Finance

What Money Is For – 2019 Edition

I have made a conscious effort to continue making my life easier and simpler. And sometimes it will take money to start the process. Not always but sometimes. Here is my update of some recent changes I have made.

Paying For Parking

I have to pay for parking at one of the grocery stores which is in the downtown area. The beauty of this location is that it is closer to my home. It also has underground parking which is great when it rains and I have to load my groceries. The problem is you have to pay for parking. And paying for parking really irks me.

Particularly if you have to buy groceries every week. This could easily add up.

For 2019 I have decided that I am going to use money to make this easier. I refuse to drive double the distance to the other location which has free parking. And no underground cover.

Eventually I will foray into Costco home delivery when it becomes more ubiquitous.

Minimized My Lawn

I finally used crushed gravel to cover the grass in my yard. I used to push lawnmower the front, sides as well as the back portions of my yard. We used crushed gravel to cover 75% of the grass last summer.

It is a joy to mow the small patch of grass we still have in the back. The rest of the yard now takes ZERO maintenance.

Some folks like paying people to regularly maintain their landscape. I chose to minimize the tasks which took up the most time. Like lawn mowing.

My Home Gym

My home gym really kicked into high gear last year. It is ridiculously easy to head down to my basement and train. I even set up my bike on a bike stand so that I can perform some high intensity workouts.

There is zero ability to make excuses that would stick. There is no travel time. No waiting for others to finish on the equipment that I want to use. I used to have to wait for the squat rack regularly in my old gym. Plus I can now wear whatever I want and no one is around to distract me. Like people wanting to talk while I am in the middle of a lift.

It is blissful to have a home gym.

Trying To Optimize Credit Cards

I would not say that I credit card hack. I really only have two credit cards. The Costco MasterCard will only be used until they allow Visa.

I have a corporate Visa card which earns travel points. I try to attain most of my points through this card. My personal Visa is a no fee cash back card.

For years I tried to collect more points on my travel Visa card. But then I noticed that I was not very efficient at translating this into value for the trip. I would still pay way too much for taxes to redeem my points.

All in all I was having difficulty “hacking“ with just one card. This made it very apparent that travel hacking with credit cards would not be my cup of tea. I do not do well with processes that force me to think about things at the front end and the back end.

So in 2019 I refuse to optimize which credit card I would purchase anything with. I will purchase corporate expenses with my corporate Visa card and personal expenses with my personal Visa card.

No more transferring funds back-and-forth between the accounts. This was getting rather confusing for myself as well as my accountants. I don’t think any of this moves the needle for me so I am giving this up.

Simplify Investing

I’ve given much thought to my investing. When I review my original plans in 2018, I thought that I would invest monthly. Then I thought perhaps quarterly.

And finally it became apparent that I was able to invest in January for my TFSA as well as my RRSP. I could front load my investments and then don’t have to think about it for a year.

It keeps getting simpler.

I have given up believing that any of it matters. As I’ve said many times, I like to plan with the end in mind. I often think of what I would do if money was no object. And then just start living life that way.

Recently I have given serious thought to using the asset allocation ETF VGRO for all my accounts.

That is, I would hold just one ETF.

VGRO is a tool. It is how I wield it that will make the difference.

I do not fret much about gaining the lowest basis point for taxes. Nor do I obsess over what is the so-called best fund.

As far as I am concerned, NO ONE knows what will happen with the market so why fret about it?

These ETFs are PRODUCTS. It is your PLAN that is more important.

We all have access to the same products. It is how you utilize the products within your plan that will make the difference.

Think of a baking analogy. Everyone uses the same ingredients of flour, sugar, butter, etc. But no one will argue that a more proficient baker will produce a better cake than a novice.

Personal finance may be very similar.

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Finance

If I Was A Newbie Investor

How would I invest as a newbie investor?

Well first off, it would have nothing to do with investing initially.

Instead, I would learn to live within my means.

Investing won’t save you. Don’t kid yourself.

I would maximize my tax deferred and tax free accounts. And I would buy an asset allocation ETF such as VGRO . Set up a DRIP and be done with it.

I would not waste any bandwidth trying to optimize my taxation. I would keep it very simple. I would spend more time on improving my career and living my life.

And I might not even bother starting a corporate account. The extra fees, extra complexity and paperwork isn’t all that worth it.

That’s my rant for the day.

I see folks believing that if only they crawl down the rabbit hole further and further that somehow they’re going to win. I don’t think that’s gonna happen. I don’t believe anyone is going to come out of this without a good dose of taxation.

You can not control the markets. You can not control the taxation machine.

Thankfully living in Canada we avoid one of the largest expense our American colleagues face. The healthcare system. Just be grateful for that.

So newbie investor, if I were you, I’d ignore 99% of what you read. Just keep it simple.

Maybe then you could actually follow it.

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Finance

Do You Have Control?

How much control do we really have? Here is my take on some random topics.

Control? Yes

How Much You Earn

As a Canadian physician you are usually self-employed. You can ramp it up or down as you darn well please. No one says that you cannot do locum work and work more on the weekends.

If you need to earn more money just get out there and do it. That once again is the benefit of being an independent contractor. Most of us are familiar with how to work hard.

How Much You Save

This one is self-explanatory although many choose to ignore this. There are innumerable ways to save money. It is so much easier to save money by just leaving things alone.

Almost anything one needs can be acquired from Costco. No one says that you need to go to some high class, high society blah blah. Seriously? Thank goodness I would not even have been admitted to such things. That saved me a lot of money and hassle.

I am not even very frugal. It just happens that my consumption habits are similar with what a Costco warehouse sells. I keep it simple that way. If I can’t find it at Costco, I probably don’t need it.

Where To Invest

You just have to know yourself with this one. In fact spend more time thinking about this than anything else.

If you are someone who has to always be doing something and you need to have a lot of control, active real estate investing may work.

But I tend to be lazy and efficient. Index funds will work for me. The biggest problem with index funds is if you try to do too much.

I know nothing and tend to do nothing so this is a good enough strategy for me.

Of course there are ways for people to buy winning stocks. I have done that myself. The only difference for me is I sort of lost interest along the way. At least I have learned a lot more about my investing habits over time.

Remember that just because someone else CAN’T do it, doesn’t mean that you can’t. But on the flipside, just because someone else CAN do it, doesn’t mean that you can.

I wish someone had given this advice to my younger self. It would have saved me a lot of effort and frustration.

When To Buy And Sell

I am a big believer of buy and hold real estate. I am also a believer of buy and hold for equities. I have zero belief that any movement that I make will make a big dent in my overall performance. All it will do is increase my transaction costs.

You have to be someone who is vigilant to effectively pull off the busy stuff. I recognize that I regularly drop the ball and therefore I spend more effort limiting periods where I have to actually be on.

That is my point with debt. You might get lucky and be able to leverage and gain a greater return than without the leverage. However when the knife cuts the other way, you might be unable to hold your asset. Or worse, lose more than you actually have.

Control? No

The Stock Market

This one is a no brainer. No one controls the stock market. There are so many smart people and smart computers who are unable to control the market. I would not be able to beat them. And I wouldn’t try nowadays.

That is why I ascribe to the principle of planning around these volatilities. There’s nothing wrong with volatility. The only problem is trying to draw a stable income from volatile assets. Solving that problem can be hazardous to your wealth if you called it wrong.

Legislative Changes

We have seen a flurry of tax changes with our professional corporations. We’ve also seen tax changes come from holding real estate in various jurisdictions. I no longer doubt that there can be real legislative risk for my assets.

I believe in diversifying my asset allocations. I also believe in diversifying my product allocation.

I believe in using government benefits, tax-free, tax deferred, taxable as well as corporate accounts. I even believe in buying annuities when one can benefit from mortality credits.

The only sure thing is that change will occur. Don’t say I didn’t warn you.

Financial Mishaps Of Your Family

Unless you live under a rock, the financial lives of those close to you will impact you. I don’t believe some of those seniors planned to go bankrupt. It was usually due to some spending shocks. These could come in the way of unexpected home maintenance, auto maintenance or unexpected health expenditures.

But it could also come from parents wanting to get their children into the housing market. It is challenging to help with buying another home as one careens towards retirement. Or worse yet, they were already in retirement. That is a large expense burden.

I have read on the internet the financial plans for some young people. There is usually extreme simplification. There are people who retire with multiple young children. And both parents simply decided not to work.

My kids were very inexpensive when they were younger. But there was a massive uptick once they became university aged. There were expenses that came about that I never saw coming. I do not believe that I’m alone.

I have a feeling that these younger families do not even know what to be afraid of. And they believe that a modest amount of money will be enough.

The problem with curveballs is that they come fast and out of nowhere. Because if you could see them coming, you could have planned for it. Dah!!

We have some semblance of control in our lives. But it would serve us well to recognize that it is often better to have back up plans for all those moments we can not control.

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Finance

2019 Retirement Plan

I have been interested in ways to plan our retirement income. There is a lot of conflicting information as well as the usual 4% SWR floating around.

I have made some peace with the current iteration of my plan.

I have decided that our portfolios should have specific “jobs” during our retirement and financial lives.

Basic Living Expenses

  1. Canada Pension Plan (CPP)- delay taking until 70 years old.
  2. Old Age Security (OAS)- take at 65 years old likely.
  3. RRSP/ RRIF- Tax deferred and subject to RMDs.

This will be funded by very safe investments and government benefits. Currently my husband and I could receive about 85% of the maximum CPP if we continue to contribute until 65 years old. The CPP Enhancements do not kick in until 5 years later so too early for me to tell if this will make any discernible difference for us.

If we delay taking our CPP until 70 years old, we would receive 42% more than if we take it at 65 years old.

Our RRSP is mainly invested in laddered 5 year GIC’s which I hold till maturity. These are all within the CDIC 100K deposit insurance and thus guaranteed. The RRSP/ RRIF will be subjected to RMD which should help to draw it down moderately. I will not have a large amount in this structure. Just enough to have guaranteed income without popping us up to another tax level.

For my basic living expenses, I only plan with instruments which are guaranteed. I do not place any risk instruments in this category.

The income from these accounts should provide for basic living expenses. This will protect us from ourselves even if we may suffer from cognitive decline in the future.

The job of these accounts is to mitigate market risk, longevity risk and inflation risk. And we have transferred this risk with our CPP & OAS to the government.

We may need to purchase an annuity if one of us passes earlier. I advised my husband to wait until he is 75 years old so that he can use the mortality credits.

Contingency Fund

I have finally decided what to do with our taxable account funds. It will make up our contingency plan. I have always held a large contingency fund. So now I will keep doing that.

I had seriously been giving thought to investing this amount in equities. But I have decided to hold these in high interest savings accounts or short term rate accounts. I will not allow this amount to take any market risk.

I think folks do not prepare for the spending shocks that invariably occur in all our lives. It usually comes from the financial stresses in our close family members. Somehow their financial mishaps inadvertently infect us as well.

I know that I will not be immune. I plan to have a healthy stash available.

I am suspicious that many seniors turn to credit cards and HELOCs when these unplanned expenses occur.

Discretionary Fund

This is my CCPC portfolio. It is definitely taking market risk. I am taking this risk to hopefully mitigate inflation risk.

This is my 3 fund index ETF portfolio which I essentially copied from Justin Bender’s site on Canadian Portfolio Manager. It is good enough to achieve what I have planned for these funds. You will notice that I do not stress about whether or not it is the “best” funds. It just needs to get the job done.

I do not believe that equities become less risky the longer that one holds them. That doesn’t make sense to me. I don’t think the market cares about your retirement. Sorry to break that to you.

It is because I believe equities carries such risks that I am careful to relegate these only for discretionary expenses. I am also planning to use a very low safe withdrawal rate. I would also not withdraw from the portfolio during market downturns. All these maneuvers should help to decrease sequence of return risk.

Estate Plan

I use the TFSA which is the tax free account. I believe this is currently the best account to use for intergenerational transfer. The investments can be transferred tax free if you name your children as the beneficiary. Also make sure to name your spouse as the successor holder so that the TFSA can be added to their TFSA if you die earlier.

The entire TFSA is in the asset allocation ETF VGRO from Vanguard. It is an 80/ 20 ETF and this is pegged as the instrument for a 20 year old. This should get the job done in this account.

I have written about the nightmarish scenarios I am witnessing or hearing about with family estate transfers.

I want my kids to be aware that they are only getting this if we don’t need it. They will likely get the family home. And that’s it. As for the rest, only time will tell how it all works out. I am happy to share if it all does well but I have zero control over that.

I am 50 years old and thinking and planning this out. There is no point in waiting until the year I retire and then making the plan.

Take a moment to plan out how to fund your retirement. There are many ways to do it. I was not surprised to see that I preferred some guarantees with our retirement income.

I have always valued back up plans. This has kept me safe throughout my life thus far.

I know life can throw curveballs so why not have some reserve?

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Finance

Principles Over Tactics- Debt

I cannot talk to you about debt. That’s because I have never had to carry debt for very long in my life.

I owed my mother about 50K after university. But I think I paid that off in less than a year.

I only had a mortgage for about four months.

I pay for almost everything with cash.

Even when I tried to carry debt for my car at 0.9%, I had the cash sitting in a bank account to pay it off.

I used to believe that that’s what everyone else did. The thought of buying something without money I already had was anathema to me.

That was until I started to read PF blogs. Like whoa, the debt games folks played were interesting….maybe…not really.

That is why I could not write about the best way to get a mortgage, the best way to hack this or that. I have gotten where I needed to go without needing to do any of that.

Maybe I’m simple but the mental gymnastics required to perform some of these strategies would make my eyes blurry. I don’t think any of this money stuff is that complicated or needs to be.

I say over and over that all you need to do is to work more, save more and keep at it. I don’t care how you work more- with your career, side hustles, or an inheritance. I don’t care how you save more- stick it in a tax free, tax deferred, taxable accounts or an ole savings account.

I barely even talk about investing since even with that there are many roads to Rome. Nobody has a hold on the one and only way to get anywhere. There are many strategies to choose from.

If you can not make the money and you can not save the money, you’re in a world of pain. You can do backflips till the cows come home and you will not get anywhere. Your financial life will look the same one decade to the next.

My first partner in practice was such a person. He always had the new business idea, the best investment guy, the best tax guy….

And he ALWAYS had some debt strategy ripping around in the background. He would often think that that was the solution.

And every year, he would be constantly in debt after another financial emergency had erupted.

Thankfully he has come to terms with this. He has settled with a career that he can continue till he is a very old man.

At least he no longer makes excuses about it. He has heard me say enough times that he has a spending problem NOT an income problem.

He always says “I plan to work till I die cause I love what I do!”

I always say, “You need to work forever since no passive income could overcome your expenses. They are simply too large.”

Only good friends can say things that clearly to one another. I judge him ruthlessly but he hasn’t changed a damn thing.

All I can say is THANK GOD HE IS NOT MY HUSBAND.

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Finance

2019 Advice For My Children

Avoid Debt

Education Debt

There is a reason my university aged children attend the local university. I moved away from home at 17 years old since my home town did not have reasonable options to pursue higher education.

I planned differently for my children. I bought our current home when my daughter was two years old. I recall my husband’s questioning look when I mentioned that this home would be close to the university. Now they are all grateful that I had that insight.

Many parents say that their child learns how to be independent when they move away from home. But I’m not sure living on campus residence and being on a meal plan makes anyone grown up. I don’t believe that it does.

Mortgage Debt

I would tell my children to avoid this one like the plague. We already have urban residences for them. I would prefer they take the time to search for a good urban multiplex and then rent it out. Why pay for anything yourself if you do not have to? I see it as common sense but I find few who would want to do that.

I prefer to get what I want but not make myself pay doubly for it. There is always an easier and simpler way to do most things if you keep an open mind.

Auto Debt

I would have a serious talking to my kids if they go down this route. This would be infinitely worse than having any mortgage. Owing money on depreciating consumer items is the silliest of all.

I am beginning to understand why most people can not say “No”. It likely stems from their inability to say “No” to themselves.

When you are broke or make very little income, avoid the car. It really is that simple. Work harder to find a way to avoid this expense. You will save more and keep your life simpler.

Avoid The Expensive Wedding

This one is the easiest to avoid. Just do not do it. No one wears their wedding dress again. You daughter will not want to wear it when she gets married.

Why spend so much for one day of your life? There is no protection that if you pay more for your wedding that your marriage will work out for the better. There is probably a stronger correlation when you see a young couple striving to save together than to see who can outspend the other.

These habits as a couple start somewhere. It probably starts right here.

Attain FI

Develop The Floor

There are innumerable ways to do this. If they are serious about this they will find a way. This is the universal truth after all. When someone cares they will move a mountain to get what they want.

Often they don’t want it or don’t care about it enough. Then the excuses and reasons for why something won’t work would suffocate you.

It is a common theme I have seen in decades of working with patients and people in general.

That is why, I stop talking once the other person responds with objections. .

When the student is ready, the teacher appears. Before that time, it is all a waste of energy.

Aim For Growth

I would always stress to them to invest with growth in mind when they are young. The best options would be investment real estate or the stock market. It would depend on the individual for sure. My son would do well in equities since he can seriously do nothing.

Others who have a “do something” personality would be better served with investment real estate since they would offer more control potentially.

Do More With Less

Get Travel, Fashion and Entertainment For Less

When one is young, this is the best time to live a cheaper life without judgement. If you can not resist this while you are young, life may force you to do this while you are older. That would not be pretty.

It is similar to what I tell my kids all the time. If you can not manage your time now, you will be in for a surprise when life actually gets busier and more complicated.

This stops them from whining and complaining. To me anyways.

But that is the truth isn’t it? Think back to your university years. All you had to do was your studies, feed yourself, maintain your fitness and keep up with your social calendar.

You barely owned anything that was valuable enough to insure. You didn’t own a house or a car. You had no children so you could take off anytime and barely anyone would even notice.

No one relied on you.

I tell my kids to cherish this stage. It will not last if you want a good life. So enjoy this unique stage of your life.

I tell them I have no regrets for my younger university years. I enjoyed my time immensely. In fact I tell them that life doesn’t really get a lot better but it just is different.

This journey has different stages. Enjoy whatever stage you are currently at. Change what needs to be changed but enjoy it the best you can.

And I would remind them that many things I worried about weren’t really that important. Many of it related to career and finances.

I hope that they will heed some of my advice.

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Finance

2019Q1 CCPC Portfolio

CCPC Portfolio (Started May 2018)

Equity

Shares

Book Value ($)

Market Value ($)

Current Price ($)

Gain/ Loss ($)

Gain/ Loss (%)

AA Actual

AA Target

Buy/ (-Sell) Shares

Buy/ (-Sell) $

XAW

13531

315470

330,021

24.39

14,541

4.61%

52.3%

52.5%

59

1439

XIC

6050

134250

146,168

24.16

11,909

8.88%

23.2%

22.5%

-170

-4113

ZDB

9902

154787

155,164

15.67

357

0.24%

24.6%

25.0%

171

2674

Grand Total

29483

604506

631,353

20

26,807

100.0%

100.0%

Money Added

0

I must add that I have about 35K from tax loss selling. So I am still negative from a dollar standpoint.

This is a snapshot of the Google Sheet I use to alert me when I need to balance. I use the 5% rule. When it is 5% above or below my target asset allocation (AA) AND greater than 5000 dollars difference, I must balance the portfolio. I autoset the cells to highlight whenever it meets these two criteria.

And all this is in real time since I use the Google Finance function for the updated ETF prices. Then the spreadsheet calculates it for me. When I decide to add more money to the portfolio, this sheet will balance it out with current ETF prices.

Very helpful indeed.

My portfolios are very simple. My RRSP holds laddered 5 year GIC‘s. They are nothing to write home about. The whole point of my RRSP is to act as an annuity. That is why I am holding fixed income. I set up a GIC ladder to minimize interest rate risk. This along with my government benefits should build my income floor. I also think you can work part time as a physician well into your 70s.

Everything that is in my TFSA is in VGRO, an asset allocation fund from Vanguard. This makes it simple since there’s nothing to do once I make the full contribution each year. This will help with behavioral issues.

I am starting to see that investing is a mind game. It does not take a lot of intelligence. In fact I can invest just with my spreadsheet. The problem is when you start tinkering with the system. It is the ability to stick with the system through thick and thin that will make a difference.

I can pontificate all I want about what I think about the market. The fact is I have zero. However I will follow my system of maintaining a 60/40 asset allocation. And use low cost broad market index ETFs. That is the best I can do.

The ability to buy when something has fallen below 5% of my asset allocation. I have to recognize that is when stocks are on sale. And to not overthink things. Just keep it simple. There will always be a portfolio and asset allocation that is better than mine. It doesn’t matter. Usually if something is that much better, I probably would not have access to it anyway.

No one has a better handle on the markets. I will go with my simple method. I will focus on the things I can control such as tracking my expenses, maintaining a healthy savings rate, and draw a salary from my corporation so that I can participate in the CPP.

Beyond that, it’s important to enjoy life with the people that you care about. It is important to participate in hobbies that you enjoy. And to maintain some modicum of fitness.

This is the main reason of why I am maintaining a blog. It is an investment diary of sorts. It will be very interesting for me to see how things turn out- good or not so good.

Currently I think it is better to know nothing and do nothing. Real estate is experiencing an unhealthy environment in certain areas of Canada right now. Renters are at the advantage. That does not bode well for landlords. Definitely legislative risk.

Especially for small landlords which is what we would be. Furthermore I see that the unexpected costs and spending shocks in retirement come from owning large ticket items such as homes and cars.

I want my husband and I to travel more and live a simpler life. That does not involve buying more real estate. It was loads of fun during the accumulation phase in our 30s and 40s. If I was in my 30s I would be investing in multiplexes. We currently have enough real estate to deal with.

I feel sorry for those who held off on buying their personal real estate and then the market took off on them. Real estate has a very emotional component. I’ve seen this time and again in couples close to us over the past decade.

Missing out on a massive residential real estate run up can be very painful indeed. Unfortunately this is open for everyone to see. If you missed out of the bull market in equities, you can just keep that quiet. It is not out in the open as missing out on the local real estate market. Many are judged by their residential real estate.

Just buy enough real estate for yourself. Do not overbuy. That ends up being a world of pain. But don’t under buy either since that can end up with a bigger world of pain.

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