INvesting?

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Lokhtar

Lokhtar

Dreaming about the lions
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  1. Medical Student
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If you are a pre-med looking for long term investment, is it better just to invest in safe mutual funds or something more risky? Basically, I won't need money until residency.

Does anyone have/think about getting some Berkshire Hathaway stock?
 
Lokhtar said:
If you are a pre-med looking for long term investment, is it better just to invest in safe mutual funds or something more risky? Basically, I won't need money until residency.

Does anyone have/think about getting some Berkshire Hathaway stock?
Click to expand...

Stocks are generally inappropriate for investments of less than 5 years, even if held in a "safe mutual fund." You might consider a bond fund, a money market fund, a high interest savings account, or perhaps a very conservative mixed fund such as Vanguard's Wellesley Income Fund (35% value stocks, 65% bonds.)
 
if it's money i'd need in less than 5 years (i.e. by the time med school is over), i'd put it into a money fund or a CD. short term treasury fund maybe.
 
berkshire stock is pretty hard to go wrong with. Owning a stock for 5 years is ample time, anyone that tells you otherwise is crazy.

With the current market environment, berkshire is one of the safer choices b/c Buffet is clearly the best investor of all time.
 
Bun said:
berkshire stock is pretty hard to go wrong with. Owning a stock for 5 years is ample time, anyone that tells you otherwise is crazy.

With the current market environment, berkshire is one of the safer choices b/c Buffet is clearly the best investor of all time.
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if warren buffett dies sometime in the next 5 years (which is a possibility considering his age and his penchant for cherry coke and burgers), brk will take a hit. this might be the time you need your money...the point is, you never know, and at least for me 5 years isn't a time period i would be comfortable investing in stocks.
 
I'm a rookie myself. That being said, I can't speak for his picks, but I think most of Jim Cramer's advice is dead on.
 
Bun said:
Berkshire stock is pretty hard to go wrong with. Owning a stock for 5 years is ample time, anyone that tells you otherwise is crazy.

With the current market environment, Berkshire is one of the safer choices b/c Buffet is clearly the best investor of all time.
Click to expand...

Buffet is clearly the best investor of all time with out a doubt, but to think that there is only one investment style and that everyone should follow Buffet's style is fool's gold.

Buffet entered the market when stocks were ridiculously cheap and the market has been on quite a bull run since the late 70s and early 80s.

That being said, there are plenty of companies listed on today's market that won't even be here in 5 years. who knows which companies they are etc, but there are plenty of stocks people keep trying to 'value pick'. Imagine all those people who continued to buy Enron, Worldcom, etc on the way down. Even imagine those people who bought Cisco at 50+ (after it had fallen from 80) in late 2000. There are plenty more people who continue to buy Citigroup, Washington mutual, Countrywide, Ford, GM, etc etc (there's a million more examples) all the way down.

There's also plenty of other successful investing styles beyond what Buffet himself has done, but I can almost guarantee the one single common thread between all of the most successful investors/traders is risk management and not holding anything over a specific time period.
 
It's a buyers market in Real Estate in some parts of the country. There are builders in Arizona and Florida who would guarantee up to 5 years paid mortgage. The GO Zone has great bargains with no money down and $38,000 when rented in your pocket. Yes, you read that right!
 
WealthPlanner said:
It's a buyers market in Real Estate in some parts of the country. There are builders in Arizona and Florida who would guarantee up to 5 years paid mortgage. The GO Zone has great bargains with no money down and $38,000 when rented in your pocket. Yes, you read that right!
Click to expand...

Bear in mind how wealth planner gets paid before you take her advice too seriously.

"I hold the licenses of Life Agent, Real Estate Agent and Mortgage Officer."

Also notice some other extremely suspect advice given here in another thread:

"401K:
Adjust 401K contributions only up to matching amount (more on this later); I personally do not like IRA because there is no matching."

What exactly is it that you don't like about IRAs/401Ks? Is it the tax break you get when you put money in? Is it the fact that the money grows tax-deferred? Or is it the fact that there is no way for you to earn money from someone who uses a 401K/IRA to invest because you are a life insurance salesman, a real estate agent, and a mortgage officer?

Please don't come here to sell your services to medical students, residents, and physicians who have dedicated their lives to serving others and sworn an oath to "first do no harm." If you don't think a physician should max out all available tax-protected accounts you are either misinformed or ill-intentioned. I'll let the reader decide which it is. Yes, you read that right!
 
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This is totally misc

Kudlow = bull. I was very curious to see what he was going to present after today's slump... No surprises.
 
ActiveDutyMD said:
Bear in mind how wealth planner gets paid before you take her advice too seriously.

"I hold the licenses of Life Agent, Real Estate Agent and Mortgage Officer."

Also notice some other extremely suspect advice given here in another thread:

"401K:
Adjust 401K contributions only up to matching amount (more on this later); I personally do not like IRA because there is no matching."

What exactly is it that you don't like about IRAs/401Ks? Is it the tax break you get when you put money in? Is it the fact that the money grows tax-deferred? Or is it the fact that there is no way for you to earn money from someone who uses a 401K/IRA to invest because you are a life insurance salesman, a real estate agent, and a mortgage officer?

Please don't come here to sell your services to medical students, residents, and physicians who have dedicated their lives to serving others and sworn an oath to "first do no harm." If you don't think a physician should max out all available tax-protected accounts you are either misinformed or ill-intentioned. I'll let the reader decide which it is. Yes, you read that right!
Click to expand...


Tax deferred does not mean tax free, but you know that. I assuming you would rather have pre-tax growth than post-tax growth because the amount accumulates more.

Let's do some math, say your tax bracket is 40% and you invest $100 of pre-tax and $60 of post-tax in a 12% ROI every year and you leave them there to accumulate. Using the law of 72 (72/12 is 6), your money doubles every 6 years. At the end of 18 years, the pre-tax has grown to $800 and the post-tax to $480. You now withdraw from these accounts because you've retired.

Now, the US has graduated tax brackets where the higher the income, the higher the income tax. Do you think the taxes in the future are higher than the current taxes? The $480 was taxed in today's brackets; the $800 will be taxed in the higher tax bracket of the future.

Assume the tax brackets only goes up only by 5%, the $800 will be taxed at 45% would be realized at $440, less than the $480 with the conservative 5%. Further, by the time most individuals retire, mortgages have been decreased or paid off and practices have been sold, hence tax deductions would be far less when one retires. For the affluent, 401K's are a great vehicle to retire yourself and Uncle Sam. It sorta works for the lower to middle class because they have fewer options, but for the affluent; there are far better alternatives out there.

Other drawbacks of 401K:
Limited to 15,500 (for this year)
One must be over 59.5 or will be penalized 10% for withdrawal
Force disbursement at age 70.5
LIFO (Last In First Out) taxation
401K to non-spouse heir is considered income tax and part of the deceased estate. So, $10,000,000 in today's income tax bracket is 50% (state and federal), plus 20% inheritance tax. The left over is $4,000,000, if there is no probate. With probate, it depends, but it’s much costlier because the lawyers and judge get paid first. Sigh…

I could do the numbers for you, if you permit me to, for free, at no cost and not obligation whatsoever. Thereafter, if you still feel that I intend “harm” or I have “ill-intentions” to your kind, I will donate to this board $250 under your name. But if I change your mind, I’d donate under my name. You have nothing to loose and only wealth to gain (either monetary or wisdom). And for my part, I would donate to a great community board.

🙂🙂🙂🙂
 
LIFO taxation? what does it matter how you calculate your basis on a 401k - withdrawals are all taxed as ordinary income, right?
 
etf said:
LIFO taxation? what does it matter how you calculate your basis on a 401k - withdrawals are all taxed as ordinary income, right?
Click to expand...


I was referring to a self-directed IRA rolled over from a 401k.
 
WealthPlanner said:
I was referring to a self-directed IRA rolled over from a 401k.
Click to expand...

if you do a direct "trustee-to-trustee" rollover of a 401k to an IRA, you don't pay any taxes. and again, i thought money withdrawn from an IRA is taxed at ordinary rates, unless it's in a roth, in which case it isn't taxed at all. what am i missing?
 
WealthPlanner said:
I assuming you would rather have pre-tax growth than post-tax growth because the amount accumulates more.
.... For the affluent, 401K's are a great vehicle to retire yourself and Uncle Sam. It sorta works for the lower to middle class because they have fewer options, but for the affluent; there are far better alternatives out there.

Other drawbacks of 401K:
Limited to 15,500 (for this year)
One must be over 59.5 or will be penalized 10% for withdrawal
Force disbursement at age 70.5
LIFO (Last In First Out) taxation
401K to non-spouse heir is considered income tax and part of the deceased estate.

I could do the numbers for you, if you permit me to, for free, at no cost and not obligation whatsoever. Thereafter, if you still feel that I intend “harm” or I have “ill-intentions” to your kind, I will donate to this board $250 under your name. But if I change your mind, I’d donate under my name.
Click to expand...

LIFO taxation? Do you really get paid to give financial advice? LIFO has nothing to do with 401Ks, Roth IRAs, or traditional IRAs? LIFO only applies when basis exists and it doesn't in any of those accounts.

Also, the first $1.5 Million of estate (lots of changes in this area in the last few and the next few years) is tax-free anyway. The estate tax applies to very few Americans. Hardly a draw-back of the 401K since it applies to every other investment. The only work around for estate tax is permanent value life insurance which comes with its own list of downsides to include lack of liquidity, lack of transparency, huge costs, and abysmal returns over the first couple of decades.

I'm more than capable to "do my own numbers" (excel is available to the masses, believe it or not) but the alternatives to which you refer are simply ways for financial advisors to get their cut.

Pre-tax growth=post-tax growth unless your effective tax-rate changes. This could happen by having less or more income during retirement or by changes in the tax brackets through an act of congress. I'm quite familiar with the variables affecting a Roth vs traditional decision. However, what you are advocating is a traditional vs nothing decision, which is foolhardy. Let me demonstrate the numbers for our viewers.

Let's take a California physician in a 35% tax bracket with a 9.3% state tax. His effective tax rate is 44.3% on this $15.5K he has to make a decision with. Should he A) Put it in his 401K (unmatched) or B) Invest it in another way?

Option A: Let's assume he gets 8% growth over 30 years. By the time he is ready to begin withdrawing the money he will have $156K. Of course, at this time he is retired, lives in Nevada (loves the slots) and his marginal tax rate is 25%. Of course, the effective tax rate on this withdrawal is even less than that thanks to the standard deduction and the graduated tax rates. But let's go ahead and apply the 25% tax rate to the entire withdrawal. He is left with $117K.

Option B: First thing he has to do is pay taxes. So let's multiply $15.5K*0.557. He has $8835 left to invest. Since his investment is now in a taxable account he will have to pay taxes on it as it grows (unless he invests in real estate or allows somebody to talk him into a permanent life insurance policy.) What kind of a rate of return will he need on this money to equal the $117K? Keep in mind when the money is finally withdrawn he will still have to pay capital gains taxes (let's assume they remain constant at 15%.) He now requires a 9.5% return AFTER TAXES to get to the same place as if he had used the 401K.

But wait, you say, what about the real estate option?

He still has to deal with the fact that he only has 57% of what he made left to invest. After that, you have to deal with a real estate market which over the long term has only grown at the rate of inflation. You cannot assume that what we experienced in 2002-2006 will ever repeat itself. The only reason anyone ever makes a decent return on real estate is due to high amounts of leverage. Plus, when you invest in real estate, you have gotten a second job. Most physicians don't need a second job.

But wait, what about permanent life insurance?

Like I said before, the lack of liquidity, lack of transparency, reliance on current tax law, low initial returns, and high costs make this an unsuitable investment. See this very lengthy discussion for more details:

http://www.diehards.org/forum/viewtopic.php?t=8844&highlight=northwestern+mutual

Before you donate money to the board (which I'm sure will be appreciated) perhaps you could tell us why you are giving away your services (you get paid to give financial advice, no?) for free to this board. Is it only out of the goodness of your heart? Or are you advertising?

Based on this:

http://forums.studentdoctor.net/showthread.php?t=453685

I'd say you're advertising. That's fine. No problem with that. Everyone has to drum up their work from somewhere. But people should realize that your conflict of interest colors your advice.
 
etf said:
if you do a direct "trustee-to-trustee" rollover of a 401k to an IRA, you don't pay any taxes. and again, i thought money withdrawn from an IRA is taxed at ordinary rates, unless it's in a roth, in which case it isn't taxed at all. what am i missing?
Click to expand...


You are right. I was wrapping up a scenario that had LIFO and FIFO variables and the tune got stuck in my head like a song.

My apologies and thanks for pointing that out.
🙂🙂🙂🙂🙂
 
ActiveDutyMD said:
LIFO taxation? Do you really get paid to give financial advice? LIFO has nothing to do with 401Ks, Roth IRAs, or traditional IRAs? LIFO only applies when basis exists and it doesn't in any of those accounts.

Also, the first $1.5 Million of estate (lots of changes in this area in the last few and the next few years) is tax-free anyway. The estate tax applies to very few Americans. Hardly a draw-back of the 401K since it applies to every other investment. The only work around for estate tax is permanent value life insurance which comes with its own list of downsides to include lack of liquidity, lack of transparency, huge costs, and abysmal returns over the first couple of decades.

I'm more than capable to "do my own numbers" (excel is available to the masses, believe it or not) but the alternatives to which you refer are simply ways for financial advisors to get their cut.

Pre-tax growth=post-tax growth unless your effective tax-rate changes. This could happen by having less or more income during retirement or by changes in the tax brackets through an act of congress. I'm quite familiar with the variables affecting a Roth vs traditional decision. However, what you are advocating is a traditional vs nothing decision, which is foolhardy. Let me demonstrate the numbers for our viewers.

Let's take a California physician in a 35% tax bracket with a 9.3% state tax. His effective tax rate is 44.3% on this $15.5K he has to make a decision with. Should he A) Put it in his 401K (unmatched) or B) Invest it in another way?

Option A: Let's assume he gets 8% growth over 30 years. By the time he is ready to begin withdrawing the money he will have $156K. Of course, at this time he is retired, lives in Nevada (loves the slots) and his marginal tax rate is 25%. Of course, the effective tax rate on this withdrawal is even less than that thanks to the standard deduction and the graduated tax rates. But let's go ahead and apply the 25% tax rate to the entire withdrawal. He is left with $117K.

Option B: First thing he has to do is pay taxes. So let's multiply $15.5K*0.557. He has $8835 left to invest. Since his investment is now in a taxable account he will have to pay taxes on it as it grows (unless he invests in real estate or allows somebody to talk him into a permanent life insurance policy.) What kind of a rate of return will he need on this money to equal the $117K? Keep in mind when the money is finally withdrawn he will still have to pay capital gains taxes (let's assume they remain constant at 15%.) He now requires a 9.5% return AFTER TAXES to get to the same place as if he had used the 401K.

But wait, you say, what about the real estate option?

He still has to deal with the fact that he only has 57% of what he made left to invest. After that, you have to deal with a real estate market which over the long term has only grown at the rate of inflation. You cannot assume that what we experienced in 2002-2006 will ever repeat itself. The only reason anyone ever makes a decent return on real estate is due to high amounts of leverage. Plus, when you invest in real estate, you have gotten a second job. Most physicians don't need a second job.

But wait, what about permanent life insurance?

Like I said before, the lack of liquidity, lack of transparency, reliance on current tax law, low initial returns, and high costs make this an unsuitable investment. See this very lengthy discussion for more details:

http://www.diehards.org/forum/viewtopic.php?t=8844&highlight=northwestern+mutual

Before you donate money to the board (which I'm sure will be appreciated) perhaps you could tell us why you are giving away your services (you get paid to give financial advice, no?) for free to this board. Is it only out of the goodness of your heart? Or are you advertising?

Based on this:

http://forums.studentdoctor.net/showthread.php?t=453685

I'd say you're advertising. That's fine. No problem with that. Everyone has to drum up their work from somewhere. But people should realize that your conflict of interest colors your advice.
Click to expand...



"No," I don't get paid for planning. And "yes," mainly the goodness of my heart because an unhealthy majority of high earning professionals, such as physicians, university professors, dentists, school principals and distinct superintendent, retire badly or work until they cannot or leave a great wealth to Uncle Sam or leave a great burden their families.

Image the best and brightest minds, the most educated individuals of this great nation, working to death because of a trivial matter of using "what everyone else is using" (The "everyone else" group is the lower to middle-middle class) and of not being exposed to the wealth plans that the First-Wealth Families have been lobbying and exploiting since time immemorial.

From my standpoint as a wealth planner: your kind are the modern day tragic heroes stirring fear and pity as you give your "pound of flesh" to the system.

The offer stands: $250.

🙂🙂🙂🙂🙂
 
WealthPlanner said:
Image the best and brightest minds, the most educated individuals of this great nation, working to death because of a trivial matter of using "what everyone else is using" (The "everyone else" group is the lower to middle-middle class) and of not being exposed to the wealth plans that the First-Wealth Families have been lobbying and exploiting since time immemorial.
Click to expand...

Let's hear about the magical wealth plan of yours. Let's put a simple model of "what everyone else is using" to compare against. Let's take a doc who gets out of residency at 30, works until 65. Saves $75K/year in a combination of taxable accounts, Roth IRAs/401Ks, and traditional IRAs/401Ks. He puts the money into a well-thought out combination of inexpensive index funds. Let's assume 8% returns overall. According to Excel, he would end up with $12.9 Million dollars to retire on. That should support a withdrawal of approximately $517K/year indexed to inflation during retirement. Assuming the stash continues to grow at 8%/year, and the physician dies at 95, he leaves $42 Million to his heirs. With a good estate planner, he starts giving away his money to charities and his heirs early to minimize the estate tax. He funds a few irrevocable life insurance trusts for good causes. He tries not to touch the Roth accounts and leaves them to his youngest descendants, effectively deferring taxes for over 150 years. It turns out that he only ends up paying estate taxes on a very small part of his fortune.

Why is it most physicians don't end up here? #1 they don't save. #2 their money doesn't grow at 8% because financial advisors/salesmen shave off their cut, #3 they make bad investments (related to the bad advice they got.)

Sounds like a pretty good wealth plan to me. What do you have to offer that beats that with so little effort.

P.S. It isn't my website. I'm sure they'll take your $250.
 
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dr doze said:
Your math leaves something to be desired.

1. 12% is a highly optimistic return for any investment going forward.
2. the investment that was reduced by taxes $100-->$60 then subsequently grows to $480 and is worth $480 assumes perfectly tax free growth AND tax free withdrawls. Even tax efficient mutual funds and tax efficient ETFs lose something to taxes during the accumulation phase. Even if PERFECTLY tax efficient while growing, there will be some capital gains tax due when using this money to pay bills.👎
Click to expand...



I'm glad you feed that 12% return is too high.
 
WealthPlanner said:
I'm glad you feed that 12% return is too high.
Click to expand...

double digit returns are possible in the short term, but they are not sustainable in the long term. if you've got something that will return over 12% consistently and with a reasonable amount of risk then i suggest you start talking to some hedge-fund managers/endowments/etc - they'll pay you handsomely, and you'll be able to donate much more than $250 to sdn.
 
dr doze said:
I certainly hope for it. I don't plan for it in saving for retirement, for funding my children's education or what lifestyle I have today. I have achieved much more than that with a combination of passive investments with DFA and Vanguard funds, ETFs, tilting to small and value, disciplined rebalancing, and tax management. A 12% return is an attainable goal, but not without tremendous risks - 100% equity (or more). To lay out a long term investment plan that targets 12% return (after expenses) to an individual who is entrusting his/her life savings and kids education money to you is highly optimistic at best, irresponsible at worst.

You didn't respond to my point #2:

"2. the investment that was reduced by taxes $100-->$60 then subsequently grows to $480 and is worth $480 assumes perfectly tax free growth AND tax free withdrawls. Even tax efficient mutual funds and tax efficient ETFs lose something to taxes during the accumulation phase. Even if PERFECTLY tax efficient while growing, there will be some capital gains tax due when using this money to pay bills"
Click to expand...




Yes, you are right. Because I agree it is optimistic and irresponsible.
 
i hate to say this but anybody who thinks getting >11% per year is selling a lot of gibberish....

of course if you knew that apple was going to do well you could have promised >200% return ---

of course if you knew that the energy sector was going to do well you could have promised >60% return ---

i didn't "know" - i made lucky guesses ---- but my lucky guesses could have been dead wrong - and statistically even the best fund managers are dead wrong 90% of the time...

so i think for calculation reasons it is entirely resonable to consider 8-10% per year --- when a financial planner tells me anything higher then i know they are full of crap
 
as a physician out of training with good income i have spent the last few years going from financial planner to financial planner - spent time at various banks in their "wealth management" departments --- and it is almost ALWAYS the same push ---

1) insurance deals - for which they get comissions (but don't always admit to)

2) mutual funds (for which they get commissions AND charge portfolio fees 1-2%)

and typically these meetings have a VERY attractive young woman and an OLDER/SOPHISTICATED gentleman in the room --

i have a few friends who are worth over $50mill - and they tell me that they have the same issues with wealth management - their fees (percentage-wise) decrease but they are still handing out a lot of money for what they could do on their own... some of the larger banks have very good wealth management but you can only access that info when you have crazy high net worths (something i may never be able to achieve with my current salary).

so right now, i would recommend that everybody spend time reading, reading, reading, learning - and make decisions on your own...

wealthplanner may have some good recommendations that could help guide us... though
 
Tenesma said:
i hate to say this but anybody who thinks getting >11% per year is selling a lot of gibberish....

of course if you knew that apple was going to do well you could have promised >200% return ---

of course if you knew that the energy sector was going to do well you could have promised >60% return ---

i didn't "know" - i made lucky guesses ---- but my lucky guesses could have been dead wrong - and statistically even the best fund managers are dead wrong 90% of the time...

so i think for calculation reasons it is entirely resonable to consider 8-10% per year --- when a financial planner tells me anything higher then i know they are full of crap
Click to expand...



Sir or madam,

You are so right. In fact I suggest you read The Black Swan by Nassim Nicholas Taleb published 2007. It's a good read filled with insights on the fallacies of the distribution curve or the Bell Curve when applied to the the abstract and non-physical (the natures of the financial and economic markets). And how most experts are wrong when calculating risks and ROIs. Also, the book outlines how to protect yourself from them and, most important, how to take advantage of these phenomena to produce tremendous wealth.

But be warned: he is long winded and he hates the French.

Enjoy...
 
Lokhtar said:
If you are a pre-med looking for long term investment, is it better just to invest in safe mutual funds or something more risky? Basically, I won't need money until residency.

Does anyone have/think about getting some Berkshire Hathaway stock?
Click to expand...

Doesn't one share of BH cost $130,000 or are you talking a different BH fund?
 
TRAMD said:
Doesn't one share of BH cost $130,000 or are you talking a different BH fund?
Click to expand...

BRK/A is the preferred class A stock.... you can get the class B shares BRK/B or BRK.B depending on where you enter the symbol in, for about $4400.
 
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