I enjoying listening to financial podcasts. But I hear a lot of noise about lenders and credit risk.
One of the things that I am good at, is to be simple. There is a reason I have fully paid off mortgages. There is a reason I do a whole host of things. I regularly try to minimize risk in my life when possible.
Real Estate Risk
- Pay off the mortgages on all personal property.
- I did a modified version of this even when I held mortgages which the renters paid for. I would make certain to have the full mortgage amount available in liquid assets. I had heard about this concept of callable loans. I did not ever want to be on the receiving end of that.
Consumer Debt Risk
- I would pay off all consumer debt. Better yet, I did not accumulate any to begin with.
- Now that I am investing in paper assets, I plan to maintain a 60/ 40 portfolio. The only time that I would entertain even remotely increasing my ratios would be if the market went below 50% of highs and I had cash readily available.
- To avoid sequence of return risk, I would make certain to have my guaranteed money be able to take care of all my basic needs.
I read about all this fancy footwork of carrying a mortgage balance and then investing in the stock market. But isn’t this as bad as trying to time the stock market? I don’t know about other people but I have noticed the stock market whips around randomly. When I pay the mortgage, it just keeps going DOWN. It is guaranteed, risk free and tax free.
I have long accepted that I am not smarter than the average person. Thus if I was to make a bet, the likelihood that I could be taken would be possible. I am one of those people that even if everyone else could get away with something, I never could. I was never clever or particularly lucky for such things.
That is why whenever anyone used to promise me a no lose investment, I would always laugh. I could always find the risk if I looked hard enough. That is not to say that I have been a good investor since I have not been. I only knew how to work and then save the money. My argument on this blog is that when you earn as much as a physician, perhaps doing not very much is good enough.
There is a reason that I intend to invest in a simple 3 fund portfolio and at times a one fund portfolio. If there is a better strategy, great. I doubt that I would have access to it. The more special access or accredited the investment, the less I would want of it now. It was always the “special investments” where we would often lose all the funds.
Perhaps, I am simply not the sharpest knife in the drawer. And to top it all off, I tend to be lazy as well. If anything is too complicated nowadays, I run for the exit ASAP.
This is why I have come to some conclusions.
- I will use government pensions such as CPP and OAS. I will delay them to build up some guarantee backup to mitigate market risk and longevity risk.
- I will use the TFSA with an asset allocation ETF. I am not smarter than the fund managers at Vanguard.
- I will follow as many Canadian financial minds such as Dan Bortolotti, Justin Bender, Ben Felix, Rob Carrick, Ed Rempel, Andrew Hallam. These financial advisors and writers have shared so much of their knowledge and I am immensely grateful as a DIY investor.
I have reviewed many of the reasons that we are not further ahead. And it was usually due to complexity and believing that there was a better way.
What has helped me the most was buying my homes, keeping our expenses low, working steadily and avoiding all consumer debt. We might be physicians, but what worked for us are strategies anyone could use. The best thing we ever did was recognize that we were probably below average in our understanding of most financial instruments. That has kept us humble and safer since we have come to accept that fact.
Some people are very clever. We are not. And we even took plenty of time off our careers and were able to save a lot. It is amazing how easy it can be if you just keep things simple.
I can barely write about debt since I paid mine off in 6 months after residency training. I had about 50K in debt when I graduated and it was paid off by saving almost everything I earned and living like a student. The good ole fashioned way. Just live like a student until the debt is paid.
I never did take the expensive overseas vacation after second year medical school. I lived frugally while many of my classmates did not. While many travelled, I worked my summer vacation instead. I was so happy that I got the great summer medical job since many of my classmates were away. That’s how I kept my debt low and paid it off much faster.
I will state the obvious. Many of my classmates started living large during medical school. They just thought the money would come rolling in. I was never so foolish to believe that.
The most complicated thing I ever did was the REIT. There was so much paperwork involved and the whole thing went into the toilet. And I still have regular tax paperwork even long after the bankruptcy.
Nowadays, I just go onto my computer and click some buttons and all the investments are done. I don’t even have to store anything since my MD Financial just keeps track of it.
It might all go down the toilet but at least I didn’t have to rack my brains and worry about being right. I am simply following the entire market with my index funds. It is the ultimate know nothing, do nothing strategy.
If I can pull this off, I would be one happy camper.