Well, pretty much anything is better than getting dialysis. I hope to never need it. For the non-physicians who may not know what dialysis is, there is a picture of a dialysis machine to the left.
Basically it takes blood from the patient and “cleans” it to replace what the kidneys would normally do. In the bottom front are bags with the solutions that the blood is filtered against and a bag that collects the evil humors that are filtered off. What you can’t see is the tiny brown bag behind the machine into which it intermittently spits out $20 bills.
Initiating dialysis pays huge per unit of time spent compared to just about anything else in my field that I know of. Except maybe reading pulmonary function tests. Most specialties have one or two procedures that pay really well.
Now, I don’t begrudge the nephrologists or intensivists one bit for this high paying procedure because what is not captured in that one fee is how hard they toil looking after very sick patient population the rest of the time. Much of that is not as well paid and it all averages out in the end. The good news is, you don’t need to be a dialyzer to get paid like one – albeit for a short burst of time. “How?”, you ask, “Are you loonie?”
The answer is by being your own portfolio manager +/- financial advisor, and yes I am loonie.
We explored the sexy and complex world of financial advisors. Like lingerie, a financial advisor may enhance asset growth or just get in the way. Choosing an advisor, like shopping for naughty undergarments can be overwhelming and we tackled the often unspoken aspects of what to look for previously. That led to the natural question of:
Is it worth your time to learn to be your own financial advisor or should you just find a good fee-based advisor?
This is a tough question and the answer is different for everyone. You need to consider:
- How hard it is to learn enough to do a competent job?
- Are there simple parts that you can do and parts that you should outsource to an expert?
- How much do you detest or enjoy doing it?
- How much is your time worth?
- Can you afford to make mistakes?
How hard is it to learn enough to do a competent job?
To learn to be an expert financial advisor that looks after a broad range of situations in a broad range of people, like a CFP does, is labour intensive. To be competent for your specific situation may not be as hard for a few reasons:
- You don’t need to know everything about every life stage at the same time. When I was a student, I learned about budgeting to minimize debt and how to access grants or bursaries where available. When I was a resident and started getting a salary, I learned about RRSPs, and managing my student debt. When it was time to consider whether to buy I house, I learned about renting versus buying and mortgages. I learned about RESPs when my first child was born. As I started to have more money to invest, I learned more about that. There are good personal finance books and blogs to give you an overview to making a financial plan, so that you know where to start and the main points to hit. You can delve deeper into each aspect of it on an as needed basis. This spreads the learning workload out over time.
- You don’t need to know about every financial tool or situation that is out there. Only the things applicable to you. I know only the basics about annuities or RRIFs yet because neither is very applicable to me right now.
- It takes less competence to tweak and maintain a plan than it does to start from scratch. You may want an advisor to help get you going and then take over.
Like for a mechanic, you generally pay a similar hourly “shop rate” whether it is something simple like an oil change or complex like a valve job. I can and doodoo [my son thought that was hilarious] my own oil changes no problem, but I actually don’t even know what a valve job is (it just sounded good and kind of dirty). The cost is based on time, skills, and tools. Some things just need someone competent with some basic tools while others require an expert with special equipment.
There are many facets to a comprehensive financial plan that you can hire help for. Some may be worth it for you to get the expertise and tools to handle while others may not.
- Financial management: This is looking at your income and expenses. Then planning how to budget, pay debt, and save towards goals. You need to do the heavy lifting of data gathering for this aspect and learning the debt and savings part is not too complex. It is basic math.
- Tax Planning: This is looking how saving and spending affects your tax bill. It includes things like RRSPs, RESPs, and TFSAs. This can be relatively simple as an individual, but does require some time and learning. If you have a business or corporation, then you should be getting an accountant just like you should be wearing underwear, I hope.
- Insurance: Some kinds are mandatory like house and car insurance. Others that you need to consider are life insurance (particularly if you have dependents or debt), disability insurance, and critical illness insurance. These are not hard to learn about and it is important to be wary that the industry is full of salespersons that can oversell you. So, you should learn about them regardless. To avoid pitfalls, you need to critically ask whether you have the finances to deal with the insured event in question and if not how much you really need regardless of whether you are using an advisor or not. The more net worth you have, the less insurance you need – you can eventually be your own insurance company if you have enough reserves. The insurance company always wins like the house in a casino. Thinking of insurance like a lottery ticket that you win when something bad happens is a tax for the mathematically challenged and insecure or morbid.
- Retirement Planning: This is closely tied in with financial planning and tax planning. It is key to start early, even if your plan isn’t perfect.
- Estate Planning: This one is a bit more complex from a legal and tax standpoint. A lawyer and probably an advisor are probably a good idea to handle this one.
- Portfolio Management: This is managing your investments. An investment advisor/manager is like lingerie, what you spend and what you get in return is highly variable, and you may even want to opt out and take matters into your own hands.
What do I do personally?
For me, I read and learned enough to do my own financial management early on. The Wealthy Barber, Wealthy Barber Returns, and Money Road by Garth Turner and his Greater Fool Blog are great gotos, but there are many others out there. I used to do my family’s taxes with TurboTax as a resident when I was salaried and it was simple.
Now I use an accountant for my taxes and tax planning since my financial life is more complex. I use one of the financial advisors at MD Management because they have well trained CFPs, are not commission-based, and have been free with my CMA membership. Nothing is really free. MD also sells insurance and a family of mutual funds which keeps the lights on there. Their insurance is pretty good value, but I am cognizant and critically analyze what insurance I do and don’t need when dealing with them. I have also steered away from their mutual funds which have fees about of 1.5%. That is not outrageous for actively managed mutual funds, but as you saw in my last post, mutual funds are an expensive way of investing. This has given me the benefits of a CFP to help with my planning and dodged the major ongoing drag of portfolio manager fees.
Unfortunately, but predictably, the business model at MD Management has recently changed to no longer let you have your cake and eat it too. Instead there are now several options ranging from DIY with fee-based advice (MD Direct), to advice coupled to their mutual funds, to a fee-based assets under management model for larger portfolios. I am not sure how that will shake out for me.
My history with portfolio management is more of an adventure story with the wandering, dumb luck, interesting characters, and close calls dodging boulders of an Indiana Jones movie.
I started out with some mutual funds in my RRSP – which was tiny given my low earnings from summer jobs at the time. They were expensive (MERs about 2.5%), but I didn’t know what an MER was back then and their weren’t many ETFs or discount brokerages available yet. Man, that sentence just made me feel old. Along came medical school and a free T-shirt from MD Management. I still wear it around the house which shows that I have not gained weight since med school and that I am too cheap to replace my clothes. There was actually the “Great T-shirt Controversy” in my year of med school because the T-shirts acknowledged that doctors make good money. That created the same naive horror that reading the classic medical novel The House of God does in 1st year med students. Now they “tag” the first year med students with nice backpacks instead, before releasing them into the wild.
I continued with my MD Advisor through residency and expanded my mutual funds in my RRSPs with the cheaper MD funds. Upon graduating, my advisor left MD to start her own wealth management firm and I, being a loyal person by nature, followed. Well, out came the frilly financial lingerie. It was seductive – I bought some fancy pricey products that I barely used. I also went through a variety of payment models for investment management.
First, it was pay as you go for trades – holy crap brokerage was expensive. Then a %AUM fee because I balked at the cost of brokerage fees. The portfolio did poorly over a few years and only grew because I lived cheap and poured money into it. This was after 2008 when the stock market rose a lot, making my poor returns even more pathetic. Whilst having someone else to be pissed at and blame for poor performance is a fringe benefit of having a portfolio manager that I forgot to mention in my previous post, it isn’t worth the cost. Beer is cheaper and even Guinness is less bitter.
I took most of my money out of that firm and back to MD where I managed it myself. There were not attempts to reach out and talk to me – another alarm feature in retrospect. There, I started out trying to actively trade (like my previous advisors did). I figured that I was smart, well read, and had a good grip on my emotions to be rational despite them. As an intensive care specialist, analyzing, planning, and executing under stress should be my “thing”. I lost money early on with a series of rookie mistakes, but eventually came back. It was fun and exciting and I was lucky at the end of that chapter that I basically matched the market returns of a balanced portfolio (~8%/yr). Seriously, I think that I was lucky to escape without major losses. It was trading more so than investing – there are winners and losers in trading and you are competing against the “pros”. It also took too much time and focus.
Being a doctor takes enough time and focus on its own. Being a parent and husband, even more so. This became the more important issue. At this point my kids were toilette trained, didn’t throw tantrums, and could do fun things rather than repetitive stupid kids’ games – no offence to the lovers of Candyland or Hi-5 binge watchers out there. My wife was also much more happy and pleasant to be around due to this turn of events. Neither of us are “little kid people”, but now our kids were a hoot to hang out with and I felt I could actually play a more major role in shaping their development.
I needed something less labour-intensive, and frankly… less risky.
That is how I landed on passive ETF investing in a balanced portfolio. The best way to mitigate risk is to diversify your holdings. That is easy with ETFs. You figure out a balance of diverse assets in the form of different passive ETFs appropriate to your risk and return goals. Buy them via a discount broker (under $10 a trade), and then rebalance them once or twice a year. Takes me a few hours.
So….. Is managing my portfolio worth my time? Hell ya!!
If I paid a manager to manage my portfolio, I would be paying about $30K per year (effectively $15K/yr when you account for tax savings from being able to deduct their fees) if I used a fee based advisor. As I said, rebalancing my portfolio a couple times per year takes a few hours. Playing an active role in the rest of my financial advising also helps me feel in control of my finances, less stressed, and helps make sure my money goes towards the right things like it did in my quest for the One Ring story.
I’ve done dialysis and I’ve read PFTs – nothing I do as a physician pays me more per hour than looking after my own portfolio.
Not even close. In medicine when you get some of the “gravy” procedures like these, it is usually counter-balanced by getting the less desirable work also. With your financial planning, you can have this gravy and get to select what else you want off the financial advisor menu. I like mine as poutine – this is a Canadian blog.
If I make a mistake, will I plunge to my financial death?
I did make mistakes. Most of them were early on when my portfolio was small, so there was little real lasting impact. I could make more over time, but by diversifying and aiming to match the markets with a simple strategy, the risk of that is as low as it can be. Likely, no worse than an active manager. The added value of an advisor to portfolio returns for most aspects can learned with some effort. The key decision is whether you want to put in the effort or pay for the service of someone else to do it.
I also don’t need to worry about someone scamming me and moving to Mexico with my money. With the amount of money I save managing my own portfolio, I could still make ~$1M worth of mistakes and break even compared to an active portfolio manager that matches the overall market return over the course of my career. You can find out how I calculated that in my next post:
In the meantime, while you eagerly await that testosterone-fueled carnage, try not to get too rowdy and: