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.

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.

The Physician's Guide to Investing

I wanted to recommend a book that I have been reading entitled The Physician's Guide to Investing by Dr. Robert M. Doroghazi.

The first edition was published a few years ago and received rave reviews from numerous people and institutions including renowned investor Warren Buffett and the American Journal of Cardiology.  A more recent edition will be published in paperback next month. You can read an excellent review of the book here .

The book is a fantastic read and offers much excellent advice about debt, saving, budgeting, insurance, and investments. While you might not agree with everything the author says, his writing style is easy to read and his financial perspective seems timely considering the economic conditions we find our country in these days.  

Pick up a copy of the book next month or visit Dr. Doroghazi's website here. Also, the majority of the book can be read on Google books.

Thanks to Dr. Doroghazi for this excellent contribution to medical education.