Physician Income?

By Mehul Sheth DO

When giving talks on personal finance to medical students and residents I see that 'look' in the eyes of my audience.

It’s a look that says “you can make it sound easy, but that’s because you’ve written articles and given talks about it.”  This is despite my introduction specifically mentioning that I was naive about money and investing prior to starting medical school.  I was incredibly fortunate to grow up in a family that followed the tradition of supporting kids in their education, allowing me to focus on my academics.  I did have a number of jobs growing up, including working three part time jobs in college at once, but no one except me relied on that income-unlike now, when my wife and three kids depend on my job to pay off our bills.  I was naïve enough about money that I believed the prevailing thought during medical school to not worry about the hundreds of thousands of dollars of debt we were accumulating-we were going to be doctors after all!

This laissez faire attitude gave way to anger.  During medical school and residency I couldn’t help but look around at those treating us so nicely with some distrust.  Why is a financial advisor so excited to buy me lunch?  Why are physician recruiters so interested in helping me find the right job?  Why are banks willing to give me a 100% loan based on an employment contract and not actual pay as most of America now has to?  The answers to these questions were what made me so mad-that physicians are easy to take advantage of.  I have a number of friends in the world of finance and when I talked to them they told me what I already suspected-docs are easy targets.  We have that rare combination of high-end, steady income and low interest or knowledge on matters of money.  Because of this there are a lot of folks who would like to help make our lives easier by taking a slice of our income.  A great parallel is the band TLC from the 90's.  Despite being quite succesful, they filed for bankruptcy, partly based on the fact that there were too many people taking too many pieces of that pie.

So I decided to see if personal finance was really that difficult to figure out.  The financial advisors had come in talking about 401(k)’s and Roth IRA’s and tax implications, making it sound daunting enough that I didn’t even want to look into it.  What I learned was incredibly surprising-with a little bit of interest and about 1 hour a month you can learn everything you need to know about personal finance.  I was lucky enough to start during residency and with that little bit of time commitment I have handled all my personal finances without the help of an accountant, financial advisor, or tax-man.

The key is that when you are in residency you don’t have much money coming in.  Which also means that there’s not much to do-setting up a Roth IRA is about it.  I used those years to learn about the Roth and filing my own taxes-much easier than you think.  As my family expanded and my investments diversified, I spent about 2 hours a month on average keeping up with all of it.  I now manage our daily finances, 4 retirement accounts, 2 investment properties, 3 kids college funds, a full time job and a number of consulting jobs with income-all without outside help.  And the beauty is that you can also.

Where I started is more and more surprising as I get more into personal finance-Suze Orman!  As a relatively more sophisticated investor now, I find some of her advice appalling, but she was the perfect fit as I was getting my feet wet.  I used her book-Suze Orman’s Financial Guidebook-to walk me through some of the basics of personal finance. It was incredibly simple and with those small pieces of success my confidence built.  There are hundreds of great authors on finance-Robert Kiyosaki, Benjamin Graham come to mind-but Suze does an amazing job of giving black and white answers when you are just starting out.

If you find that there are too many cooks in the kitchen, then pick up Suze Orman’s Workbook and take back some of that control.

About: Mehul Sheth DO is a physician executive with Allscripts and career coach. His expertise is at the intersection of medicine, technology and social media, having used Twitter, Facebook, and LinkedIn to effectively engage with a wide variety of nonclinical jobs and opportunities. Dr. Sheth is accessable via his LinkedIn profile and his blog at http://techpedsdoc.wordpress.com

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Physician Investing: The Most Important Factor For Your Portfolio Value

Even with all of the new drugs, technology, and procedures in medicine today, there are certain things beyond your control.

For example, if we get myocardial infarction patients to the cath lab within 30 minutes, there will still be a certain percentage with a poor outcome. It’s something we have to accept.

But when it comes to investing, physicians don’t accept the fact that most things are beyond your control. Let’s say you have a choice of doing one of two things with your investments:

Choice A: Focus on things you can control.

Choice B: Focus on things you cannot control.

Which one would you choose? Obviously it’s choice A. The problem is that physicians who manage their own investments and financial advisors who manage investments for physicians overwhelmingly focus on Choice B.

By that I mean focusing too much on investment returns -- unfortunately, no one has control over that. Sure you can reduce risk by diversifying, but no one knows what investment returns are going to be today, tomorrow, next week, next month, or next year. And certainly not over the next 30 years.

Herein lies a great paradox of investing. While investing is aimed at generating a rate of return on a portfolio in order to increase the value of that portfolio, it’s actually far less important than the one thing that has the greatest impact on the value of your portfolio.

That one thing? The dollar amount of your annual savings. Most physicians and financial advisors gloss over this.

Let’s take an example. At the beginning of your investing career, you start with a portfolio value of exactly zero. Assume that you save $50,000 every year. (If you are making $300,000 or more every year and you are not saving at least $50,000, you’re doing something terribly wrong.)

After one year you have a $50,000 portfolio. If the market drops 20%, you’ve lost $10,000 leaving you with $40,000. But the next year you add another $50,000 so your portfolio is now $90,000. If your portfolio increases by 20% in the first year, you would have $60,000 and then after adding another $50,000 you end up with $110,000. The point is that no matter whether your portfolio has positive or negative returns, the value of the portfolio depends much more on the amount you pump into it -- your annual savings.

Even midway through your career the math still makes the savings rate rank high. For example if you have a $500,000 portfolio and the market drops 20%, you’re left with $400,000, but the next $50,000 you save brings you back up to $450,000. You’ve recovered half the loss with your next contribution.

It’s not until your portfolio reaches far higher values that investment returns take over. At $1 million, a 20% loss brings you down to $800,000 so pumping in $50,000 only brings you back up to $850,000. At $2 million, you’ve lost $400,000 leaving you with $1.6 million, so the next $50,000 of new money doesn’t have as much of an effect on your portfolio value. On the flip side even a 10% gain at those portfolio values increases your portfolio by an amount greater than what you put into it annually.

But here’s the irony. To get to those higher portfolio values (when investment returns take over) you have to build up to that level from smaller portfolio values. And since your annual savings dominate your portfolio values when your portfolio value is small, ultimately your savings is the most important determinant of the value of your investment portfolio in your investing lifetime.

Physicians: Buy a Business?

In my last post I discussed the definition of a true asset and noted that businesses are a type of asset that can produce income for physicians.

Great, you say, but how do I develop or buy a business?

Well, there are numerous ways to purchase or develop a business, but one avenue that I doubt many physicians consider is the use of business brokers.

Business brokers are companies that help match business owners with potential business buyers.  Even if you're not currently interested in purchasing a business it is interesting to surf the website of a business broker since you can search for companies for sale by state, county, or even category of business.  Examples of online business brokers include Sunbelt and BizBuySell .

Of course, always do your research before you consider buying a business of any sort, but if you're looking for a place to start, a business broker can get you thinking about the possibilities.

Mid Career Physicians Blew a Great Opportunity

Everywhere I go I see unhappy doctors.

All everyone does is complain about rising malpractice premiums, more paperwork, declining pay, and 60 hour workweeks.  This includes physicians just graduating from residency and physicians who’ve been practicing medicine for several decades.

All of those complaints are legitimate, but one question I always have in my mind about the physicians who are in their 50s is “Why are you still practicing medicine full time?”

I keep hearing about the “golden age” in medicine. I don’t know what that means, but I assume it has something to do with making more money than we do now.

Suppose you’re a 55 year old physician and you’ve been practicing medicine for 25 years full time.  If you absolutely love it, that’s great. It’s your passion so go for it. But for the rest of you (which is the majority I think) who are in your 50s, who experienced the “golden age” in medicine and are still practicing full time and complaining, I've got to be blunt: you have failed miserably in your investment career.

What do I mean by this? Let’s say you graduated from residency in June 1985 and started making some money. Suppose you socked away on average $25,000 per year in the US stock market each year for the past 25 years starting in January 1986.  The US stock market as represented by the S&P 500 index had an average annual return of 9.9% in that period.  So over 25 years your investment portfolio should be at least $2.5 million.

And that’s with putting away only $25,000 a year on average. Bump that up to $50,000 every year—which is an entirely reasonable and attainable amount for a physician to invest every year---and you should have at least $5 million in the bank.

Even if you invested only in bonds you’d have about $1.7 million saving $25,000 a year and nearly $3.5 million saving $50,000 a year. This is based upon the US aggregate bond market index.

How many of you actually have that? Sure a few you might, but I’d bet that the vast majority of you don’t. And I also bet that the reason you’re working full time right now is because you realize you didn’t save enough and invest well. Common reasons why you have a meager portfolio value are:

1. You spent every penny you made
2. You didn’t save enough because you overspent
3. You took way too much risk and got burned
4. You hired a commission based financial advisor who put you in inappropriate investments
5. You invested in speculative investments like restaurants, limited partnerships, or hedge funds, and they tanked
6. You got divorced.

Now you feel trapped in your current situation.

So if you are a physician in your 50s or older and are complaining about your situation, you completely blew a phenomenal time to invest and really don’t have anything to complain about except your missed opportunity. You should have enough to walk away if you want. If you don’t and unless you jump up and down in joy every time you go to the hospital or when you’re on call, it’s time to crack the whip and get moving because the next 25 years are going to be a challenging environment to practice medicine to say the least. And if the chatter I’m hearing is accurate, I don’t think you want to practice medicine full time until you’re 80.

Wealth Enhancement: Build Your Portfolio

As a physician, is your wealth manager asking you the right questions to manage your investment portfolio?

In a previous post I discussed the most important step in getting your financial life in order—and that’s to determine exactly what your goals are. Everything you do falls into place and has a purpose based upon your financial goals.

Then, before actually building wealth you need to protect what you already have and proactively protect what you will have through appropriate asset protection and insurance planning. 

Only after you’ve done that can you focus on building your wealth to achieve the goals you’ve set.

Wealth enhancement can be broken down into 2 areas: investment portfolio management and retirement planning.

One of the things that irks me about most financial advisors is that they dump their clients money into a mishmash of investments without any sense of purpose or figuring out how much risk you really need to take in order to achieve your goals. They also typically look at investments in isolation to the rest of the wealth enhancement process, and that’s a mistake.

So what are the questions you or your advisor need to answer before implementing a wealth building strategy?

Here’s a start:

1. How much risk are you able to take in your investments?
2. How much risk are you willing to take in your investments?
3. How much risk do you NEED to take in your investments to achieve your retirement goals? (This is THE most important question)
4. What is the proper mix of investments (asset allocation) that meets your ability, willingness, and need to take to risk?
5. How will you change your asset allocation as your age and as your life circumstances change?
6. How do you properly diversify an investment portfolio?
7. What specific investment products do you need?
8. What specific investment products should you avoid? (This is just as important as determining what you need)
9. How do you minimize taxes in your portfolio?
10. How much do you need to save to meet your financial goals in retirement?
11. What are the chances that you will meet your retirement goals?
12. What options do you have if you cannot meet your ideal retirement goals?
13. How do minimize the chance of outliving your money? (This is THE ultimate goal of any financial plan)
14. How does inflation impact my future spending and how does that effect my savings rate and asset allocation?
15. How do I allocate investments across different accounts?
16. What is the role of annuities, and do you need an annuity?
17. Which type of retirement accounts are appropriate for me (IRA, SEP IRA, solo 401k, etc.)?
18. Should I invest money in Roth accounts or traditional accounts?
19. When should I take Social Security?
20. Do I need long term care insurance and if so how much and what type?

As you can see your financial plan is not just about investments It’s about integrating your investments with the other critical parts of wealth enhancement and ultimately your comprehensive wealth management plan.

Dr. Setu Mazumdar Joins Freelance MD

Freelance MD today announced the addition of Dr. Setu Mazumdar as a contributing physician writer covering physician investing and wealth management.

Dr. Mazumdar is an affiliate of the National Association of Personal Financial Advisors (NAPFA) and a member of the Financial Planning Association (FPA>, the National Association of Tax Professionals (NATP, and the American College of Emergency Physicians (ACEP).

"Setu is a great resource for our physican members." said Jeff Barson, Freelance MDs Founder. "Dr. Mazumdar is a passionate proponant for physicians and offers level-headed advice and fantastic insight that set him apart. We're excited to have him on board as a contributing writer."

As a Freelance MD physician contributor, Dr. Mazumdar will be writing on both wealth creation and wealth management for doctors.

About Dr. Setu Mazumdar
Setu Mazumdar MD graduated as the valedictorian of Woodward Academy, the largest independent day school in the US. He then attended Johns Hopkins University and was admitted to the Phi Beta Kappa honor society for ranking among the top 1% in his class. After earning his MD degree from Johns Hopkins School of Medicine, he practiced emergency medicine in Atlanta, GA. As his passion for financial planning and investment portfolio management grew, he completed the CFP Board registered professional education program and passed the rigorous 10-hour CFP Certification Examination. He then worked for a finacial planning firm in Atlanta before launching his own wealth management firm, Lotus Wealth Solutions.

About Freelance MD
Freelance MD is an active community that gives physicians around the world intelligent information to gain greater control of their medical practice, income, and lifestyle.

Dr. Gary Taff Joins Freelance MD

Freelance MD today announced the addition of Dr. Gary Taff as a contributing physician writer.

Dr. Gary Taff brings a unique perspective to Freelance MD with broad experience in both occupational medicine and real estate investing.

"Dr. Taff is well-know as a principled physician who teaches other doctors how to get started as real-estate investors." said Jeff Barson, one of Freelance MDs Founders, "but Dr. Taff's expertise also extends to occupational medicine. We're excited to have him on board."

As a Freelance MD physician contributor, Dr. Taff will be writing on both real-estate investments for physicians as well as occupational medicine.

Despite previously negative experiences of "buying high and selling low", he started with $20,000 capital, and used equity sharing, intensive market research and an eye for buying the best deal in emerging small to medium- sized markets. This plan allowed Gary to purchase 190 properties in 13 states over a five year period. The portfolio spanned a wide range of residential properties from single family homes to condos, duplex to fourplexes, rehab projects, condo conversions and multi-unit apartment complexes. Gary is most proud of the fact that his portfolio has achieved a 39% per annum appreciation rate, mainly based on buying below market value.

Over the past two years, Gary has turned his attention to wholesaling, in which he buys multiple properties at significant discounts and then sells or assigns the properties to investors at prices below current market values. He has served as the Northern California Area Manager for a nation-wide clearing-house type of real estate network, as well as other real estate networks. He has given several seminars on value investing, use ofleverage, understanding and taking advantage of the five stages of a real estate cycle, and working with wholesalers.

About Dr. Gary Taff
Born in New Jersey, and schooled in New York City, Gary followed a well-worn family tradition by becoming a physician. As a foreshadow of a life- lon~ tendency towards ''getting there first", he started college at the age of 16 and became a doctor after just turning 23.

Gary attained Board-Certification in Emergency Medicine in the first year of that field of medicine's recognition as a specialty. He went on to direct several hospital emergency departments in Southern California. In 1983, Gary opened one of the nations' first urgent care centers. He grew that first site into a seven medical center, 70 employee, 60,000 patient visits-per-year medical group. This achievement earned Gary several awards, including the California Inland Empire Crescendo Award, Small Business Person of the Year and finally, Ernst and Young's Entrepreneur of the Year in 1993.

Gary sold his medical group in 1998 at the peak of the health-care market cycle, and moved to Northern California. After creating a hospital-based occupational medicine program and directing an ambulance company, Gary turned his attention to real estate investing.

About Freelance MD
Freelance MD is an active community that gives physicians around the world intelligent information to gain greater control of their medical practice, income, and lifestyle.