How many of you hire "financial advisors"?

[PatrickBateman]

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During the medical school exit interview we're told that we should hire financial advisors to help up budget, plan investments, retirement ect. I think that later on, it will definately be a good idea to have professional advice but for now I should be able to budget and plan for myself. Am I being naieve?

How many of you hire a professional:

financial advisor
accountant
tax advisor
investment and retirement advisor

 

[outofhere]

My husband is my account, financial advisor...etc. 🙂 He is an MBA and had exposure to things such as this. We have not found it particularly useful to hire people for us at this time. We have felt that we can understand our own finances better, if we did these ourselves. We do read The Wall Street Journal daily, and that comes with a lot of useful information and helps us to understand the market. As a resident, one's finances isn't that complicated- you get your W-2 forms...etc, I think if one were in private practice, that would be quite complicated and so maybe then it would be useful to hire someone. Also, for financial advisor, the best advice I think is to save your money as much as you can. I suppose if you can't be disciplined about saving on your own, an advisor may be useful. In terms of investments, it is hard to tell which advisor has what to gain...etc, and there are bad advisors, just like good advisors. I love reading The Wall Street Journal, because it has REALLY useful information about mutual funds, companies, securities...etc. I think this ought to be a must read for all residents.

 

[HTD]

I hope/think I can help here. Outofhere is in a fortunate position. Being married to a CPA/financial planner is probably not the norm, but I am jealous. 🙂 There are a few things you can do to help yourself greatly coming out of med school and entering a busy residency.

Keep up with your loans
Don't overspend
Get an accountant
Start contributing to a retirement plan
get disability insurance
get life insurance

No, these don't apply to everyone. I delayed getting life insurance until I finished residency. A mistake in my opinion.

Keep up with your loans. I remember stacks of letters from different companies sitting in my kitchen as days and nights blended together in my surgery training. BAD IDEA. Life happens with or without your being home to notice it. Remember to be dilligent about either filing your forbearance forms or paying your interest. Don't procrastinate.

Don't overspend Its hard to not want to reward yourself after graduating. Try something simple. Put down on paper how long you could live with no paycheck. If the answer is not long, put some money away instead of buying a new ipod.

Get an accountant Not all would agree with me here. I like the interaction and I learn a lot from him. I also used my residency as an interview for my accountant. If he was willing to pay attention to me and give me personal service as a broke resident, I was going to keep him. He did and I did. That may not be practical for you.

Start contributing to a retirement plan
I signed up for the pre-tax deferred comp plan. Instead of paying into Social Security, I was able to put the money in to retirement. It was an easy choice. Putting away the money before it comes out of the check is much easier that writing the check. Also, its tax free. This is a good habit to start early.

get disability insurance I got this within my first month of residency. I have an "own occupation" policy. This means that if I can't do surgery, I can do something else and still collect. As a service professional, my income limited to my ability to be at work healthy.

get life insurance I have a wife and three kids. I got enough insurance to pay all of our debts, put my kids through college, and give my wife my current income for 5 years. I save money on premiums by choosing term life. BTW, my wife is a physician so we both have the same policy.

I am three years out of residency and have not chosen a financial planner. I had a bad experience with a comission based person and It motivated me to educate myself. At this point, I have done the above and all of my plans are group retirement mutuals etc. Those aren't that hard to manage. I have recently taken myself to the next level of financial education but that is for another post.

Good luck

 

[Blade28]

I have a financial advisor for my personal disability insurance and Roth IRA.

 

[outofhere]

I hope/think I can help here. Outofhere is in a fortunate position. Being married to a CPA/financial planner is probably not the norm, but I am jealous. 🙂 There are a few things you can do to help yourself greatly coming out of med school and entering a busy residency.

I know I am really lucky to have my husband. Not because he has his MBA degree, but that he is my best bud. His MBA is just an extra bonus. 🙂
Seriously though, I think residents do not spend nearly enough time becoming $ savvy in general. We're trying to become better docs, but who is going to look out for us?! We have to!
Having said that, some residencies offer life insurance and disability insurance as part of the benefit package. Be sure you don't buy double.
Consider conslidating your loans- the interest rate will probably never be this low again.

 

[PatrickBateman]

Get an accountant Not all would agree with me here. I like the interaction and I learn a lot from him. I also used my residency as an interview for my accountant. If he was willing to pay attention to me and give me personal service as a broke resident, I was going to keep him. He did and I did. That may not be practical for you.

Thanks. That's a great reply. Of the six points you mention the only one that I'm in doubt about is this the accountant or professional advisor. You bring up a good point about using residency to "interview" an accountant. I hadn't thought about that, but it makes sense. I'd imagine there's also a learning curve to efficiently using an accountant. Plus I too, would like the opportunity to pick the accountant's brain and learn from them. But do I need an accountant yet? I already manage my expences tightly and keep detailed monthly excel income statement and cash flow statments. I even make a quarterly balance sheet. Yeah, I know that's not necessary but I figure it's good practice. What else would an accountant do for me at this stage?

Also, any tips for how I would go about finding a good accountant? And how much should I expect to pay for a good accountant? Within reason I'd rather not skimp on quality.

I am three years out of residency and have not chosen a financial planner. I had a bad experience with a comission based person and It motivated me to educate myself.
Good luck

Thanks. That's an important point. I'm learning everything I can so as to avoid that kind of thing myself. I'd rather not deal with a commission based broker or the same thing under one of their new eponyms. I think I'd rather pay a flat fee for unbiased advise. But I guess that's a whole lot easier said than done. 🙁

 

[EctopicFetus]

I wont add too much to this but regardless of if you hire a financial guy (Im not for a number of reasons) you need to understand basic personal finance. Im not saying you need to understand the merits of buying a 6K pound truck for a tax deduction or the best way to set up your practice but at least some of the basics including getting an idea of how the market works.

It is sad that so many people in medicine work so hard to get through school and get a good job but end up blowing their money because they dont understand how to handle money.

A friend of mine (non medical) told me how her dad (an orthopod) has been making tons of money his whole life and now 60 is approaching and the guy doesnt have 150K saved for his retirement! I mean seriously.. this is pathetic.

 

[PatrickBateman]

Having said that, some residencies offer life insurance and disability insurance as part of the benefit package. Be sure you don't buy double.

Thanks. for your replies, outofhere. They're very helpful. About the above issue, though, what I've been learning differs from what you say. Group disability policies have a number of weakness's. They tend to be bare minimum coverage policies lacking most of the terms you need in a policy including:

Own occupation; covers you if you can't practice in your field even if can practice in a limited capacity or in a different specialty.

Non-cancellable; they can't change or cancel your policy at a later stage.

Lifetime benefits; ie. the policy needs to cover you as long as you live

Future insurablity: keeps pace with your increasing income and allows you to extend your policy without further medical re-evaluation.

Cost of living: policy needs to account for inflation.

Residual and recovery benifits: you need to be covered for partial disability.


Group policies tend to miss many or all of the above. It's better to get limited coverage with strong terms when you're young and add to it later. At an older age you won't get the same terms. In essence you should act like you don't have any disabiltiy insurance and get a private policy.


There is a similar situation with the limited group term life insurance that you get through your institution.

Hope that helps.

 

[PatrickBateman]

Consider conslidating your loans- the interest rate will probably never be this low again.

I consolidated most of my loans when the rates were at their lowest. I just consolidated the latest loans I recieved for last years tuition about a week ago. The word was that the rate was about to go up.

But with the markets taking a nose dive last week and with this week's slight recovery being read as basically just a dead cat bounce I'm wondering if the Fed will be lowering interest rates again. If they do I'll be kicking myself. 🙁

 

[BKN]

Thanks. That's a great reply. Of the six points you mention the only one that I'm in doubt about is this the accountant or professional advisor. You bring up a good point about using residency to "interview" an accountant. I hadn't thought about that, but it makes sense. I'd imagine there's also a learning curve to efficiently using an accountant. Plus I too, would like the opportunity to pick the accountant's brain and learn from them. But do I need an accountant yet? I already manage my expences tightly and keep detailed monthly excel income statement and cash flow statments. I even make a quarterly balance sheet. Yeah, I know that's not necessary but I figure it's good practice. What else would an accountant do for me at this stage?

Also, any tips for how I would go about finding a good accountant? And how much should I expect to pay for a good accountant? Within reason I'd rather not skimp on quality.





Thanks. That's an important point. I'm learning everything I can so as to avoid that kind of thing myself. I'd rather not deal with a commission based broker or the same thing under one of their new eponyms. I think I'd rather pay a flat fee for unbiased advise. But I guess that's a whole lot easier said than done. 🙁

To find a good accountant, ask your senior faculty who they use and whether they're happy. As to whether you need an accountant because the taxes "are so simple" for a resident, I've made a staninig offer to my residents. It goes like this:

1. Do your own taxes
2. Then go to an accountant and have him/her do it again.
3. If the accountant doesn't save you more than his fee, I'll pay you the difference.

No one has yet been able to collect.

I agree with the unbiased advisor comments, but I'll tell you that the ones who have nothing to sell you don't have any secrets either. If you aim at 401Ks (and even better 403Bs if you qualify) and don't try to time the market, you'll probably do ok. After years of doing it wrong, I put half in real estate investment trusts (REIT) and 1/2 in a stock fund that follows a market index (Mine follows standard and poor).

 

[PatrickBateman]

To find a good accountant, ask your senior faculty who they use and whether they're happy. As to whether you need an accountant because the taxes "are so simple" for a resident, I've made a staninig offer to my residents. It goes like this:

1. Do your own taxes
2. Then go to an accountant and have him/her do it again.
3. If the accountant doesn't save you more than his fee, I'll pay you the difference.

No one has yet been able to collect.

Thanks, BKN. That's all I needed to hear. 🙂

If you aim at 401Ks (and even better 403Bs if you qualify) and don't try to time the market, you'll probably do ok.[/b]

Are you talking about the ol' 48 hour shuffle? I didn't know that was still allowed.

After years of doing it wrong, I put half in real estate investment trusts (REIT) and 1/2 in a stock fund that follows a market index (Mine follows standard and poor).

Thanks again, BKN. Any chance you can tell me some of the mistakes you made (so I can avoid making them myself)

 

[BKN]

Are you talking about the ol' 48 hour shuffle? I didn't know that was still allowed.

I'm talking about trying to buy low and sell high. Generally when it's low there a reason and vice versa. The market has no memory, it's a random walk time series (yeah, I know stat garbage, but you asked). Instead put the same amount in each month and start as soon as you can. Example: Put $100 in monthly in an account at about 7% from age 20-30. At age 30 start a second account and only put the $100 in it. Account 2 never catches up with account 1.

Thanks again, BKN. Any chance you can tell me some of the mistakes you made (so I can avoid making them myself)

Ouch. I got out of stocks during the mid to late 90's because I was sure that the market was irrrationally overpriced. I held out a long time. Finally I said, maybe they can keep this nonsense up. So I =switched into stocks in early 2000 . . .

 

[Poety]

For those of you with families, how are you possibly going to put money away on a residents salary? I had to take out extra loans to keep my cushion where it is. I do overspend though, I admit it, and furnishing a new house is impossibly expensive.

 

[radonc]

you dont need to hire an accountant/financial advisor if you are smart, make intelligent, well thought out decisions, and have the ability to read. just pick up an investment book to start out. then, talk to people about their investments. finally, take the leap and invest your own money.

mutual funds & cd's are a great way to start off, along with roth IRA's, 401k's, and 403b's.

 

[Blade28]

I'll second the recommendation to do your own taxes. Great to start on them now, while your finances are relatively simple - and don't you also want to know where all your money is going?

I started doing my own taxes during my MSI year. Use TurboTax or TaxCut and it makes the process easy.

 

[Sugar72]

Ouch. I got out of stocks during the mid to late 90's because I was sure that the market was irrrationally overpriced. I held out a long time. Finally I said, maybe they can keep this nonsense up. So I =switched into stocks in early 2000 . . .

All tech stocks too right?! With a couple of airlines thrown in for good measure (and not southwest).

 

[BKN]

All tech stocks too right?! With a couple of airlines thrown in for good measure (and not southwest).

No, it was stock funds - that way I only lost 20%. The guys doing the internet stocks went down 40 -60%.

But it still was a triumph of hope over sense.

Oh, and Blade, I was saying DON'T do your own taxes.

 

[gwen]

hey guys,

i am what you would call a financial dumba$$. i did not contribute anything to a 401k or a roth ira during residency. the only thing i did was put my money into a money market fund + CD. i did start paying back my med school debt and saved a ton of $$ for my upcoming wedding/new house (the reason i did not start a roth, etc). my loans are not too much (roughly $35k) so i think i can pay them off rather quickly. i am not married to a financial wizard either (getting married to someone almost as bad as me at finances...in terms of "saving" for the future - he does have a significant loan and is just starting his cards fellowship). i also have no exprience in the stock market and know very little about it. my parents never invested in stocks so i have no one close to even teach my about it. hmm, what else...i am just finishing up my int. med residency.

what would you guys suggest i do? look for a fin. advisor? accountant? DIY? how much does it cost to keep a fin. advisor or accountant??

please, please help!

 

[NinerNiner999]

I made the best investment I could in residency - I bought a home for $250k. Now it is apprasied at $340k and I have yet another year before I finish my program. I should be able to make $120-140k by the time I sell. Since I got zero-down financing, the only thing this home has cost me is the interest for my monthly payments (and whatever my realtor fees are when I sell it).

I've been toying with the idea of paying off my student loans when I sell, expecting the real estate market to slow down in the next few years. Then again, I could roll over my profit into a new house with a lower interest rate. Any suggestions?

 

[Blade28]

Wow that's amazing. Not only do you stand to make around $140k from selling your house, but you also saved thousands a year on rent! Awesome.

What's your interest rate on your student loans? How much do you owe? If you're locked in at a ridiculously low rate like I am when I consolidated (under 2.5%), I'd hold off on paying those back right away.

 

[NinerNiner999]

Yeah - that was the plan when I consolidated at 2.5%, but my total loans are right around $140k (including perkins and one private loan). I could wipe them clean when I move if I chose...

 

[outofhere]

However, if you put your mind to it, and manage your investments conservatively, you might get better than 2.5% return, and so you would be better off NOT paying off your student loans. I am all for not being in debt, but 2.5% interest rate is LOWER than inflation...

I also checked my husband about exactly what we did about our finances. We did use an accountant the first year we were married. My hubby did the taxes, then had a professional look it over. We could have saved another $100, but the professional costed us over $500. So, we actually saved $ not using an account. Since then, my husband has studied a 500 page manual published by Ernst and Young on taxes. You can find this at B&N, Border's...etc, and after studying it, he concluded that we could possibly save $ using an accountant to go for other deductions, however, these deduction often are in the quite gray area. For instance, I do use my home 'office' to study, but do I really want to calculate the square footage, in relation to the house, and claim another $10, all putting ourselves at risk for being audited. We decided to play it safe and do it ourselves. (There is no good reason to use firms like HR Block...etc, because Turbo Tax is just as good. And the professional ones cost major $.

As for saving during residency, remember, that we lived on NO income for four years (outside of the bare minimum), if you can keep that same life style, and make $, it could be early retirement...etc. There is NO reason not to save $.

 

[outofhere]

For those who are students still, you are entitled to a discounted rate from The Wall Street Journal, a source that I can't praise enough, and you can keep this student rate for a LONG time, even after you graduate.

 

[CameronFrye]

One thing about Roth's: you can make a penalty free withdrawal to buy your first house, so the two aren't necessarily exclusive.

 

[doctordi]

So many replies and so many opinions.

I am a financial advisor so I may be biased but I must encourage you to consult some one that is reputable and knowledgable. I am not suggesting you need someone to make a budget for you but a poor financial plan can be devastating. If you need any additional information feel free to send me an email.

Cpa's (which I am not) offer a very valuable service and can often save you more in taxes than the cost of their service.


Estate planning is absolutely necessary

Scenario one: you have been socking away the standard 10% a year for ten years and have amassed $200,000 (assuming no earnings on savings) and you are struck with a disability. You will be able to afford one year of your lifestyle before you are forced to start liquidating assets. The Answer a comprehensive personal disability insurance policy

Scenario Two: You have been putting money away today for use upon retirement only to have the bulk of it sucked up by Uncle Sam. The Answer effictive estate planning.

I will leave you with this for now but Professional help can be obtained for a fairly inexpensive cost especially if you compare it to the cost of not having one. I am following this up with some information on disability insurance which is the first thing you guys need to consider.


Lock in young and healthy with a non-cancellable guaranteed renewable policy you will lock in to the rates and benefits more cheaply than if you wait. With this type of coverage the company can never change your benefits or increase your rate.

While in residency females can often qualify for and obtain unisex rates saving up to 20% on current and future premium.

Specialty specific true own occupation is a must for physicians (to my knowledge only two companies are offering true own occ to age 65 for all specialties). This benefit allows you to work in another occupation or medical specialty and still collect your benefit.

Residual or Partial disability allows you to return to work and still collect a benefit if your income has dropped due to disability.

Future increase option is also very important. The amount of coverage you can purchase is determined by your income. This option allows you to purchase increases in coverage as your income increases without proving health or insurability. All you have to prove is income.

Cost of Living Adjustment is very valuable if you are disabled for a long period of time your benefits will increase with the consumer price index keeping your monthly benefit level with inflation.

Lifetime benefits (only one company currently offers) If you become disabled young and have not had time to save for retirement this can be really valuable. Most companies pay to age 65-70.

Life Insurance

Term insurance is the way to go for young people who need it to serve an immediate need. I do suggest obtaining term coverage that is convertable to whole life because at some point you will need whole life for estate planning purposes.

Whole Life also serves a valuable purpose for estate planning asset protection purposes, and tax planning.

Hope this helps and contact me with any questions or concerns.

 

[scubamd]

Is is better to focus primarily on repaying loans while in residency or try to save for retirement, or try to do both? My husband and I have both just graduated from med school and have a combined student loan debt of about $200K.

Also, do most people apply for a deferment or forbearance for their student loans. It looks like you can't apply for a deferment unless you received your loan before July, 1993.

thanks!

 

[outofhere]

Is is better to focus primarily on repaying loans while in residency or try to save for retirement, or try to do both? My husband and I have both just graduated from med school and have a combined student loan debt of about $200K.

This depends. What is your interest rate? If you consolidate before July 1st of this year, you will have an awesome rate, probably somewhere around 3%. The rate is going to go up for about 2 percent points this July, so the best thing you'll ever do for youself is to consolidate. $200K spread over 30 years with an interest around 3%, is probably going to be about $900 a month. If you are willing study the market, read financial statements, you will be able to do better then 3% in your returns, because that is barely the rate of inflation. Also, once you start paying, if you pay on-time consecutively for a predetermined period of time (usually 2-3 years), you get another percent deduction. (Be sure to pay via direct debit from your bank, which is probably another 0.25% lower interest rate, and that way, you won't mess up the consecutive payment stuff.) Imagine, how little $900 is going to sound in 20 years. Whereas, if you put that money in a not too risky mutual fund, you will make more money for retirement.

My motto is, it is never too early to save for retirement. For most upper middle class people (such as physicians), you will need about 1.5 to 2 million in your retirement, assuming you won't have a mortgage and you want to keep your attending life style. Let's assume your money makes 5% interest and you are willing to use up some principle. Assuming you want to tuck away 2 million bucks over your 25 years of working life, you need to stash away 80000 bucks a year. Fortunately for us, your return compounds. So you probably don't need to stash away that much annually. Nonetheless, Americans do not save nearly enough for retirement.

On the other hand, if you are going to losing sleep over your student loans, then, pay that off as soon as you can. In my humble opinion, however, that is an emotional decision, not a rational decision as explained above.

So, you are probably wondering, where to put your hard earned money? Well, first of all, never accumulate credit card debt. Then, consider buying a place, because of tax deductions on your mortgage interest, and the likelihood of the real estate appreciating, (although, that is also very diff to forecast.) My opinion is, if you are going to be there for at least 3 years (long enough to make the transaction cost worthwhile), then buying a place is an option. Also, make sure you have Roth IRA, IRA...etc. And consider CD (not a great return, but a safe one to start while you study the Wall Street Journal to become more financial savvy.) Then, consider mutual funds, ones that don't have huge admin fees. Then, consider buying stocks. Be sure to diversify.

 

[outofhere]

If you want to hire a financial planner, be sure to hire one that is CERTIFIED. Anyone (even me...) can hang a shingle that say, financial planner...

 

[The White Coat Investor]

So many replies and so many opinions.

I am a financial advisor so I may be biased but I must encourage you to consult some one that is reputable and knowledgable. I am not suggesting you need someone to make a budget for you but a poor financial plan can be devastating. If you need any additional information feel free to send me an email.

Whole Life also serves a valuable purpose for estate planning asset protection purposes, and tax planning.

Hope this helps and contact me with any questions or concerns.

You may be biased? Exactly. I have yet to meet a financial "planner" who wasn't biased into finding a way to sell me products I didn't need, such as whole life insurance.

I have spent my final year of residency doing extensive studying of markets, investing, retirement, budgeting, insurance, mortgages, estate planning etc. The guy doing my "financial planning" for my first two years of residency is unable to answer the questions I pose to him. The problem with hiring a financial planner is that by the time you know enough to know if your planner is good, you no longer need the financial planner. I'm not saying don't use CPAs, attorneys, mortgage brokers, etc for specialized needs and questions but if you educate yourself properly, you will be your own best financial planner.

There are some people that will be better off with a planner than doing things on their own, but this is because they will never learn to do it on their own, not because they can't.

Regarding certifications, there are literally a dozen different types of certifications that can be used to call yourself a financial planner, most of which can be done in less time than a 3rd year surgery rotation. If you insist on hiring a financial planner, you need to understand exactly how he is reimbursed for his services and what that will mean for your long term finances.

Example:
Investing $10000 per year in an investment that gains 10% per year over 30 years will be worth $1,809,434. Investing that same $10000 per year, but losing just 1.5% to advisor fees, commissions, wrap fees etc will mean you will end up with $1,347,729. Do you really think that planner is worth half a million dollars? Because that is what he is costing you in the end. 1.5% is not that high of expenses either, among financial planners. When you add in the commissions on the insurance products they sell you, the advising fees, the loads in the mutual funds they recommend you get into you'll be lucky to only lose 1.5%.

You'll be doing yourself a favor if you read just a few good books before you go out and hire someone.

The Only Investment Guide You'll Ever Need
The Coffee House Investor
Financial Planning for Dummies
The Four Pillars of Investing
How to Save Thousands On Your Mortgage
Bogle On Mutual Funds
Taxes 2006 for Dummies (OK, this is pretty dry, but a great reference)

Questions can be directed (for free) to experts at the following forums:

Diehards.org
fairmark.com

Top ten financial tips for medical students/residents

1) Minimize debt and consolidate it at the lowest possible rate.
2) Fully fund a Roth IRA all the way through residency. This fantastic vehicle won't be available to you when you're making the big bucks.
3) Pick up a disability insurance policy while in residency. Make sure it is own occupation, specialty specific. Unfortunately, someone has to make the commission on this one.
4) If you have dependents, get a 30 year term life insurance policy ($500K-2 Million).
5) Don't try to pick stocks. You can't do it successfully. Use mutual funds and better yet index mutual funds. Set up a reasonable asset allocation and rebalance to it each year. If you don't know what these terms mean you have no business investing.
6) Pay yourself first and save every month, even if it is just $50.
7) Pay cash for everything you can including vehicles and a house if possible. The costs of interest are immense.
8) Homeownership is a key to wealth, but it may not be better than renting if you have to get 100% financing, especially in our bubblicious market.
9) The Bank of America doctor's loan is a scam. No PMI? Just because you don't pay it directly doesn't mean you don't pay it.
10) Don't take financial advice from physicians. Including me. Educate yourself.

 

[Orange Julius]

You may be biased? Exactly. I have yet to meet a financial "planner" who wasn't biased into finding a way to sell me products I didn't need, such as whole life insurance.

I have spent my final year of residency doing extensive studying of markets, investing, retirement, budgeting, insurance, mortgages, estate planning etc. The guy doing my "financial planning" for my first two years of residency is unable to answer the questions I pose to him. The problem with hiring a financial planner is that by the time you know enough to know if your planner is good, you no longer need the financial planner. I'm not saying don't use CPAs, attorneys, mortgage brokers, etc for specialized needs and questions but if you educate yourself properly, you will be your own best financial planner.

There are some people that will be better off with a planner than doing things on their own, but this is because they will never learn to do it on their own, not because they can't.

Regarding certifications, there are literally a dozen different types of certifications that can be used to call yourself a financial planner, most of which can be done in less time than a 3rd year surgery rotation. If you insist on hiring a financial planner, you need to understand exactly how he is reimbursed for his services and what that will mean for your long term finances.

Example:
Investing $10000 per year in an investment that gains 10% per year over 30 years will be worth $1,809,434. Investing that same $10000 per year, but losing just 1.5% to advisor fees, commissions, wrap fees etc will mean you will end up with $1,347,729. Do you really think that planner is worth half a million dollars? Because that is what he is costing you in the end. 1.5% is not that high of expenses either, among financial planners. When you add in the commissions on the insurance products they sell you, the advising fees, the loads in the mutual funds they recommend you get into you'll be lucky to only lose 1.5%.

You'll be doing yourself a favor if you read just a few good books before you go out and hire someone.

The Only Investment Guide You'll Ever Need
The Coffee House Investor
Financial Planning for Dummies
The Four Pillars of Investing
How to Save Thousands On Your Mortgage
Bogle On Mutual Funds
Taxes 2006 for Dummies (OK, this is pretty dry, but a great reference)

Questions can be directed (for free) to experts at the following forums:

Diehards.org
fairmark.com

Top ten financial tips for medical students/residents

1) Minimize debt and consolidate it at the lowest possible rate.
2) Fully fund a Roth IRA all the way through residency. This fantastic vehicle won't be available to you when you're making the big bucks.
3) Pick up a disability insurance policy while in residency. Make sure it is own occupation, specialty specific. Unfortunately, someone has to make the commission on this one.
4) If you have dependents, get a 30 year term life insurance policy ($500K-2 Million).
5) Don't try to pick stocks. You can't do it successfully. Use mutual funds and better yet index mutual funds. Set up a reasonable asset allocation and rebalance to it each year. If you don't know what these terms mean you have no business investing.
6) Pay yourself first and save every month, even if it is just $50.
7) Pay cash for everything you can including vehicles and a house if possible. The costs of interest are immense.
8) Homeownership is a key to wealth, but it may not be better than renting if you have to get 100% financing, especially in our bubblicious market.
9) The Bank of America doctor's loan is a scam. No PMI? Just because you don't pay it directly doesn't mean you don't pay it.
10) Don't take financial advice from physicians. Including me. Educate yourself.

Excellent post. There's a lot of good advice here. This should be made into a sticky IMHO. When it comes to finance & investing there's NO substitute for self education. 👍 👍 👍

 

[zippy81]

The Only Investment Guide You'll Ever Need
The Coffee House Investor
Financial Planning for Dummies
The Four Pillars of Investing
How to Save Thousands On Your Mortgage
Bogle On Mutual Funds
Taxes 2006 for Dummies (OK, this is pretty dry, but a great reference)

I'd definitely add to that list The Wealthy Barber...All of the stuff in the first book on your list makes ALOT more sense after reading the Wealthy Barber first.

 

[doctordi]

Only part of my post was included in your response. I purposely didn't post any opinion just gave a basic definition of insurances and what they are used for. I totally agree with you that knowlege is power especially when it comes to your own financial plan. I do not post specific strategies as there is not one good plan. Every person has different needs, objectives, and goals. The only thing I deem absolutely necessary for everyone is disability insurance which you seem to agree. I specialize in disability insurance and this equates to about 90% of my business. My website is dedicated to DI and is written for residents and physicians. Thus I am not saying any one strategy is better, I am only saying that for some hiring a professional can be valuable.

 

[LADoc00]

During the medical school exit interview we're told that we should hire financial advisors to help up budget, plan investments, retirement ect. I think that later on, it will definately be a good idea to have professional advice but for now I should be able to budget and plan for myself. Am I being naieve?

How many of you hire a professional:

financial advisor
accountant
tax advisor
investment and retirement advisor

On a related note I cant emphasize enough to retain a solid contracts attorney for post-residency job offer evaluations. None of the above will help you at all if you are dicked over in your partnership negotiations.

 

[The White Coat Investor]

Only part of my post was included in your response. I purposely didn't post any opinion just gave a basic definition of insurances and what they are used for. I totally agree with you that knowlege is power especially when it comes to your own financial plan. I do not post specific strategies as there is not one good plan. Every person has different needs, objectives, and goals. The only thing I deem absolutely necessary for everyone is disability insurance which you seem to agree. I specialize in disability insurance and this equates to about 90% of my business. My website is dedicated to DI and is written for residents and physicians. Thus I am not saying any one strategy is better, I am only saying that for some hiring a professional can be valuable.

Care to enlighten the board as to how you make money? It seems most of your business is in disability insurance. What percentage of the first year's premium goes into your pocket? How about after the first year?

 

[teninepit]

You may be biased? Exactly. I have yet to meet a financial "planner" who wasn't biased into finding a way to sell me products I didn't need, such as whole life insurance.

There are some people that will be better off with a planner than doing things on their own, but this is because they will never learn to do it on their own, not because they can't.

Regarding certifications, there are literally a dozen different types of certifications that can be used to call yourself a financial planner, most of which can be done in less time than a 3rd year surgery rotation. If you insist on hiring a financial planner, you need to understand exactly how he is reimbursed for his services and what that will mean for your long term finances

Top ten financial tips for medical students/residents

1) Minimize debt and consolidate it at the lowest possible rate.
2) Fully fund a Roth IRA all the way through residency. This fantastic vehicle won't be available to you when you're making the big bucks.
3) Pick up a disability insurance policy while in residency. Make sure it is own occupation, specialty specific. Unfortunately, someone has to make the commission on this one.
4) If you have dependents, get a 30 year term life insurance policy ($500K-2 Million).
5) Don't try to pick stocks. You can't do it successfully. Use mutual funds and better yet index mutual funds. Set up a reasonable asset allocation and rebalance to it each year. If you don't know what these terms mean you have no business investing.
6) Pay yourself first and save every month, even if it is just $50.
7) Pay cash for everything you can including vehicles and a house if possible. The costs of interest are immense.
8) Homeownership is a key to wealth, but it may not be better than renting if you have to get 100% financing, especially in our bubblicious market.
9) The Bank of America doctor's loan is a scam. No PMI? Just because you don't pay it directly doesn't mean you don't pay it.
10) Don't take financial advice from physicians. Including me. Educate yourself.

Desperado, you make some valid points. People should educate themselves. But it bothers me to no end when someone makes comments about advisors. You seem to think they just walk in the office one day and wham they are advisors. Many have college degrees in finance and accounting and additional designations can take months if not years of studying to earn. Just to earn the right to trade stock for clients you have to get a series 7, 63 license which can take up to 3 months of intensive studying and passing a test to earn. Hmmm kinda sounds like a USMLE or COMLEX. While not saying they equate, point being it is not easy either.

Your comment about just buying an index fund to avoid commissions. Well even your index fund charges you commission so i guess you are screwed by the financial planners either way buddy. To set up an asset allocation is going to require more than just an index fund, which is going to cost you the asset fee that the mutual fund charges. So your whole rant about fees is really invalid. To get services you have to pay for em. You charge for your services, why cannot I for my speciality knowledge.

Absolutely, though, fund roth, buy DI, get life insurance, but 30 year term 👎. That is were an advisor would talk to you, find out what your life goals are, what you need to protect and recommend something beside crappy whole life. Now universal life is the IMO best mix of cost verus return on your money and minimize your dreaded fees/commissions.

Pay cash on a house?? Why not invest that money and use the interest from the house to reduce your income taxes.

 

[doctordi]

You said it your self pick up a disability policy (unfortunatly someone has to make a commission on this one)

Insurance companies pay a commision to agents on disability insurance this is true. It does not matter who you buy it from you are going to pay the same price (excluding unisex rates). If someone offers you a policy cheaper then it is not the same policy and does not have the same benefits. With disability insurance you get what you pay for. I do not determine rates nor do I or any other ethical agent have the ability to lower their commission by reimbursing you. This is called rebating and is illegal.

With that said if you are going to pay the same price for a product doesn't it make sense to use someone who is extremely knowledgable and offers a high level of service.
I do make a comission on products and the percentages vary but so does everyone else. I come to work every day and treat my clients very well. Should I not be compensated for operating a business that offers much needed information and service.

I am not commission driven and have never done something for a client that had my interest above theirs.

 

[Jocomama]

Are you a medical student? College student interested in medicine?>
A resident?
Were you ever in the field of medicine?

If not - I was hoping you could share with us why you chose to become a member of this site?

I am being serious. I trust you take care of your clients, and are ethical.
But, I would like to know your true motivation for becoming a member of this site.

You said it your self pick up a disability policy (unfortunatly someone has to make a commission on this one)

Insurance companies pay a commision to agents on disability insurance this is true. It does not matter who you buy it from you are going to pay the same price (excluding unisex rates). If someone offers you a policy cheaper then it is not the same policy and does not have the same benefits. With disability insurance you get what you pay for. I do not determine rates nor do I or any other ethical agent have the ability to lower their commission by reimbursing you. This is called rebating and is illegal.

With that said if you are going to pay the same price for a product doesn't it make sense to use someone who is extremely knowledgable and offers a high level of service.
I do make a comission on products and the percentages vary but so does everyone else. I come to work every day and treat my clients very well. Should I not be compensated for operating a business that offers much needed information and service.

I am not commission driven and have never done something for a client that had my interest above theirs.

 

[CameronFrye]

Your comment about just buying an index fund to avoid commissions. Well even your index fund charges you commission so i guess you are screwed by the financial planners either way buddy. To set up an asset allocation is going to require more than just an index fund, which is going to cost you the asset fee that the mutual fund charges. So your whole rant about fees is really invalid.

There are plenty of no-load index funds out there. Sure, index funds charge an expense ratio, but they are by far the cheapest investment products out there. Also, you can set up a perfectly fine asset allocation using just index funds. Vanguard (and Fidelity) offer a wide variety of index funds that enable you to do whatever you want: domestic equity, emerging markets, developed international markets, value tilting, small cap tilting, REITs, bonds, etc.

If you absolutely have to have a financial planner, be sure to hire a fee only advisor. You don't want a financial advisor who has a conflict of interest and will try to peddle you high commission crap or churn your portfolio.

 

[The White Coat Investor]

You said it your self pick up a disability policy (unfortunatly someone has to make a commission on this one)

Insurance companies pay a commision to agents on disability insurance this is true. It does not matter who you buy it from you are going to pay the same price (excluding unisex rates). If someone offers you a policy cheaper then it is not the same policy and does not have the same benefits. With disability insurance you get what you pay for. I do not determine rates nor do I or any other ethical agent have the ability to lower their commission by reimbursing you. This is called rebating and is illegal.

With that said if you are going to pay the same price for a product doesn't it make sense to use someone who is extremely knowledgable and offers a high level of service.
I do make a comission on products and the percentages vary but so does everyone else. I come to work every day and treat my clients very well. Should I not be compensated for operating a business that offers much needed information and service.

I am not commission driven and have never done something for a client that had my interest above theirs.

My point is that the client never sees the commissions. How does he know the product you recommend is the best one for him, and not the one that pays you the higher commission? That's the problem I have with the way the insurance industry is set up. Unless you inform your client of the commissions, how can he make a decision as to how biased the information you gave is? I'm not saying the commission affects the recommendations you make, but I think even you would have a difficult time saying it doesn't affect the recommendations of many salesmen. I don't begrudge you a living, I just expect you to be upfront about how you're making it. If a doctor got one commission for recommending one drug, and a higher commission for the second, which would he prescribe? (This is why this is illegal in medicine.)

 

[The White Coat Investor]

Desperado, you make some valid points. People should educate themselves. But it bothers me to no end when someone makes comments about advisors. You seem to think they just walk in the office one day and wham they are advisors. Many have college degrees in finance and accounting and additional designations can take months if not years of studying to earn. Just to earn the right to trade stock for clients you have to get a series 7, 63 license which can take up to 3 months of intensive studying and passing a test to earn. Hmmm kinda sounds like a USMLE or COMLEX. While not saying they equate, point being it is not easy either.

Your comment about just buying an index fund to avoid commissions. Well even your index fund charges you commission so i guess you are screwed by the financial planners either way buddy. To set up an asset allocation is going to require more than just an index fund, which is going to cost you the asset fee that the mutual fund charges. So your whole rant about fees is really invalid. To get services you have to pay for em. You charge for your services, why cannot I for my speciality knowledge.

Absolutely, though, fund roth, buy DI, get life insurance, but 30 year term 👎. That is were an advisor would talk to you, find out what your life goals are, what you need to protect and recommend something beside crappy whole life. Now universal life is the IMO best mix of cost verus return on your money and minimize your dreaded fees/commissions.

Pay cash on a house?? Why not invest that money and use the interest from the house to reduce your income taxes.

I seem to think they just walk into the office one day and WHAM they are advisors? As I understand it, that can be done. Just because it took you three months to prepare for the series 7 exam doesn't mean it requires 3 months of study to pass it. I mean, the study guide guaranteeing a pass is only 250 pages. I covered that much every day while studying for the USMLE.

http://www.investopedia.com/professionals/resources/series7.aspx?ad=EX_S7_bbox

The only prerequisite is sponsorship by a financial company (looking to hire more salesmen.)

http://www.investopedia.com/professionals/series7/

BTW, it took me 6 years to prepare for USMLE STEP 1 (4 years of college adn 2 of med school.) Let's not get to steps 2 and 3. No, it doesn't sound similar at all. Give me a break. And a college degree in finance? How many classes on asset allocation, assessing client's needs, insurance etc did they teach there. If I had a college degree in medical sciences would you come to me for medical advice? Of course not. You would realize that is merely preparatory study to enter into a true professional school.

If these additional designations are so great, why does the field need 20 of them? Shouldn't there be just a few (say....MD and DO for instance). The reason there are so many is because the professionals use their informational mismatch to increase their take home pay at the expense of their clients.

As far as needing a series 7 to trade stocks, there are thousands of people without series 7 doing it on etrade every day. Not saying that's the best way to invest, just that it ain't that special.

As far as index fund commissions, that is patently untrue, and if you were an informed advisor, you'd know it. Most good mutual fund companies offer no load (read, no commission) funds. There is an annual expense ratio, but for most good index funds this ranges from 0.07-0.3 %. That is less than $30 a year for $10,000. Pretty damn cheap by anyone's standards.

And an acceptable asset allocation can be set up using one simple fund of index funds that will likely outperform the recommendations of most financial advisors out there.

http://flagship4.vanguard.com/VGApp/hnw/FundsHoldings?FundId=0304&FundIntExt=INT

Universal life? Are you kidding me? The only person that is best for is the advisor because the damn thing is so complicated he is the only one who understands it. (Lots of places to siphon off a few bucks.) I have yet to see a universal life policy with decent investment options and what I would consider acceptable commissions. Perhaps you can show that a physician is better off with a universal life policy than with the combination of term insurance and a taxable portfolio of index funds or low cost tax managed funds? I doubt it. But I'd be interested in seeing your analysis.

As far as buying a house, cash is by far the cheapest way to buy. The simple fact is that most of us can't do it. Nonetheless, the faster a house is paid off, the less money it costs the person in the long run. Although part of the interest is tax-deductible, only the part above the standard deduction truly is completely tax deductible, and that benefit lessens as income goes up. Still, it costs you 100% of the interest to get 30% of the interest deducted, so clearly, it is cheaper to buy the house cash.

I will admit that there are times where it makes sense to carry a mortgage and invest the extra cash flow. This includes maximizing tax-deferred and Roth accounts, and when the guaranteed rate of return is higher than the mortgage rate adjusted for tax benefit. But most of the people investing in taxable accounts while carrying a mortgage are in reality buying stocks using leverage. Do you recommend your clients buy stocks on margin? The reason why one might not "invest that money" is because paying down a mortgage is a guaranteed return, and investing in stocks/bonds/funds etc is not guaranteed. Surely you understand that if you are advising physicians.

Now, this post is mostly negative about advisors. I do not dispute that some people and some physicians will need advisors because they aren't interested in learning this stuff or because they lack the ability to stay the course when the market corrects. But it is important even for those people to realize how much it costs them to hire an advisor. Because no matter how they spin it, any advisor is expensive, so one had better make sure they are worth it.

 

[The White Coat Investor]

P.S. Another interesting article from your profession

http://advisor.morningstar.com/articles/Doc.asp?docId=4482

Can you imagine something like this being written in a medical journal? The headline would look like this:

Double blind placebo controlled trial indicates patients who see doctors do worse than those who don't, even if they have the same disease!

The remainder of the article is how to downplay these results with your clients. Unbelievable!

 

[eyestar]

I'll second the recommendation to do your own taxes. Great to start on them now, while your finances are relatively simple - and don't you also want to know where all your money is going?

I started doing my own taxes during my MSI year. Use TurboTax or TaxCut and it makes the process easy.

I TOTALLY AGREE WITH PAYING AN ACCOUNTANT. My first time, i got turbotax from a friend, found out i will be getting $250 back, then somebody suggested "just get an accountant." To my surprise, my accountant was very helpful, indicated additional ways i could get more refund, ended up getting approx. $2000! as refund. I paid my accountant 100$. So i am never doing it myself. MAKE SURE YOU KEEP ALL YOUR BILLS-LAPTOP, BOOK PURCHASES, movers, educational expenditure of any kind.

 

[Jocomama]

I support your intentions. Drop me a line when you have a chance.

P.S. Another interesting article from your profession

http://advisor.morningstar.com/articles/Doc.asp?docId=4482

Can you imagine something like this being written in a medical journal? The headline would look like this:

Double blind placebo controlled trial indicates patients who see doctors do worse than those who don't, even if they have the same disease!

The remainder of the article is how to downplay these results with your clients. Unbelievable!

 

[eyestar]

o

 

[eyestar]

P.S. Another interesting article from your profession

http://advisor.morningstar.com/articles/Doc.asp?docId=4482

Can you imagine something like this being written in a medical journal? The headline would look like this:

Double blind placebo controlled trial indicates patients who see doctors do worse than those who don't, even if they have the same disease!

The remainder of the article is how to downplay these results with your clients. Unbelievable!

OOps. My previous post is out of place, i was just responding to blade28 by saying it helped me in geting an accountant. BUT, I TOTALLY AGREE WITH desperado!!
I got an accountant only because i didn't have the time to read and learn about taxes, BUT IF I WANTED TO, i wouldn't have hired anyone. As for investments, my only investments currently is citibank's 4.75% savings.
But i am definitely going to invest in ROTH IRA. Thank you desperado for a very informative post! 👍

 

[Jocomama]

Despite our ability to read and learn vast amounts of information, we suffer from a know-it-all mentality.
An accountant is something the majority of us use once out of residency.
Turbo tax is great, however I can tell you the amount of savings obtained by using an accountant.

ROTH IRA is good, but matching 401K is much better. As a resident try to max your 401K contributions ONLY after you are sure the monthly intake is sufficient to match the output. Never want to become dehydrated on a financial level.

Stay away from CDs now. With the economic trend, we will gradually be seeing an increase in the Fed Rate, Prime rate and CD rates over the next 3+ yr cycle. 4.75% in a short term FDIC Citibank interest, or even a non-FDIC money market is fine, as long as you are not keeping more than $10K in that account.
Thanks

OOps. My previous post is out of place, i was just responding to blade28 by saying it helped me in geting an accountant. BUT, I TOTALLY AGREE WITH desperado!!
I got an accountant only because i didn't have the time to read and learn about taxes, BUT IF I WANTED TO, i wouldn't have hired anyone. As for investments, my only investments currently is citibank's 4.75% savings.
But i am definitely going to invest in ROTH IRA. Thank you desperado for a very informative post! 👍

 

[CameronFrye]

but matching 401K is much better.

Yes, definitely, but it's almost impossible to find a residency program that provides a match. If your residency does then you are extremely lucky.

 

[eyestar]

as long as you are not keeping more than $10K in that account.

why not? citibank e-savings is a money market acc. now went up to 5%

 

[Blade28]

Also, do most people apply for a deferment or forbearance for their student loans. It looks like you can't apply for a deferment unless you received your loan before July, 1993.

thanks!

Deferment every year for the first 3 years, then forbearance afterwards. The main difference is that the interest continues to accumulate when you claim forbearance.

 

[Attila]

I notice a few people here seem to believe that all you need to know about investing is to gain instant diversification by buying index funds. That's not a strategy for all economic seasons. You need to know what to do if there the financial mileau changes. Stocks are not the only investment. For example, if you held your money in index funds throughout the 1970's you would have ended the decade down 30%. If you are buying and holding the S&P 500 or the Q's, you're basically gambling that the next decade will resemble the previous two, economically. That's fine as long as you know what to do if it becomes apparant that's not the case. What would you do if the barrel dollar price of oil doubled next month? Few people believe that Bernanke can continue his hiking campaign because of the effect on the real estate market. With the country as heavily leaveraged as it is now it looks like the Fed is essentially powerless to curtail growth without inducing massive recession. Are index funds really the best investment if the CPI hits or approaches double digits? If you don't have answers to those questions you probably need to do a lot of further research or see an adviser. Good financial advice is rarely a waste of money. In fact the more you know about finances the more you can learn from an advisor.


When it comes to investing in a changing and often unpredictable world, having at least one "plan B" is of cardinal importance.