Insurance Woes

November 17th, 2016 by Potato

This post was drafted a while ago, when Wayfare was trying to get insurance in the spring. I was sitting on it partly because I was waiting for her to try another avenue (or just again with another year of stable post-mat-leave income) to get disability insurance and have a happier outcome. With recent events, it seems like just an extra kick in the pants.

“Insure all the things!” Wayfare was exclaiming after her two-hour meeting with the insurance saleslady. Considering she had gone in on a surgical strike mission to acquire some disability insurance, and came back loaded with pamphlets on all manner of insurance products yet lacking a quote on disability insurance, I have to commend the saleslady’s skill.

I have a very stoic view of insurance: if there’s a chance that some event will ruin us, we need to try to insure against it (and take reasonable precautions to prevent it from happening in the first place — note that in reconciling my philosophy and my actions, diet and exercise are not classified as reasonable precautions). Insurance is not something to buy to get a windfall in case of tragedy, and so we aim to self-insure wherever we can.

It’s also important to understand that we are in no way normal parents of a young child. Financially speaking, losing one parent or the other will not ruin us. We both have advanced degrees, we both work, and we have financial resources sufficient to cover over a year of cash burn if we had to take a prolonged leave of absence — plus as renters, we have the flexibility to reduce that cash burn with just a few months’ notice1. We are, as Miss Sunlife put it, “like a family of happy little squirrels, burying [our] nuts all over the yard in anticipation of winter.”

So my main fear is prolonged disability — because living our current extravagant lifestyle of having grass on both sides of our house (a detached house!) in Toronto requires two incomes, and one of us becoming disabled doesn’t free up the other to move on and move out in the tidy (if morbid) way that death would. Thus, disability was the one kind of insurance I did want to pay for, and we finally got off our butts to get a quote and make that happen.

But Wayfare came back full of weepy scenarios that appealed to emotion. What if something happened to little Blueberry? What would we do? Wouldn’t we want to be able to take some time off work to care for her or grieve? Yes — but doing so would not ruin us. We would survive and so we don’t need to insure against such a low-probability event. And if she died, I would not expect to long survive her.

“What if she got some childhood illness and then couldn’t get insurance of her own when she was an adult? If we get insurance on her now, then she can be automatically insured when she’s older and won’t have to go through this process.” Insuring the ability to get insurance is taking things too far for me. That’s second-order insurance. The fact that Miss Sunlife was able to make this argument stick firmly enough in Wayfare’s head for her to try to enthusiastically convince me of the need to insure our daughter demonstrates her level 8 insurance warlock sales skills. There were also pitches for critical illness insurance (which, reading the materials in hindsight, would not have covered this particular critical illness) and life insurance for us.

This crazy process started from a trip to the insurance saleslady looking for disability insurance for Wayfare, a self-employed person. She did not come back from that initial 2-hour meeting with a quote for disability to consider, so I told her to give up on Miss Sunlife and go talk to one of the nice people who stop by the blog who’re tuned in to the insurance world to figure things out and get a quote (or tell us what route we should really be taking to get one). But she’d already started with Miss Sunlife, and Miss Sunlife was nice, so she persevered. It took several more visits and lots of documentation archaeology (including lots of making Wayfare wait on hold to try to get the right documentation out of her doctors’ offices) to finally get a quote to decide on, and even then it was a quote, not a matrix of choices — each refinement to what we might want would require another visit. After many visits in person (because this can’t be done over the phone or online, obviously), we chose the options we wanted and needed, and put it through to the underwriters. Finally, Wayfare heard back: her application was denied. So she wasted hours of time and a few subway tokens, and the rejection letter doesn’t even give a reason (because her self-employment income history is variable with a recent mat leave, so she should try again in a year or two after that falls off? Because of pre-existing health issues and she shouldn’t waste her time again? Because something at the insurer got accidentally shredded and they didn’t want to ask for it again?).

It was a disappointing result, and a discouraging process: even if we were successful in getting insurance, it’s hard to believe that people who may not be fully sold on the need for disability insurance would put themselves through that massive time-sink. I didn’t even go through it myself (I am part of a group plan at work), but watching how much time it took, it will be hard for me to push freelancers I meet who really are under-insured to go take care of it.

1. This is because we live in way more space than is needed by a single-parent family — a 3-bedroom house with two freelancer office spaces. A (tragically) single-parent subset of our family could readily down-size to a 2-bdrm apartment. We also live in a massively expensive city in part to solve the two-body problem. One of us being out of the picture would free the other to move anywhere else, with a lower cost of living.

It’s Alive!

November 4th, 2016 by Potato

Wow, it looks like my desktop is back from the dead! It’s a Halloween zombie miracle!

If you’re just joining us, last night my computer gave me quite the fright when it refused to turn on (no power to the keyboard, nothing on the screen, not even POST error beeps) — it looked like I had a dead motherboard. At the moment cashflow is a bit tight, and I also don’t have time to try a million fixes, and I need my computer working well so I can work from home, so there was no clear choice on whether to try to replace the motherboard/other components and rebuild the system (or a new system from parts, minimizing cost but maximizing effort), or to just order a new PC (which would cost more).

As I was searching for information on which motherboards could replace this one (a Dell XPS 8500), I came across a forum post about troubleshooting motherboard issues on this system. One poster (thank you anonymous poster whose link I lost!) suggested the most insane possible fix, which I will repeat here both for how unbelievable it is that this should actually fix things, and in case others have similar issues in the future and come across this post in their search: unplug the computer. Press and hold the power button. Pull the CMOS battery (a little CR2032 coin battery on the motherboard, just above the graphics card). Plug the computer in, attempt to start it. Unplug the computer. Press and hold the power button. Put in a new CMOS battery. Plug in the computer and attempt to start it.

I have no idea what in the CMOS/BIOS could have been so badly broken that it wouldn’t even return an error, but I’m so glad that random internet post saved me from buying a new computer (or a new motherboard and all the time needed to unmount and remount all the components).

It reset my BIOS settings (which took some attempts to get back to make all the other stuff work) and threw some weird errors, but hey, I am back online now! Weirdest damned fix I’ve ever done (but not quite to the level of “more magic“).

I still have one super weird and unsettling symptom: my computer doesn’t boot up right away when I press power. The lights come on, the fans spin up for about 5 seconds… then the lights go off, the fans turn off… then the fans spin up again and the monitors and peripherals come on and it boots. No idea why it has a false start there, but I’m just grateful it’s up and running now.

Speaking of random fixes, here’s another recent one that might make more sense:

I keep my phone in my pocket. That means it will pick up lint, including in the headphone jack.

My headphones haven’t been working lately, and it’s been very frustrating. They weren’t working at all with my phone, and occasionally would cut out on my computer. So I got new headphones. They work fine on my computer, but still cut out on my phone, and that just kept getting worse, until three weeks ago they wouldn’t work at all. I tried jamming them in as hard as I could, and they’d work for a minute or so.

Finally a tip on the internet said to clean out the lint. So I have the little floss pick things in my desk here, and they’re actually perfect for cleaning that out. Took out a fair bit of lint packed down at the bottom, and now the headphone plug goes all the way into the jack and clicks into place. Huh, it’s supposed to click — I had forgotten that.

So if your headphones start becoming funky, check for lint in your jack.

Quick Update on Life

October 21st, 2016 by Potato

Sharing bad news of a personal nature is sometimes easy on a blog (especially if there’s a good story behind it or its cathartic), and sometimes hard. Today it’s hard, but I want to let people know why I’ve dropped off the face of the earth. I’ll likely tell a fuller account of all this at some point in the future (esp. after I run it by Wayfare).

The short version is that Wayfare has been very sick, in-and-out of the hospital over the last week, until on Tuesday they figured out that she has an incredibly rare and mysterious blood disorder and admitted her to the ICU. She will be in the hospital for at least another week, likely longer, and even once out she’ll be making regular trips back downtown for specialized treatments that will take hours at a time.

Because I can’t seem to turn off the personal finance blogger in my head, I can’t help but be glad that we have a big emergency fund. There may be existential issues ahead about the cost of living in Toronto and the loss of several months worth of income (or possibly permanent changes to work structure) for at least one of us (and likely both), but we can afford to just deal with the crisis phase of this now and not worry about money for a few months — we’ll cross that bridge when we come to it. I’m also glad that I have a fucktonne of time banked at work, so I just walked out when this was happening. I’m sure there’s some kind of compassionate leave program that would have helped out here, but it’s just easier to say “surprise vacation!” and put off having to look into any policies or do any paperwork for now.

For those enrolled in the course, unfortunately it is not looking good for timely completion in November. I had originally booked a few days off work over these couple of weeks specifically to finish shooting video for the course — so in terms of timing for such a tragedy, it wasn’t as bad as it could have been (though never would have been the preferred timing) — and obviously that’s not happening right now, and I don’t know if I’ll be able to make up the lost time in November.

Blueberry has been just fantastic at dealing with all of this so far, though we’ve all been spoiling her rotten when the grandparents pick her up from school or I let her get away with murder at tuck-ins.

I think I have managed to respond to all the emails sitting in my inbox, even if it’s only with a quick “I have not read this and will get back to you later.” If not, this post will help explain where I’ve disappeared to.

Passive Investing and Non-Linearity

August 2nd, 2016 by Potato

This is a recording of a rant I put together originally for the DIY investing course, but it didn’t quite fit the tone of the course. I didn’t want to throw it away, so here it is as a quasi-podcast for you.

Click here to download the MP3 of the rant.

Transcript:

Markets don’t have simple stories. Market indexes are very useful for simplifying down what’s happening for a quick news report, and with index funds it’s also a handy way to relate that back to your portfolio: if a market index is up, your holdings mirroring that index are also up. But just because we can boil it down to a monosyllabic summary of the action for the day or year or whatever (up/down/flat) doesn’t mean that it’s a simple lever someone out there is pushing, though we like to think of it that way.

We want to think of it that way. We’re comforted by the fairy tales of causation in the news: condition X happened, therefore event Y happened.

It tickles the part of your brain that wants to recognize patterns and fill in the next part. “Here’s a condition, what’s going to follow, onboard pattern engine?” But the damned thing of it is, sometimes there are causal connections, and often there aren’t. If it was just totally random noise we might be able to give in to it, but it’s not — there are some really plausible-sounding stories out there, explanations so great they can explain market moves in all directions.

The stock market is a complex system. It is made up of people (and computers pretending to be people) all acting for their own interests and reasons. Many are only looking at one or two particular companies versus trading a large index. Some are long-term investors unconcerned with day-to-day moves. Some don’t look at the news or events or anything external to the market, making decisions based solely on the trading activity they see other people doing.

I think it would be a really interesting project to one day survey everyone who made a trade and find out why they made the trade that you did. I suspect you would find almost none aligned with the headline in the news that day: “market falls on worries over capital controls in China” or whatever. Instead it would be a thousand different stories that vary from an automatic investment plan to what they had for breakfast to responding to commentary someone else made.

The market average is made up of hundreds of stocks being traded by millions of people around the world, each with their own lives and stories and perception filters, and even though it will all average out to a single, simple result (up/down/flat), it is not because of a single, simple cause.

It reminds me of that quote from Men In Black:
A person is smart. A kind, compassionate being. People are dumb, panicky, dangerous animals. [paraphrased]

One thing I try to explain over and over again when talking about index investing is how hard it is to out-smart the market consistently. The whole point is to try to shut out the non-actionable noise, to avoid forced errors, and stick with a consistent, easy strategy… then move on with your life. It is a very difficult thing to do, because you have to have some kind of faith in the markets, and you have to turn off your pattern-seeker. One of the worst things that can happen to a new investor is to make a decision based on some piece of trivial news, and then make money based on that. Because then it’s nearly impossible to turn off the competitive, out-thinking, out-guessing, pattern interpretation engine.

At a library talk I gave recently I had a number of questions from the audience that I didn’t do a very good job of shutting down: things like recent articles about negative interest rates and how that will affect a passive strategy, or what the cause of Black Monday was in 1987. But the fact that the questions were coming in the first place means I wasn’t doing a good job of explaining that passive, control-what-can-be-controlled philosophy.

To try to explain it again in a slightly different way, there are a few good reasons why the passive approach is a smart one, in other words, why active investing is hard.

1. Lifestyle: it requires effort and expertise to be an active investor.
2. Evidence: even the experts do not have good odds of out-performing when picking stocks.
3. Non-linear: the links between putative causes and investment returns can be very non-linear and non-obvious.

For #3, this is the point I think a lot of people are missing on why it’s just so difficult to be an active investor and out-perform. There’s the efficient market side of it: the market is made up of people with the same information you have, so a news article about something (negative rates or employment or whatever) is difficult to use to get an edge. How much of that were people already expecting, how much will affect future business activity, and how much of that will affect future stock/bond returns?

There’s also the complexities of the connection between the real world and the stock market at play. Monish Pabrai has a flashy slideshow about this, but it’s pretty easy to pull examples out of a hat from the past. There have been many inventions where it has been easy to say “this is going to change people’s lives” and be absolutely correct. Automobiles, airplanes, genetics, microchips, the internet, cell phones — these have all undoubtedly been wildly successful inventions that have changed the lives of billions of people.

And none of that knowledge has been good enough to help you make money as an investor. Even if you knew for sure — even if you traveled back in time with the absolute certainty that in a few decades’ time the sky would be filled with jetliners, the pockets of the passengers filled with devices laden with microchips, and the roads choked so full of cars that a decent marathon runner could jog from the suburbs to downtown faster than a car could take the highway — even then, you would be hard-pressed to make money from that knowledge. Most of the car companies in the early phases of that revolution went bust. Airlines go bust so often it’s a joke amongst investors. There’s been one big winner in the cell phone industry, and it’s one of the companies that started off selling computers.

The internet did indeed change our lives. But it also led to a big stock bubble and collapse, showing the importance of higher-level thinking. Indeed, many of the would-be investors and traders of the time were faced directly with the evidence of the internet’s impact, as they placed their trades online in the new discount brokerages that became available. They could not ignore the impact the internet was making or how fast it was growing. So many of them thought the same thing, and bought the same stocks, leading to the bubble, which blew up and cost many of them a lot of money. It’s not enough to know the first part of the story, but also look at what all the other investors (humans and computers) are doing — what’s priced into a stock, what’s a real opportunity, what’s a bubble brewing?

3D printing, medical cannabis, stem cells, solar energy, machine learning, self-driving cars — Mother. Fucking. Fusion. These may be the next revolutions in our lives. Even if you correctly forecast the coming changes, turning that insight into money by way of the complex, non-linear investment market is so very hard. It is not the simple cause-and-effect relationship the news headlines would have you believe.

A final story: the physicist had a cat, and wanted to know how it worked. So he took it apart, and he had a non-working cat. Living things are chaotic and complex and it is very difficult to precisely map how all of the inputs lead to all of the outcomes. And the stock market is a living thing. You can easily share in its growth as a passive investor, or try to out-smart it – but that is much easier said than done.

The GTFO Calculator

July 18th, 2016 by Potato

I was stuck on the subway for a long time today. A really long, sweaty, stinky time. My commute this morning took two hours door-to-door thanks to numerous PAAs (Passenger Assistance Alarms — they happen so often they’re just referred to in acronym form) on the line. It’s a hot July day, and though the train is air conditioned, much of that time was spent loitering at various platforms with the doors wide open, sucking in the hot platform air (superheated by the A/C exhaust). It’s days like this that really drive home how much Toronto was not built for the enjoyment of its citizens.

Nelson had a post with a title that seemed targeted right at me today, explaining how much lower the cost of living is in small towns (mostly driven by the lower cost of housing), which is a great opportunity for teachers and other professions who get paid about the same amount no matter where they go (indeed, there is a surplus of new teachers in the big cities, while his local school has unfilled positions).

Comparing living in a small town to living in Toronto or Vancouver has a lot of subjective factors to consider, from amenities and attractions to salaries, job prospects, and the network effect. Indeed, I used to live in the virtual paradise of London, Ontario, which featured a modest cost-of-living, all the day-to-day amenities one could want, jobs within walking distance of livable communities, good curling, and all within a short drive of Toronto for weekend visits and the odd bit of ephemeral culture that wasn’t native to London. However, my family and Wayfare’s family live in Toronto, so — network effect at play — when we spawned we came back upstream to do so here in the GTA. Plus we both have graduate degrees and work in specialized fields, and we both make more in the GTA than we would have in London… though in London we might not have needed to make so much, possibly leaving more time for leisure and Blueberry.

Aside from my own situation, I see still more and more people pour into the GTA, and many of them do not have any particularly specialized jobs, family ties to the area, or difficult two-body problems to solve. Indeed, many are young and single, lamenting the costs of home ownership, and I’m left wondering: “Why are you in this city? GTFO!”

At what point does it make sense to take a paycut to move to a smaller city? At what point does a higher salary in a big city offset the higher costs of living? Enter the GTFO calculator.

Here you can enter your salary in the big city and a smaller centre, as well as the salary hit your spouse might have to take to follow you into fire, into storm, into darkness, or into Hamilton. Then you can enter the different housing costs and assume all else is equal to see approximately how much better off you’d be with the GTFO move — and how long it would take for your dirty city money to make up for the bubblicious living costs. There’s even a fudge factor cell for renters, or people who want to factor in having to get a 2nd car or whatever.

It’s set up as a Google Sheet with a protected range over where the magic happens, so you can just type right into the input range to get your answer instantly (a trick I copied from Sandi). So, how much more do you have to make to balance out the higher housing prices of Canada’s more expensive cities? Find out for yourself now!

Preview of the GTFO calculator on Google Sheets

Forced insight: you may find that seemingly large paycuts are still worth it (in a financial sense at least) because of how very expensive Toronto/Vancouver houses are now. It takes a lot of years — likely more than you have — making an extra $10-30k to outpace an extra half a million in mortgage debt.

Quibble: I didn’t (and don’t plan to) build in different rates of salary growth. Just wave the magic “real dollars” wand. Some fans of the big cities will quibble though that it’s not so much starting salaries that are higher, but that there’s more room to climb the ladder and get to a (much) higher salary with time.

Note: there is a way to parallelize the Google Sheets, so if you see more than ~4 people trying to edit it at once, let me know and I’ll get off my lazy butt and do that.