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investing questions

Discussion in 'General Residency Issues' started by chef, Mar 27, 2004.

  1. chef

    chef Senior Member
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    since doctors are gonna make less $ in the future, i gotta find other ways to pay for my kids' college tuition -

    i'm a 25 yo MS2 and I have about $30k saved up. I dont think leaving them in a checking acct is such a good idea. question is, what do i do w/ this money now?? I'll list some options I know, please add more or comment on them.

    1. open a roth or traditional IRA, invest $300 every month from now on.

    2. invest everything in stock market, trade on my own 3

    3. buy a mutual fund

    4. CD or money mkt acct

    5. spend it all on a new G35 coupe b/c I'll make $300k in 7 years (j/k)
     
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  3. Claymore

    Claymore Yankees Suck
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    For 30,000 you can get pretty well diversified, which is really the key. Assett allocation/diversification has been proven to be the single most important determinant with regards to long-term return on your investments. I'd recommend starting an account at a place like Schwab, learning a bit about the market, and spreading your cash across a few mutual funds/money market funds. If you can afford it, consider the tax-sheltering advantage of an IRA. Whatever you do, don't leave it in the checking account.

    MS-2
    Midwestern University
     
  4. osteo emt

    osteo emt Member
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    Go for the roth ira, once u start making the big bucks after residency u wont be able to make sizeable contributions to the ira anymore. I thinks its anything over 100k, the amount u cant put into it dramatically decreases if u can put anything at all in it.
     
  5. southerndoc

    southerndoc life is good
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    You can't invest money in a Roth IRA as a medical student unless you are employed while in school. You're limited to $3,000 per year or your gross income for that year, whichever is the lesser amount. The amount will increase to $4,000 for 2005.

    Some scholarships may qualify as income. You will need to check with a CPA for this.

    Excess contributions are taxed at 6% per year plus additional penalties as determined by the IRS (i.e., if you made money on your contribution, expect it to be sucked up by the IRS).

    Your deadline for contributing to the 2003 year is the tax deadline - April 15, 2004. Contribution limits start decreasing at $90,000. You cannot contribute anything if you make more than $110,000 per year.
     
  6. amdap

    amdap Senior Member
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    This is a smart thread . . . I, for one, have never really invested in anything myself and have no idea where to begin now that I will have an actual salary.

    When you look at FREIDA under different programs, some of them mention that they have "Debt/Financial Counseling." What is meant by that, who are these counselors, and what is the scope of their job?

    I, too, have some money saved up - but I am also wondering what to do with the actual paychecks once they start coming in (during residency.) Is it possible to actually save substantially during residency with approximately $40000 per year, and what are some suggestions from those who have done it?

    As residents, approximately how much are you putting into Roth IRAs? When did you open them and with how much? I figure I could at least get started for these 3 years, even if I have to stop once I have an attending's salary, right?

    Do any of you know anything about financial planners? Do you recommend them? Or are you doing this through a traditional accountant or by yourself? How costly is this whole process?

    Sorry for my naivety, but you've got me all thinking.
     
  7. AnneMD

    AnneMD Junior Member
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    THANKS for starting this thread. I too am in the dark when it comes to investing the money I will be making in residency and long after. I thought I was the only one who didn't know what to do. And I need to start ASAP because I'm 33. I did pick up this great book though, "Investing for dummies." Don't laugh...but it really is a great book, especially to explain all the "business, investment lingo." I wanted to know a little something before I even considered getting a financial planner involved.
     
  8. chef

    chef Senior Member
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    quick q: how do self-employed people get 401k or roth ira? it seems like only company employees can open 401k or ira's..
     
  9. southerndoc

    southerndoc life is good
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    Do a Google search for a SEP-IRA. I don't know that much about them, but they do exist for self-employed people.
     
  10. DireWolf

    DireWolf The Pride of Cucamonga
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    Could you be more specific...
     
  11. DireWolf

    DireWolf The Pride of Cucamonga
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    Thanks Dr. Cuts.
     
  12. Claymore

    Claymore Yankees Suck
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    Real estate can be a pretty risky investment...harder to diversify and there is a lot more $$ required for upkeep. Also, it is much less liquid than mutual funds and involves more effort. As a starting point consider reading "Investing for Dummies"...really a great book for beginners and it will expose you to all the different options available.

    MS-2
    Midwestern University-CCOM
     
  13. skypilot

    skypilot 2K Member
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    Index funds are a good way to go because they provide automatic diversification. Schwab has a tax managed index fund if you are investing outside of a 401k or IRA. You can also buy exchange traded index funds through your brokerage account. Two examples are called "Spiders" for the S&P500 and "Diamonds" for the Dow Jones Industrials.

    The money you invest in the stock market should be money that you don't need for about 10 years. That way you will be able to sustain the ups and downs of the market. If you need the money in a shorter time frame consider a CD or short term bond fund. (Do not put money in a long term bond fund!) Remember that sometimes you have to be more concerned about the "return of your capital" than the "return on your capital."

    Leave some of the money in a money market account too for when you want to splurge on something.

    ;)
     
  14. skypilot

    skypilot 2K Member
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    But you can't live inside a stock! Seriously buying a house can be a great investment if you know you want to live in an area for a few years or if you have an eye for finding a bargain to fix and sell.

    ;)
     
  15. Bobblehead

    Bobblehead Senior Member
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    chef, you can start here:

    These sites cover general investment principles that I think make sense.

    http://socialize.morningstar.com/NewSocialize/asp/FullConv.asp?forumId=F100000015&convId=16613

    The Coffeehouse Investor: http://www.coffeehouseinvestor.com/default.htm

    The Armchair Millionaire: http://www.armchairmillionaire.com/

    If you're looking to invest in your children's college education you will have different investment vehicles available to you than if you were investing for retirement. Try here:

    http://www.fool.com/college/college.htm
    http://www.fairmark.com/custacct/index.htm

    Asset allocation and a disciplined investment strategy are the keys to accumulating wealth in whichever investment vehicles you choose. While you are beginning your education you may wish to consider opening a non-fee brokerage account with Scottrade and parking your 30k in a low-cost, stock index fund such as VTSMX (Vanguard Total Stock Market Index) until you have decided on your asset allocation plan. At age 25 it is not unreasonable to put yourself in a 100% equity position while you figure things out.

    To amdap:

    The above sites will work for you as well. I recommend the Vanguard Diehards forum for you to begin your education. Depending on your city and whether you have a family or are trying to pay off loans you can save quite a bit during residency. It isn't unheard of to max out a 401k plus a traditional or Roth IRA each year in residency although it will require a lot of disciple to do so. Even if you can't, the compounding of interest of what you can save will speed you along your way. The greatest asset (and what we have the least of) is time for compound interest to work for you.

    Regarding financial planners, I would read and educate yourself first rather than blindly trusting anyone else with YOUR money. If you can make it through med school, you can make it through the basic principles of investing. If you are looking for a financial planner make sure they are fee based, not commision based and double check their recommendations against what you've read up on yourself.

    To Dr. Cuts:
    My personal opinion is that investing in real estate requires more knowledge and attention than investing in mutual funds/bonds. While real estate may be more lucrative I feel that it also requires more attention to detail and research. A 60/40 or 70/30 or 80/20 split of VTSMX and VBMFX, Vanguard's total stock and bond market index funds respectively is a good choice for a busy resident who may end up leaving the area after a few years.
     
  16. fuegofrio

    fuegofrio New Member

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    Is it more financially beneficial to pay off loans (approx. $100,000) during residency to reduce debt immediately or to invest and then pay off loans after residency? I figure it comes down to time--the benefit you gain from investing earlier vs. the increased interest you have to pay by deferring loan repayment. Which is the best overall strategy in the opinion of the posters here?
     
  17. DireWolf

    DireWolf The Pride of Cucamonga
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    I have a similar question about student loans. I would be curious to hear what the more financially educated posters feel about this.

    One option is to pay off all student loans (~180K) during residency and the first year or two out in practice. Just live frugally and pay them off in huge chunks. This way you don't have this huge debt hanging over your head, your credit line improves, and you don't waste money paying off tons of interest.

    The other option is to consolidate at a low interest rate (<4%) and defer during residency. Then you have 30 years to pay off your loans. You can use the ~180K to invest and hopefully beat the 4% interest rate every year. I've heard this option mentioned a lot, but it doesn't seem logical to me. You would carry a poorer credit score simply due to the massive amount of debt. I've heard you can receive tax breaks on your student loans, but this only applies if you are are making less than 100K/year. Most physicians would not qualify for this. Also, you are paying tons in interest (~216K). Finally, what if something happens that hinders your ability to pay the loans? If you die, is your spouse liable to pick up the tab? What happens if you become disabled or become unemployed as a physician?

    Just curious. Thanks.
     
  18. rxfudd

    rxfudd 1K Member
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    There's a good thread in the EM forum that gets into this:

    http://forums.studentdoctor.net/showthread.php?s=&threadid=106400

     
  19. DireWolf

    DireWolf The Pride of Cucamonga
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    Thanks rxfudd.
     
  20. XRTboy

    XRTboy Junior Member
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    I vote for paying back our student loans over a long a period as possible, which currently is 30 years. I also don't think one should get too concerned about how much interest one would end up paying if they pay back their loan over 30 years. The more appropriate comparison is how much your investments are worth at the end of the 30 years under the two different scenarios. My student loan debt is close to $200k, so I will use that in the calculations. BTW, I hope this also helps illustrates the importance of time and compound interest with regards to investing.


    Scenario 1: Pay off Loans early(over 5 yrs), and invest later
    Loan Amount:$200k
    Loan period: 5 years
    Interest rate: 2.8%
    Monthly loan payment:$3575
    Total interest paid: $14,559

    Then invest $3575 monthly for 25 years:
    if earn 11% annually (i.e. expected return from investing in stock market or index fund), then your investment will be worth $5,634,676.
    if you only earn 4%, then your investment will be worth $1,838,013


    Scenario 2:pay back loans over 30 years
    Loan amount:$200k
    Loan period:30 years
    Interest rate 2.8%
    Monthly loan payment:$821
    Total interest paid:$95,843

    By choosing scenario 2, you can start investing immediately, but you have less money (because of your loan payment) to invest each month than under scenario 1. To make sure we are comparing apples to apples, if I have $3575 to pay back loans and invest in scenaio 1, then we have that amount to divide up between monthly loan payments ($821) and investing in scenario 2. Thus, the amount you have to invest is $3575-$821, which is $2754 per month.

    Then invest $2754 monthly for 30 years:
    if you earn 11% annually (i.e. expected return from investing in stock market or index fund), then your investment will be worth $7,723,647.
    if you only earn 4%, then your investment will be worth $1,911,412

    Conclusion
    Whether you earn 11% or 4% on your investments, you end up ahead by spreading your student loan payments out over 30 years. Although, you might have ended up saving $80k in interest under scenario 1, this "savings" comes at the expense of having less money to invest right away and thus deprieves you of an additional five years of compound interest working in your favor. Thus, scenario 1 leaves you with $2 million (11% rate of return) or $70k (4% rate of return) less than scenario 2 at the end of 30 years.

    I hope this helps,

    XRT
     
  21. southerndoc

    southerndoc life is good
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    The average S&P 500 gain is 11% per year (since the history of the stock market). That's beating your 4% APR on your student loans. However, keep in mind that while the S&P 500 has gained 11% per year, that does not mean you will always make money.

    Student loans do NOT affect your credit score so long as you make your payments on time. If you miss a payment, then it affects your score very negatively. Make all your payments on time and it's almost like you don't even have a student loan.

    You're correct by stating that too much income will prevent you from deducting interest on your student loan payments. However, the income cap is not $100,000. If you make more than $45,000, then you cannot deduct interest.
     
  22. DireWolf

    DireWolf The Pride of Cucamonga
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    That's interesting. I don't know how one's credit score is calculated but mine is 725. That means my credit score is only better than 33% of the population. I don't understand how this can be. I only have one credit card open with a relatively small maximum limit. I have paid every utility bill on time; I've never been late for any other payments (credit card, rent, medical bills, etc.); I've never been taken to a collection agency; I don't have any other loans (undergrad, mortgage, car, etc.). The only thing I can think of that is bringing my credit score down is my massive, growing student loans from medical school. I hope my score doesn't fall further or I may not qualify for some special physician loans in the future. :scared:
     
  23. ken37

    ken37 Senior Member
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    725 is very nice, so I don't know where you got that 33% figure? According to Experian, the average FICO score nationwide is 678, so you're definately well above the 50th percentile.

    http://www.nationalscore.com/USScore.aspx

    Generally, anything 720 or above will get you the best rate on a mortgage.

    The only way that you would improve your score, if you have a perfect payment history, is to acquire a car loan or mortgage loan, and make those payments on time. Since you have only revolving accounts right now, your breadth of credit suffers, and keeps you at 725 most likely.
     
  24. skypilot

    skypilot 2K Member
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    In general if you can borrow at a lower rate and invest at a higher rate you should do so. Therefore borrowing at 4% and investing at 8% makes sense.

    However, many people will not have the discipline to properly invest 180,000 in the stock market. They will also spend the money as quickly as they earn it. Because of this depending on your level of discipline it may be better financially to invest in paying off your debt first. Another option is to buy a small house or condo and really try to pay off that in five years. Real estate has lately been providing a better return than the stock market. But it all depends on your discipline level. If you have the guts to pour $180,000 into Russell 2000 based index funds and watch them go up and down for 10 years without panicking then go for it. If you would rather see slow but steady progress with no down periods then go with the house or pay off your loans.

    If you really have loans at a fixed interest rate of 2.8% then you are a very lucky person and I wouldn't pay them off. But can't the interest rate on the loans go up if interest rates in general go up?
     
  25. gaslady

    gaslady Senior Member
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    I liked the first few chapters of this book (after the first 80 pages it gets too complicated for me):
    The Secret Code for the superior investor-how to be a long-term winner in a short term world by James K Glassman.
    I haven't looked at other books to compare this one to.

    As residents, the most important thing we can do during residency is to max out the roth IRA contributions during residency. It's the best deal tax wise and once we're attendings we won't be able to contribute to roth IRA. Once income increases you can still contribute to traditional IRAs, but the tax break isn't nearly as good as Roth IRA. The other reason to start in residency is that the earlier you start, the more time your money has to grow. This improves your overall return as well as moderating risks, caused by shorter term rises and falls in the market.

    There are a lot of places you can get an IRA through. You don't need a live person. You can open an account with an online broker. The big thing to be wary of is fees. Fee structure can vary significantly causing a significant decrease on your investment return if your brokerage has a high fee schedule.
    You can hold individual stocks or index funds in an IRA. I personally like index funds because it's easy, I'm not paying some advisor a lot of money to give me advice that may or may not be good, I'm investing in the US economy as a whole (or certain sectors of), and in the long term the return rates are well established.

    The thing with real estate as an investment versus renting depends on how long you plan to be in a particular area. It takes a few years to recoup the transaction costs. If you are looking into buying it helps your credit rating score to close down credit cards that you don't use. Even if you don't have debt in accounts you still have the credit line and that can bring down your score.
     
  26. DireWolf

    DireWolf The Pride of Cucamonga
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    Thanks ken37. I got my score from TransUnion, and they showed my score on the credit score range of 150-950. It said "your credit ranks higher than 29.9% of the population". Then it said "your creditworthiness falls between Good and Fair". I was surprised to say the least. I'll look and see what the other agencies say about a 725.
     
  27. DrQuinn

    DrQuinn My name is Neo
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    My cousin is a loan officer, and he summarized that anything less than 700 "isn't good", 700-750 is "pretty good", 750 - 800 is "awesome" and 800+ is "unheard of"

    Q, DO
     
  28. DireWolf

    DireWolf The Pride of Cucamonga
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    Thanks for clearing that up. Now I have to figure out why I'm not in the 750-800 range. :mad:
     
  29. chef

    chef Senior Member
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    OMG - STOCK MKT is where it's at!!!

    i put in 10k and made 9% in 5 days.

    i think i'll be putting in all of my $ in stock mkt now....
     
  30. ken37

    ken37 Senior Member
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    Because you don't have a car loan or a mortgage. Each type of credit you have increases your credit score. Having 10 CC's isn't as good as having 4 CC's, a car loan and a mortgage.
     
  31. beezar

    beezar Senior Member
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    So who's the best (ie: cheapest) broker company to go through to invest in a Roth IRA? Are those online companies (like E-Trade) safe? This is a great thread for the investing-stupid like me...
     
  32. southerndoc

    southerndoc life is good
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    I have a traditional and Roth IRA accounts through Ameritrade.

    Scottrade is cheaper if you plan to do market only orders. I think it's $7 for those. However, nearly all my trades are done via limit orders. Scottrade charges $15/trade for those, whereas Ameritrade charges $10.99/trade.
     
  33. Bobblehead

    Bobblehead Senior Member
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    For mutual fund investing Scottrade is probably the best online brokerage. No inactivity fees, plenty of no-transaction fee fund families including Vanguard and Dodge & Cox. People that trade stocks take issue with the tiered fee structure for market/limit orders. Personally I don't plan to invest in single stocks for my retirement accounts as I do not except to beat market returns after factoring in costs over a 40 year span.
     
  34. PTjay

    PTjay Senior Member
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    just make sure it's an index fund you get the roth ira in, that way all your money goes to the fund instead of someone who has to "manage" it. the index funds go by set companies in the market so there's really no managing going on.

    make sure you dollar cost average to get the lowest overall price unless you'd rather just dump the entire $3K in at once and forget about it.

    www.fool.com is an excellent resource for beginning investors.
     
  35. skypilot

    skypilot 2K Member
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    In general the big names you have heard of like Ameritrade and Etrade are safe.

    These brokerages have insurance from the SIPC (Securities Investors Protection Corporation) that protects you in case of the brokerage going bankrupt. Your shares are also kept separate from the brokerage assets.
     
  36. Poesie Noire

    Poesie Noire Member
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    dont waste your money on the g35 coupe now. the sedan and coupe will have a interior upgrade, +20hp on both sedan and coupe, among other amenities for the 2005 models. trust me on this.
     
  37. southerndoc

    southerndoc life is good
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    Perfect time to buy a used one.

    Seriously, new cars take a hit on their value during the first 2 years of ownership. Buy used and save money.
     
  38. InGasWeTrust

    InGasWeTrust Member
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    Geek Medic,

    Get a life!

    In the end money really does not matter, when you are worm chowder does it matter if you spent that extra 200/month on the car you wanted?

    I personally know of 2 physcians who recently died a little over 50.....I am sure the extra 200/mnth they threw in a ira/401k, etc...really made a difference
     
  39. southerndoc

    southerndoc life is good
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    So while you're slaving away at 65 years of age, I'll be enjoying my nice retirement on my sailing yacht. You are right, money does not buy happiness... but it does buy things that can make your life more enjoyable.
     
  40. InGasWeTrust

    InGasWeTrust Member
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    Geek Medic,

    I know you are going to be big time doc, with a big time practice, making big time money but......................


    If your number is called, thats it, GAME over!

    So I am not encouraging irresponsibilty, but not just because you are a doc you are still human and guess what? If not for the grace of GOD, ALLah, etc....you are dead.
     
  41. banner

    banner Senior Member
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    How do you know you will be making $300 K/year or the inflational equivalent for the rest of your life?

    How do you know you won't hate your job in the future and would want the financial security to retire early or pursue another line of work?

    If you truly believe in your "live for today" philosophy, then why did you become a physician? Training for 13 years for your profession while amassing debt doesn't seem to be the characteristic of somebody who lives for the day.
     
  42. edinOH

    edinOH Can I get a work excuse?
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    I think he/she is pointing out that you need to balance your future goals with your current life.

    I plan on saving/investing aggresively when I get out of residency so that I will have plenty of options after 10-20 years of practice. But I don't necessarily want to die rich either.

    I think a balance between Sam Walton and MC Hammer is the best way to go. :D

    I don't want the next 20 years of my life to be all work and no play. There has been enough of that already.
     
  43. InGasWeTrust

    InGasWeTrust Member
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    edinOH.........He gets IT!
     
  44. southerndoc

    southerndoc life is good
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    My point wasn't that I am going to die with money and carry it with me to the afterland. My point was that I'm investing heavily now because of two reasons: 1. I want to retire early so I can enjoy life before I get frail and old, and 2. I'm not hurting for money right now.
     
  45. PGY2

    PGY2 Member
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    Medic, I'm doing the same thing. As of Junary 1, 2004, I was $15,000 in the hole in credit card debts. I took $3000 and dumped it into a high risk stock investment and by February 1st, I was debt free baby!!!!! (not looking forward to the capital gains though).

    As a PGY5, I have started moonlighting heavily, adding an extra $5000/month to my resident's salary. 1/2 of this is going into the stock market (high and moderate risk stocks) , the other half is helping me take trips around the world with my wife this year. My fellow residents are hating life because they cannot think outside the box and are depending only on their salary to get by. This is foolish! There is no reason a resident has to be poor.

    And as far as retirement, I have been maximizing my rothIRA for the past 2 years as well as contributing to a 403B account. It's nice seeing I have almost $40,000 tucked away already for retirement and I havent even started practicing yet! If I dont keel over from an MI before the age of 59.5, the future looks very bright.

    Message to all... think outside the box! Small sacrifices now can lead to huge pay offs in the future. If you depend on your future salary as an attending to make you wealthy, you will be very disappointed. Live below your means.

    Good luck!!!
     
  46. southerndoc

    southerndoc life is good
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    Yea, I was planning on maxing out my Roth IRA every year plus contributing to a 403(b) plan (5% probably). I'm sure after 4 years I will be at least >75% vested. I've already contributed some to my Roth IRA this year, so I'll have more money to contribute to the 403(b).

    Plus, and this is the real kicker, even though I financed my education, I can get the lifetime learning tax deduction this year. Gotta love it! Basically I'll have no federal taxes this year. Awww yea!
     
  47. chef

    chef Senior Member
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    500% return in 30 days. :wow:

    u r in wrong profession!! screw your MD degree and go rule NYSE!! LOL :D
     
  48. chef

    chef Senior Member
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    500% return in 30 days. :wow:

    u r in wrong profession!! screw your MD degree and go rule NYSE!! LOL :D
     
  49. thewebthsp

    thewebthsp Shoobeedoowap
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    Either the guy is a genius, or very very lucky. In the long run, you're just as likely to lose all of your money. 20-30% yearly interest is pretty much the maximum safest return, unless you do option spreads, but those take extensive experience otherwise you will lose it all, again...
     
  50. Maybe February 1st of this year, not last? So 13 months instead of just one.

    Edit: never mind, just saw that the post was written last year. :)
     
  51. toby2

    toby2 Junior Member
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    Point well taken. Enjoy life while you can, and live it to the fullest! However, your perspective may change as you age. You start thinking about other stuff like, how are your family members going to survive after you're gone? Can what you contribute to your Roth IRA make a difference even if you're not around to enjoy it? Yes, because your beneficiaries get it all, tax-free. The peace of mind knowing they are taken care of is worth it, IMHO. That's another reason I also finally ended up getting a term life insurance policy. Now I realize that most of you are single right now, but keep these things in mind. Your priorities will change as you graduate, get married, have a family, etc...

    Another thing I've observed is that typically when someone says "money doesn't matter," that person is broke! Test this out for yourself... the next time someone says this, ask them how much money they have. Chances are they're completely broke, or they're spending their entire paycheck before they even get it.

    my $.02
     

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