bit more subtle than that. So I'm glad that you debunked it because I think we all have to sometimes step back and say, Hey, maybe some of the premises that we have believed for a

13:02long time aren't true. And if somebody shows us that that's the case, then we need to admit it. And it's honestly one of the nice things about having a podcast community of people that are way smarter than me, because you can say stuff and there's like thousands of people listening. If you say something that's wrong, they'll check you pretty quickly. Well, it definitely forces you to do your fact checking before you record something, right? And that is never a bad thing. Yeah. So this, that's pretty crazy. $10,000 invested in the ProShares Ultra Pro S&P 500 3X Leverage GTF. When it launched back in 2009, $10,000 will be worth $1.3 million today.

13:40That is more than 10 times the dollar amount that you would have in a regular S&P 500 ETF. It's pretty crazy. Leverage is using any form of financing to obtain asset exposure greater than your own equity. And it can play a sensible role in asset allocation. It can also be a disaster. Leveraged ETFs are a very straightforward way to get leverage exposure to stocks. And that's why I think they're interesting. You can use margin or options or whatever. People are very comfortable with ETFs. You can hold ETFs in the account type. I have more comments on that part of

14:11it later. Like why would you use a leverage ETF? But they're just such a simple tool. A big thing,

Theoretical frameworks for using leverage

14:16and Kelly, you kind of alluded to this, is whether leverage makes sense for people that just period, regardless of the source or the means of getting it. That's like asking, should I invest in stocks or bonds? We can't tell you whether leverage makes sense for you. But what I've tried to do in these notes here is think through like, what is the framework for how you decide whether leverage makes sense for your situation? It's really interesting because it's super normal to use a lot of borrowed money to buy a house. Everyone's familiar with and comfortable with having a mortgage. But leverage has, I think, an overall bad reputation

14:48when it comes to the stock market. And that's probably a good thing. It is often used irresponsibly. There is research on this by overconfident traders. So they're borrowing money like trading on margin. And that does tend to lead to bad outcomes. But I don't think that because it can be used irresponsibly is a reason that nobody should use it at all. It's a tool that can be used sensibly. And then I'll try to talk about what the sensible use cases are. What it's really doing is amplifying the amount of exposure that you get to an asset for each dollar that you invest in that asset. As I mentioned, one of the most straightforward ways to get access to leverage is using leverage

15:22ETFs. The way that they work is that you invest, say it's a thousand dollars in a 2x leveraged index ETF, that gives you exposure to $2,000 of the index's daily returns. So you're doubling your exposure to the underlying asset. Now it also increases volatility. This is a really interesting piece. It can increase or decrease returns depending on the cost of leverage and what the underlying asset does. Like Dan, you mentioned volatility. If something is really, really volatile, even if the returns of the underlying asset are high, the leverage return can end up being below the underlying

15:57if there's a lot of volatility or if the cost of leverage is high or if there's some combination. Quickly on that point, like the huge returns you described in that 3x ETF since 2009. I mean, 2009 was the bottom of the financial crisis. Since then, obviously stocks are always volatile, but it's been a pretty nice 17-year run since then. There hasn't been a huge amount of volatility. We had a lot of years in that period where the market kind of went up and to the right

16:33for the vast majority. So that's obviously a huge reason why. Not only very good absolute returns, but absolute returns without a whole lot of volatility along the way. I mean, obviously over a period that long, there were some downturns, but not as many as probably in the long-term average. And the direction of that, I guess your point is like, you could get 8% annualized over 17 years and another simulation where you also got 8% annualized, but with way more volatility,

17:06the performance of the leveraged ETF in the volatile data set is going to be a lot worse. Yes. Leverage, because it increases volatility, it decreases your compound return over time. The other thing about the last 17 or so years, Dan, I use that example up front because it's just such a big number. I thought it was super interesting to see, but the high returns, low volatility were big pieces of it. The other really big piece over that specific period was low financing costs.

17:37Low interest rates. Correct. And so you add it all up and it's like, oh, that's why it looks so good. And I have an example later on that we can speak to about if you start just a little bit earlier with a leveraged mutual fund that existed in, I think it was 1994, very different outcome just from having higher financing rates at the beginning, from catching some more market downturns. You really got the last decade in that case. But then in that case, it just recently broke even with an unleveraged fund. Overlapping period, but starting a little bit earlier, you can see how sensitive it is to the start date. And

18:09that's just because of things like just a different volatility environment, different financing costs. That fund has a slightly higher fee too. Not that much though. 50 basis point higher, I believe. We'll get into some of those details in a minute. The case for leverage. There are different ways to think about leverage, but we're talking about this one specific case. In theory, young people with lots of human capital, that's lots of future earnings potential from working and low current financial wealth, meaning they don't have much money to invest today. Those people that fit that profile

18:41should be borrowing to invest in the stock market because their human capital is like a big bond. So they're way overexposed to safe assets. And there's a lot more to say about that, which I will say in a second. But the idea is that if, and this is one of the things I was talking about, it's a big if that I will come back to later. If your human capital is a safe bond-like asset and you have low financial assets today, meaning low investments in things like stocks and bonds, your overall asset allocation is concentrated in safe assets, in the safe human capital, and it's lacking exposure to

19:14risky assets like stocks. Part of the idea here is that people have a constant ideal lifetime asset allocation. When most of your assets are in your human capital, you're way overexposed to fixed income and you should therefore borrow as much money as you can to invest in stocks. So that comes from Paul Samuelson had a paper in 1969. Robert Merton had a precursor paper in 1969, but his paper that supports leverage came out in 1971. So those are kind of the two big foundational papers. Then there's

19:45another paper in 1992 that went into a little bit more detail on this theory. And so of the 1992 paper, they treat human capital as an asset in the portfolio. And they show that a young worker with little financial wealth, whose future earnings are relatively safe, does optimally use leverage to reach their target equity exposure. That's just a model, it's whatever, but that's what their model says. They do some other interesting stuff here. They look at flexibility in labor supply. So that means if somebody has the ability to earn income by working a little bit more, if their labor supply is

20:17flexible, the effect of using leverage is even stronger. To think about it in simple terms, you can imagine a situation where the stock market crashes, which is a bad thing. But if you're in a type of job where you can just pick up more work or overtime hours or whatever it is to keep your income stable, your human capital is that much safer. And therefore you should have more exposure to stocks. So again, this is, it's an economic model from 1992. It's not the truth, but it's whatever, it supports leverage in theory. They do also show on that paper that the more your income is correlated

20:50with the stock market, the less leverage the model calls for. And in some cases it calls for no leverage if you have really, really risky human capital. So a lot of it does come down to this basic question, which is the title of Moshe Malevsky's book, are you a stock or a bond? Is your human capital stock like or bond like? If your human capital is a stock, you probably want to take less risk in financial markets. And if it's a bond, you can afford to take more risk and may want to use leverage when you're young. Now I know this gets people really excited when they hear theories of supporting

21:20leverage, and then they want to go borrow lots of money and invest as much as possible in the stock market. But I think that the assumption of safe human capital really does need to be interrogated, which I'm going to do. I will interrogate the safe human capital, but I'd love to hear your thoughts and experiences with people wanting to use leverage or not for maybe reasons like this. It does have an argument that it makes sense for someone who's younger to use leverage earlier on, because you have very little assets and having that long time horizon can really make a difference.

21:54But it's the difference between what looks optimal on paper and what you can actually stick with if there is a downturn. Is that going to make you want to jump off or keep going? And so it can be really hard. This is just my personality. I don't find it really a compelling argument that when you're young and you don't have a lot of assets, that you somehow not only need to be 100% stocks, but you need to be 200% stocks. If you want to invest in a 100% equity portfolio when you're young, yeah, by all

22:30means, go ahead, as long as you're comfortable with that volatility. I'm not sure that I would encourage anybody to double that. Yes, we're comfortable with leverage in some situations. And you mentioned, for example, buying a home, but people think of this in a fundamentally different way. We don't take out a mortgage because we want leveraged exposure to real estate. We take out a mortgage because we can't afford to buy a house. That is not the same thing as building an investment

23:01portfolio. You don't have to buy an investment portfolio today and then pay it off over years. You can put whatever you've got available to save into the market now and let that compound over time. You can't do that with a house. So leverage is the only opportunity most people will ever have to own a home. So it's really a fundamentally different decision. And I will also say most people, when they pay off their homes, don't re-borrow the money in order to get leveraged exposure to real

23:33estate. They could, but they don't. And they don't because most people are debt averse. A house is a less volatile asset than a stock portfolio, has some volatility as we're finding in the last couple of years. But it's just, to me, a very different decision that probably shouldn't be lumped in together. How is that? I don't know, man. You don't see the volatility, but we do actually have in our expected returns document research showing the difference between real estate index volatility

24:04and individual home volatility. And then the same thing with individual stocks, they're way more volatile than the stock market. But when you compare individual home volatility to stock index volatility, they're actually pretty similar. Interesting. Yeah. I always thought it would be funny. And I've said this before, where if you had a ticker on your house that updated itself with the value of your house in real time, right? It would change your perception of what, how safe your house is. Yeah. It would be horrible. Nobody would want to endure that. And of course it's

24:35impossible to measure, but you get the point in theory. The volatility of house prices is kind of invisible. And sure, you look around, you see house prices fall, but you feel like your house is worth either what you paid for it plus renovations, which is most people's formula, which is really unreliable or whatever it topped out at probably in 2022. That's what it's worth today. And I'm just waiting for it to come back. People don't have that same attitude towards stocks. And so enduring

25:07leverage, leverage the volatility in the stock market is quite a bit more difficult behaviorally than having a mortgage. I think that's probably true. It is an interesting point about homes. They're indivisible assets, large indivisible assets. Stocks, like you can buy ETF units for 10 bucks or whatever it is, but you can't buy home units. I mean, the closest thing you can do, I guess, is renting. But you kind of have to use leverage. I think education is similar where it's a large upfront cost.

25:37And the only way some people can pay for it is by taking out loans. But you're right. You never really forced to borrow to invest in stock. So it is a different decision. That aside, we were mostly talking about the behavioral stuff, which is important for sure. But one big problem with the

Risks of safe human capital assumptions

25:54bond-like human capital, therefore you should leverage into stocks argument is that young people specifically may have riskier human capital. When you look at whose labor is affected the most in a downturn, I don't think anybody would be surprised that young people tend to be more sensitive to broader economic risks. I think we're seeing that a lot right now with folks, especially in certain industries like software, where young people, I think, are having a lot of trouble getting jobs compared to what it's looked like historically. And there's also the evidence that we have from

26:28Patrick Adams that many high-income households, wage and business incomes do decline at the same time as the stock market. We can say that if you have this theoretically perfectly safe human capital and you know that it's never going to decrease when the stock market does, I do think the argument to borrow gets a little bit stronger. And I think even behaviorally that would help. But the reality for people is that you're always worried about losing your job at the same time as your portfolio and your savings decreasing. And the evidence, at least from Patrick Adams' work, does show that that tends to

27:00happen. And not only that, that people do tend to sell some of their liquid assets, including their stocks, after a decline to make up some of that income shortfall when their income has fallen. So this idea that in theory people should borrow because their human capital is safe, I think you have to really think carefully about how safe your human capital actually is. If your income does fall, or if you think it could fall when the market drops, that poses an economic risk because you don't want to sell your portfolio after it declines. But I think it does really increase the behavioral risk

27:33too. Because you got to remember, like when the stock market drops, it's not dropping for some abstract reason. It's dropping for some real thing that's happening in that moment, whether it's whatever COVID or tariffs or something, but everyone's like, oh no, this is going to be really bad. And you're not just worried about your stock portfolio at that point. You're worried about your income too. So I do think both the economic and behavioral considerations there need to be thought through very carefully for anyone that is thinking about doing this stuff. Now, all that being said, on the assumption of safe human capital,

28:04which as we just said, is a big assumption, there is this paper, Diversification Across Time from 2013, that argues in favor of what we've been talking about using leverage for young people. In their case, they're suggesting two times leverage early on. And they say that's for practical reasons, because that's kind of what people can access. But I think that they would actually go higher if there were practical ways to do that. And one of the ways they illustrate the benefits of this approach, other than the theory that we just talked about, they compare 2x leveraged stock portfolios, which declined to 50% stocks and 50% bonds at retirement. So you're starting 200%

28:40stocks, and that's declining over time to 50% stocks and 50% bonds. And they're comparing that to a non-leveraged portfolio that's constantly at 74% stocks and 26% bonds. And the reason for that very specific benchmark allocation is that in their back tests, it produces the same mean retirement accumulation outcome as the leverage strategy, but it has a higher standard deviation of wealth. So they're kind of showing like, you can get to the same place. And the whole argument in this paper is that you can get to the same place on average with leverage,

29:13but you're actually doing it with what they're showing, less standard deviation around that average. So they're saying basically it's safer to do this leverage thing than it is to have a constant allocation. The idea here being, once you reach retirement, in one scenario, you're 50-50, and in the other scenario, you're 74% stocks, which I think a lot of people would say is a relatively aggressive portfolio for retirement. So you'd be more comfortable as a retiree being at 50-50.

29:44But had you followed this strategy, if you were 100% stocks, let's say, early in life and then declined to 50-50, by the time you got to retirement, you would have less than you would had you followed the leverage strategy. Is that the idea here? Yeah. Your retirement portfolio, you have a more volatile outcome. Yeah, that's right. And you're rewarded with more stability once you get to retirement, as long as you endure more volatility when you're younger.

30:17Yeah. Their premise in the paper, and the reason they call it diversification across time, is that they want you to be taking more equal amounts of equity risk throughout each period of your life, as opposed to having, when your portfolio is really large, when you're retired, you're taking a lot of equity risk at that time, but you could have taken that equity risk earlier in life by using leverage and spread out the risk over time. So if you end up with an unlucky outcome where the risk shows up when you have a large portfolio close to retirement, you're getting this bad outcome, but you could have spread that risk out by levering up and

30:48taking more risk early on. That's the premise, and that's where they get the title of the paper. However, they assume the paper bond-like, like very, very safe human capital that does not fluctuate, which is an assumption worth questioning. And the paper, to be fair, does acknowledge this. The way that they approach the target allocation in the paper is with the Merton-Samuelson share, which comes from those foundational papers that I mentioned earlier. It's the ratio of the expected equity risk premium divided by the expected variance of stock returns multiplied by the investor's constant relative risk aversion. Lots of variables there.

31:22But think about it. If you have a higher equity risk premium, that's going to increase your target exposure to stocks. Lower variance of stock returns is going to increase your target exposure to stocks. And lower risk aversion is going to increase your exposure to stocks. The reality is each one of those things that I just said, the equity risk premium, the variance of stock returns, and your constant relative risk aversion, those are all things that we don't know. I think this can get pretty complicated to say like, you should use 2x leverage because the

31:53Merton-Samuelson share says so. It's like, okay, based on what assumptions? The other thing there is that if you have a high risk aversion, if you're highly risk averse, your optimal equity allocation is going to be lower. In the episode we did with James Troy, he had this spreadsheet, a very simple spreadsheet that took complex portfolio theory and boiled it down to a few inputs. Braden made an app with that, but one of the inputs to it is risk aversion. So there's a very simple little thought experiment that you can do to figure out what your risk aversion is. But target allocations swing

32:24wildly around risk aversion. So it's another thing where it's like, we can make this theoretical case for leverage, but it's so sensitive to things like those inputs that you do have to question a little bit. There is a more recent, well, our listeners are pretty familiar with this paper, but it's Scott Cederberg and his co-author's paper, Beyond the Status Quo. They do this life cycle model of an American household and they run all these simulations rooted in long-term historical data. They're doing the block bootstrap. It's a pretty neat paper. We've had Scott on a few times that people want to learn about it, about the research. In the newest version of that paper,

32:57they did in the older version too, but the results I think changed a little bit in the newer version. They allow leverage in one of their simulations. And when they do that, and the cost of borrowing is 1.4% above the risk-free rate, which is a pretty realistic cost of leverage for most households. The optimal allocation for the household is, again, 2x leverage early on, decreasing over time while investing in a portfolio of approximately 34% domestic stocks and 66% international stocks.

33:29So there's just another, I don't know, interesting example of research that's looked at, should people be using leverage and found that it can be optimal in a model. But as we talked about, models are not reality and people are not spreadsheets. It's so hard to look at what's perfect on paper compared to what happens in real life and how you experience it and how you react to it and what actually makes sense for you. I agree. So that's kind of the setup. Could leverage ever make sense for somebody? Eh, maybe.

34:00But you get a lot of volatility. You have the chance for total wipeouts. You can lose all your money with leverage, which is harder to do when you're investing in an index fund. In a leveraged index fund, though, you can get closer. I don't know if you've had any leveraged index funds go to zero yet, but it's possible, especially when you get into 3x, you get a really big downward move in a day because the daily resets do help a bit. But it could happen. That's not very fun. It can still look good on paper. You could still run a million simulations and be like, no, no, no. You're better off with leverage. It was like, well, if you lose all your money,

34:31even if it's a relatively unlikely outcome, I don't know how likely it is that somebody is just going to be like, well, this is part of the expected range of outcomes. Better get back into it. I'm skeptical. That sort of leads into another thing is that it's one thing to talk about, you know, being young. Well, what are some of the characteristics? Well, you may have a lot of human capital ahead of you. You don't have a lot of assets, but the other thing is you don't have any experience. One of the things that I think is really important if you're going to be investing in an equity heavy risky

35:04portfolio, especially a leveraged one is you need to have been through the volatility before. So you can really assess your risk tolerance. I mean, we've talked about this many times. I don't believe any person today who says that they're highly risk tolerant if their only exposure to markets has been the last four years, because you have no idea how you're going to behave when the markets actually fall because they barely fall in that period of time. You know, if you're just

35:34getting started with an entry-level job, for example, and you're just investing, you don't really know what your risk tolerance is. By the time you've been investing for 20, 25 years, say, now I think you have a much better understanding of what's in store for you. I would be more comfortable, frankly, with someone using leverage at that stage. Apparently that makes no sense in the life cycle model, but in terms of the experience model, it makes a lot more sense. It still makes sense. In those models, people in, you know, middle age still have leverage.

36:08Okay. I don't think that's crazy. For a battle-hardened investor, I would have much less of a problem with it.

Historical performance and volatility drag

36:15Just in short-term volatility, a 2x leveraged S&P 500 ETF, 2x leveraged, fell nearly 80% in the great financial crisis, peak to trough. A 3x leveraged S&P 500 ETF fell nearly 80% at the beginning of COVID. That was a shorter time period for that drop too. Now, I mentioned this earlier, but you got to remember that we did not know at the time that stocks would recover the way they did after those drops. Those were two genuinely scary periods where people were

36:45looking around like, what the heck is happening? Are things going to be okay? And we didn't know at the time. They ended up being okay, but it wasn't obvious at the time. Jason Zweig did write an article about this recently, and he described it as buying a leveraged fund and holding it for the long run is appropriate only for people who can spend the rest of their lives in a sensory deprivation tank. Now, I think those short downturns, and this Dan speaks to your point about someone who's maybe in the last 10 years, they've been investing and they lived through COVID. And that was this sharp, quick drop. It was scary. There was a lot of uncertainty,

37:18but it came back so quick. You live through that and you look back, it's like, whatever, that wasn't so bad. But then you look at other markets. So there are markets that have not performed as well as the US. There's probably other stuff going on here too. Like there's probably some tax inefficiency. There's probably some higher financing costs. Like it's not just performance, but emerging markets, leveraged ETFs made you worse off after volatility drag fees and financing costs compared to just investing in the underlying assets for a long period of time. So that's one interesting example. But then the other one, and this is the one that I think

37:51really drives home. This is the 1994 example. A live 2X leveraged S&P 500 mutual fund underperformed an S&P 500 ETF for decades. So 1984 until just recently, within the last couple of months, underperformed by a lot. If you look at just the growth of wealth chart over time, since inception, for most of its history, it was way under just a long only SPY ETF. And then just recently pulled ahead. But that's, you've got a combination of, you've got the dot-com bust, you've got the lost

38:22decade, you've got a slightly higher fee, like I mentioned earlier. I've got higher financing costs, particularly earlier on in its history. But you add all that up, and you can have these really long performance where it sucks. But if you held it from when it launched until now, you can look back and be like, oh, well, I came out ahead. But would you have held for that? Probably not. I probably have records for that. I would submit that probably zero investors held that fund for that whole period. I mean, I can't prove that, but that would be my guess. I think you're probably right, unless they're dead. Like the mythical Fidelity study about

38:55debt investors performing the best. Exactly. Yeah. So all that to say, this stuff is not for the faint of heart. I think people look at the recent returns of leveraged US equity ETFs, and they're like, wow, I want that performance. But I shouldn't need to tell anyone that you can't buy past performance. All that applies to just leverage. Should you use leverage? But then I want to talk about leveraged ETFs. There are lots of different ways to get access to leverage. You can borrow from your broker, you can use a margin loan, you can use a line of credit, secured or unsecured. You can use derivatives like features or options.

39:29There are probably other ways to get access to borrowed money or financing to make leveraged investments. Each one has its own trade-offs. The reason we're talking about leveraged ETFs, like I mentioned earlier, is not an endorsement. I don't think they're the best way to get leveraged. They're just the most straightforward way. They're convenient. They're simple. They're non-recourse, which is interesting. You can't lose more than what you put into a leveraged ETF. Whereas with other forms of borrowing, you can, if you borrow a hundred thousand dollars and lose it, you owe that to whoever you borrow it from. But the most you can lose in a leveraged ETF is what you put into it.

40:02Kind of an interesting feature. And then another really interesting one that I don't know if gets enough consideration is that you can put it into an account that would otherwise be restricted from using margin. Like a tax-sheltered account, you mean? Yeah, like an RRSP. Yeah, exactly. They're not perfect. They're not the best way to get leveraged, but they're super simple and they're interesting. And this daily reset thing is really

Debunking the daily reset myth

40:25interesting. That's the big thing that I want to talk about next. I have been wrong about this in the past. I did a video in 2019 where I did talk about leveraged ETFs being a bad way to get leveraged because of the volatility decay. There was academic papers saying this at the time. The US regulators had given warnings to investors at the time, so it wasn't just a me thing. The idea there is that a 2x leveraged index ETF aims to give you, or well, not just index, any ETF, aims to give you twice the daily return of the underlying asset, net of fees and costs. So if a fund has 2x exposure to the

40:59underlying index today, and the index delivers a positive return, the fund's assets will increase in value, which pushes down its leverage ratio. But because it's promising 2x daily leverage, it needs to reset. It needs to buy more stock exposure to push its leverage ratio back up. Similarly, it needs to reset if stocks go down. The fund is always going to be selling stocks after they fall. So that mechanism has been used to argue against daily leverage ETFs for long-term investors.

41:30But this is the part that I think is incomplete. And this part gets pretty nerdy. There's an equation that we can show on the screen, but I'll also try and explain it. The equation is for the return drag. The return drag between L times the underlying return and the leveraged portfolio return. N is the number of rebalancing periods in this equation. L is the leverage ratio, and sigma squared is the per period of variance of the underlying asset. If we rebalance this portfolio daily, N in the formula is 252, and sigma squared is the daily

42:02variance of the underlying asset. If we move to weekly rebalancing, just as an example to show the numbers, N in the formula decreases by a factor of 5, but sigma squared, which is now the weekly variance rather than the daily variance, also increases by a factor of 5. So they cancel each other out in the equation. Now that only works if there's no serial correlation, if the returns are random, if they're unrelated from one period to the next. If there is serial correlation, the per period variance will not scale with the number of days in the period. With positive serial correlation,

42:33more frequent rebalancing is actually a good thing for the returns. And if it's negative, it's bad for returns. The main insight to kind of boil it down is that whether daily resets are good or bad depends on the specific return outcome that you get, which is not something that we can know in advance. And therefore, I think not something that should make you conclude that it's a bad thing in advance, unless you knew what the future sequence of returns is going to be. So that's that part. And then the interesting thing is it becomes an empirical question where you can just look like,

43:04okay, well, has it been good or bad? You mean that equation didn't explain it enough for everyone? I mean, I just want to say, Ben, for the record, putting the equation on the screen doesn't help. Before we get into the real world examples, just to clarify, joking aside, the point here, I think, my little brain seems to have inferred here that what you're saying is if you compare, say, daily resets to weekly resets, there isn't necessarily a dramatic difference, in theory,

43:38anyway. This idea that daily resets are bad sort of implies that less frequent resets would be better but your argument here is not necessarily. It can make a difference depending on the specific return outcomes over those periods. So it's possible that if we have different serial correlation at the weekly and daily horizons, that there could be differences. And you do see that if you run the backtest, like the community user that I mentioned earlier, he had all these backtests at different

44:08rebalancing frequencies and there will be differences. But I think the main point is that the differences between the reset frequencies are going to be basically random and they'll change just based on what sequence of returns you happen to get in that simulation. So daily is not inherently worse than weekly. It could be. Correct. In many specific cases, but it could be better. It could be. And it could be better. Yeah. And then there are some pretty interesting examples about when it's better and when it's worse. Then that gets into the empirical part. It's like, when do we tend to have lots of bad

44:41days in a row? And when do we tend to have lots of good days in a row? We will get in that in a second. One consideration that I did want to mention, and this came up in the rational reminder community discussion after my video on this topic, is that a lot of the levered GTFs are getting their leverage from swap contracts. So there's a whole other thing to think about where with a swap, you have just other unique risks. So swap contract is entering into a contract with a financial institution and that's how they're getting the leverage. But now you've got counterparty

45:13risk. You've got the risk of a counterparty closing the contract after an extreme downward move in the asset, which has happened. There's an ETF LCDL, which was a single stock leveraged ETF. This happened. The fund is now closed and on the fund webpage, it has this whole description of what happened. And it was exactly this. The swap contract had a provision for the contract closing. If there was a certain downward move in a day, that happened and an ETF became worthless. Wow. Kind of an interesting story, but it's another risk to think about when you're using these

45:43funds. You've now introduced swaps into the structure of the fund. So the empirical evidence part of this is the part that I find really interesting. There is a 2026 working paper.

Empirical evidence on single stock funds

45:53This is the Bessem Binder paper that we talked to him about. It's focused on single stock leveraged ETFs. And it does look specifically at the claim that daily resets lead to underperformance relative to a static leveraged portfolio, not rebalanced. And Bessem Binder does explain in that paper, as we just talked about, that daily rebalancing can work against you in a specific realized return outcome, but not necessarily all outcomes. They're focused on single stock leveraged GTFs. And they do find in that case that daily resets do result in a cost over their frictionless

46:24benchmark due to the specific return paths of individual stocks in their sample. So that's interesting. But we did talk to Hank when he was on this podcast about, do you think the same thing would apply to indexes? And he was kind of like, maybe not because they are very different. Single stocks are more volatile. They obviously perform very differently from indexes. So then that next question is, have people done that empirical work? And there are a few papers. So there's a 2022 paper that asks whether investing in an index fund on margin and rebalancing once per holding period or

46:55using a leveraged ETF with daily resets would have produced better outcomes in historical data. And in that case, this is what I was alluding to a minute ago, the authors do find that leveraged ETF returns were higher during strong bull and bear markets, but lower during moderate bull and bear markets. So again, it just comes down to what the sequence of returns was in those specific periods. And this is an interesting point. They find that leveraged ETFs provide reduced downside risk and are less risky than margin during every bear market since 1927. The reason for that, when you think about it, is that

47:27if you're resetting during a downward market move, so the market's going down every day, if you're not rebalancing, your leverage ratio is getting more and more aggressive because the value of your assets is decreasing while your loan balance is staying the same. If you're resetting every day, you're resetting back to your whatever it is, 2x leverage ratio. So you're limiting a little bit how much leverage exposure you have to the underlying asset. And so in a bunch of these papers, it does show up that in really, really bad markets, you're actually better off with the more frequent resets, which is kind of

47:59neat. And there's no margin call and things like that, right, that you're getting at that from a practical point of view. As an investor who just wants leveraged exposure to an index, this is just much easier to implement and less likely of any kind of forced transaction. Let's put it that way. Yeah. And especially with those daily resets, because you're going to run into issues if there's a really, really big downward move in a day. But if you're resetting at the monthly horizon, you care

48:30about a big downward move in a month. It does shift the risk a little bit, or at least how the risk shows up. There is a 2025 working paper. This one's funded by ProShares, which is Accompanied Issues Leverage ETF Products. So it's kind of weird because there's an obvious conflict there, but it is written by an academic. And I mean, you read the paper and it kind of lines up with some of the other research that we're talking about. It didn't smell conflicted when I read it, but it was interesting that it was funded by ProShares. So they look at multi-day leverage ETF returns and they find that long-leverage ETFs align closely with portfolios without daily rebalancing at holding

49:05periods up to a quarter and reasonably closely out to a year. And then this is the other interesting part. When their performance does diverge at the extremes, sizable underperformance is less likely than same-sized outperformance. So again, there's that little bit of downside protection, if you can call it that, with the more frequent resets. So they conclude in this paper that daily leverage resets in leveraged ETFs are not the problem that they have historically been made out to be. Then there's another 2026 paper, and this is the one from Marco and Chris, which we will discuss with them in an upcoming episode. They study five determinants of leverage ETF performance,

49:38volatility drag, fees, financing costs, which products are launched, which is an interesting point, and market timing. One thing that they make really clear in this paper is that volatility drag is a real thing, and leverage increases volatility drag because it increases volatility. Nothing to do with daily resets. Just you've used leverage, you get more volatility, which is going to decrease your compound returns. And they do specifically mention in this paper that the daily resets are not causing that issue. It's just leverage causing that issue. They illustrate how volatility drag scales with volatility for 2x leverage ETFs. We will put a

50:12chart up where you can see how each increase in volatility drives a larger wedge between the annualized leverage return and the underlying asset return. They look at a concept here that's pretty interesting called the break-even return, which is the return on an underlying asset that you have to earn in order for the leverage strategy holding that asset to earn at least the same return as the underlying. So that means the math gets a little confusing to think about, but if you just take an example of an underlying asset with a daily volatility of 5%, a 2x leverage ETF requires an annual return of

50:45nearly 100% just to match the performance of the unlevered asset, not accounting for things like financing costs. Volatility hurts a lot. And I think this really matters for individual stocks because they just tend to be so much more volatile. That's a great point. It's one thing to say you're going to get leveraged exposure to a hugely diversified portfolio of equities, which still has pretty considerable volatility. But then if you apply that same concept, and as you've said, there's many, many products available that do, to an inherently very volatile asset, i.e. an individual

51:23stock. Now it sounds like you're asking for a lot more trouble than you were. It's much riskier than the diversification. Yeah, I've got some data on that in a second that's pretty alarming. Marco and Chris in their paper, they do find that leveraged index ETFs have been beneficial to investors. Like the aggregate wealth creation from these things has been meaningful above and beyond just regular index ETFs. Single stock leverage ETFs, some of them have done well, but they face much higher

51:53borrowing costs. And I have the data on that in a minute. That's mind blowing. They've also got more volatility drag as we were just talking about. They've also got poor timing by investors. People tend to buy these things at the wrong times with single stocks specifically. This one's not from Marco and Chris, but there's separate research from Morningstar that just speaks to the performance of single stock ETFs with really interesting data. So they find that single stock leveraged ETF investors have been more likely to lose over 75% of their investment than to outperform the underlying stock

52:23outright. Wow. And that 19% of single stock ETFs have lost over 75% since inception, while only 18% have outperformed the stock they track. And that's outperformance by any amount, like loss of over 75% compared with any outperformance whatsoever. Huge range of outcomes. Yeah. Yeah. Not good. Some have done really, really well. Like I think a leveraged NVIDIA single stock ETF has done really, really well. No doubt.

52:56Most others have done really, really poorly. In this paper, they look at the expense ratios for index and single stock ETFs. They find them to be around 1%. That I think nobody would be surprised to hear. The financing cost though is where it starts to get really interesting. They look at how much it costs the fund to get its leveraged exposure to the underlying asset. Now this is really important in Canada. Well, it depends on the fund actually. Some funds in Canada use cash leverage and that financing cost will show up in the MER. But if a fund is using swaps, the financing cost is not going

53:30to show up anywhere. And so you can look at the expense ratio on these things and it's like, oh, it's 1%. That's not too bad. But that does not include the financing cost, particularly if they're using derivatives where the financing cost is built into the contract and it just, it doesn't show up as an expense anywhere. So they find that the 2X leveraged index ETFs in their sample have financing

Financing costs and total ownership expenses

53:48spreads of about 0.5% above the risk-free rate. People hear 0.5%, oh, that's not so bad, but it's above the risk-free rate. Now when you add up the funding spread, the risk-free rate, and the funds fees, the total cost of owning a 2X leveraged ETF could easily be above 5% per year at the current risk-free rate. That's a pretty big hurdle to overcome. Right. So you think about how could these underperform at long periods of time? Well, you're paying 5%, and that's at the current risk-free rate. Historically, it's been higher. So you're paying a lot for the exposure. And now you have the single stock ETF.

54:23So they have total costs around 12% because the financing spreads can be nearly 10 percentage points above the risk-free rate. A bigger hurdle for the single stocks. There's one more 2026 working paper. It takes a different approach to the analysis, but they're again, directly defending leveraged index funds for long-term investors. They explain that daily rebalancing produces convex payoffs, which is kind of what I was describing earlier, that differ from, but do not underperform linear benchmarks. And they show empirically that daily leverage rebalancing is not an inherently

54:55value-destroying activity. These guys are pretty aggressive with their language and their conclusion. They say the demonization of leveraged and inverse equity ETFs, particularly the false accusation that these funds erode value via volatility decay, is a major disservice to investors that has likely discouraged long-term investors from using these products in ways that would help them achieve their financial goals. Pretty harsh, pretty aggressive language. As we've talked about, it's not obvious that everyone can just happily hold these for the long-term, but maybe some people could. One other point that's worth mentioning is that you don't have to hold just a leveraged 2x

55:30ETF. You can hold it alongside a regular ETF to reduce your overall leverage exposure to the underlying asset. So if you have 75% regular index fund with 25% 2x leveraged index fund, you've got a 1.25 times leverage exposure, 125% exposure to the underlying asset. Now, in that case, you would have to rebalance between the leveraged and non-leveraged fund to keep your 1.25x exposure. There are some index funds in Canada. They are the ones that I mentioned that are using cash leverage that are 1.25x index funds. So there's one for Canadian equities,

56:06one for US equities. They're interesting. I spent some time looking at the financing costs inside of those funds plus the fees and it ends up being a bit more expensive than borrowing on margin to get the 1.25x exposure. There could be reasons why that can make sense for some of these. So leverage is a double-edged sword. It amplifies positive and negative returns. It increases volatility and volatility drag and it can come with high costs, both in fees and financing costs. In theory, it can make sense for some investors to

56:38use it if they can stomach it to increase their exposure to stocks beyond the amount of capital they have to invest at that moment. It has been a commonly held belief by many, including me and you, Dan, as you mentioned earlier, that daily reset leverage index ETFs are just not good for long-term investors. Not a good tool for long-term investors, but more recent research has shown that belief, that specific piece, the daily leverage being bad is probably unfounded. Daily leverage resets do not cause volatility drag. Volatility causes volatility drag. And even so, despite the

57:09volatility drag, leverage has been useful for well-diversified long-term investors in recent history. But as we mentioned, there can be some long periods where it really sucks. Single stock leverage ETFs, which are being issued in huge numbers, are a lot harder to make the case for. I called an ETF slop in a video in a podcast episode earlier this year. And I think this new research showing the impact of volatility drag and the high financing costs really does support my slop thesis. And then the last thing I'll say is that if anyone's thinking about using leverage,

57:41they're not sure whether they can stomach the extreme ups and downs, which we've given lots of caution about, you can use PWL Capital's psychometric risk tolerance assessment tool to investigate your risk tolerance. That's all I got. Anybody want to go back to talking about spendthrifts and tight watts? My head's still spinning from that. Yeah, it's an interesting contrast, isn't it? I do think it's refreshing for us to kind of revisit ideas that we thought we had and to take a more academic approach to it and just say, hey, maybe we were wrong. And I think in this case,

58:14we were clearly wrong about one of the premises. Does the advice change? Suddenly, I don't think anybody's in PWL anyway is rushing to encourage clients to embrace these products. But let's at least be honest and say they may be appropriate for some people. And if you're going to evaluate them, then you need to understand how they work. Yeah, that's right.

Balancing portfolio goals and peace of mind

58:37I think from a planning perspective, you still want to bring it back to what is the money actually for? Do you need the higher expected returns? Or is what you have without the leverage actually good enough? I've run many simulations, and I'm sure that the team has done many since I used to run them where we show a client that, yes, you could use leverage. But if instead of doing that, you just in this case, it would be a mortgage. We'd have people say, well, I want to borrow against my house to invest once they paid it off to them. The rare person that wants to do that. And we've shown them,

59:10well, hey, you could do that. Or if you just took those payments and invested them in your portfolio without using the leverage, and like, how does that affect your ability to retire and how much you can spend in retirement? And usually it's not much. I think that's a great point, Kelly, but you really got to understand what you're trying to achieve and how much using leverage might impact that or not. I think that's an important idea that we all sometimes lose sight of. I mean, hopefully not as planners, but certainly as investors, we just sort of think, well, this might lead to higher returns. It might. Do we need higher returns?

59:44What's the ultimate goal? Exactly. And if you can achieve your goal with the return of a balanced portfolio, and honestly, I believe most people can over time, then why are we having this discussion at all? Why are we starting from the premise that your goal as an investor should be to achieve the maximum return possible full stop? That's not a very articulate financial goal. Well, I don't think it's a real financial goal at all. It's the tool that you use to achieve

1:00:15your goal. Yeah, good point. Do you want to live a good life or do you want to have the perfect Merton share? Obviously, Merton share. It is an interesting discussion because some people might say that the perfect Merton share is the best way to facilitate the perfect life. I don't know. No one's ever said that. You're probably right, Dan. That's the first time that has ever been said. That's probably the first time that's ever been spoken. That's a fair point. We don't have any new reviews to read, which is pretty rare.

1:00:52We might now. We might have, yeah. I don't know. Anything else to chat about? We have gotten that feedback, Dan, that people miss hearing us just chat about random stuff. They miss Cameron's book reviews and TV shows. If I read books or watch TV, I'd have something to add, but... Are we boring people? Not possible. Cool. Kelly, we're throwing this one to you. I met the Wealthy Barber last week. That was pretty cool. Very cool. That is cool. Yes, really nice guy. Where did you meet him? In Toronto, Ottawa?

1:01:23Actually, in Winnipeg. I was at the IAFP conference and he was one of our speakers. And so I got to have a chat with him one-on-one as well and used the, I work with Ben. Come talk to me. Did it work? Yes, it did. That's cool. It's about who you know. Exactly. That's the conference where Louis was being awarded his National Financial Planning Award. Amazing.

Internal planning culture and upcoming projects

1:01:49Yeah. Honestly, I have to say the evolution of planning culture at PWL over the last couple of years has been really incredible to watch. We've been able to attract so much great talent. Some of the best planners in the country, as far as I'm concerned, and not even necessarily the most experienced ones, just really good young talent. I'm looking forward to kind of learning from them over the next few years because, yeah, we really have built up an amazing talent pool here now.

1:02:20It's super exciting. We have the financial planning office hours that we do. What is that? Once every couple of weeks, sitting in those calls is like, yeah. There's cool planning knowledge, but there's also such interesting application of planning knowledge. Like how are we doing this really well for clients or what's a better way to communicate this idea or show this in our planning software? The brain power in there, Dan, like you said, is really cool to see. It's really interesting to talk to people who are working with clients every day. And so it's not just about concepts and planning, but how to deliver that message to clients because that's the thing

1:02:55they don't really teach you, right? And you have to just learn that the hard way with experience and just to hear other ways that people do things, successes they've had, presenting plans to clients. I learned a lot from that. Yeah. And it goes back to what I mentioned earlier, where like you just said, hearing someone explain something a different way, there's always something new to learn and there's always ways to improve. And so the fact that we do that on a regular basis internally is amazing. Indeed. It's very cool. We're working on one project that we'll talk about on the podcast at

1:03:29some point in the future, but we're doing a survey for a select group of our clients, which I think is going to be pretty interesting. And that's hopefully going to go out in the next couple of weeks. It's about wealth psychology and money and happiness and all that kind of stuff. I think we're going to gain some really interesting insights from that survey that we can hopefully turn into some kind of research that we'll share later. And then I mentioned a while ago on the podcast that we were going to start having clients on to kind of tell their stories about why they came to PWL. And it's super interesting because many of them are former DIY investors who are perfectly capable of doing all of this stuff themselves. They've decided to work with PWL. So I think

1:04:03hearing them talk through the way that they thought about that decision and what they think they benefit from working with PWL is going to be really interesting for listeners to hear. That is underway. Excellent. Well, Kelly, great to have you on the episode and hope there will be more in the future. Yeah. Thanks so much for having me. It was fun, but slightly terrifying. It doesn't get easier. Yeah.

1:04:25All right. Thanks guys. And thanks everyone for listening. Take care. Thank you.

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