Financial Planning Tips for Medical Residents: DIY Model for TFSA and RSP
Maria had a well-paying job before Medical School and thus has investments managed at her old company and now only modest debts in her fourth year of residency. She is not impressed with the returns on her investments and wishes to manage them herself. We discussed her goals which included more direct control over all her finances.
Maria is highly confident and used to being in control. She contacted her previous employer and had her TFSA and RSP accounts transferred to a discount brokerage she chose; the accounts were moved as cash and not “in kind” which meant that the manager of her accounts sold the stocks and mutual funds they had acquired on her behalf and moved the cash proceeds instead of the securities. She then selected exchange traded index funds with 70% of her RSP in a US index fund and 30% in a high paying dividend fund. Her TFSA was then all put in a CND high paying dividend fund to avoid US withholding tax that applies to TFSAs but not RSPs. Maria plans to contribute monthly and rebalance annually. Obviously, she may change her mind about this allocation over time, but this makes sense to her at present.
KEY CONCEPTS:
A DIY approach is not for everyone but can suit certain individuals.
Those who chose this model can still have a very simple technique.
Consistency is always important, but modifications to fit changing circumstances and interests often make good sense.
Real-Life Insights for Young Medical Residents:
DIY Financial Management: Maria's decision to manage her TFSA and RSP independently underscores the appeal of hands-on financial control during residency, enabling her to align investments more closely with her financial goals and risk tolerance.
Cost-Effective Investment Strategies: By opting for exchange-traded index funds (ETFs) within her RSP and TFSA, Maria minimizes management fees while diversifying her portfolio across US and Canadian high-paying dividend funds, aiming for optimal long-term returns.
Tax Optimization: Maria strategically places her Canadian high-paying dividend fund within her TFSA to avoid US withholding taxes, maximizing her investment growth potential within this tax-advantaged account.
Flexible Financial Planning: Maria's approach includes monthly contributions and annual rebalancing, demonstrating a proactive strategy to adapt her investment allocations based on changing market conditions and personal financial goals.
Maria's proactive approach to financial management during her residency offers valuable lessons for young medical professionals navigating early career challenges. By taking control of her TFSA and RSP investments through a DIY strategy, she not only aligns her financial goals with her risk preferences but also optimizes her portfolio for long-term growth. Maria's emphasis on cost-effective ETFs and tax-efficient investing underscores the importance of informed decision-making and flexibility in financial planning. Her disciplined approach to monthly contributions and annual rebalancing reflects a commitment to adapting strategies to meet evolving financial circumstances. These insights provide a roadmap for fellow residents seeking to build financial security and independence amidst the demands of medical training.