Investing Help

[YoungDoc25]

During my gap year, I have been lucky enough to save ~$10k. My fiancée is an RN and will be covering the bills during med school, so the only loans I will need to take out is for tuition. I could easily leave the ~$10k in a bank until I need it for something post residency, but I would much rather invest it in a IRA, REIT, or low-risk stock. Unfortunately, I am a complete novice when it comes to investing and am wanting some advice on whether or not this would be a good idea. Thanks!

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[ThoracicGuy]

During my gap year, I have been lucky enough to save ~$10k. My fiancée is an RN and will be covering the bills during med school, so the only loans I will need to take out is for tuition. I could easily leave the ~$10k in a bank until I need it for something post residency, but I would much rather invest it in a IRA, REIT, or low-risk stock. Unfortunately, I am a complete novice when it comes to investing and am wanting some advice on whether or not this would be a good idea. Thanks!

If you don't work, you can't put money into an IRA. You could put it in a taxable investment account, but a REIT would not be good for that due to the taxes that it would produce for you each year. If you get married, you could contribute to an IRA with the money.

Personally, I would park it in the highest earning savings account and use it as your emergency fund if you don't already have one. What happens if your car breaks down or you have another big issue that costs money? Having it tied up in investments could turn that into a costly problem.

 

[YoungDoc25]

If you don't work, you can't put money into an IRA. You could put it in a taxable investment account, but a REIT would not be good for that due to the taxes that it would produce for you each year. If you get married, you could contribute to an IRA with the money.

Personally, I would park it in the highest earning savings account and use it as your emergency fund if you don't already have one. What happens if your car breaks down or you have another big issue that costs money? Having it tied up in investments could turn that into a costly problem.

My big issue with a savings account is that it hardly keeps up with the inflation rate. I get what you're saying about an emergency fund though, and I was thinking more along the lines of investing 6k and putting the rest in an accessible account for that reason. I just feel like I'm wasting money by sitting on money, if that makes sense. I appreciate all of the info!

 

[ThoracicGuy]

My big issue with a savings account is that it hardly keeps up with the inflation rate. I get what you're saying about an emergency fund though, and I was thinking more along the lines of investing 6k and putting the rest in an accessible account for that reason. I just feel like I'm wasting money by sitting on money, if that makes sense. I appreciate all of the info!

Investing is important. If you don't have any real savings, that should be first. There are some savings accounts that offer over 1% APY on the savings with over $10k deposit. While this isn't as good as a stock index fund, bond fund, or other funds, without an emergency fund you don't really have the luxury of something more. The one investment that I would consider if it's possible, is an IRA. This, again, would require job income from yourself or a spouse - a fiancee doesn't count for this. You could then put $5500 into the account and not have to worry about anything. If you made at least $5500 during 2016, you can do this. I would put it in a Roth account rather than a traditional IRA as your tax bracket is likely to be low.

For the IRA, I like Vanguard and would put it in the total market index fund (VTSMX - can't do admiral shares unless you have $10k in it).

 

[YoungDoc25]

Investing is important. If you don't have any real savings, that should be first. There are some savings accounts that offer over 1% APY on the savings with over $10k deposit. While this isn't as good as a stock index fund, bond fund, or other funds, without an emergency fund you don't really have the luxury of something more. The one investment that I would consider if it's possible, is an IRA. This, again, would require job income from yourself or a spouse - a fiancee doesn't count for this. You could then put $5500 into the account and not have to worry about anything. If you made at least $5500 during 2016, you can do this. I would put it in a Roth account rather than a traditional IRA as your tax bracket is likely to be low.

For the IRA, I like Vanguard and would put it in the total market index fund (VTSMX - can't do admiral shares unless you have $10k in it).

I'm on pace to make around ~20k this year and that sounds like a good option to get a head start on retirement. I'll definitely look into it!

 

[wysdoc]

During my gap year, I have been lucky enough to save ~$10k. My fiancée is an RN and will be covering the bills during med school, so the only loans I will need to take out is for tuition. I could easily leave the ~$10k in a bank until I need it for something post residency, but I would much rather invest it in a IRA, REIT, or low-risk stock. Unfortunately, I am a complete novice when it comes to investing and am wanting some advice on whether or not this would be a good idea. Thanks!

Too many docs invest in REITs and then lose their shirts - sent you a message

 

[dempty]

Just to be clear-- an IRA is an account type with certain benefits. It's not an investment in itself. If you might need the money within a few years, you probably shouldn't put it in anything other than cash or a cash equivalent. If you can lock up the money for a while, pick a fund from Fidelity or Vanguard if you can find something with broad exposure, no load, and low fees (or pick a few funds that have 2,500 minimums); look at the fund's characteristics to get an idea for tax implications, too. Don't pay for an advisor or anything like that.

 

[TexasPhysician]

Too many docs invest in REITs and then lose their shirts - sent you a message

I think that too many docs lose their shirts in investing in general. Time for everyone to become a Boglehead.

 

[Redtwogreen]

Without knowing all the details of your financial situation, what your student loan repayment plan is, how much debt you are going to accrue paying only for tuition, etc take this with a grain of salt --but it might be worth your while to toss that 10k at tuition, depending on what your student loan interest rates are. I had some loans that were almost 8%. Its not impossible, but its not guaranteed (obviously) that you will earn that much interest if you invest.

 

[YoungDoc25]

Without knowing all the details of your financial situation, what your student loan repayment plan is, how much debt you are going to accrue paying only for tuition, etc take this with a grain of salt --but it might be worth your while to toss that 10k at tuition, depending on what your student loan interest rates are. I had some loans that were almost 8%. Its not impossible, but its not guaranteed (obviously) that you will earn that much interest if you invest.

I actually was starting to think similarly the other day. Most of the mutual funds I was looking into varied from 7-8%, which, like you said, isn't any faster than the rate my debt will presumably be growing at. I'm looking at ~30k a year in loans with an interest ranging from 7-8% most likely, so I am leaning towards throwing my money at the tuition.

 

[Redtwogreen]

I actually was starting to think similarly the other day. Most of the mutual funds I was looking into varied from 7-8%, which, like you said, isn't any faster than the rate my debt will presumably be growing at. I'm looking at ~30k a year in loans with an interest ranging from 7-8% most likely, so I am leaning towards throwing my money at the tuition.

That is for sure what I would do. Super jealous of you, just so you know!!

 

[YoungDoc25]

That is for sure what I would do. Super jealous of you, just so you know!!

Haha I appreciate it! I am very fortunate to be in this situation!

 

[QofQuimica]

OP, I agree with the suggestions that you should either use your money to establish an emergency fund (EF) if you don't already have one, put it toward your tuition, or some combination of both. I say this for three reasons:

One, the first rule of getting out of a hole is to stop digging. Every additional dollar you borrow is going to be more than an additional dollar that you have to pay back. So whenever you borrow money, that compounding of interest is working against you instead of for you. Thus, your goal should be to minimize your loans as much as possible.

Second, you will have unexpected expenses that come up while you're in school, because that's life. To have no cushion (ie, an emergency fund) is basically just asking to meet life's vagaries (car breaks down, need unexpected medical care, etc.) by taking on even more debt (such as putting it on a credit card). Ideally, you should have at least three months' worth of expenses in your EF, and six months would be even better. But don't go below three months worth of expenses in your EF.

Finally, on a more philosophical level, you are not in a position to be investing yet, because you don't have any real savings yet. Investing is not guaranteed: you can lose money as well as earn it, especially in the short term. So you need to be on a secure financial footing first before you start investing. I know it's hard to wait, but if you're going to professional school, the concept of delayed gratification isn't foreign to you. When you come out of medical school, and you're able to cover all your basic necessities as well as any unexpected expenses, and you still have a surplus, then you can start getting serious about investing.

Think about it this way: how would you feel if you invested that $10,000 and the stock market crashed and you lost half of your savings or more practically overnight? Right now, you aren't able to afford to lose $10,000 because it's all the money you have in the world. But as a resident or especially as an attending, you will be able to stay the course without having to sell low in a market crash, because you will have reserves and enough earning power to wait for the market to rebound. Does that make sense?

 

[YoungDoc25]

OP, I agree with the suggestions that you should either use your money to establish an emergency fund (EF) if you don't already have one, put it toward your tuition, or some combination of both. I say this for three reasons:

One, the first rule of getting out of a hole is to stop digging. Every additional dollar you borrow is going to be more than an additional dollar that you have to pay back. So whenever you borrow money, that compounding of interest is working against you instead of for you. Thus, your goal should be to minimize your loans as much as possible.

Second, you will have unexpected expenses that come up while you're in school, because that's life. To have no cushion (ie, an emergency fund) is basically just asking to meet life's vagaries (car breaks down, need unexpected medical care, etc.) by taking on even more debt (such as putting it on a credit card). Ideally, you should have at least three months' worth of expenses in your EF, and six months would be even better. But don't go below three months worth of expenses in your EF.

Finally, on a more philosophical level, you are not in a position to be investing yet, because you don't have any real savings yet. Investing is not guaranteed: you can lose money as well as earn it, especially in the short term. So you need to be on a secure financial footing first before you start investing. I know it's hard to wait, but if you're going to professional school, the concept of delayed gratification isn't foreign to you. When you come out of medical school, and you're able to cover all your basic necessities as well as any unexpected expenses, and you still have a surplus, then you can start getting serious about investing.

Think about it this way: how would you feel if you invested that $10,000 and the stock market crashed and you lost half of your savings or more practically overnight? Right now, you aren't able to afford to lose $10,000 because it's all the money you have in the world. But as a resident or especially as an attending, you will be able to stay the course without having to sell low in a market crash, because you will have reserves and enough earning power to wait for the market to rebound. Does that make sense?

Definitely! I think a combination of both would be a great way to start. Investing is in the future for me, and I've been given some great advice on here for when that time comes. But the more I think about having an emergency fund for me and my fiancée for 'when life happens', the more reasonable that option becomes. I'd much rather have money for (God forbid this actually happens) my fiancée's car that breaks down after her leaving the hospital at 12:30AM in a rough neighborhood than have my lump of money tied up in funds that take time to recover. I could easily just make payments toward my loans with my money saved up and have all of my money to use if multiple emergencies came up at a time (I hope I'm not predicting my future haha).