TD E-Series Changes

August 28th, 2019 by Potato

You may have received a proxy form in the mail if you’re a TD e-series holder, asking you to for a change in the investment objective of the funds. In case you haven’t seen it, the information circular is on SEDAR.

The main points are that the e-series funds will change the index provider to Solactive, and instead of holding the underlying stocks/bonds themselves (and derivatives), will be able to hold the corresponding ETF. This will come with a 5 bp reduction in management fees.

To break that down a bit, fund companies have to pay a licensing fee to the index creators when they have a fund that tracks that index — they can’t just free-load like I would if I wanted to re-create the S&P500 with an insane number of trades myself. Solactive is an index provider that’s reportedly cheaper to use than S&P/MSCI/FTSE, so the move helps TD save some money. Moreover, it’s the index provider that TD’s ETFs use, which lets the e-series funds start to use those to share some of the work of fund management.

I don’t believe their indexes are different enough from the ones we’re familiar with to worry about it or to have substantially different expected returns. Unfortunately, their site isn’t quite as handy as the other index providers (or Vanguard/iShares) for figuring out what’s in there. Fortunately, TD’s ETF pages list that, for example here’s the Canadian equity index page. It has slightly more holdings (270 vs 239 in the S&P TSX Composite), and some minor differences in sector weightings (e.g. 5.9% vs 7.6% in Technology, though most are closer than that). The US one looks very similar to the S&P500 (even having 500 holdings), as does the new international one to the MSCI EAFE.

The changes are subject to a vote by unitholders, but I don’t foresee that failing.

Remember that MER is backward-looking, so it will take a full year before the new lower management fee is reflected in the MER listed in the fund facts (a year after this is implemented, which may be a few months yet — the vote is late September).

The Big C 2: Revenge of the C

August 1st, 2019 by Potato

Almost exactly a year later, we found out my dad’s cancer was back. He’s been really sick for months now, off and on in pain and throwing up, in and out of emerg and being admitted to the hospital several times over (in large part because of dehydration from the not eating and throwing up, and trying to solve the root cause of that problem). He’s still in there as I write this, though now he’s had a surgery to solve the intestinal blockage and I think at this point no one close to him is going to find out via the blog that he’s sick.

The prognosis with recurrent metastatic cancer is, well… it’s not good.

So let’s talk about something else. One of the issues of being admitted to the hospital is that it’s so hard to sleep. I got my dad a noise maker/white noise gizmo, one that’s made to hook onto a stroller for a baby, but works just as well on a hospital bed. And that little bit of steady noise helps him so much with sleeping through the constant noise of a hospital ward.

I had decided that this was a simple, inexpensive thing that could make people’s lives just a tiny bit better, so I should just do a side business things and find a way to get white noise gizmos in all the hospitals/patients’ hands — either by finding a way to sell them to the hospitals, which may involve building a modified version that’s easy to sterilize, has an IV pole clamp, etc., or by convincing the gift shops to start stocking them so patients/families can pick one up while they’re there. I also had the idea of recording the sound of a curling stone rolling across the pebble to add to the more common wave/wind/static noise choices. Anyway, a page of doodling half-thought-out business plan and it was starting to sound not so crazy. But then I went to get an affiliate link from Amazon for that link above, and realized there are a tonne of consumer-grade ones available already. So I will just leave it at the suggestion that if you or a loved one are going to spend some time in a hospital bed, add a noise generator to your list of stuff to get (which may include expecting mothers who have more foresight on a potential hospital stay).

I’m also glad to have a healthy emergency fund. I’ve easily passed $300 in hospital parking bills now, and may hit $400 before dad’s back home (and yes I’ve tried to take the bus a few times — hospital parking’s just expensive). It helps support the hospital and the lots are nearly full anyway, so it makes sense that it’s so expensive, I guess — I’m not really trying to complain too much about that, but still acknowledge that it can be a big, unexpected expense and there is a reason for that savings account full of money in case big, unexpected expenses come up.

Anyway, what I’m trying to say is that I have reasons for not blogging.

Never Weight: A Year of Success (or a Tale of Water and Sadness)

July 5th, 2019 by Potato

My first few “never weight” updates were not very successful. It was this time last year when I finally buckled down and started to get successful. Now down ~40 lbs, I was talking about my success today and figured it would be worth a blog post about how I made it work. I’m not about to go write a self-help book, and I’m far from the fittest, healthiest guy, but I did make some progress and hopefully some of the things that helped me will be translatable.

First, the basics: eat less, move more. Move more, eat less. Calories out > calories in.

It is just that simple. But simple is not the same as easy. And it is not easy. I tried many times over many years to kind of half-ass my way to better health and never managed to lose more than 10 lbs or stick to it for longer than two seasons. It’s hard to create new habits, and to break old pathways that have had a lifetime of reinforcement in your cerebellum and autonomic nervous systems.

So it’s ok to acknowledge that it’s hard. It will be hard, and it’s hardest at the beginning.

There are lots of ways to try to approach eat less, move more, specialized diets and approaches, and I find a lot are over-hyped. They can help in various ways, but at the end of the day there may be mumbo-jumbo about insulin control or protein metabolism or whatever that they focus on when really they’re mechanisms to enable calories out > calories in.

For me, I needed a “Holy Shit” moment. I actually had a few: the first when I hit my “never weight” in the first place and decided that I needed to re-prioritize my life and stop sacrificing health at the altar of blogging/work/etc. That was near the end of 2016, so it became a new year’s resolution. But while I made some improvements – I started tracking steps to move more, tried swapping candy for almonds & cereal at my desk, I just didn’t make great progress. The second “holy shit moment” came last summer – I had put in a commitment mechanism and still failed. My cholesterol test came in higher than is healthy. My dad got cancer. A clever SMBC comic made me realize I can’t really take short-cuts. I finally started doing the things I knew I had to be doing all along.

On to my tips and reflections:

Most important: tracking what you eat (and your exercise).

Gif from Scott Pilgrim vs the World

Yes, it’s hard to nail the landing with that one. It takes time, it’s a pain to do, etc. I found FitBit really helpful (but other apps work similarly, e.g. MyFitnessPal):

  • It’s on my phone, and my phone is nearly always near me when I’m eating.
  • It tracks my exercise and gives me a budget, so I get instant feedback/permission (unlike tracking on paper) – I can pretend it’s a magic 8-ball and say “hey FitBit, can I eat this?” and it would say “yes, but then all you’ll get for dinner is water and sadness” and I could make a more informed decision, instantly.
  • I had a hard-and-fast rule that I had a 2000 calorie line of credit – enough that sometimes if I wanted a heavier lunch and lighter dinner I could have a bit of flexibility to make it work, but mostly I only ate what FitBit said I could. Cash only, no credit. If I wanted any more than that, I had to earn it through exercise first (and some days I did earn over 2500 calories, but I did the curling/biking/stairs first).
  • The app made tracking easy because I could save foods I eat often, and it had a database of many common foods (so instead of having to calculate every time, I could just type in “french fries, large” and get a decent estimate (and sometimes even the details for the exact brand of food I was eating).
  • It provides a simple colour-coded bar chart of energy out and energy in, and all I have to do for success is keep the bars green or teal.

I got cute about checking it. If a coworker brought timbits back from a meeting, I’d pull out my phone, open it up and go “thanks, but FitBit says no.”

Another important point was to keep in mind that people are bad at estimating. I started eating a lot of single-serve packs of things (esp. almonds) so I’d know how much was in there. I started using my food scale, and everything was put on a plate or in a bowl so I could be consistent in how much I took and keep my estimates close (and I started using the tiny baby plates and bowls to make things look like bigger portions). No eating right out of a bag. After doing it a few times I got decent at estimating how much I poured into a bowl, and would stop using the scale every time – but I still go back every month or so and check myself so I don’t get portion creep.

Break habits – break eating – bright-line rules

There’s a lot of automaticity in our daily lives, especially when it comes to eating (unconscious eating). That has to be fixed, along with emotional eating. In part, I had to break eating to stop the old habits.

Looking back, a reader (hi Joe!) had told it to me straight up in the comments section back in 2017, but I had to learn it the hard way: a drastic change can work better than trying to be incrementalist about it. Kind of like the spending bans for the debt bloggers.

So I had to break how I ate to make it more mindful. Part of that was through checking with FitBit before I ate anything. Whenever I was eating at my desk or the couch (not so much an issue at home at the kitchen table at meal time) I would ask “do I want to eat this because I’m hungry, or because I’m bored/stressed/nibbly/etc.?” If I was just wanting to move my mouth for non-hunger reasons, I’d chew some sugar-free gum. If I was actually hungry, I could then check FitBit for a meal/snack. Or (particularly the first two weeks), I’d text a friend and whine (thanks Netbug!).

I also had to pause now and then to see if I wanted to eat more. I got a lot of small 50-200 calorie portions of stuff, like single-serve packs of almonds, Welches fruit snack candies, protein bars, etc. And opening each one gave me a point to stop and reflect: did I want this? Was I actually still hungry? Would the second (or third) portion really do anything for me that the first or second hadn’t? Maybe even if I still felt hungry I could wait a half hour before the next serving? I also started doing something that sounds totally crazy but kind of works: if I want to eat for emotional reasons, I get up from my desk and go down and back up a flight of stairs. It adds activity and takes my mind off food (I did not believe people who said more exercise somehow makes you less hungry, and it still seems crazy).

At first I needed a few hard-and-fast rules: no candy, no doughnuts (not even timbits), no chips.

Bread makes you fat. Bread makes you fat?

Then I gradually re-introduced treats in more appropriate proportions and frequencies and (so far) have been mostly successful with keeping things much more balanced. But particularly when trying to break old habits, I found it handy to have rigidly defined black-and-white areas (and it was only once I had tracking with an app to lean on as my hard-and-fast way to control snacking that I could be trusted with snacks).

Another thing I used was a weak form of intermittent fasting: for 11-12 hrs every day, there was no eating. No breakfast before 11am, no snacking after midnight. I was a mogwai, and I didn’t want to turn into a gremlin. Yes, I found a way (more than once) to use that analogy out loud. I found a lot of over-hyping on intermittent fasting out on the web, but it is helpful, and it can make it a lot easier to be hungry (my body quickly got used to the idea of no breakfast – I was already prone to skipping it), and make it easier to make the calories out > calories in thing work. Plus it was a simple, bright-line, hard-and-fast rule that eliminated late-night snacking, which was one of my weaknesses.

Priorities, permission, and mindfulness

Life is full of conflicting priorities, and it’s very hard to optimize everything at once. So one important change in mindset was giving myself permission to make my health more of a priority. I increased our grocery bill buying my almonds in single-serve packs (roughly 4X the price-per-weight of buying a big jar, but the fancy ones are tastier & more satisfying, while being more amenable to mindful eating), and a bunch of other similar moves. I buy a lot more single-serve/treat size/etc. things and don’t just buy the best value or things in bulk. I can’t optimize the budget/retirement savings at the same time as my health.

I also try to focus on what I’m eating and enjoy it (though I am still definitely a wolfer). I recognize that ice cream is delicious, but a double scoop is not twice as delicious/satisfying as a kiddie cone. I gave myself permission to eat half of something and throw the rest away if it’s not worth the calories.

I also (mostly) found the time and budget to curl more (though I need to put myself into more summer exercise commitments – for now I’m trying to take the stairs up to my 5th floor office at least once a day).

Buddy/mentor system

Particularly the first two weeks, I was bugging friends a lot (mostly Netbug). I whined and complained and vented. The world was unfair – for years I had considered a 10-pack of timbits to be a nice mid-afternoon snack, and now was being told it was more than most of my meals. Subway was pulling a bait-and-switch with it’s large-print calorie counts – no one is ordering a veggie sandwich sans cheese and dressing, and adding those nearly doubled the calories of the final product. I wanted to eat but I wasn’t hungry and it wasn’t faaaaaaaair and is being fat so bad, really?

And I wasn’t legitimately hungry through most of it – I was just upset that I couldn’t have all the yummy things, and needed to vent those feelings. I think having someone who’s either going through it with you, or who has been there can be helpful.

Commitment mechanism

My initial commitment mechanism failed, but I still think it was a helpful approach to keep me on-mission.

The bathroom scale is a dirty, dirty liar; trust the process

I recognized that there’s a lot of noise in daily weight measurements. I mostly only weighed and tracked myself weekly, and the trendline in FitBit was pretty good at that resolution. I only reported here quarterly. Your weight can fluctuate by several pounds day-to-day, especially if you’re at all inconsistent about what you’re wearing when you do it or the time of day you do it.

My suggestion based on what I did is to not weigh yourself that often – just like with checking your stock portfolio too often, you’re more likely to be happy if you only check when there’s a decent chance of the signal outshining the noise. So biweekly/monthly, maybe as often as weekly.

However, I was listening to a podcast from Dan Ariely and he suggested a way to redesign the bathroom scale to send a number to an app that just shows you your smoothed trend, but not any day’s (noisy) result. And the point he was making is that stepping on the scale every morning is a good reinforcing behaviour – you can step on there and say (out loud or implicitly) that your weight and your health is important to you so you’re going to live today in a way that reflects that. But that can be sabotaged by seeing your weight randomly fluctuate up despite being good the day before.

Rather than get a fancy technology scale (that might not even exist on the market yet), my suggestion is to tape over the display with a helpful message. I suggest “TRUST THE PROCESS”. Step on it every day, say your affirmation, look at the message that you should trust the process. Then once or twice a month peel the tape off and check your progress.

Good luck!

Hopefully some big-bang behaviour changes and bunch of hacks will help you. I’m far from a guru, and failed a lot on the way, and it’s only been a year of being successful (and I’m still struggling to stick that landing). But I thought it was a good exercise to stop and reflect on what worked for me. (and no, there have not been more than a few “nights of water and sadness” but I like the quip :)

Scott Pilgrim has earned the power of self respect

Never Weight – Q2-19 Update

July 1st, 2019 by Potato

Not much to say about this past quarter — I ended up gaining back just under 3 lbs, which is not too bad for holding the line. At one point that was 5 lbs of back-sliding though, which is troubling behaviour. So in June I had to get back on the wagon about tracking everything and not having three consecutive cheat days. And hey, it works.

I’ve been busy (as you can probably tell from the lack of posts overall). While I’ve been getting steps in, I didn’t get much other workout activities in over the past few weeks. Then I finally put the chin-up bar up and… just couldn’t do one. And it was weird, not an overall muscle weakness, but like my left arm just wouldn’t respond to mental commands to lift. The next few days everything was sore like I had pulled something, esp. my tricep and down into my flank. Today I was able to do a chin-up (and a push-up) but it’s still not right. No idea what I would have done to injure it, but at least it’s getting a bit better.

The public pools are open, which is welcome news to Blueberry. I was surprised we only went once for the long weekend, though we were swimming for over an hour that day.

Anyway, this quarter the goal is to lose those 2.8 lbs at a minimum — which means keeping up those healthy behaviours through the summer heat and vacation.

All-in-One ETFs and Changing Asset Allocation

May 27th, 2019 by Potato

So you liked the idea of all-in-one funds when they came out. You like-liked them. Finally, you love the idea of all-in-one ETFs and are going all-in. You’ve rounded off your asset allocation, and stuck it all in a single ETF. All new money that you save, you also stick in this one ETF.

Then about 20 years later*, your risk tolerance has shifted enough that a different all-in-one ETF is appropriate for you (e.g., VGRO now becomes VBAL).

How do you switch? What are the costs and trade-offs? This is one of the remaining sticking points for a lot of potential all-in-one investors (well, that and taming the need to tinker).

RRSP/TFSA: there are no tax issues to worry about, just go ahead and do it in one go. Costs a commission to sell (and depending on your brokerage, one to buy the new fund) — not material. Thanks for visiting, enjoy your all-in-one fund without any worries, you can skip the rest of the post. (And if you’re not sure how to buy an all-in-one ETF and invest and all that, check out the course to teach you just that).

Non-registered: it gets more complicated, as you might expect. When you sell a fund you’ll have to realize the gains (and thus pay tax). Turning over your entire portfolio at once might have some fairly large tax consequences. You can take an alternative approach, like buying a bond fund at some point (perhaps selling a bit of your all-in-one fund) to make a two-fund portfolio later.

That looks like you’ll trade simplicity today for a bit of a headache later, in either complexity at some point or a tax bill. That’s likely still a good move, though you’ll want to go in with eyes open on what the cost of maintaining simplicity is. Fine, let’s math it out to get an estimate.

TL;DR: doing a big switch-over in your non-registered account (like you might in a TFSA/RRSP) may end up adding something like double-digit basis points to your equivalent MER costs in realizing the taxable gains, which may push you towards more complexity later — which to be fair is a problem for future-you to deal with, and is still better than complexity all the way along, though it means at some point you’ll be pushed to learn how to rebalance).

Disclaimer: I did the spreadsheet and wrote the post on the train back from Montreal, so there may be errors. The cost ended up about double what I had guessed it would be, which may just mean the math is a caution to my intuition, and that people who want simplicity in a non-registered account might have to suck it up or look to the e-series funds, or it may be a sign there is indeed an error in here.

How big is your non-registered? Bear in mind that the benefit of simplicity will accrue to all your accounts, though the tax cost may only hit your non-registered. So if you’re planning on heading into retirement with a million-dollar portfolio, odds are that you may have most of that in registered accounts, so even a “big” tax hit to your non-registered may not be big in the context of the work you’re saving by using all-in-one funds for several decades in all your accounts.

Unfortunately, the switching cost is not a simple percentage that you can directly compare to an MER — it’s going to depend on future capital gains, your tax rates, etc. And looking at just the cost of switching an all-in-one fund will over-state things a bit, as you would still have to pay gains to rebalance a 3- or 4-fund portfolio when the time comes (or to sell it and use the money to live off of).

So how much is this going to cost? Let’s use a specific example to try to put some numbers to it. Let’s say you throw $5,000/yr into a non-registered account (remember, this is on top of what you’re saving in your TFSA/RRSP) and buy VGRO. Let’s say the market is well-behaved for the sake of our spreadsheets, and that investment grows at 6% nominal (your real return [which matters for most planning purposes] will be lower due to inflation, but for tax purposes nominal returns matter, and in this case this doesn’t include dividend/interest distributions — those we’ll say are part of our $5,000 annual [nominal] contribution).

20 years later, your risk tolerance has shifted enough that you feel VBAL is a more appropriate choice, and you have to switch over. Your VGRO at that point is worth ~$189k, with a cost basis of $100k. Switching in one big go means realizing a gain of ~$89k, so ~$45k gets added to your taxable income. That feels ouchy, though you’ve reset your cost basis so you’ll pay less tax when you eventually sell the funds for living expenses. Also remember that this is 20 years in the future with nominal dollars, so it’s not quite as bad.

If you have an income of $60k in today’s dollars (~$90k in 2039 dollars), the tax bill of the big bang approach would be (very roughly) $13k (in future dollars). That’s not all an incremental cost of using all-in-one ETFs though, as those gains have to be paid eventually if you don’t have a big switch.

There are some other options to spread the cost out and reduce it a bit, with just a bit of added complexity:

Option 1: spread it over multiple years. One of the issues with the all-in-one big-bang switchover is that it could add a lot of taxable income in a single swoop, which would then run up the marginal tax rates to add insult to injury (in this example, up to the ~38% bracket for someone normally in the ~30% one). You can pay less tax by just spreading the hit over a few years. That’s a bit of extra complexity, but not much. You could do it over a few years, which requires fiddling with your portfolio a few times, but timed right you can spend just a few days focusing on the trade to spread the tax hit over two years (by selling half in the last few trading days of December, then the other half in the first few trading days of the new year).

For a two-year hit, you would save about $600 in taxes as all the capital gain fits into the bracket you’re already in (so there’s also no added benefit to further spreading it out — other situations, like having more gains, may change that).

Option 2: break the simplicity. You can still get ~20 years of simplicity with an all-in-one fund, then sell just enough to buy enough of a bond fund to get you back to your desired asset allocation. You’ll be in for more complexity for the rest of your investing days, but by that point it may be worth it.

Math of that: Sell 25%** of your VGRO, buy a bond fund, and get your 60% overall stock exposure. Then you’d be paying about $3.3k on the smaller realized gain portion (again, nominal dollars).

Our counterfactual is investing in a 4-fund portfolio. In that case, you may be able to keep rebalancing by just buying bond funds with your new money each contribution. (We’ll ignore the potential differences in return from having progressively more/less in equities at different points than the all-in-one discrete route — though to be fair, that should also be open as part of option 2, where you just buy bond funds along the way and break the simplicity of the all-in-one fund earlier without having to realize any gains).

Then you start selling down, perhaps at a lower base income. For simplicity of modelling, let’s say that you want to sell enough to generate $10,000/yr in after-tax income (in 2039 dollars) for 20 years and it’s all in the lowest tax bracket. But because the cost bases will be different, we’ll have to sell different amounts of the portfolio. That is, the now-VBAL portfolio will need us to sell a bit less to get the income we need because with a freshly reset cost basis, it will start off almost all tax-free (but because you paid more in taxes in 2039, you’ll also have less to start with). Let’s also throw 5% nominal growth on that portfolio just to make my job modelling in Excel harder.

Big bang VGRO: take off $13.9k in taxes to start, then model growth, sell-off, and finally final value. In year 1 you have to sell $10,096 to get $10,000 after-tax (just one year of 5% growth to pay taxes on), and by the end you’ve collected $10,000 x 20 after-tax, and have $138.2k left (of which $89.3k is unrealized gains from the new growth).

Two-year VGRO: take off slightly less in taxes ($13.3k), so it comes out pretty similar: an ending value of $139.9k, of which $90.3k is unrealized gains.

Hybrid: Take off $3.3k in taxes for selling just a quarter of your VGRO, which leaves you with a higher unrealized gain as you start to withdraw your funds. To get $10k after-tax, you have to pull out $11.0k in the first year. By the end, the portfolio is worth $145.4k, of which $115.8k is unrealized gains.

4-fund alternative: here we’re assuming that you’ve never had to realize any gains, yet somehow made the same return as VGRO/VBAL. So when you start pulling your $10k/yr income out, you have to sell $11.1k in the first year pre-tax to get that. After 20 years of that, you’ll have $151.7k left, of which $123.3k is unrealized gains.

Then what happens with those unrealized gains can matter a bit. If you just discount them by 10% (half the lowest tax rate), then we find the after-tax value of the portfolio is $10.1k lower for the all-in-one user — the tax hit and lack of continued compounding does hurt, though some of the tax hit at the big-bang rebalance will be made up in later years as the unrealized gains did eventually have to be realized to generate income out of the portfolio. And if this point represented death where all gains are realized at once, then the bigger unrealized gains may push your estate up into a higher bracket, closing the gap further.

Again, it’s hard to put this into MER terms. An ending value that’s something like 7% lower after 40 years would be like 18 bp more in costs, which sounds higher than I was expecting when I started doing the math, honestly. Of course, I may be being overly fair to the 4-fund alternative’s ability to match VGRO’s growth without any selling to rebalance along the way — there likely would be some gains realized along the way. If you accept a 2-fund approach in the future (only selling a portion to buy bonds), the hit would be more equivalent to 10 bp. And you also have to consider how much of your portfolio is non-registered — here I’m considering just the non-registered portion, but if most of your money is in registered accounts (as most Canadians can expect to be the case) and you want to consider spreading that tax hit over a larger denominator, the MER-equivalent type hit might be less than a third of this.

As always, balance any costs against the value: the extra simplicity of an all-in-one fund is practically a no-brainer when the MER is only about 10-12 bp higher than a 4-fund portfolio. If it’s more like 30 bp when you add in the tax hit of a big-bang rebalance, then you may have to think about it a bit more (esp. when you can start getting into TD e-series funds at about that level and automate your purchases — though the all-in-one funds would still work in your registered accounts).

Edit May 27: to clarify, the tax hit is coming from a few sources. First is just realizing the gain and missing out on the ability to continue to defer taxes and compound the growth. Next is the fact that the gain is at a higher tax rate (I’ve assumed here that the hit comes while working, at a minimum of 30% tax rate, and higher for the “big bang” switch, while in retirement gains are realized at a 20% tax rate). So there’s a few factors mixed together in this scenario.

* – Why 20 years in all the examples? If we take the basic rule-of-thumb of basing your asset allocation on your age, that implies that you shift your allocation by about a percentage point per year, and the different all-in-one funds shift by 20 percentage points… Your own case will be your own case, though.

** – Why not 20%, which may be the intuitive first-guess answer? Because you’re selling part of your bonds, too. To get to an overall 60/40 split, you’ll need 75% in VGRO and 25% in straight bonds.