There are many ways to build a portfolio and multiple factors to consider like risk tolerance, fee drag, diversification, and tax efficiency. We also need to keep the goals of why we are investing, such as building financial capital for retirement, as a compass to guide us. In building towards that end-game, we should also consider the effects of taxation on accessing the money in the future.
That portfolio building complexity can paralyze people from investing. The worst possible outcome. So, a simple-to-execute plan is paramount. There are different ways to do that. You can pay to have an advisor to do this for you. Just be sure to find a good advisor. If you do, like purchasing any service, make sure that they are providing good value for your dollars.
DIY investing should only take people a few hours per year.
With help of Robocorp – it can now also be easier.
The steps that take the most time for DIY investors are the planning and math calculations. They are also the most complex and intimidating. Actually buying and selling ETFs only takes minutes and is as easy as online banking.
I meant what I said in my introductory posts about why I am blogging and my mission to help physicians take control of their finances. My hope is that Robocorp will help break down some of the barriers to DIY investing. Not only for high-income professionals – but all Canadians. Plus, I am a little loonie and the making this programme presented an irresistible challenge. I have a hard time walking past an area of need without trying to fill that void.
The Robocorp algorithm is my global approach to designing a portfolio in the Canadian context across a corporate account, RRSP, TFSA, and personal taxable account. It also works for those without a professional corporation. High income or not.
Robocorp is not.
Robocorp is not a robo-advisor.
A robo-advisor is a computer-driven service that buys and sells via a licensed brokerage for you. Many also offer access to an advisor over the phone. It is all for a fee.
Robocorp does not buy and sell investments for you. As a DIY investor, you need to do that yourself via your own brokerage. Robocorp is also free!
I called this tool Robocorp because it does use a computer-based algorithm to meld with your human mind and assist you. It is also the only resource that I know of that does this and makes it gel across multiple account types – including a professional corporation.
Robocorp is not a financial advisor.
I am a doctor. Not a financial professional. So, I am careful not to professionally advise on people’s specific financial situations.
You need to consider whether the portfolio suggestion the calculator produces makes sense for you.
Portfolio management is only one aspect of a financial plan. A financial advisor can provide value for many of the other aspects of your financial planning.
Robocorp is merely a tool for illustrative purposes. You need to decide what to do and execute your plan on your own (as a DIY investor) or with the help of your advisor.
Robocorp is also not a recommendation for specific investments.
It is pre-populated with some example ETFs. These are meant to be representative of certain asset types. There are many alternative ETFs or even individual holdings that may be suitable for your situation. I will review the characteristics of the ETFs used and their intended role in the Robocorp Model Portfolio in another post.
My goal with Robocorp is to empower people to DIY invest. Plus, to make it easier to do so tax-efficiently.
Different levels of DIY investor will have different needs and those will change over time as they gain experience or face new dilemmas. For most, that means a very simple interface and limited options as to not overwhelm them. However, others will need more options to make educated decisions to optimally build their portfolio for the future.
So, there are several versions of Robocorp rolling out.
They all share a similar easy-to-use, step-by-step, guided interface. They also share compatible underlying algorithms to seamlessly graduate to a more complex model if needed.
This is the beginner version and the first to roll off of the assembly line. It is meant to help someone get started from scratch.
You enter in your account types, starting balances, and planned contributions. Next, set your desired stock
It also offers the options for the more sophisticated investor. You can make custom allocations amongst Canadian, U.S., Non-NA Developed Markets, Emerging Markets, and bonds. The TFSA algorithm is oriented towards growth. However, you can set the priority for that as global diversification or tax efficiency. There are options for $USD or $CAD versions of the different Canadian account types (RRSP, TFSA, Corp, Taxable).
Robocorp takes your inputs and produces a table showing a model portfolio of how much of each ETF to buy in each account.
To rebalance once or twice a year, just repeat the process with the same asset allocation and your updated account balances & contributions. Simple.
Size doesn’t really matter.
Robocorp uses five different ETFs for most portfolios, but up to ten if $USD accounts are mixed in. Don’t let that intimidate you. It is not the number of ETFs that makes managing a portfolio complex. It is deciding where to put them across your accounts and in what amounts that is hard – even with an ultra-simple three or five fund model. Robocorp makes those tasks easy. The difference between three and five ETFs is about $20 in discount brokerage fees and about ten minutes of time.
Here is a great video showing the mechanics of buying an ETF step-by-step.
You can click the icon to above activate the calculator or find it in the right margin of the Loonie Doctor web pages.
This version allows one to enter in their current portfolio and classify their current investments. It then goes through the regular Robocorp algorithm, produces a goal portfolio, and offers a summary of where to consider adding to your positions to rebalance.
Selling investments in taxable accounts
This version is still in the construction phase.
This bad-boy may look intimidating, but it uses a guided and adaptive interface just like the other versions. It is pretty slick.
S.W.A.T. stands for Special Weapons and Advanced Tax planning. It includes corporate and personal income tax estimators. Those can help to estimate your cash flow for investing.
For those with a corporation, there are features to help plan dividends to minimize the tax drag in a corporate investment account, and estimate when (or if) you might hit the new small business active-passive income tax threshold.
This version is built and tested, but I want to put out more background knowledge-base material onto my blog before unleashing it onto the internet.
The Special Weapon Swap-Based ETF Option in S.W.A.T.
Swap-based ETFs can save on tax, but they also come with some special risks. The main risk is that the government will change the rules to ban them. Those who use these special weapons may collect a risk premium in the form of higher after-tax returns for taking those risks. Or they could get caught by a tax event from triggered capital gains due to a legislative change. No one knows if or when.
However, the risk-reward balance can vary and may be compelling for some people in some circumstances.
So, there are different options for swap-ETF use.
These range from not using them at all. Period. To only
The “maximum assault mode” predicts when a corporation will get pushed over the passive income threshold and gradually adds swap-ETFs (if needed) to hit the threshold around the planned year of retirement. The tax rate over that active-passive threshold rises substantially, making swap-ETFs more attractive. Conversely, the passive income threshold no longer matters if you cut back enough or stop working.
The risk-reward relationship for swap ETFs can vary by account type, income level, and the type of index that it is tracking. The algorithms and options accommodate for that and I will do some detail posts modeling that later. Similar to the post that compared the Bond Total Return Index ETF (HBB.TO) to conventional ETFs in a personal and corporate account.
Robocorp Portfolio Building Prime Directives
Building any portfolio will come with trade-offs. Some may be able to put their entire portfolio into tax-sheltered accounts, but those with large portfolios will not. Even for investors using only an RRSP and TFSA, these
- Respect the asset allocation chosen based on your risk tolerance.
- Minimize tax and fee drag while accumulating by tax efficiently matching investment income and account type.
- Build accounts now while considering how to minimize taxes when they are accessed in the future.
There are many moving parts underpinning those prime directives.
The mission of Robocorp is to make it DEAD EASY for a DIY investor to build a tax-efficient Canadian portfolio plan.
You may not care how it does that. Boring. For those that do, the next series of posts will give a high-level overview to understand what is
I have and will continue building a detailed database of articles on the blog about much of the rationale underpinning different aspects. I also intend to be transparent about how the algorithm works once that basic knowledge-base is built enough that I can reference it.
As a DIY investor, I think that it is important that you understand why you are doing what you are. Even if being aided by a cyborg calculator. I’ll try to not make it too boring.