Investing

This is a collection of the articles I have written about investing topics. From basic concepts to the advanced to the totally looney. Much of it is under construction and re-organization at present.

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    The Basics

    Investing: Why Take The Gamble?

    investing risk

    Investing involves risk and reward. So does gambling.

    Learn the difference to ensure that you invest for rather than gamble your future.

    Investing may not be as exciting as gambling, but it is more fun than losing.

    Don’t Turn Your Investing Into Gambling

    investing risk tolerance

    What could be a good investment may turn out to be more of a gamble if you are not careful.

    Time-frame is critical to investing.

    There are several potential pitfalls that could turn a good investment into a speculative gamble and derail your investing success.

    Scheduled Release: Pending

    Why Bother Taking Any Risk Investing?

    Can You Retire Without Investing? Maybe. It is risky.

    Investing Risk Capacity & Risk Tolerance

    What You Can Invest In

    Diversification vs Specialization

    Active Management vs Passive Index Investing

    Accounts Types Where You Can Put Your Investments

    Simple vs Complex: Balancing Optimization & Operationalization

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    Financial Advisors & DIY Investing

    Financial Advisor: Asset Enhancer or Waste of Money? Like Lingerie.

    investment advisors

    A financial advisor can be optional. When considering whether to hire one and what for, you need to understand where they provide the most value.

    Many people choose a financial advisor thinking that they will achieve enhanced returns on investments. That is unlikely to work out. The most value of a financial advisor is in their financial planning advice and coaching.

    Choosing A Financial Advisor Is Like Shopping For Lingerie.

    portfolio manager fees

    How much you get & what you pay not be even closely related.

    Learn what features to look for when shopping for a financial advisor.

    Consider how you are paying and whether it is good value for money.

    DIY Investing: Managing My Own Portfolio Is Better Than Dialysis

    be your own advisor

    Dialysis is one of the best-paying things that I can do in my clinical practice. It still doesn’t pay nearly as well as managing my own investment portfolio.

    Not even close. Even with all of the mistakes that I have made (and probably will make).

    I share my thoughts and journey towards DIY investing. I did it.

    DIY Investing: Lighten The Load In Your Back Pack

    mutual fund fees

    Many people think that they are getting free financial advice. You may even get a free backpack.

    The cost is usually buried in the management fees of the mutual funds they are being sold through that advice.

    However, the load in it will become heavy over time. I discuss why we put these packs on and are reluctant to take them off.

    She Changed Up Her Fee-Laden Backpack

    physician DIY investing

    Shedding high-fee mutual funds makes sense.

    Even when you have seen all of the evidence and understand this, it is still hard to do.

    A brave colleague shares her decision and initial experience.

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    Risk Management

    Reduce Investment Risk: Enter The Loonie Doctor Dojo

    investing risk management

    Investing is risky. Not investing is even riskier, since you will lose the power of your money to inflation.

    The are many different attacks life can throw our way. Fortunately, we can learn to defend against them.

    Start your training to grow your money while reducing investment risk through diversifying the tools in your portfolio.

    Risk Tolerance Assessment & Asset Allocation Basics

    risk tolerance experience

    Risk tolerance assessment is difficult, but essential to successful investing.

    Learn about a multi-modality approach and some tools to help.

    Get a high-level approach to a diverse asset allocation to manage risk.

    Volatility & Its Risk To Your Portfolio – Part 1

    bear markets

    Learn about what volatility is.

    An introduction to the risks that volatility can pose to your investing.

    Both along the journey and when you reach the destination. It is as common as potholes on Canadian roads.

    Bad Investor Behaviour: Your Inner Hulk Investor

    behavioural gap

    We all have an emotional beast inside of us. The beast causes us to behave poorly.

    For the average investor, that behavioural gap is a 0.5-2%/yr drag on performance depending on how stimulating the portfolio. And how scary the time period.

    Learn what provokes him/her.

    Develop good investor habits to keep the beast quiescent.

    Volatility & Risk Part 2: Sequence of Return Risk

    volatility sequence of returns

    Sequence of returns risk for investors is caused by cashflow and magnified by volatility.

    Volatility and sequencing risk can change during different legs of your financial journey.

    Learn what it is to be able to plan for it.

    Asset Allocation Strategies To Attenuate Sequencing Risk

    An unlucky sequence of returns can torpedo a retirement portfolio. One approach to the problem is to modify your asset allocation.

    It becomes a balance between mitigating sequencing risk from volatility and getting the growth you need avoid outliving your money.

    Cash Flow Strategies To Mitigate Sequence of Return Risk

    Reduce SORR (sequencing risk) by having flexible cash flow when approaching retirement.

    Learn a practical approach to the options.

    It is all about creativity and flexibility.

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    Portfolio Construction & Management

    Portfolio Building With Some Bonds For The Beast

    When building a portfolio, we look to diversify with non-correlated assets.

    They help to dampen the volatile swings in value that provoke bad investor behaviour.

    This is the main role of bonds in a portfolio. How well do they fill this role?

    Bonds & Volatility: Not All Bonds Are Equally Soothing

    bond default risk

    We use bonds in our portfolio to dampen volatility. That helps to sooth our inner investor beast & prevent them from getting riled up and misbehaving.

    However, different kinds of bonds have different characteristics. Some are riskier and more volatile. Some are more counter-cycle to equities than others.

    That makes some bonds better as a counter-balance to equities in our portfolio than others.

    Portfolio Rebalancing: What Is It & Why Bother?

    balanced portfolio

    Portfolio rebalancing is buying and/or selling holdings to keep aligned to our planned asset allocation.

    Learn the real reasons why portfolio rebalancing is an important part of being a successful DIY investor.

    Will it enhance or blunt your returns?

    When To Rebalance An Investment Portfolio.

    portfolio rebalancing

    Rebalancing helps us to control the risk in our portfolio. During volatile periods, it may even enhance your return.

    How often should we rebalance?

    What should trigger us to rebalance?

    How precise do we need to be?

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    Exchange Traded Funds (ETFs)

    The Sample ETFs Used In The Robocorp Portfolio Builders

    best ETF canada

    ETFs are an easy way to invest in thousands of holdings to achieve diversification.

    If attempting asset location optimization or trying to aggressively minimize fees and taxes, multiple ETFs would be used.

    Learn about some commonly used ETFs and what role they could play in building a portfolio.

    Tracking Error: Hidden Cost of ETF Investing or Nothing-Burger?

    etf tracking error

    ETFs are meant to track their index. However, they do not do so precisely and the difference is tracking error.

    ETFs should lag their index by roughly their costs. Some of that is the management expense ratio (MER). However, there are other potential costs and sources of revenue for ETFs. How does that work out for major ETFs?

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    SWAP & Corporate Class ETFs

    The Magic Trick Of SWAP ETFs

    corporate class etf

    Some boutique ETFs use a SWAP structure. That has benefits in terms of management costs for Canadian stocks and foreign withholding tax for international stocks.

    A SWAP contract is a derivatives. Sounds scary and confusing. Well, it is definitely confusing. Learn how they work, with diagrams.

    General Risks of SWAP ETFs

    swap etf risks

    SWAP-based ETFs use a derivative structure to make them more cost and tax efficient.

    That structure also comes with some special risks. You must understand these to weigh the risks against the potential benefits.

    The Legislative Attack on SWAP ETFs

    One of the most concerning risks of the SWAP-based Total Return Index ETFs was that the government would target them. A complex niche product that reduces taxes for high-income investors was a juicy target.

    The fee-efficiency benefit of the SWAP structure for Canadian stocks remains. The alchemy of a SWAP changing income into capital gains was terminated.

    SWAP ETF Evolution Into Corporate Class ETFs

    horizon total return etfs

    Horizon merged their total return index ETFs into a corporate class structure. They paired them with some of their higher-expense ETFs used for trading.

    Learn how this structure is much more robust. If managed well, it should translate into capital gains when you sell instead of less efficient taxable income along the way. Learn about the risks if it isn’t.

    HBB.TO Corporate Class Bond ETF Is Like “The Little Blue Pill” For Fixed Income In A Personal Taxable Account

    hbb horizon bond etf

    Some people my have a high fixed-income asset allocation. Particularly, as the near retirement and their portfolio is large.

    The resultant spillage of bonds into a taxable account could be tax inefficient. Using HBB instead of a conventional ETF could make the difference between growth and shrinkage. Of buying-power.

    HBB Corp Class Bond ETF vs ZDB Discount Bond ETF in a Corporate Account

    Learn how discount bonds are more tax efficient. With the tax rules to discourage passive income in corporations, that is even more important.

    HBB could take tax efficiency up another notch depending on your corporate income and pay-out.

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    Norbert’s Gambit To Exchange $USD & $CAD

    Norbert’s Gambit Using Qtrade

    us dollar exchange

    Exchanging Canadian and US dollars can be very helpful, but expensive.

    Norbert’s gambit is a planned maneuver that can enable cheap exchanges between $CAD and $USD.

    With Qtrade, you can even do it all online without talking to humans. I’ll demonstrate how to do it. With screenshots.

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    Tax-Free Savings Account (TFSA)

    Tax Free Savings Account Anatomy 101

    tfsa investing

    The TFSA is one of our most powerful investment accounts to grow wealth.

    Don’t squander it as a “savings account”.

    Learn how it works and use it to its full tax-free income and growth potential.

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    Registered Retirement Savings Plan (RRSP)

    RRSP Anatomy 101

    RRSP pitfalls

    RRSPs are a familiar investment vehicle to save for retirement.

    Under the surface, there is much more to them. Learn the basics of how they work and their many uses.

    Learn about the many possible benefits and a few potential pitfalls.

    Spousal RRSPs For Income Splitting: From Diapers To Diapers

    spousal rrsp parental leave

    Learn how a spousal RRSP works. More than just tax-deferral.

    A spousal RRSP can also reduce tax, if you have a lower-income spouse.

    Avoid getting caught in the attribution rules and other hazards.

    Learn different ways a spousal RRSP could be used for income splitting at different life stages. From parental leaves to pension-splitting.

    RRSP Jedi Mind Trick: Using an RRSP To Power Up Your TFSA

    TFSA tricks

    A TFSA requires that you have after-tax money to put in it. That can be a challenge to come up with for some people.

    Using an RRSP can help by providing a tax refund. If you don’t blow it, you can super-charge it with your TFSA.

    RRSP Refund Tricks & Traps

    rrsp deduction strategy

    An RRSP has 100% tax deferral. That could be a tax increase if you make the deduction from a low tax bracket and pay tax later in a high tax bracket.

    This is important for those who have accrued a lot of RRSP unused contribution room or expect a rapid rise income in the near future. Like residents becoming attending physicians.

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    Registered Education Savings Plans (RESPs)

    RESP Basics To Save For Mini-Me’s Evil Medical School Tuition

    RESP basics

    An RESP is not something you buy. Unfortunately, there are lots of sales-people pushing their group RESPs as a product. It is an investing account type.

    Learn how an RESP works. You can open a self-directed RESP and take full advantage of this gift from the government. Without the fees, restrictions, and low returns of a group plan.

    Get tax-sheltered growth, grants, and free kittens.

    Optimizing Your RESP Contributions

    resp strategy

    For those who have financial flexibility, you can choose to put more into an RESP than the minimum amount required to get the CESG grant.

    Does it make sense to frontload contributions? What about at the expense of the grant?

    This is simplistic, less math-y look. The super-nerdy articles come later.

    RESPs For Rich Kids With A Lump Sum

    If you have $50K available to invest towards a kid’s education. Lucky you.

    How does frontloading $16.5K in an RESP and slowly moving money from a personal taxable account into it each year compare to just dumping the full $50K in? A trade-off between tax-free growth and getting grants.

    This is moderately math-y. Nerd level 2. It illustrates some concepts, but is still not Nerd Defcon 4 level optimization.

    Optimizing a Lump Sum RESP Contribution Strategy

    This is math-y. Defcon 4 level nerdiness.

    The optimal lump sum contribution would lie somewhere above $16.5K. Some of the CESG would be foregone, but made up for by compound growth.

    Learn about the many variables that could affect the optimal frontload amount. I also made an optimization simulator to automate the math. Honestly, I think getting started is more important than getting it optimal.

    RESPs For Corporate Kids – Part 1

    RESPs are contributed to with after-tax money.

    For incorporated parents, that means taking money out of a corporation and paying personal tax to contribute.

    Does the CESG grant offset the tax hit? Does the tax-free growth justify taking out extra to contribute?

    RESPs for Corporate Kids With Pugicorn Parents

    Some incorporated parents may earn enough and or save enough in their corporations to make their corporations lose their tax efficiency.

    They may not be releasing their RDTOH or they may run afoul of the passive income limits.

    They may be rare as pugicorns, but how does it make sense for them to shunt money to an RESP?

    RESP Withdrawal Strategies

    RESP withdrawal optimization

    Learn about the different pots you draw from when accessing money from your RESP.

    Consider different strategies to take Education Assistant Payments to get the money out and using Return of Capital to keep taxes low.

    Adapt that to your situation. I also made a calculator to help you plan.

    Learn about the options there is unused money left in the RESP or if things don’t go as planned.

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    Investing Through A Canadian Controlled Private Corporation

    Investing Using A Corporation

    corporation investing

    If you have retained earnings in your corporation, you can invest them to grow. That is the tax deferral advantage of a corporation.

    How well that works depends on the type of investment income it produces and how well you flow money out of your corporation.

    Learn about how corporate investment taxation works to keep the tax skeeters out of your corporate reservoir.

    Investing Using A Corporation vs RRSP vs TFSA Simulator

    Some will advise to only pay dividends from a corporation and keep all investments in the corp.

    Others will advise to pay salary and use an RRSP plus the corp. Some even suggest a combination of salary and dividends and to use a corp, RRSP, and TFSA.

    There are a number of variables that lead to this advice and they change as our corporation grows. This simulator compares these different strategies over time.

    Explaining The Refundable Dividend Tax On Hand (RDTOH)

    There are a number of tax rules to discourage using corporations for generating passive investment income. One of those is the RDTOH.

    There were more changes in 2019 to make it even more awkward and complicated.

    Like a Klingon mating ritual.

    Corporation GRIP As A Tax Slashing Weapon

    CCPC GRIP account

    If you receive eligible dividend income from investing in Canadian equities, it generates GRIP in your corporation.

    That can be used to give tax-favoured eligible dividends.

    This has the potential for very tax-efficient money flow through a corporation. Or you could cut yourself.

    Time For Capital Gains Harvesting From Your Corporation?

    capital gains harvest

    Generally, it is a good idea to defer realizing capital gains because that defers taxes. However, in a corporation, if you are sitting on large capital gains, it can sometimes makes sense to harvest them.

    A capital gains harvest could be a tax efficient way to move money out of your corporation to fund a personal expense, top up your TFSA or RRSP, or invest via a personal account.