A Financial Plan For Your Entire Life | #417 (Dr. Paul Kaplan)
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What is the main topic discussed in this episode?
This is the Rational Reminder Podcast, a weekly reality check on sensible investing and financial decision-making from two Canadians. We're hosted by me, Benjamin Felix, Chief Investment Officer, and Cameron Passmore, Chief Executive Officer at PWL Capital.
Welcome to episode 417. Nice to be back in the seat with you, Ben. Very nice. this is another great conversation i don't know how you keep finding these incredible guests but this week's subject is life cycle finance and it was incredibly interesting conversation just about how to think about as a rational human to plan your savings and spending over a lifetime. But it's an amazing, I have a refresher on how to think about this is what I took away from this conversation with Dr. Paul Kaplan. Oh, that was just terrific. Nice guy. Life's work comes together in this conversation and a little bit of a treat at the end. He will share his spreadsheet with everybody.
Yes. So we do have a link to a life cycle model spreadsheet that Paul and his coauthor for the book that we largely talk about in this episode created. He takes us through it during the conversation. So you'll be able to see it if you're watching on YouTube or hear about it. If you're listening, we'll link to it in the show notes and you can download the spreadsheet and have some fun. If you're into that kind of thing, we are. I enjoyed seeing the outputs of the spreadsheet and it's also interesting just to see impact of changing different parameter values. Very cool. And the fact that it's just available for anybody to take a look at is, I think, pretty impressive. We were just talking to Paul about this after we stopped recording.
A lot of the work in the spreadsheet is being done in VBA, in Visual Basic, which is code that you can write in an Excel spreadsheet. Actually, you can use Python now too, but this is done in VBA. It's open, like the code is available for you to review and I guess change if you wanted to, which I think is very cool that they were so open with it. In a lot of cases, that kind of stuff would not be available for people to view and edit. So very cool. Like you said, Cameron, this is really a great overview of life cycle finance, which is just the idea of how people allocate their money over time, both between how much they consume and how they invest. It's really consumption and asset allocation is what a life cycle model helps you figure out.
And they've got a whole book that they've written on this and it covers all angles of life cycle finance, how to think about risk tolerance, how to think about the overall investor profile, which includes many things that go far beyond risk tolerance. We did talk a little bit about index investing. It's a great conversation. He's got a very nice way of explaining things. Maybe I'm not a great sample here, but I did not find any of it to be cumbersome. He's explained everything in clear, plain language that I think most people can understand.
He also tells a cool story about interviewing Harry Markowitz, so make sure you listen for that. Yes, that was very cool.
Paul Kaplan, PhD, CFA. He's now retired. He was the director of research for Morningstar Canada and a senior member of Morningstar's global research team. He led the development of many of the quantitative methodologies behind Morningstar's fund analysis, which is pretty cool. Their indexes, advisor tools, and other services. He conducted research on asset allocation, lifecycle finance, portfolio construction, index methodologies, and other investment topics. Many of his papers have been published in professional books and publications, including his book, Frontiers of Modern Asset Allocation. He's also contributed to various CFA Institute Research Foundation books, which is one of the books that we talked about for most of this episode.
That book is Lifetime Financial Advice. And at Morningstar, he served as quantitative research director for Europe and and the United States. And before joining Morningstar, he was vice president of Ibbotson and Associates.
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Chapters
5 chapters
1
What is the main topic discussed in this episode?
0:04–25:00
2
What is life cycle finance and why prioritize consumption smoothing?
25:00–30:32
3
How does the Kaplan life cycle model integrate mean‑variance optimization?
30:32–44:23
4
How do you build an economic balance sheet including human capital and liabilities?
44:23–59:04
5
Why should risk tolerance and risk capacity be measured separately?
59:04–1:00:24
Speakers
3 identifiedMore from The Rational Reminder Podcast
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