Physician looking to refine my financial plan

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Physician looking to refine my financial plan

Postby gotham » Sun Jan 27, 2013 6:51 pm

Hello everyone,

I am a physician with a 3 years left in residency left to finish. Just some background information. Since my time in med school, I have always maxed out my Roth IRA. Since I started intern year, I have also maxed out a 403b and managed to save 10-15k a year in cash. Ive kept an allocation of roughly 60 (stocks)/40 (bonds + cash). The only debt I have are the ones I graduated with (approximately 200k). I plan to pay this off within 2-3 years by paying 10k a month or more. I think this is doable since my projected gross salary after fellowship is 1.5-2x my loan burden.

Ive been thinking about where to allocate my savings after maxing out all tax deferment vehicles. Despite having money in the market in largely index funds, I really do not have alot of faith in equities and the thought of putting a large portion of my savings in them makes me very uneasy. I'm attracted to real estate, especially commercial properties such as strip malls and storage facilities and less likely multifamily properties. My tentative goal is to save the 30-40% downpayment each year and acquire 1-2 properties a year with the eventual goal of having a portfolio of paid down cash flowing portfolio. Has anyone else down something like this? I would appreciate your critiques and any insights.
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Re: Physician looking to refine my financial plan

Postby bigspender » Sun Jan 27, 2013 6:59 pm

I'm a physician, so maybe I can help you out. First of all, don't feel embarassed by being afraid of equities. Sure, in the last 10 years equities have averaged about 7%/ year. But, if you go out to the year 2000, you are looking at about 2% per year and yes I am including dividends.

First, I commend you on maxing out the roth ira. The max for 2013 is $5500. Second max the 403b/401k. It is 17,500 for 2013.

Since you are afraid of equities. I would recommend the 10,000 max in I bonds. You can purchase 10k /year through the treasurydirect.gov website. You will receive CPI inflation which will accumulate tax free. Also, on treasurydirect, you can buy EE bonds. EE bonds pay very little interst, but if held for 20 years, you end up doubling the value of the bond for an effect interest rate of 3.53%. You can buy 10k/ year.

Now, if you want a little trick, you don't even need kids for this one. If you want 3.04% to accumulate tax free, the state of Colorado offers a stable value fund guaranteed for 2013 to return 3.04%. Now if you take the money out of the 529, you end up paying a 10% penalty on the earnings plus your effective tax rate.

Lastly, I would also recommend you to get own occupation disability insurance before doing anything else. There are many threads on bogleheads for this.
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Re: Physician looking to refine my financial plan

Postby letsgobobby » Sun Jan 27, 2013 7:07 pm

I think it's kind of silly for a graduating resident to be thinking of investing in strip malls, multifamily residences, and storage facilities. That sounds like the kind of notoriously bad financial decision that doctors are famous for.

You're going to make $300k+ per year. If you will just save 1/4-1/3 of your income, max out all your retirement space, and invest in a passive low cost 3 fund portfolio that looks *something* like 1/3 TSM, 1/3 TISM, and 1/3 TBM, you'll be debt free in 3-5 years and able to retire within 20. Everything else will be gravy. And you'll be better off than 90% of your colleagues, especially the ones who started investing in strip malls, multifamily residences, and storage facilities.

Don't go looking to make things more complicated than they need to be.
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Re: Physician looking to refine my financial plan

Postby momar » Sun Jan 27, 2013 7:10 pm

letsgobobby wrote:I think it's kind of silly for a graduating resident to be thinking of investing in strip malls, multifamily residences, and storage facilities. That sounds like the kind of notoriously bad financial decision that doctors are famous for.

You're going to make $300k+ per year. If you will just save 1/4-1/3 of your income, max out all your retirement space, and invest in a passive low cost 3 fund portfolio that looks *something* like 1/3 TSM, 1/3 TISM, and 1/3 TBM, you'll be debt free in 3-5 years and able to retire within 20. Everything else will be gravy. And you'll be better off than 90% of your colleagues, especially the ones who started investing in strip malls, multifamily residences, and storage facilities.

Don't go looking to make things more complicated than they need to be.

Seriously. Being a doctor isn't enough of a job, you need to take on another more-than-full-time job?
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Re: Physician looking to refine my financial plan

Postby BolderBoy » Sun Jan 27, 2013 7:19 pm

gotham wrote:I'm attracted to real estate, especially commercial properties such as strip malls and storage facilities and less likely multifamily properties. I would appreciate your critiques and any insights.


I've worked with physicians my entire working life and almost without exception they are the biggest suckers and poorest investors on the planet. If you do the above (which I've seen done countless times in 40 years), then you'll confirm my observations. Please don't.

Do a Google search for 'whitecoatinvestor', read and heed. He is a physician who knows what to do and what not to do.

Good luck!
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Re: Physician looking to refine my financial plan

Postby bigspender » Sun Jan 27, 2013 7:30 pm

Your getting a lot of good advice on this forum.

Look up the whitecoatinvestor's website. He is an ER physician.

Also, don't invest in ambulatory centers. That is a great way to waste your money.
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Re: Physician looking to refine my financial plan

Postby Calm Man » Sun Jan 27, 2013 7:47 pm

Deleted. I gave a sermon and have withdrawn it. You are way ahead of yourself in terms of, well, everything.
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Re: Physician looking to refine my financial plan

Postby 6miths » Sun Jan 27, 2013 9:32 pm

letsgobobby wrote:I think it's kind of silly for a graduating resident to be thinking of investing in strip malls, multifamily residences, and storage facilities. That sounds like the kind of notoriously bad financial decision that doctors are famous for.

You're going to make $300k+ per year. If you will just save 1/4-1/3 of your income, max out all your retirement space, and invest in a passive low cost 3 fund portfolio that looks *something* like 1/3 TSM, 1/3 TISM, and 1/3 TBM, you'll be debt free in 3-5 years and able to retire within 20. Everything else will be gravy. And you'll be better off than 90% of your colleagues, especially the ones who started investing in strip malls, multifamily residences, and storage facilities.

Don't go looking to make things more complicated than they need to be.


+1

We get the KISS principle up and down in medicine. Totally agree, don't get caught up in the entitled lifestyle, live well below your means, save the 30% of your income in something like that recommended above, enjoy your life and give yourself the opportunity to retire early. You have invested heavily in your personal capital now just don't blow it by getting too fancy on the investment side. Go check out whitecoatinestor's website as recommended. And beware the sharks! Good luck.
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Re: Physician looking to refine my financial plan

Postby ks289 » Sun Jan 27, 2013 10:15 pm

Whitecoatinvestor is good resource as cited above.
The desire to diversify beyond equities and bonds is of course not unreasonable, but the approach you outlined sounds like a full time job by itself without professional management and taking quite a concentrated risk with the amount of properties you're looking to acquire.

Have you considered a slice of your equities in tax advantaged space allocated to REITs instead? Good diversification among commercial/office/retail and residential real estate with an expense ratio of 0.1%.
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Re: Physician looking to refine my financial plan

Postby 325e » Mon Jan 28, 2013 7:50 pm

I agree that your idea to invest in commercial properties is not ideal.

Your biggest earning potential will be your career. You don't need incredible returns to accumulate a lot. (why do NBA players invest in restaurants/car dealerships/etc instead of just SP500? I don't know but it doesn't seem to work out so well for most of them).

You could do a simple 75% bonds / 25% stocks if you are uneasy. You should not invest in equities if you are uncomfortable and are going to pull the plug when things get rough. But some education about stocks may help you feel better. Stocks have underlying value, just sometimes the price goes beyond that value. Like the analogy of a beer with some foam. Sometimes there is a lot of foam, but the entire glass isn't foam. There is always some real beer in there.

Wal-Mart, P&G, Exxon will be around for a while, and they make real money. In my mind, I'd take Wal-Mart over a strip mall being around in 50 years. That is the beauty of stocks. You can have partial ownership of some great companies. And if you own SP500, you have partial ownership of 500 great companies.

Not saying you should jump into stocks. But maybe more reading will make you feel comfortable with some allocation. Then you can decide. But overall, focus on making money in your career and finding a low time commitment way to make money from your savings.
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Re: Physician looking to refine my financial plan

Postby Grt2bOutdoors » Mon Jan 28, 2013 9:37 pm

325e wrote:I agree that your idea to invest in commercial properties is not ideal.

Your biggest earning potential will be your career. You don't need incredible returns to accumulate a lot. (why do NBA players invest in restaurants/car dealerships/etc instead of just SP500? I don't know but it doesn't seem to work out so well for most of them).

You could do a simple 75% bonds / 25% stocks if you are uneasy. You should not invest in equities if you are uncomfortable and are going to pull the plug when things get rough. But some education about stocks may help you feel better. Stocks have underlying value, just sometimes the price goes beyond that value. Like the analogy of a beer with some foam. Sometimes there is a lot of foam, but the entire glass isn't foam. There is always some real beer in there.

Wal-Mart, P&G, Exxon will be around for a while, and they make real money. In my mind, I'd take Wal-Mart over a strip mall being around in 50 years. That is the beauty of stocks. You can have partial ownership of some great companies. And if you own SP500, you have partial ownership of 500 great companies.

Not saying you should jump into stocks. But maybe more reading will make you feel comfortable with some allocation. Then you can decide. But overall, focus on making money in your career and finding a low time commitment way to make money from your savings.


Yes - and I take great comfort that 325E's ride requires premium gas - every $$ put in his tank is money in my 401k account. :moneybag
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Re: Physician looking to refine my financial plan

Postby Grt2bOutdoors » Mon Jan 28, 2013 9:39 pm

bigspender wrote:Your getting a lot of good advice on this forum.

Look up the whitecoatinvestor's website. He is an ER physician.

Also, don't invest in ambulatory centers. That is a great way to waste your money.


Don't buy a boat either. My relative MD did that, now it just sits at the slip - unused and chewing up money. :oops:
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Re: Physician looking to refine my financial plan

Postby ram » Mon Jan 28, 2013 9:51 pm

I am a physician. I earn enough and I save enough and I do not want the hassle of managing properties.

If somebody is earning 40 K in his primary job and making another 40 K in real estate he is doubling his income.

If somebody is making 400 K in his primary job and 40k in real estate he is increasing his income by 10%. Both presumably will have to put in the same effort to earn the 40 K in real estate.

Whatever your specialty may be, you are not going to make 300-400 K without hard work and long hours. Real estate (other than REIT) is not investment, it is a second job. If I wanted the additional 40 K, I would look into working 10% harder in my primary job, Consider ER/ urgent care shifts , covering more hospitals for the additional income etc.

Your income potential over your lifetime is 400K x 25 yrs = 10 million. The money you have by comparison is peanuts. Putting it in 100% stocks would be perfectly reasonable, assuming you can live with the risk. Otherwise pick up whatever stock: bond ratio you are comfortable with. You have done well till now and probably better than 95% of your peers. Best luck.
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Re: Physician looking to refine my financial plan

Postby 325e » Tue Jan 29, 2013 10:38 am

Grt2bOutdoors wrote:Yes - and I take great comfort that 325E's ride requires premium gas - every $$ put in his tank is money in my 401k account. :moneybag


Ha! That's funny because it's true. Well, at least my main mode of transportation, by bike, only takes bananas. That is a lot cheaper.

One more thought on this because I don't think it has been said that the advice is based on the fact that you have already put yourself in a great spot. You have a high income potential and you don't overspend.

You are like the 85 Bears with a one of the best all time running backs (income), and greatest defenses of all time (spending). You are asking if it would be wise to start launching the ball down field with Jim McMahon. Jim was ok, but he's no Montana! All you have to do is run the ball and play great d, and you are set. Even worse, every time you launch the ball down field, you take away an opportunity to hand it to Payton.

Wait, were you born after the 85 Bears?!

Find something boring that doesn't take time to put your money. Pay off debt, buy bonds, buy solid Vanguard stock funds. If you are looking for some excitement with a very small part of your money and really like commercial properties, you could look at funds that are triple net like NNN or O. I don't know much about these other than they invest in commercial. They are almost definitely overpriced right now with people trying to get yields. But at least they are hands off and you can sell at any time. Otherwise, pick other parts of your life like your job and personal life to focus the excitement on. You're doing great so far!
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Re: Physician looking to refine my financial plan

Postby ks289 » Tue Jan 29, 2013 11:04 am

325e wrote:
Grt2bOutdoors wrote:Yes - and I take great comfort that 325E's ride requires premium gas - every $$ put in his tank is money in my 401k account. :moneybag


Ha! That's funny because it's true. Well, at least my main mode of transportation, by bike, only takes bananas. That is a lot cheaper.

One more thought on this because I don't think it has been said that the advice is based on the fact that you have already put yourself in a great spot. You have a high income potential and you don't overspend.

You are like the 85 Bears with a one of the best all time running backs (income), and greatest defenses of all time (spending). You are asking if it would be wise to start launching the ball down field with Jim McMahon. Jim was ok, but he's no Montana! All you have to do is run the ball and play great d, and you are set. Even worse, every time you launch the ball down field, you take away an opportunity to hand it to Payton.

Wait, were you born after the 85 Bears?!

Find something boring that doesn't take time to put your money. Pay off debt, buy bonds, buy solid Vanguard stock funds. If you are looking for some excitement with a very small part of your money and really like commercial properties, you could look at funds that are triple net like NNN or O. I don't know much about these other than they invest in commercial. They are almost definitely overpriced right now with people trying to get yields. But at least they are hands off and you can sell at any time. Otherwise, pick other parts of your life like your job and personal life to focus the excitement on. You're doing great so far!


Love the sports comparison.
I think those Bears actually highlight not enough diversification. The '80's Bears won "only" one Super Bowl because they really had an all time great defense in 1985 but were not sufficiently diversified beyond that to sustain their dominance.
Once Buddy Ryan left, Payton retired, Mcmahon kept getting injured/beaten up, and the defensive stars starting aging/retiring, they couldn't get back to the Super Bowl.
What the Giants, Redskins, and Niners had was the kind of diversification (balance) to win multiple titles with different QBs and stars on both sides of the ball.
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Re: Physician looking to refine my financial plan

Postby buckstar » Tue Jan 29, 2013 12:03 pm

bigspender wrote:Also, don't invest in ambulatory centers. That is a great way to waste your money.


While I agree with most of the above posts RE: real estate investing and the hassles that they are, there are some unique opportunities available to physicians, such as surgery centers, radiology centers, infusion centers, etc... Obviously, the situation may be very different by the time you finish your residency, but don't ignore ALL of these opportunities. I know several physicians (unfortunately not me) that MORE than double their income from their investments in surgery centers and other ancillary sources of income.
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Re: Physician looking to refine my financial plan

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Re: Physician looking to refine my financial plan

Postby Flashes1 » Tue Jan 29, 2013 9:49 pm

Wow.....what kind of residency do you have to save that kind of money. My wife made a whopping $50k/year including moonlighting ten years ago, but no way she could have saved $22k.
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