An Uncommon Cure for Physician Burnout

A recent Mayo clinic study concluded that almost 50% of physicians are experiencing at least one symptom of burnout. I actually think it's much higher.

Inevitably we're told to cope with burnout using a variety of methods. I take that to mean "Shut up and put up." Well, I've got a different solution for physician burnout. Watch my video where I explain my alternative solution:

How to Navigate Market Volatility

Here's a great interview with John Bogle, founder of Vanguard, on how you should navigate any market volatility. Get through the commercial and watch this video. It's definitely worth your while and will only take less than 4 minutes:

There are some great take home points that Bogle makes. I've added some of my thoughts on this as well:

1. You can think of the daily swings in the market as pure speculation. Speculators are trading with other speculators daily and causing wild swings in the market. In the long run, however, markets reflect the growth of economies around the world. If you're a long term investor, you participate in this long term growth.

2. I love it when he says that one day the markets act as if it's the apocalypse and the next day it's nirvana. Just scan the media headlines everyday. It seems like one day the markets plummet because they anticipate another recession and the very next day the markets soar because they anticipate higher economic growth. The point is, you just can't predict any of this.

3. Another timeless Bogle quote is to "Don't do something. Just stand there." Psychologically you're tempted to do something in investing--usually this means selling when the stock market goes down. But it's incredibly difficult to know when to get back in. And usually "doing something" causes more harm than good.

4. If you are going to do something, then rebalance your portfolio within reason. This means to buy stocks at lower prices. So if your target allocation is 70% stocks and 30% bonds, perhaps now you're at 65/35. That means you should rebalance back to 70/30 either with new cash flows or selling some bonds and buying stocks.

5. Is this a "new normal" in investing? I'll write more about this in future posts, but according to Bogle, the boring buy and hold strategy of investing still works if your time frame is long enough. Remember that the timeframe for your portfolio is your entire investing lifetime not just until the day you retire.

6. Finally a great point made here is that you have better things to do with your life than to look at the daily speculative swings in the market. Don't let it distract you from the truly important things in your life--your family, your health, and your career. A well structured portfolio--like the ones I create for my clients--frees up your time to focus on the truly important things in your life.



6 Simple Tips To Embrace Stock Market Panics

What should you do when the market panics? Embrace the opportunity!

The world seems to be coming to an end, markets around the world have had steep drops, and investors are racing for the exits. But if you've got a sound long term investment plan and you've created a well structured portfolio, you shouldn't be panicking at all. No, you should actually be taking advantage of the market panic.

When I worked in the ER, my colleagues called me a pessimist. Rising malpractice premiums, flat reimbursements, increasing workload…there really weren't any good trends in emergency medicine. Similarly, all you're hearing right now in the financial markets is a bunch of bad news: US debt losing it's AAA rating, Europe's debt crisis, high unemployment, slowing economic growth, and so on. There's almost nothing positive in the news right now. While the skies are covered with doom-and-gloom clouds, here are some great reasons to like (dare I say enjoy?) market panics:

Reason #1: Buy cheap stocks

I love Wal-Mart. I actually get a thrill from buying everything from groceries to jeans for some dirt cheap prices. When it comes to investing, however, it seems counterintuitive to buy when others are selling. “Buy low, sell high” seems so easy to say but so emotionally wrong to do. After all there is a cliché in investing which says that the best time to buy stocks is when there is “blood in the streets.”

When perceived risk is high, stock prices go down because investors need to be compensated more for taking on risk. This means that future expected returns are higher. The problem is that no one knows when those returns will happen. But the point is that market panics allow you to buy at lower prices.

Reason #2: Buy more shares

Suppose you bought 20 shares of a stock for $50 per share for a total outlay of $1000. Then, nine months later the share price is $40, a 20% drop (bear market territory). Assuming you still believe in the merits of the investment, you can now purchase 25 shares for the same outlay. This technique, known as dollar cost averaging, assures you that the average price per share is lower than the average of the two prices because you have bought more shares at the lower price. More aggressive investors can use a technique called value averaging, whereby you buy enough shares to obtain a desired dollar amount. In the example above, to end with an investment amount of $2000, you would actually buy 30 shares of stock at $40. These techniques do not assure you of any gain or avoid losses because the stock price can go even lower, but at least it does assure you of reducing your average purchase price.

Reason #3: Reduce your taxes

If my portfolio is tanking, I may as well let Uncle Sam feel some of the pain. If you sell a stock for a loss, you can deduct up to $3,000 of the loss against your ordinary income. If you're in the 35% federal tax bracket, the $3,000 deduction equates to a tax savings of $1,050. Also, if your losses exceed $3,000 you can actually use the excess losses as deductions in future tax years indefinitely. While tax deductions imply stock losses, they also act as cushions to soften the blow.

Reason #4: Dump your losers

Have you gotten emotionally attached to your investments? Market panics should make you question why you bought a particular stock or mutual fund in the first place. Did you buy the stock because you researched the company’s balance sheets, quarterly reports, and financial ratios? Or did you buy the stock because you overheard a surgeon in the doctor’s lounge boasting about how he made a 50% return in just two months? (If this happens, I suggest you ask him why he’s still working 70 hours a week).

Even if you bought a stock or other investment which has positive returns, bear markets are good times to sell those investments if you should not have been purchased them in the first place. One strategy here is to sell these winning investments and avoid a taxable gain by offsetting those gains with losses from other losing investments.

Reason #5: Gauge your risk tolerance

For most investors risk tolerance is directly related to stock prices: in bull markets risk tolerance increases, and in bear markets risk tolerance plummets. One way to determine your willingness to take risk is to evaluate your emotional response to this year’s bear market. There's no better way to know your true risk tolerance than to lose a truckload of money in a short amount of time. Did you sell and invest in cash, or did you load up on Citigroup as it tanked almost 20% today? Another way is to quantify this risk by determining your maximum drawdown, which is the highest percentage loss you are willing to accept before selling an investment. Determining your maximum drawdown over one, three, and five year periods can help you build a more disciplined portfolio and stick with your investment strategy when the next bear market comes out of hibernation.

Reason #6: Appreciate your job

If you've got a job that's pretty stable, savor it. For example, while there are numerous challenges to practicing medicine today, one thing is certain—the demand for physicians and other health care providers and health care affiliates (pharmacists, PAs, nurse anesthetists, etc.) is strong. In effect, your income is similar to a bond in the sense that there is low risk of default (unemployment). If you're a physician, your period of extended “unemployment” occurs right at the beginning of your career (medical school and residency). If you consider your career as a bond, you can actually take a bit more risk with your stock portfolio. While other professions and industries layoff workers, it seems nearly every week my mailbox is flooded with emergency medicine job opportunities across the US. My investment portfolio may be struggling, but my value in terms of human capital is stable. Market panics should make you appreciate the stability of your career.

And finally remember that stock market panics are a normal part of investing. If you don't have a solid investment plan that's addressed potential losses you could suffer in your portfolio, then you need to get one...now! And that's one way I help my clients stay disciplined during market panics.

Keep It Simple

It’s ridiculous how complex most patient visits are. It’s not our fault — we’ve got to deal with legal issues, patient satisfaction, understaffing and so on. Instead of telling the patient, “It’s just a cold,” we order a CBC, CXR and nebs. A patient with every complaint in the book — I like to call positive review of systems — gets a CT scan when really we should just say “You’re crazy!”

That’s similar to how I’ve seen many of you or your financial advisors manage your money — making things far more complex than they should be. So let’s apply Ockham’s razor to your finances and simplify your financial life.

Too many accounts

Do you have more than one IRA? Perhaps you opened one years ago at Scottrade and then another with a mutual fund company. Maybe you have another with your financial advisor. What about your 401(k) from your previous group or employer? Is it still sitting in the same place with poor investment choices and high-cost funds? If that’s the case, then it’s time to consolidate.

Rather than have multiple IRAs spread out over multiple custodians, combine them into one IRA. You can even combine your traditional IRA with your Simplified Employee Pension IRA and transfer your old 401(k) in as well.

Lump your spouse’s taxable account with yours and see if your 401(k) allows incoming account transfers.

Instead of having a separate checking account for personal expenses, make your taxable investment account act as your bank account.

Too many investments

When you’ve got too many accounts you’ve also got too many investments.

Here’s a real example of a physician’s portfolio I reviewed recently:

• 150 individual stocks
• 30 individual bonds
• 80 mutual funds

How in the world do you keep track of all this? Imagine the number of transactions--buys, sells, dividends paid, dividends reinvested, capital gains distributions, stock splits, etc. If you’ve got a taxable account, you’ll have to hire a CPA just to keep track of this.

Do you or your advisor really think you can adequately research so many companies and money managers? Think about the financial statements, charts and economic data you have to pour through. Is this really worth your time and money?

Then there’s the illusion of diversification. Sure, you’ve got a ton of funds and it looks sophisticated. Suppose you own all of these funds:

• American Funds Growth Fund of America
• AllianceBernstein Wealth Appreciation Strategy
• Oppenheimer Main Street Opportunity
• Davis New York Venture Fund
• Wells Fargo Advantage Capital Growth

The fancy sounding names might make you feel good, but it turns out all of the funds are invested in the same asset class. That means there’s a ton of overlap in their underlying holdings. If you think you can pick the winning money managers, just pick one fund and toss the rest. Better yet, if you own a bunch of funds in the same asset class, you own the asset class in an inefficient way. Why not just invest in the Vanguard 500 Index Fund and be done with it?

The bottom line: Consolidate your investments and your accounts to simplify your financial life.

The Importance of Investment Benchmarks

I dare you to ask any of your colleagues, or even your financial advisor (if you have one), about how their investments are doing.

Most people will say something like, "I'm doing fine" or "I don't know."  Most advisors will simply print some standard brokerage report for the accounts they're managing and tell you the return number.

Either way it's wrong.

One problem is that most people and advisors don't look at the whole picture, which includes your and your spouse’s investment accounts, including your 401k accounts.

The second problem is that most people don't use the appropriate benchmark. A common mistake is that people compare their investment returns with the U.S. stock market averages. But if your overall portfolio contains some bonds and international stocks it is no longer valid to compare your portfolio to a benchmark that consists only of U.S. stocks.

So what you need to do is break down your entire portfolio into its components and then design an appropriate benchmark to evaluate investment performance.

For example, let's say that your portfolio has 50% in U.S. stocks, 20% in international stocks and 30% in bonds. The appropriate benchmark to use is a combination of a U.S. stock index, an international stock index and a bond index in the same proportions as your portfolio.

However, you must realize that your portfolio percentages will change as each asset class has different returns. This will throw off your comparisons to appropriate benchmarks, which will be static.

Finally, if you have an advisor who is trying to sell you a mutual fund that has "beaten" the market, one of the first things you should do is look at what benchmark the fund is using to make its claim of outperformance. If you do this, the outperformance goes away for the vast majority of funds that claim to have skillful money managers.

The bottom line is that when you look at your portfolio performance, look at the whole pie not just the pieces. And make sure you're comparing it to a relevant benchmark.

In future articles, I’ll discuss different ways of calculating investment performance. It looks deceptively simple, but in reality it’s more complex.
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The Art of Extreme Saving

“The most powerful force in the universe is compound interest” -- Albert Einstein

I always find other people’s stereotypes about doctors amusing. Here’s one typical encounter that happens every so often:

As I’m placing the last chart in the discharge rack, a nurse unexpectedly asks me “What car are you driving home?”

“What car do you think I drive?” I respond. “I bet he drives a Beemer,” shouted a tech.

“I parked next to a BMW, but I drive an 11-year-old Honda with over 200,000 miles on it,” I say.

“Yeah right. Then what do you do with all that money?”

“After buying my groceries at Sam’s Club, I save it,” I reply, as I wave my still remoteless keys.

I’ve met many physicians who think “save” is a dirty four-letter word. They spend everything and live paycheck-to-paycheck. So let’s explore what some of the few simple principles of saving can do for you.

Over the past 10 years of practicing emergency medicine, I’ve realized one of the most powerful but underrated techniques to achieve financial independence: Making the most of compound interest. Compound interest simply means the interest which accrues on interest.

For example if you have $1,000 invested at an annual interest rate of 10%, then after one year you would have $1,100 ($1,000 original investment and $100 of interest). After the second year you would have $1,210 ($1000 original investment, $200 of interest on the original investment, and $10 of interest on the first year’s interest).

Combining saving with compound interest leads to my three “S’s” of saving:

1.    Save early
2.    Save often
3.    Save more

How effective are these principles of saving? Let’s consider three physicians in different stages of their career: a 30 year old (newbie), a 40 year old (mid-career), and a 50 year old (late career). Let’s assume that each one wants to retire at age 65 with a $2 million investment portfolio and each has a gross annual income of $200,000. Let’s also assume an 8% annual investment return. For this discussion, we will ignore inflation and taxes.

Save Early

For the 30 year old to reach $2 million by age 65, he would need to invest about $11,500 per year, which is less than 6% of his gross income. The 40-year-old physician would need to save $27,000 per year, or about 13% of gross income -- still an obtainable goal. The 50 year old would need to save more than $73,000 per year, or a whopping 36% of his income.

If the 50 year old has two-college aged children and a home mortgage, he may need to delay retirement, cut expenses, underfund college savings, or work more to earn more income (assuming that he stays healthy enough to do so). Looking at it another way, the 50 year old needs to save over six times more money per year than the 30 year old to achieve the same portfolio value at age 65. How many physicians can do that?

Next time, I’ll discuss the other 2 principles of saving.

Physician Investing: Why Indexing Works

Watch this short video from Vanguard to learn why index funds beat actively managed funds.

Here are a few highlights from the video:

1. Investing is not a zero sum game but active management is a zero sum game. What this means is that when you invest in the market you are expected to be rewarded over long periods of time with market returns. As a group active managers must have the same performance as index funds BEFORE fees. After fees, active managers as a group always underperform an index. This has to be the case because the market is made of active managers and passive investors. So if the passive investors are getting the market return then it has to be the case that active managers are also getting the market return.

2. There will always be active managers from one year to the next who outperform an index. The problem is that the active managers who outperform in one year are unlikely to repeatedly outperform in the next few years.

Remember that active managers are smart people. I'm not suggesting they are dumb or incompetent. What I'm saying is that the competition between active managers is so high that it's almost impossible to outperform an index consistently in the long run.