Aug 10, 2018
49
143
Hello! I currently have a full-time job and am in the process of applying to medical school. I really want to start investing my money so that I'm creating at least some sort of a passive income as well as learning about how to invest early in my life. I wanted to come here first, however, and ask you doctors who have already paid off/are in the process of paying off your medical school loans, if you think this is a wise idea. I don't plan on tying up all my money into investments. I would have an emergency fund as well as an expense fund during medical school. Ideally, I'd be using the funds I'm investing for big future events like a wedding or a first house. This way, when I start residency I can focus as much salary as possible on loan repayment. I would just like to set myself up for a comfortable post-medical school life where I can attack my loans as aggressively as possible, and I'm wondering if starting to invest now would help me to accomplish this.

I'm also wondering if there's anything financial that you did great/would have done differently in order to make my goals (aggressive attack on loans and money for big life events) possible.

And as one last side question (sorry), I'm unsure if having an asset like an investment would make me less eligible for loans/scholarships? I'm not sure how that works/if this is the right place to ask it...

Thank you all so much for the advice and thoughts!
 

TMP-SMX

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Are you saving in an IRA and 403b/401k? If not that's easy option right now. If you make decent money contribute to traditional IRA prior to tax day and convert it all to Roth IRA during school. If you don't make a lot of money just do direct Roth contributions to IRA. During residency plan for REPAYE as your student loan repayment plan to reduce your effective tax rate. It's just not feasible to make large payments during residency with what you are paid. Plan to keep debt low and save for retirement when available.
 
OP
greatjoyousday
Aug 10, 2018
49
143
Sorry this is a month late! But thank you for your reply!

Why do you suggest contributing to a traditional IRA prior to tax day if I make decent money? Also, what would you define as decent money?
 
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How much debt do you have?
How important of a role does debt play into here? Should you not invest if you have any debt, or only if you're bogged down by specific debts (i.e. high interest credit card payments, etc.)?
 

sliceofbread136

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How important of a role does debt play into here? Should you not invest if you have any debt, or only if you're bogged down by specific debts (i.e. high interest credit card payments, etc.)?
well the avg return on an index fund will be ~7%, so anything with a higher apr will be a higher return on your money most of the time.Even if it’s a lower interest rate loan like a lot of student loans if something happens and you lose your income then interest rate will keep accruing and you end up at risk for things foreclosure, etc. I believe that risk is why people like Dave Ramsey advocate paying off debt prior to investing even though the Roi may be higher than the interest rate historically.

PERSONALLY even if it was a lower interest rate loan I would put all my extra income into paying off debt prior to doing things like 401k or Roth IRAs. There will always be the risk that you will lose your income, but it’s not quite as big a deal if you aren’t saddled with debt
 
OP
greatjoyousday
Aug 10, 2018
49
143
How much debt do you have?
I have less than 10k from undergrad (which is such a blessing) and I plan on paying all of that off before medical school starts. I will definitely be able to pay this and have money left over to invest. But I know I also need to have savings going into medical school so I'm quite conflicted as to how much money should go where!
 

TheHungarianCPAPFS

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Jan 14, 2020
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How long is your investment horizon and when will you need this money? If the market value of your investment goes down 20-40% during any time, are you OK with that or will you panic and take the money out? For a full cycle, for which we are on top, you will need 10-15 years, as we are right now in year 12-13 for the current cycle and we are pretty much on top of the market. But who knows where and when the correction comes. Look at the 2007-2008 market correction and learn from it. Those who took out their money from the market after the correction and set at the sidelines, lost almost an 80% upside from the low of -40% (2007-2008) to the high of 35% in 2019. See attached slide. But if you buy today, you could be down that 40% again. Will you add to the account, so that you average down your cost and recover faster, or will you take your money left over and run? If your account down, 50%, then it will take 100% gain, just to get back to zero, if you cash that money out. However, if you stayed in the market, bought some more of the same (assuming its a good investment), or bought something like B of A for $7/sh at that time, how much faster will you recoup your paper losses? Look at the slide about Average Annualized Returns after the market declines more than 10%. Since you didn't cash out, they are only on paper and not real losses. So the question is, can you live with 50% of your account balance 2 years from now. If the answer is no, then you should put it into CD, some safe corporate bonds, muni bonds vs. the stock market. You can also look at the other slide about pre election years, which is where we are. But what happens after the election? It depends on who get elected and what direction they are going. Sorry. Lets focus back. If you need the money short term, dont invest in the stock market or real estate. If you have some "play money" and can wait for the market to re bounce, go for it and learn. Hope this helps.
 

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Jan 21, 2020
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Hello! I currently have a full-time job and am in the process of applying to medical school. I really want to start investing my money so that I'm creating at least some sort of a passive income as well as learning about how to invest early in my life. I wanted to come here first, however, and ask you doctors who have already paid off/are in the process of paying off your medical school loans, if you think this is a wise idea. I don't plan on tying up all my money into investments. I would have an emergency fund as well as an expense fund during medical school. Ideally, I'd be using the funds I'm investing for big future events like a wedding or a first house. This way, when I start residency I can focus as much salary as possible on loan repayment. I would just like to set myself up for a comfortable post-medical school life where I can attack my loans as aggressively as possible, and I'm wondering if starting to invest now would help me to accomplish this.

I'm also wondering if there's anything financial that you did great/would have done differently in order to make my goals (aggressive attack on loans and money for big life events) possible.

And as one last side question (sorry), I'm unsure if having an asset like an investment would make me less eligible for loans/scholarships? I'm not sure how that works/if this is the right place to ask it...

Thank you all so much for the advice and thoughts!
I did something similar before I started school. Federal student loans are anywhere from 6-7% right now so it's unlikely you'll be able to find something that guarantees a greater return.

Personally I'd pay off the undergraduate debt and save as much as possible. When you're in school it'll still be compounding. After investing in retirement, the money you have left over could be placed short term CD's or Treasury Bills for slightly less taxes.

I would use the money you were going to invest toward medical school. Obviously keep your emergency fund in something liquid but personally I think paying off medical school debt is greater than saving it for a marriage or a house. Keep your debt to a minimum and don't focus on the house/wedding. Many people fall into this and get sucked into keeping up with the Jones's and their debt to income ratio becomes way too high. You can get a guaranteed return on your money if you are able to pay off some student loans this way.

I hope that helps and best of luck.
 
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Mar 14, 2019
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Hey OP

Should you invest?

First off, congrats on having a full time job before medical school! Plenty of medical students go straight through from undergrad and never have that experience you get from working a job. Also, having that income will definitely help you in medical school.

To answer your question, it's really tough to say if investing is the right option for you right now. It's one of those things where it's impossible to predict the future. Did you invest in tesla 6 months ago? Bitcoin in 2017? Or can you predict what's going to skyrocket next? If people could do that, a lot fewer people would choose medicine.

Now, if you're going to invest in an index fund, you can do some math and figure the difference between possible 8% gains vs current student loan rates. It's a question even attending docs have, though. Should I put my money toward my 6.5% loans? Heck, toward my 3% refinanced loans? Or should I start investing in the market?

Every year there's an article calling for the next recession, though. And at some point one of those articles will be right. You can invest and hope we continue to see 20% gains per year, or you can keep that money (in a high yield savings account) for living expenses that are guaranteed to come up in medical school and decrease the amount of loans you need to take out.

So, if you think you just want to have some skin in the game of the market, that's fine. But I would advise only investing what you're willing to lose. If you need this money in the next 5 years for a house, wedding, food, etc. it makes more sense to have it in a high yield savings account.

What would I have done differently?
1: I would have learned more about personal finance before medical school. Read books. Listen to podcasts. Find blogs.
2: I would have applied for more scholarships. They're out there, even for medical students. Apply to as many as you can.
3: Thankfully, my school gave a fair amount in scholarships to us, but if I started over, I would more strongly consider costs as a factor when choosing a school.
4: I would have worked in medical school. A friend of mine did tutoring for a while which definitely helped out with his loans. As long as you can study and get your stuff done in school, having a small job would help.
5: Realize that in every specialty there are options for paying off your loans. Heck, you can work for the VA right now and get 200k paid off over 5 years. I wouldn't pick a specialty based on pay.
6: Along with #5, I do continue to live like a resident after residency. Almost any doc can do this and pay off their loans within 5 years.

How does having an asset affect your loan/scholarship eligibility?
Sorry, I'm not sure on this one.
 
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OP
greatjoyousday
Aug 10, 2018
49
143
Hey OP

Should you invest?

First off, congrats on having a full time job before medical school! Plenty of medical students go straight through from undergrad and never have that experience you get from working a job. Also, having that income will definitely help you in medical school.

To answer your question, it's really tough to say if investing is the right option for you right now. It's one of those things where it's impossible to predict the future. Did you invest in tesla 6 months ago? Bitcoin in 2017? Or can you predict what's going to skyrocket next? If people could do that, a lot fewer people would choose medicine.

Now, if you're going to invest in an index fund, you can do some math and figure the difference between possible 8% gains vs current student loan rates. It's a question even attending docs have, though. Should I put my money toward my 6.5% loans? Heck, toward my 3% refinanced loans? Or should I start investing in the market?

Every year there's an article calling for the next recession, though. And at some point one of those articles will be right. You can invest and hope we continue to see 20% gains per year, or you can keep that money (in a high yield savings account) for living expenses that are guaranteed to come up in medical school and decrease the amount of loans you need to take out.

So, if you think you just want to have some skin in the game of the market, that's fine. But I would advise only investing what you're willing to lose. If you need this money in the next 5 years for a house, wedding, food, etc. it makes more sense to have it in a high yield savings account.

What would I have done differently?
1: I would have learned more about personal finance before medical school. Read books. Listen to podcasts. Find blogs.
2: I would have applied for more scholarships. They're out there, even for medical students. Apply to as many as you can.
3: Thankfully, my school gave a fair amount in scholarships to us, but if I started over, I would more strongly consider costs as a factor when choosing a school.
4: I would have worked in medical school. A friend of mine did tutoring for a while which definitely helped out with his loans. As long as you can study and get your stuff done in school, having a small job would help.
5: Realize that in every specialty there are options for paying off your loans. Heck, you can work for the VA right now and get 200k paid off over 5 years. I wouldn't pick a specialty based on pay.
6: Along with #5, I do continue to live like a resident after residency. Almost any doc can do this and pay off their loans within 5 years.

How does having an asset affect your loan/scholarship eligibility?
Sorry, I'm not sure on this one.
Wow, thank you for such a kind and comprehensive response!

You make a very good point that eventually a recession will hit. Considering this, maybe the following would be a better plan: putting the majority of my saved money into a high-interest savings account (like you suggested), putting a few thousand (maybe 2-3k) into retirement accounts, and maybe 1k or less into standard investing (probably a mutual fund). With the money in my savings account, I can either pay off my loans or possibly wait until the market crashes and then put as much as I can into my portfolio. I'm unsure whether or not it's a good idea to wait for a recession and then jump on investments, but that seems to make a lot of sense?

I have been doing a lot of research recently to find scholarships and I have found a good bit which I plan on applying to! Also, do you have any personal finance books that you would recommend? I've found a few online that I'm interested in but I would definitely love to hear about which books you felt were most applicable to your situation as a physician.

Thank you again for your answer, it was incredibly helpful!
 
Mar 14, 2019
19
8
Status
Attending Physician
Wow, thank you for such a kind and comprehensive response!

You make a very good point that eventually a recession will hit. Considering this, maybe the following would be a better plan: putting the majority of my saved money into a high-interest savings account (like you suggested), putting a few thousand (maybe 2-3k) into retirement accounts, and maybe 1k or less into standard investing (probably a mutual fund). With the money in my savings account, I can either pay off my loans or possibly wait until the market crashes and then put as much as I can into my portfolio. I'm unsure whether or not it's a good idea to wait for a recession and then jump on investments, but that seems to make a lot of sense?

I have been doing a lot of research recently to find scholarships and I have found a good bit which I plan on applying to! Also, do you have any personal finance books that you would recommend? I've found a few online that I'm interested in but I would definitely love to hear about which books you felt were most applicable to your situation as a physician.

Thank you again for your answer, it was incredibly helpful!

You're welcome!

I think you're starting with a solid plan, but I would change around a few things.

1: A high interest savings account is a great place to put your money, and where I would hold everything I need within the next 3-6 months. If you're buying a house, planning for a wedding, or have another big expense, you can extend that timeline even longer to, say, 1-2 years.

2: I would suggest using some of your savings to pay for things in medical school. Rent, books, tuition, living, etc. Every dollar you use this way is one less dollar you need to borrow. Of course, If you prefer to leverage yourself and have that debt, you can do that and still consciously limit how much you take out, but I would honestly try to limit my own debt burden if I could go back.

3: You mentioned waiting for a market crash. Thing is, the market WILL crash, but nobody knows when or by how much. Accurately timing the market would make you insanely rich, but most people who try end up buying high and selling low (the opposite of what you should do). Over and over again it's been shown that time in the market beats timing the market. If you're going to invest, take advantage of retirement accounts, limit your costs, and start putting money into it. But I think I mentioned this before, its possible to make >8% returns in the market, but also possible you could lose 50%. You're guaranteed not to lose 6.8% or whatever your interest rate is every year with your loans. Whether you choose to invest of pay off loans is up to you.

As a side note, and why I prefer index funds over individual investments....I've been told I have bad FOMO. Right now I'm a little jealous of my friends who bought tesla 6 months ago and made 4x gains. But I also bought into the cryptocurrency craze in 2017 when I was a resident. Turned $4000 into $400 after plenty of research and spreadsheets and tech analysis, etc. Ouch. But I also started consistently funding a ROTH IRA in residency and turned $5500/year into 6-10%+ more per year every year without much effort. I realized I'm a doctor by trade, and I want my money to grow, but I'm not a stock picker or bubble rider by any means, so I stick to index funds.

Books

I would recommend my own stuff! But It's early days for me and I don't want to heavily self promote, so here are some other suggestions.

I Will Teach You To Be Rich by Ramit Sethi: Doctor or not, I honestly feel like the first steps in figuring this all out comes with working out the things you can control. That's your budget. Your spending. Your credit cards. etc. This was the book that solidified most of those things for me, and the first one I'd recommend. It's more of a week by week guide that breaks personal finance into smaller steps. Just keep in mind as you read it that his style of investing/spending might not be for you. For example, he tells you to chase big wins, like spending 20k on shoes if that your thing, so long as you fill your retirement accounts. I personally prefer a more conservative spending approach to make it to financial independent earlier but still be happy along the way.

The Millionaire Next Door: Another good book. Spoiler: it essentially teaches you that millionaires aren't all flashy lamborghini driving instagram celebrities like people want you to think. A great book for a little perspective.

To understand markets a little better, I highly recommend this youtube video by Ray Dalio.
And depending on how you prefer to learn, you can read blogs like:
Mr Money Mustache - A huge proponent of frugal living and getting by with less.
White Coat Investor - for doctor/high earner financial tips
Physician on Fire - more about Financial Independence, Early Retirement for doctors.
and plenty of others.

Or you can look up youtubers like:
Graham Stephan - Real Estate investor who's gotten big into the personal finance arena
Our Rich Journey - A couple who recent achieved FI on their own.
The Plain Bagel - Excellent place to understand more about markets

Or one of my favorite things, forums and groups:
Boglehead.com
reddit.com/r/personalfinance
Facebook fatFIRE group
Facebook White Coat Investor group.
And here.

In any case, I know that's a lot of info but I think it's a good place to start. I think you're lucky in that personal finance has become a big niche on social medial/blogs/etc. and the community is usually very helpful. Also, more than anything, the best thing you can do right now is start learning about this stuff now, which you're already doing! Which is great!

I hope that helps. Feel free to follow up with any other questions you might have.
 
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