- Does Gen Z Have it Harder Than Millennials? - November 20, 2023
- When To Pay Off Your Low-Interest Mortgage - November 6, 2023
- Reader Case: Can’t Work Because of Health Issues and Worried - October 23, 2023
This week was supposed to be the second part of our 2 part series on Inflation, but so much stuff’s been in the news this week that we thought we should comment on some of that. New readers, please click here to start from the beginning.
Health Care
Ever since the election, one of the most common questions we get is “I’m American. What the Bloody HELL am I supposed to do about health care if I retire?”
To which our response was “Fucked if I know.”
And that was because up till now, the replacement plan for Obamacare kept changing every single day in the news. In fact, all of us FI bloggers were watching the daily developments on Capital Hill VERY closely, because we knew that we’d all have to come up with a health care strategy for our American audiences. Daily discussions among us varied from how to best use HSAs to offset our coverage costs, how deductibles affect your retirement, and even how to relocate to a state (or country) for the health care.
Well, it turns out we can all relax because the discussion is now moot.
In a turn of events that only be politely described as eye-meltingly idiotic, Trump and the Republican Party couldn’t come to a consensus on what to replace Obamacare with and, as a result, left Obamacare intact.
With control of all three levels of government and literally nothing opposing them, the Republicans somehow couldn’t get their shit together and dismantle the health care law even though they all universally hate it.
But their loss is our gain, because that means that Obamacare will remain the health care solution for American Early Retirees. When you retire, your income drops off a cliff since you’re no longer working (and you’re using your Tax Shields to avoid paying additional taxes on your investment income). This, in turn, qualifies you either for Medicaid or Federal Subsidies which help pay for insurance purchased on the Obamacare exchanges. Our good buddy Justin from RootOfGood.com wrote up a summary on this here.
So long story short: The system has NOT blown up, it is still possible to retire early in America and have access to cheap (or free) health care after you leave the workforce.
The Trump Slump
And in related news, the US stock market, which has been rampaging ahead since the election bolstered mostly on the assumption that Trump would implement his campaign promises, suffered the longest losing streak since the Carter administration.
Wall Street traders made the bet that with Republican control of the House, Senate, and the White House, that Congress would go from gridlock to a rubber-stamping legislative assembly line. Someone puts a bill up, all Republicans vote yes, Trump signs it, and the Democrats sulk in the corner for 4 years.
Obviously, that did not happen.
So now, all those assumptions traders used to price in the post-November stock market rally are in doubt. If he can’t repeal Obamacare, what CAN he do? Can he actually lower taxes? Can he actually build that wall?
And these aren’t speculative questions. Already, he’s getting pushback on the wall from his own party who are balking at having to foot the bill for what’s basically a giant infrastructure project. Republicans HATE giant infrastructure projects. And he’s also admitted that his tax reform assumed he’d be getting savings from repealing the Obamacare payroll taxes, so what’s going to happen on THAT front?
Trading on Predictions = Bad
And all this news brings me back to a central tenement of the Workshop: Don’t trade on predictions.
At the beginning of this Workshop (just after the election), I was CONVINCED Trump would cause a stock market crash. In fact in my article “Why President Trump Doesn’t Scare Me” I literally wrote “we are now entering a new financial crisis.” And a part of me thought about not doing these Workshops at all, since I would probably be instructing people to buy as the world caught fire and everyone would think I’m crazy. But instead I said “We’re gonna do it anyway. We have to show people how to be fearless, and how to invest properly. We have to show people how to use DCA to take emotion out of the investment equation.”
I was convinced these Workshops would turn into weekly pep talks about how even though the stock market was plummeting you should invest anyway.
So of course the fucking stock market went UP.
And here, I was CONVINCED that Obamacare was dead. I mean, I knew there were disagreements between Republicans but I figured it was all political posturing and they would eventually unite to kill the thing. And instead, it’s gonna be around forever.
But being wrong didn’t hurt us because we never allowed our predictions to affect our investment strategy. Dollar Cost Averaging instructs you to perform your buys at regular intervals and ignore the news. So that’s what we did. And that’s why our portfolio (and hopefully yours) is up.
And on that note, in this storm of uncertainty, in this political environment where anything can bloody happen, we will now proceed with out regularly scheduled buy.
Canadian Portfolio
As always, we add our next slice of money into the account and update our portfolio allocations.
| Asset | Ticker | Unit Price | Units | Market Value | Allocation | Target Allocation |
|---|---|---|---|---|---|---|
| Canadian Bonds | VAB | $25.51 | 64 | $1,632.64 | 35.45% | 40% |
| Canadian Index | VCN | $31.67 | 26 | $823.42 | 17.88% | 20% |
| US Index | VUN | $44.02 | 18 | $792.36 | 17.21% | 20% |
| EAFE Index | XEF | $28.63 | 23 | $658.49 | 14.30% | 16% |
| Emerging Markets | XEC | $25.14 | 7 | $175.98 | 3.82% | 4% |
| Cash | – | $1.00 | 522.14 | $522.14 | 11.34% | 0% |
From here, we figure out how to rebalance to get back on target…
| Asset | Ticker | Target Allocation | Unit Price | Current Market Value | Target Market Value | Current Units | Target Units | Difference |
|---|---|---|---|---|---|---|---|---|
| Canadian Bonds | VAB | 40% | $25.51 | $1,632.64 | $1,842.01 | 64 | 72.2 | 8.2 |
| Canadian Index | VCN | 20% | $31.67 | $823.42 | $921.01 | 26 | 29.1 | 3.1 |
| US Index | VUN | 20% | $44.02 | $792.36 | $921.01 | 18 | 20.9 | 2.9 |
| EAFE Index | XEF | 16% | $28.63 | $658.49 | $736.80 | 23 | 25.7 | 2.7 |
| Emerging Markets | XEC | 4% | $25.14 | $175.98 | $184.20 | 7 | 7.3 | 0.3 |
| Cash | – | 0% | $1.00 | $522.14 | $0.00 | 522.14 | 0.0 | -522.1 |
And finally, we decide on our actual buy orders, taking care not to go over our available cash…
| Asset | Ticker | Unit Price | Action | Fractional Units | Units | Proceeds |
|---|---|---|---|---|---|---|
| Canadian Bonds | VAB | $25.51 | BUY | 8.2 | 8 | $204.08 |
| Canadian Index | VCN | $31.67 | BUY | 3.1 | 3 | $95.01 |
| US Index | VUN | $44.02 | BUY | 2.9 | 3 | $132.06 |
| EAFE Index | XEF | $28.63 | BUY | 2.7 | 3 | $85.89 |
| Emerging Markets | XEC | $25.14 | BUY | 0.3 | 0 | $0.00 |
| Total | $517.04 |
US Portfolio
Similarly, for our American portfolio, we add our DCA cash in and see how it affects our portfolio allocations…
| Asset | Ticker | Unit Price | Units | Market Value | Allocation | Target Allocation |
|---|---|---|---|---|---|---|
| Bonds | BND | $81.08 | 20 | $1,621.60 | 35.28% | 40% |
| US Index | VTI | $121.07 | 10 | $1,210.70 | 26.34% | 30% |
| International Index | VEU | $48.07 | 26 | $1,249.82 | 27.19% | 30% |
| Cash | – | $1.00 | 514.33 | $514.33 | 11.19% | 0% |
We then figure out how to rebalance back onto target…
| Asset | Ticker | Target Allocation | Unit Price | Current Market Value | Target Market Value | Current Units | Target Units | Difference | |
|---|---|---|---|---|---|---|---|---|---|
| Bonds | BND | 40% | $81.08 | $1,621.60 | $1,838.58 | 20 | 22.7 | 2.7 | |
| US Index | VTI | 30% | $121.07 | $1,210.70 | $1,378.94 | 10 | 11.4 | 1.4 | |
| International Index | VEU | 30% | $48.07 | $1,249.82 | $1,378.94 | 26 | 28.7 | 2.7 | |
| Cash | – | 0% | $1.00 | $514.33 | $0.00 | 514.33 | 0.0 | -514.3 |
And finally, we figure out our buy orders, once again being careful not to go over our available cash…
| Asset | Ticker | Unit Price | Action | Fractional Units | Units | Proceeds |
|---|---|---|---|---|---|---|
| Bonds | BND | $81.08 | BUY | 2.7 | 3 | $243.24 |
| US Index | VTI | $121.07 | BUY | 1.4 | 1 | $121.07 |
| International Index | VEU | $48.07 | BUY | 2.7 | 3 | $144.21 |
| Total | $508.52 |
And we’re done! We trade on schedule, not on predictions, and as a result everything stays civil. No freaking out required.
Continue onto the next article!
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WORKSHOP TOOLS
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Disclaimer: The views expressed is provided as a general source of information only and should not be considered to be personal investment advice or solicitation to buy or sell securities. Investors considering any investment should consult with their investment advisor to ensure that it is suitable for the investor’s circumstances and risk tolerance before making any investment decisions. The information contained in this blog was obtained from sources believe to be reliable, however, we cannot represent that it is accurate or complete.
Last week it was interesting to listen to my liberal, American co-workers express happiness that Obamacare would not change in the immediate future. As a Canadian living in 312, I do not have a vote in any election on this planet and must sit back and watch the electoral vote in Canada and the US.
As my company’s administrator of our healthcare and pension plans, I know that our healthcare insurance premiums have increase significantly over the past seven years under Obamacare. Up 25% from last year alone. My employer has not changed our healthcare plan yet but we went from 0% co-sharing premium costs to 20%. For single and family coverage, this 20% represents thousands of dollars in additional costs for the employee. I am under a mandate to find a cheaper plan but that may include high dollar deductibles that may push some employee’s cost to five figures.
Will Obamacare make early retirement easier? I don’t know. I do know that my American co-workers and those of my spouse are not saving or saving nearly enough for retirement. As a pension administrator, I see the amounts and the investment decisions of others and it’s both sad and scary. Saving $25 a paycheque or not even covering the employer’s matching minimum, will not cut it. Our American co-workers will not retire before the age Medicare kicks in and Social Security is maximized.
This Canadian uses the term FIRE when comparing it to my co-wokers situation. At least I have the option of returning to Canada’s universal healthcare system or adopting the Wanderer/Firecracker lifestyle that travel medical insurance provides.
SJF
There is certainly a subset of Americans who will have an easier chance at early retirement because of Obamacare. Prior to the implementation of Obamacare, there was no requirement that insurance companies cover folks with pre-existing conditions. This means that for a lot of people they did not have the option of retiring before Medicare age because they could only get insurance through an employer-sponsored plan.
The points about increased costs are certainly valid, and if there was a replacement plan that actually had mechanisms to decrease costs, then we should absolutely consider that. The problem with the current debate in the States is that the parties are not actually arguing about costs (as much as the posturing would make it seem otherwise). Instead they are essentially arguing about the government’s role in the health insurance market. The Democrats want the government to lean on insurers to expand coverage for more people while the Republicans believe that the government should step back and allow the free market to make its own decisions.
Does this money (~4k) you used to rebalance/invest come from dividends or blog revenue?
I’m using part of my cash cushion to fund this workshop.
Thoughts on HXT, HXS for Canadians instead of VCN, VUN?
I know dividend tax rate is good in non-reg, but how about having no dividends which reduces income and increases your Canada Child Benefit? Still in accumulating stage and not quite needing dividends to live off yet.
HXT and HXS are run by Horizons, which is fine. Their fees seem reasonable as well (< 0.1%). But HXT is tracking the TSX 60 and HXS tracks the S&P 500. VCN and VUN are total stock market ETFs so include more small and micro-cap stocks. That being said if I had to choose HXT/HXS (like if your plan only offers those), I'd be fine with it.
China has lower cost medical care … a dollar or 2 etc to see a doctor ..specialist and VIP service for more …. Most/many jobs in Beijing help you get a government social / health insurance card and / or private health insurance…. etc… you can also pay your own insurance fees etc…Cost of living here in China’s many cities is relatively cheaper for the most part … except maybe for the bigger places… You can even retire in the subtropical south… with coconut trees etc … rent on Hainan etc is inexpensive..God Bless, Your Canadian…. in Beijing, China
I spent much of the past 10 years living in China. Yes the healthcare costs are much lower, but the quality is extremely variable. Their health care practices are very different than from the US. And you have to deal with hazardous air quality in any big city.
“OBAMACARE MAKES EARLY RETIREMENT EASIER AND MORE SECURE”
This is definitely not true for me. Two years ago when I was laid off, I didn’t find a job within the 60 grace period that I was allowed to not have insurance coverage. The ACA charged me a penalty for the 17 days I was uninsured. My options were purchase health insurance to cover me for the 17 days or pay a penalty to the government. I chose the penalty because it was the cheaper of the options.
This year my insurance premiums went up 26% for almost the exact same coverage.
Maybe the ACA is good for post FI but it’s definitely not helping me get there any quicker.
Curious what you guys do for healthcare. When we left on our 2 year sabbatical we registered with OHIP in Ontario for our extended absence as if you don’t, you can lose coverage, I think after 6 months. No idea how they track this, but I’ve had former classmates get notified just because they spent too much time working abroad for an Ontario based company while others seem to slip through the cracks.
When we came home we filled out the forms to say we were back and weren’t allowed to spend more than 30 days within the first 6 months outside of Ontario to maintain health coverage. To do another 2 year absence requires us to reside here for 5 years!
As any Ontarian that has travelled on an extended basis knows, the standard travel health insurance policies don’t cover anything beyond 6 months – the time period that the government plan will share the costs. We opted for a plan where we had a 5k deductible for our travels as it was an amount that wouldn’t bother us in a real emergency, but capped the potential outlay as we had a number of US ports of call on our itinerary.
But, I’ve spoken to and read blogs of other travellers that note that outside of the US and Canada and a few parts of Europe it is quite affordable to pay as you go, so insurance isn’t worth it.
Presumably you are coming up on your 2 years soon, and based on your enthusiasm for travel, a 5 year duration travelling Ontario doesn’t seem to be in the cards just so that you can maintain government health care. Are you going the self insured path given that you enjoy the low cost of living countries, or do you have some form of supplemental plan that you use?
You can travel for 5 years for non-profit work. Because we work/volunteer for a non-profit this applies to us.
Even if you lose OHIP, it gets re-established after 3 months once you come back to Canada. So during that time, we can just self-insure for 3 months. This is exactly what our friend from the Caribbean does. She’s been away from Canada for 10 years. Every time she goes back to visit family, she just self-insures until the 3 months are up.
Hey Wanderer,
I looked back through a few of the older posts in this series, but I couldn’t find an answer to my question.
As a Canadian, would it be stupid to buy VTI ? I know we’d get screwed right now with the where the CAD is at. Any other reason(s) it doesn’t make sense.
Thanks in advance
Colby
I’m Canadian, and I own VTI. What are you worried about, exactly?
What I’m wondering is there any advantages/disadvantages to owning VTI (in US) vs. VUN (in CAD) as a Canadian.
Ah. Well, VUN is CAD-hedged, so they use options to hedge out currency risk. So if the underlying index goes up 5% and the USD/CAD exchange rate goes up 5%, you get 5%. For VTI which is not currency hedged, you would get 10% from both effects.
However, the underlying stock market is still traded in USD. It’s rare that a stock market grows while its currency weakens. This would only happen if for whatever reason, the CAD strengthens relative to the USD. So by using currency hedging, you are essentially betting on the outperformance of the CAD versus the USD.
Personally, I don’t like taking a strong position one way or the other from a forex perspective, so I chose to not use currency hedging to remain neutral on the matter. You can go ahead and use VUN if you want, just know that you’re taking a position on the loonie outperforming the greenback.
so you guys buy both VTI and VUN to remain neutral ?
I just can’t wrap my head around whether it’s more strategic as a Canadian to buy VUN or VTI. I imagine in the long term the differences would be negligible.. or would they?
Thanks for the discussion regardless!
First of all, I would like to say you guys are the bomb(dot)com!Thanks for all the information you have shared, me and my fiancé literarily binged read your entire blog in 3 days! I kid you not. We are super excited to get the ball rolling!
We have a question we would like to ask (not sure if you covered it, there was so much that we read). If we qualify for the Admiral shares of the Vanguard funds, can we just purchase those instead of the ETFs?
Our plan was to do:
VBTLX – 40%
VTSAX – 30%
VFWAX – 30% (should we just scrap this and just do 60% VTSAX?)
Please let us know what you think, thanks in advance for your help! You ROCK!
Wow, hats off to you guys for reading all our insane ramblings without going insane. Kudos!
And to answer your question, yes, you can buy those funds. It’s up to you want a 60% VTSAX allocation or 30/30 split between the US and international fund. We like having international exposure (especially given the uncertainty of the Trump presidency), so we would advocate for the 40/30/30 split.
Thanks a bunch for getting back to me so quickly! Awesome advice! Looking forward to your future articles.
Your biggest fans – Adolfo & Outtara
p.s. My fiancé loves your humor in your articles, hopefully next time your in the states we can catch something to drink!
I was curious what would happen to retiree in USA, if Obama care goes away. As someone mentioned above, the group with pre-existing condition would not be able to. What about people who are currently healthy. Or what about people, who wanted to be self employed, how were they able to afford healthcare before Obama care.