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Wealth Building strategies starting in Residency

Discussion in 'Finance and Investment' started by Cholinergic, Dec 10, 2008.

  1. Cholinergic

    Cholinergic Member
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    What are some strategies for building wealth starting from residency? I'm thinking about consulting with a financial planner/advisor. Are there any good books/resources out there? Suggestions for good companies to consider for wealth management?

    Thanks. :thumbup:
     
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  3. Habeed

    Habeed Membership Revoked
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    I hate to mention the obvious, but c'mon. Yes, if you put aside say 5k each year in residency, and accumulated a return for 30 years, you would have more money.

    But there's a cost : 5k could buy you a sexier ride, better wardrobe, or more chances to eat out. Or heck, better stuff for your family.

    And you'll get plenty more chances to save 5k in just a few more years...
     
  4. DrYoda

    DrYoda Space Cowboy
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    You could allways throw your spare cash at debt.
     
  5. dragonfly99

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    Well, for most people I don't think we have enough money during residency/fellowship to need a financial advisor. I mean, if you have $5k or so in total savings, then there isn't much for the advisor to work with.

    I think the biggest thing is don't get into credit card debt. Don't buy a new car b/c it's not a good deal (too much depreciation). Try to pay at least the interest on your student loans so they don't get bigger. If your hospital has a retirement plan that gives you matching funds in return for putting some in, then definitely participate (i.e. if you put in 2.5% of your salary and they give you 2.5% matching funds, that's a 100% return on your money).
     
  6. The White Coat Investor

    The White Coat Investor AKA ActiveDutyMD
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    Spend less than you earn. Invest the rest. Minimize your taxes and investment expenses. You'd be surprised how easy "wealth-building" is.

    In residency, you're better off focusing on wealth-protection though. Avoid stupid debt. Get tons of term life. Get some disability insurance. Be sure to get your 401K/403B match if there is one. Use a Roth IRA for the rest. But don't deprive yourself too much. Saving $5K/year was tough as a resident. Now I save $5K a month without feeling deprived.
     
  7. dragonfly99

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    ActivedutyMD (and others),
    Can someone explain the benefits of term life insurance (vs. using the money for something else like another investment) for someone with no dependents? Usually the residency program provides some level of disability insurance and term life insurance (say 50k/year or so). I'm not sure it's worth it for me to buy more at this point...one could argue the disability insurance, since that provided by our training hospitals is not "own occupation", but the term life insurance I'm really not sure about.
     
  8. michaelrack

    michaelrack All In at the wrong time
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    The main other reason to get term life other than to provide for current dependents is to get a policy in place that will cover future dependents. Dragonfly99, unless you will be allowed to keep the life insurance policy offered by your program after you are done with fellowship, the only reason I could think of to get a term life policy would be to cover burial expenses.
     
  9. The White Coat Investor

    The White Coat Investor AKA ActiveDutyMD
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    $50K is a helluva casket. About $10K covers most burials.

    The only people I know who recommend life insurance for those without dependents are life insurance salesmen. Sure, there's a chance you'll need it later, but let's think about this for a minute:

    1) Chance you'll need it later: 0.8 (80% chance of having wife/kids and needing insurance)
    2) Chance of not qualifying to get it in 10 years or so 0.05
    3) Chance of actually dying and using the insurance during the term 0.1

    Multiply those together and you're looking at 0.8*.05*.1=0.004, or 0.4%. Not exactly a huge risk you're running by not buying it now.
     
  10. Cholinergic

    Cholinergic Member
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    Thanks for the replies. I am also reading a few of Suze Orman's books to get myself in gear. Residency is only 4 years and if I can manage to live comfortably while saving (I always heard to "pay yourself" 10% of your pay check every 2 weeks) then I would be very happy with myself. I will be doing a retirement plan. Initially I had planned to start paying back student loan debt, but I'm not going to make this a priority during residency. Like someone mentioned, maybe I'll tackle some of the interest but that's it. My main goal will be to start SAVING.
     
  11. MBK2003

    MBK2003 Senior Member
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    I think one of the biggest life lessons you can learn in residency is learning to live on less money without feeling like you're depriving yourself. I had a number of colleagues in residency who would reward themselves with shopping after a bad night on call or some awful moonlighting shift. I knew someone who would just buy new clothes instead of doing laundry and justify it by the 80 hours a week she was working. If you're able to live within your means during residency, wealth building afterwards shouldn't be a problem.
     
  12. mgdsh

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    These are all great strategies for an INflationary environment. Right now we're still in a pretty severe deflationary environment and one that may last years.

    Hint: Saving as much cash as possible and doing nothing with it might just be the best bet for most people.
     
  13. Terpskins99

    Terpskins99 Fear... The Stig
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    Most financial advisers I have read up on believe we have faced the worst of it and that 2009 will be a major rebound year. If anything, this is a terrific time to invest in the market.

    If your hospital matches a 401k, you should always try to contribute as much as you can. Putting in the max $5,000 for a Roth IRA is always a good idea as a resident since you almost certainly won't be eligible to do so as an attending.
     
  14. mgdsh

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    Most financial 'advisers' have been calling the bottom since January & March 08. It is in their BEST interest to continuously call bottoms as they really don't make much in bonus/incentive money if your money isn't put to to work.

    I could be wrong and I'm willing to be wrong, but I'm still not an 'investor' here :)
     
  15. freaker

    freaker Senior Member
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    I'm still of the opinion that buying a home is a better option than renting if you have the option, particularly if your spouse is working and you have kids. In many of the housing markets where I'm looking, it's not much more expensive to buy than to rent. At the very least, you're building equity instead of throwing rent down a bottomless pit.

    Who knows when we're reaching the end of this downturn? I'm looking at 2011 as a good time to buy, though. Housing sales tend to slump in the winter and pick-up in the spring. This spring, however, I don't see that happening. Plus there's a massive wave of ALT-A's due for default soon enough. We've already seen the subprimes crash; the ALT-As are next. I'm betting that the market will flood with those new additions, and at that point, it's time to buy with the remains of the malignant loans out in the open.

    [​IMG]

    See this? I think the housing market is due for a few more major shocks. When these 5-year ALT-A's are recast, the you know what is going to hit the fan. They start rolling in this year and are going to peak in first quarter of 2011. You're going to see some upper-end homes flood the market, further pushing down more middle-class homes.

    We'll see with all of this. Things could get very interesting. Our federal government is planning on spending a trillion dollars we simply don't have. That would seem to beg for inflation. But we need low interest rates in place if the housing market and businesses are going anywhere... So how do you control inflation by raising interest rates???
     
    #14 freaker, Jan 11, 2009
    Last edited: Jan 11, 2009
  16. Bleurberry

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    We're in a downward U curve and we haven't flatlined yet, from what I've heard the consensus is.
    Didn't the Treasury even come out last week and say so?
     
  17. Twitch

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    This is silly and just fear mongering from the media. For folks who have an arm due (or just have one), interest rates on 30's are lower than arms and they can easily refi AND possibly save some $$ in the process as the lock into a lower rate minus ofcourse the cost of the refi assuming they don't do rate mods or streamline. With govt MBS buybacks rates are expected to fall, but regardless, even at current rates the 30s beat any old arms home owners may have on a point to point basis without discounting. A few weeks ago 30s fell to 4.5% fixed with no points. Since then, though they have crept back up, and fallen again.
     
  18. Bleurberry

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    Doctor's can refi, but many many can't; they're not eligible under the new guidelines and restrictions companies' have. Sure, that's loosening a bit, but my understanding is it's not as easy as picking up a phone and doing it over the phone any longer.
     
  19. Twitch

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    If you picked up the phone you'd have a hard time getting a hold of a loan office since the wait times are (were?) so high. It's not just arm folks who are doing refi it's also folks who have prior 30 years locked in 6+%.


    Stating the obvious here - if you lost your job and had all your savings with madoff, then you're SOL regardless of whether you arm'd or 30'd.
     
  20. freaker

    freaker Senior Member
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    Fear mongering? If you had a limited pool of money and were in very unsteady economic times, would you agree to buy a $650,000 loan off of a guy making $80,000 per year? I don't care if you lower the interest rates to 4.5%, that guy is going to have an incredibly hard time making payments on that kind of house. And that's the kind of homes a lot of these morons bought in Southern California with that level of income. Sorry, I'm taking my money and lending to the same guy who bought a $250,000 home in Omaha, instead. Much safer bet.

    Nobody is going to buy all these loans. They're toxic, and there's over a trillion dollars of them out there in the market right now ticking down. On top of that, the people who got themselves into these arrangements (over 80% of the people who bought into option ARMs chose the minimum payment--meaning they weren't even paying off their accumulating interest) are most likely not going to have very good credit histories. Conservative, conscientious spenders wouldn't get involved in these kinds of foul financial transactions, much less allow interest to just build on something they were making payments towards.

    It should be noted that 16% of ALT-A loans are already behind in their payments. Over 50% of the people who applied for these loans over-stated their income by 50%. Yes, it's a criminal offense, though rarely prosecuted. "Everyone was doing it." *rolls eyes*

    The whole system is due a major shakedown, and aside from the federal government coming along with premium reductions, these banks and the dumb schlubs who bought their wares are screwed, especially in California. It's the reason you've seen the massive decline in the stocks of Washington Mutual and Wachovia.

    And with the continued hemorraging of jobs and slumping sales, well, you see what lies ahead...
     
    #19 freaker, Jan 12, 2009
    Last edited: Jan 12, 2009
  21. The White Coat Investor

    The White Coat Investor AKA ActiveDutyMD
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    Remember that contributing money to retirement accounts doesn't necessarily mean you're putting it in the stock market. Many 401Ks have a "cash option" or at least a bond fund or two. Physicians need to shelter as much as they can. You should max out your Roths on Jan 1 and your 401Ks as early in the year as possible (be sure to get all of your match). If you want to try to time the market, put it in a money market fund until you're ready to buy stocks. But don't leave the money exposed to taxes. That's just dumb.
     
  22. mgdsh

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    Yup, they've been setup to contribute just as much as the university will match and they've been in cash since.
     
  23. zeloc

    zeloc Senior Member
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    What ideas do people have for doing this?

    I second minimizing taxes. Am also planning on purchasing a place to live.
     
  24. TommyGunn04

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    1) Buying a home is a great way to both invest in your future and reduce your taxable income via the mortgage interest deduction.

    2) Create a high-yield savings account for emergency funds. You should really have 3-6 mos in cash savings available for catostrophies. Online banks like INGdirect or HSBCdirect offer high-yield savings accounts that pay much more interest than traditional branch banks. Then, automate your savings, even if it's just $25/week...before you know it you'll have a decent chunk of change saved up!

    3) An easy way to "pay yourself first" is to automate the savings process. Sign up for a Roth account with a very low-cost firm like Vanguard or Fidelity, and then set up automatic withdrawals from your bank account weekly, or monthly, or whatever works well for you. Higher cost firms just eat up higher percentages of your money in hidden fees, which really adds up over time.

    4) Even better, automate your savings through your employer, with 401k/403b contributions that come right out of your paycheck pre-tax. This will reduce your taxable income such that you can save some money each month and still end up with nearly the same take-home, post-tax pay since you'll pay less in taxes per pay period. Start with something small, like 2%, and ramp it up each month as tolerated. You won't even notice it, and before you know it you'll be saving 10-15% of your income effortlessly! Ideally, it's nice to have a mix of Roth and 401k/403b investments, to get the benefits of both worlds since there's no way to know for sure what your future holds.

    For people in their 20's or 30's, ths current market state is perhaps a once-in-a-lifetime opportunity to begin investing when stocks are incredibly undervalued. Those who're trying to time the market and are holding out on making contributions until things "hit bottom" are just fooling themselves; NO ONE can time the market, even the bestest financiers out there, although we all somehow think we can. People invested with Madoff because it seemed like he actually COULD time the market, and we see where that went...it was just too good to be true. Invest now and you might lose a small amount of money over the next year or two, but you get so many more shares per dollar right now, and can take advantage of the power of compounding and dollar-cost averaging by spreading our your investment over months/years such that the average price/share you pay will be lower than if you just throw a large sum into the mix when you happen to think it's hit bottom, and your dividends/earnings will snowball into more and more shares over time in an exponential fashion. Listen to Warren Buffett; the time to invest is when everyone else is pulling their money out or holding back. Psychologically, you may feel better being out of the market now, but study after study demonstrates that our gut feelings only lead us to buy high and sell low (which is what everyone who's "gotten out of the market" recently has done!). Quite frankly, if you don't have the stomach for potential downturn years like this then you don't belong in the stock market, as the occasional horrible year is the price you pay for the 8-12% gains you'll make on average over time.

    Don't be stupid...INVEST! And don't do it with anyone making a commission. If you want help, consult a fee-only financial planner who has no incentive to lead you astray, and is certified by one of the national financial planning groups. Then invest on your own, with a low-cost firm like Vanguard, Fidelity, TIAA-CREF, etc. Staying out of the market right now is a big mistake, provided that you're investing for the long term and not planning to retire in the next 5 years.

    And of course, make sure to diversify! If you don't have time to spend an hour or two a day researching stocks, you shouldn't be investing in them; buy high-quality mutual funds instead. Research shows that a portfolio containing just 3 high-quality funds like Vanguard's total stock market index, Vanguard's total bond market fund, and Vanguard's total international stock index outperforms average market gains over time. It's a pretty hands off process, but it will position you to have much more say in what your retirement looks like one day.

    So ends my rant for the day :)
     
  25. SexPanther

    SexPanther This could be a problem
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    Well said TommyGunn, spoken like a Boglehead.

    A basic, excellent book that I go back to often is "The Bogleheads Guide to Investing."
     

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