The Loonie Doctor Blog is now wrapping up its second full year of helping Canadian high-income professionals to not get financially hosed. Or be hosers. Overall, we made some excellent progress. However, it has also highlighted the enormity of the task and that there is still much to do!
The beginning of the year got off to a rough start.
I broke my hand while helping with the sparring at a karate black belt test. This had a number of downstream effects.
First, the reality that my Wolverine-like healing abilities were waning hit home.
For the first time in my life, I was really limited physically by my body rather than simply how hard I could push myself. I was feeling this at work too.
Even though I have cut back a bit already, I am still working full-time by most measures. I enjoy my work, including the after-hours part when the interesting stuff happens. However, my body doesn’t tolerate it as well anymore.
Resuscitating people back from the brink of death in the middle of the night is fun. But, it isn’t the kind of fun where I should feel hung-over the next day. Dr. Networth may be right. I still want to be a “hard-core clinician”, but I think I need to do so with more moderation than in the past. Wise advice for most aspects of life.
Second, the temporary blow to my physical abilities was manageable.
I missed minimal time from work. It was manageable because I was surrounded by people that helped me out. Family, friends, colleagues, and even our public healthcare system. That got me to thinking deeply about how we should be considering wealth more broadly. If we do that, we can deploy our human capital (while we have plenty of it) to build more holistic wealth.
Third, I got inspired by my kids. Again.
My son is currently training/testing for his junior black belt (a 6 month to one year process). This motivated me to re-don my karate suit to join him. After my convalescence, the ends of my belt were noticeably shorter. Everyone denied shrinking it in the dryer. Six months later, I managed to finish the year with a 2nd-degree black belt. My new belt seems to fit better after all of the exercises and healthy-eating that went along with it.
Seeing my children rapidly developing into “teenagers” has emphasized to my wife and I how important it is for us to be present and engaged. We are proud of how they play their banjos in various ways.
However, blazing your own trail that is true to your values and counter to the herd can be very difficult. It requires parental leadership and strong home supports. We have a finite window to provide that before our influence wanes.
I previously wrote about how seeing more patient’s my own age in the ICU has taught me some lessons about spending wisely. However, facing the effects of aging in myself and my kids this year culminated in a bit of a mid-life crisis.
Financial Independence is like FIRE to the fuse of an explosive mid-life crisis.
While having our financial house in order has been a good thing, it is also like gasoline poured on a smoldering mid-life crisis. When you have the financial ability to make different choices, you then also have the pressure of trying to make the “right” ones! Considering and exploring our options occupied a good chunk of our year.
The result – we have decided to make some radical changes and blow up our status quo. More on that in the New Year, but it would have been way easier if I’d just gone the more traditional comb-over and corvette route.
Online Financial Tool Development
Another side effect of my broken hand was that I had difficulty typing. This put the blog on hold for a few months. Fortuitously, I was able to use my right hand, left thumb, and the mouse pretty well. So, I redirected some efforts towards building online calculators.
Taking on the task of DIY investing can pay better than anything in medical practice. However, it can also be intimidating and the pursuit of “perfection” (a common characteristic of physicians and other high-income professionals) may be paralyzing. My goal is to make a suite of tools to automate the math and simplify this.
Thank you to the various readers that have provided feedback and reported bugs. Most of the tools have gone through multiple revisions to make them better. It is very labor-intensive to code and while the rate of output is low, I think the quality and utility of these tools improves with every iteration. Here are a few.
Help with asset allocation
This is probably one of the most important parts of setting up a portfolio. Choosing the right mix of stocks:bonds for your risk tolerance to maximize return and minimize behavioral risk. There are some good online questionnaires. However, I think that these should be supplemented by some further mental exercises.
Another consideration in figuring out your asset allocation is thinking about how a diversified portfolio has performed in the past. How big were the returns, the volatility, and the drawdowns? Good customizable Canadian data was hard to come by. So, I created a Canadian Portfolio Historical Return Visualizer.
Even though the past doesn’t predict the future, historical returns can give an overall sense of how different asset allocations could impact risk and reward.
However, behavioral risk is more about emotions and feelings. Particularly fear. So, I also made the Investin’ Intestinal Fortitude Tester (regular and mobile phone) in an attempt to make a bear market simulator. My daughter actually got into it using an all-equity portfolio and thought it was scary. Mission accomplished.
Portfolio Set-Up Made Easy
The easiest solution to make a DIY portfolio is to use an all-in-one ETF like VBAL/VGRO or XBAL/XGRO. The advantage of this simple approach is that it is easy for someone to take on. The savings of DIY investing compared to an advisor or high-fee mutual fund are huge. It may also reduce behavioral risk if you make contributions fully automatic. A great solution for the average Canadian.
High-income professionals may be different.
However, those who are investing through a corporation or otherwise in a high-income tax bracket may want to consider some attempt at optimizing asset location. There is little or no advantage to doing that if in a lower tax bracket. Particularly, if you are not contributing each year and need to rebalance in a tax-exposed account. However, those facing a higher tax burden and contributing actively to their portfolio may benefit. Particularly when you consider the corporate passive income tax rules that will affect those with high incomes or high savings rates.
There are some risks to trying to tax optimize a portfolio.
One is that the tax rules could change radically. Change is likely. However, there are natural pressures that have caused our taxation system to evolve the way that it has. The pendulum will swing, but in the long run, things have a way of returning to balance.
The other risk is that the complexity paralyzes people from investing, pushes them into a higher-management-fee situation, or causes them to deviate from their plan. My attempt to attenuate this execution risk has been developing the Robocorp Portfolio Building Tools.
Robocorp Portfolio Builders
There are two versions to help automate setting up a tax-efficient 3-4 fund portfolio or a slightly more complex 5-6 fund portfolio. You can enter in your basic tax info, asset allocation, and the amount of money to invest. It will then use an algorithm to suggest how much of each asset class to buy in each account type.
Rebalancing is the other routine task that seems to strike fear into the heart of potential DIY investors. Fortunately, it does not need to be frequent nor precise. Even better, it does not need to involve a bunch of math anymore either – try the beta version of the Roborebalancer.
The Swap ETF Saga
The other tool that I had in development, but moth-balled was Robocorp S.W.A.T. It used a mixture of conventional and swap-based ETFs to build an ultra-tax-efficient portfolio. Unfortunately (and no big surprise), these ETFs were targeted for termination by The Legislator. Actually, that legislative attack has potential impacts for all ETFs and mutual funds.
The good news is that the Horizon Total Return Index swap ETFs evolved into a more conventionally acceptable and robust corporate class structure. Of course, nothing is 100% safe from The Legislator and how these funds perform in reality remains to be seen. However, after a deep dive into the corporate class structure, my interest is definitely rekindled.
I have been playing with a Corporate Class Swap ETF Simulator that models the potential benefits of these ETFs compared to their conventional peers. Expect more case studies and thoughts on this in the New Year.
The RESP Optimization Story
The other reason that I returned to this topic was that I had neglected a close look at lump sum optimization the first time around. There was no way that we could have done a lump sum contribution when we were starting out and I projected that assumption. However, there are some who do have this option and I built an RESP Lump Sum Optimizer to model the math.
Further, I took a look at RESPs for those who are also incorporated. Incorporation is also an effective tax-deferral vehicle and that changes the attractiveness of the RESP tax-deferral. Generally, an RESP is still worthwhile for the incorporated family with contributions just enough to get the full CESG grant. Except maybe for Pugicorns, who might have some benefit to a lump-sum frontload.
There are two points that I want to highlight for those delving into RESP optimization.
First, is that the difference between optimization strategies is small. It is more important to start early and avoid fees by using a self-directed RESP instead of a group plan (the one people try to sell you).
The second point is that I haven’t finished the story yet. The other part about optimizing RESP contributions is that the destination also has an impact. An RESP isn’t tax-free. It shifts tax to a student. How much that student earns and over how many years they draw down an RESP can affect the optimal strategy. More on that in the New Year.
The final piece that I hope to revisit this next year is the RESP investment strategy.
The traditional approach is to start aggressive and gradually become more conservative by increasing bonds or GICs as the time to jettison the offspring approaches using a formula such as this one.
That is probably true for those who are going to rely on the RESP and have no other options to fund educational needs. However, for most high-income professionals, this is simply mental accounting. We have options and could take a different approach.
The Corporation Salary vs Dividends vs RRSPs vs TFSAs Debate
This is another common conundrum that incorporated professionals face. While there have been some great minds that have looked at this, there are still variable opinions and advice. That is because it is a bit messy.
There are nuances for different people’s income and spending situations that can make rules of thumb not universally true. Different opinions on how to treat the Canada Pension Plan is another reason. There are also multiple ways to look at the outcome and a longer-term view over years is needed.
I built the Corp vs RRSP vs TFSA Simulator to help people model this for their own situations. It is not a substitute for professional advice. However, I have found from hearing the stories of colleagues that accountants can fall into the same mental accounting traps or reliance on rules of thumb as the rest of us. So, it pays to be an educated client.
With all that territory covered, there is still more to go.
I have mentioned some of the subject matter that I hope to cover next year. I also hope to expand the reach of The Loonie Doctor further.
Traffic volume is growing nicely.
There was some good progress this year. At the time of writing this, we just passed >200K views and ~72K unique visitors for 2019. A 117% increase over the previous year.
Of course, that traffic pales in comparison to the large US physician finance sites. However, Canada is 1/10th the size and we are doing pretty well proportionally.
I am also really pleased with the quality of the traffic.
Ninety-three percent of our traffic is from Canada. My most popular posts are those about incorporation, corporate investing, and Canadian investment portfolio building. Exactly my target audience. The majority of visitors come through Google after searching about Canadian corporations or the Canadian swap ETFs. About 20% of visitors come via the Physician Financial Independence (Canada) Facebook Group.
Most visitors are engaged, spending several minutes on the site at a time. I think that is an eternity in internet-time. My wife would suggest, that it only looks that way because they fell asleep. However, they view an average of 3 pages. So, there are signs of life and potential for impact.
Broadening the impact of Loonie Doctor via other media.
In addition to being active on the Facebook group, I have been fortunate to have been invited to spread the word about physician and high-income earner financial health in other venues.
On the internet, the highlight of my year was appearing on the Rational Reminder Podcast. We covered a lot of personal finance territory. I know that some people were hoping that I’d speak more about corporate taxes and investing. However, I didn’t want to come in too heavy with technical details right off the mark. For safety reasons. My daughter compiled comments from the blog over the past year as a Christmas gift to me. There was a nice mix of thanks and innuendo about causing various intracranial catastrophes.
In real life, I have also had the pleasure of being invited to speak to a number of resident and physician groups. That has been really fun and rewarding. I hope to do more of that in the New Year.
Where to from here?
Well, you can probably glean several things from this lengthy post. We’ve covered lots of ground this year, but there is much more to do. I have also accumulated enough material that I really should re-organize to make it easily navigable. This all takes a bucket-load of time. I have also spent a fair bit of time reflecting this past year on life and my career. Of course, the Intensivist in me is about action with a fairly rapid “analyze, plan, execute” cycle. We will be using our Financial Independence to RE-focus how we spend our time and efforts more radically. Execute. I hope you will join me as the next chapter of the Loonie Doctor adventure unfolds over the coming year.