Physician-Resident looking for Portfolio Advice

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Forsberg21
Posts: 19
Joined: Wed Mar 29, 2017 1:47 pm

Physician-Resident looking for Portfolio Advice

Post by Forsberg21 » Wed Mar 29, 2017 2:12 pm

Hey Bogleheads! Over the last few months I have begun to get my finances in order, and discovered this website and its rich source of information. I have spent a good deal of time reading different posts and the wiki, and finally feel like I am starting to understand a lot of the basics. I wanted to thank everyone who participates in this forum, as I have learned such a great deal already, and am finally ready to post and get some feedback.

I want to also thank Dr. Jim Dahle of whitecoatinvestor.com. You were the one who inspired me to get my finances on track, and I think I finally am. I have read your book, and I basically follow your blog and podcasts religiously at this point. I really appreciate everything you do, and have encouraged many of my colleagues to explore your website.

I am a 28 year-old resident doctor, and married to a 29 year-old resident doctor (I know, real smart to rack up those loans). We are both in our 3rd and final years of residency (currently making ~ $60k each). Starting in July 2017, she will start her attending outpatient pediatrics job at $120k/y, and I will continue my $60k/y salary for the next 3 years of a hematology/oncology fellowship (after which I expect my salary to jump to ~ $250-300k annually). So basically the next 3 years my household income will be $180k, and then starting in 7/2020, will jump to about $400k. My portfolio is nothing special at this point, as I really only began contributing this year. I am mostly interested in making sure I have a solid framework, so that when my household salary dramatically increases, I know what to do with it.

Background Information
- Emergency Funds: 3 months worth
- Debt: Student loans $240k at 3.5% interest rate. We are renting an apartment, so no mortgage. We own our two cars, which should last us until at least the end of my fellowship. I am basically paying the interest with some principal at this time. Not eligible for any of the gov programs. Plan to really begin tackling the loans off when I leave fellowship.
- Currently saving for a house: Have $10k towards that already, goal is to save ~ $2k/month and buy a $300-400k house in the next 4-5 years.
- Married, filing jointly. No children currently (planning for one in the next few years).
- Tax rate: 25% currently (will be 28% starting in July, then 33% in 2020). State: 3.07%
- Age: 28, Wife is 29
- Desired asset allocation: From what I have read, and with the help of some online calculator/estimators, I think 80% stock/20% bond
- Desired international allocation: unsure, maybe 30% of stocks

Portfolio Details
Currently low five figures (all in tax deferred or Roth)

His 403b @ TIAA: 1.5% match. I literally just began contributing to this.
0.9% - Vanguard Institutional Index Fund Institutional VINIX, ER 0.04%
0.3% - Vanguard Total International Stock Index Fund VTSNX, ER 0.09%
0.2% - Vanguard Total Bond Market Index Fund Institutional VBTIX, ER 0.05%
0.1% - Vanguard REIT Index Fund Institutional VGSNX, ER 0.10%

Her 401k at Fidelity: 3% match
18.5% Vanguard Institutional 500 Index Trust, ER 0.014%
10.2% Fidelity International Index Fund - Premium Class FSPSX, ER 0.05%
8.1% Vanguard Institutional Total Bond Market Index Trust, ER 0.035%
4.1% Vanguard REIT Index Fund Institutional Shares VGSNX, ER 0.1%

His Roth IRA @ Vanguard
28.9% Vanguard Target Retirement 2035 Fund Investor Shares, ER 0.15%

Her Roth IRA @ Vanguard
28.7% Vanguard Target Retirement 2035 Fund Investor Shares, ER 0.15%

New contributions (annually for the next three years until the end of my fellowship)
$4650 to his 403b (includes 1.5% match)
$10530 to her 401k (includes 3% match)
$5500 to his Roth IRA
$5500 to her Roth IRA

His 403b options @ TIAA:
American Funds Capital World Growth and Income Fund - R6 Equities ER 0.45%
Dodge & Cox Income Fund Fixed Income, ER 0.43%
TIAA Real Estate Account ER 0.89%
TIAA-CREF Lifecycle Index 2010-2060 Funda (Premier) ER 0.25%
TIAA-CREF Lifecycle Index Retirement Income Fund (Premier)ER 0.25%
Vanguard Emerging Markets Stock Index Fund Institutional ER 0.11%
Vanguard Extended Market Index Fund Institutional ER 0.07%
Vanguard Growth Index Institutional ER 0.07%
Vanguard Inflation Protected Securities Fund Institutional ER 0.07%
Vanguard Institutional Index Fund Institutional ER 0.04%
Vanguard PRIMECAP Fund Admiral ER 0.33%
Vanguard REIT Index Fund Institutional ER 0.10%
Vanguard Short-Term Investment Grade Fund Institutional ER 0.07%
Vanguard Small-Cap Index Fund Institutional ER 0.07%
Vanguard Total Bond Market Index Fund Institutional ER 0.05%
Vanguard Total International Stock Index Fund Institutional ER 0.09%
Vanguard Wellington Fund Admiral ER 0.16%
Vanguard Windsor II Fund Admiral ER 0.25%


Her 401k options @ Fidelity:
TARGET RET 2020 ER 0.1419%
TARGET RET 2030 ER 0.1624%
TARGET RET 2040 ER 0.1768%
TARGET RET 2050 ER 0.1925%
TARGET RET 2060 ER 0.3198%
TARGET RET TODAY ER 0.1257%
FID GROWTH CO POOL ER 0.43%
VANG INST INDEX CIT ER 0.014%
DFA US LG CAP VAL (DFLVX) ER 0.37%
BAIRD MID CAP ER 0.6662%
FID EXT MKT IDX IPR (FSMAX) ER 0.045%
RDGWTH MID CAP VALUE ER 0.6154%
EAGLE SM CAP GRTH R6 (HSRUX) ER 0.68%
ABF SM CAP VAL INST (AVFIX) ER 0.84%
FID WORLDWIDE (FWWFX) ER 0.91%
FID INTL INDEX IPR (FSPSX) ER 0.05%
TMPL INTL EQUITY ER 0.6535%
DFA EMERGING MARKETS (DFEMX) ER 0.58%
VANG REIT IDX INST (VGSNX) ER 0.1%
VANG INFL PROT INST (VIPIX) ER 0.07%
METWEST TOT RET BOND ER 0.2317%
VANG TOT BD MKT ER 0.035% .
FIXED INCOME FUND ER 0.1062%
TMPL GLOBAL BOND ER 0.5084%

Questions
1. The obvious one: how is my portfolio looking at this early stage?
2. Is my asset allocation appropriate at 80/20? I know this is something only I can truly answer, but any input is greatly appreciated. Being a physician/physician couple, I expect our jobs and salary to be extremely stable.
3. I am interested in following the Boglehead method of a 3-4 fund portfolio moving forward (and staying as hands off as possible). I have read the white coat investor book, and Bogleheads guide to investing. Is there another solid book that would be beneficial to me at this time?
4. With my high income in the near future, is there anything specific I should do differently, or just stick to the plan?

Again, thanks again everyone. This has been a great learning experience for me.

Dan
Last edited by Forsberg21 on Thu Mar 30, 2017 8:11 am, edited 1 time in total.

random_walker_77
Posts: 603
Joined: Tue May 21, 2013 8:49 pm

Re: Physician-Resident looking for Portfolio Advice

Post by random_walker_77 » Wed Mar 29, 2017 9:56 pm

Looks fine. Tax deferred contributions really help out more later on when you get into the higher tax brackets. Right now, the fund allocations look reasonable. REIT's, if you're going to do them should definitely be in tax-deferred. You're saving at a pretty good rate. Keep that up, and you'll be fine. (The most expensive luxury good you can buy is time)

Given that you have stable careers, 80/20 seems fine. Just make sure your gut can handle that kind of risk (recommended reading: viewtopic.php?t=33821#p416548). Rules of thumb would put you anywhere from 65-80 for stocks. Since your income is stable, going for the higher range isn't inappropriate, but the main test is whether you can hold out, refrain from selling, and even keep buying if your stocks lose 30% each year, for years on end.

I don't think high income really changes things. KISS -- investing is simple, but not easy.

Make sure you're well insured for disability and liability. Your biggest risk is on things that can hurt that golden income stream -- getting maimed, or getting sued. Also, when you have dependents in the picture, get term life insurance.

random_walker_77
Posts: 603
Joined: Tue May 21, 2013 8:49 pm

Re: Physician-Resident looking for Portfolio Advice

Post by random_walker_77 » Wed Mar 29, 2017 10:08 pm

Regarding books, the two you've read should be fine. I haven't read them, but plan to someday.

I really liked Bogle's "Little book of common sense investing"

And the first book that clicked for me was Malkiel's "Random walk down wall street" -- this one really explains why indexing is such a good approach.

Have you seen this page? Mr Larimore has nice highlights from both books, linked here:
https://www.bogleheads.org/wiki/Taylor_ ... tment_Gems

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in_reality
Posts: 4529
Joined: Fri Jul 12, 2013 6:13 am

Re: Physician-Resident looking for Portfolio Advice

Post by in_reality » Wed Mar 29, 2017 10:09 pm

Forsberg21 wrote:I know, real smart to rack up those loans
Love is a beautiful thing. What could be more romantic that agreeing on the best investments for you? You both agree medical school is a good investment. It's just too sweet!

venkman
Posts: 664
Joined: Tue Mar 14, 2017 10:33 pm

Re: Physician-Resident looking for Portfolio Advice

Post by venkman » Wed Mar 29, 2017 11:22 pm

It looks pretty good for the moment. I'm curious as to why you went with Vanguard's 2035 Target Retirement, rather than a later one. That's only 18 years from now, and I didn't see any indication that you plan to retire that early. I'm not saying there's anything wrong with the 2035, but just be aware that it is currently has a 20% allocation to bonds, and that will increase automatically as time goes on. (2030 fund has 28% bonds, 2025 has 35% bonds.) If you want a constant 20% bond allocation, you'll need to keep an eye on that fund and adjust accordingly.

Personally, I'm a fan of paying down debt, but it looks like yours is low-interest enough that you can afford to hold off on that for now. Especially since you should be able to knock it out pretty fast once your income goes up. Better to put money in a Roth while you can.

One thing--not necessarily a recommendation, more of a "what I would do if I were you"--add some small-cap value. Preferably NOT with that AVFIX and it's .84 ER. Either in the Roth through Vanguard, or just regular Vanguard small-cap through the 401k. Even Total Stock Market funds are weighted pretty heavily toward large-caps, and it can't hurt to diversify across the market a bit. And you have plenty of time to let the small and value premiums do their work. :happy

Maxdog
Posts: 32
Joined: Mon Mar 27, 2017 9:30 pm

Re: Physician-Resident looking for Portfolio Advice

Post by Maxdog » Thu Mar 30, 2017 12:17 am

Forsberg21 wrote:I want to also thank Dr. Jim Dahle of whitecoatinvestor.com. You were the one who inspired me to get my finances on track, and I think I finally am. I have read your book, and I basically follow your blog and podcasts religiously at this point.
Following WCI site will take you a long way down the road

Background Information
- Emergency Funds: 3 months worth
May want to increase this a bit once you get into practice...I'm pretty conservative and like a bit more of a cushion, but that's an admirable amount at this stage in your career for sure.

- Debt: Student loans $240k at 3.5% interest rate. We are renting an apartment, so no mortgage. We own our two cars, which should last us until at least the end of my fellowship. I am basically paying the interest with some principal at this time. Not eligible for any of the gov programs. Plan to really begin tackling the loans off when I leave fellowship.
Agree with paying down student loans, but if that's a fixed interest rate, it may be lower than your mortgage when you get out...you'll just have to run the numbers to see which to pay first. Also, consider renting a year or so after you enter practice to make sure the job fits you. I've heard horror stories about what looked like golden jobs until folks got to see behind the curtain. Plus, it has the added effect of "living like a resident" just a bit longer.

- Currently saving for a house: Have $10k towards that already, goal is to save ~ $2k/month and buy a $300-400k house in the next 4-5 years.
That's a great price range given your future salary. It will really allow your family to get a boost right out the gate. A house at 1x of your salary leaves plenty of room for living and saving. Too many physicians jump into house poor status early

- Married, filing jointly. No children currently (planning for one in the next few years).
- Tax rate: 25% currently (will be 28% starting in July, then 33% in 2020). State: 3.07%
- Age: 28, Wife is 29
- Desired asset allocation: From what I have read, and with the help of some online calculator/estimators, I think 80% stock/20% bond
This is my asset allocation as well but I've been through some large ups and downs. Probably won't really matter too much given you are just starting out...you've got plenty of time and it won't hurt as bad relative to your new income when you take the dips.
- Desired international allocation: unsure, maybe 30% of stocks

Portfolio Details
Currently low five figures (all in tax deferred or Roth)

His 401k @ TIAA: 1.5% match. I literally just began contributing to this.
0.9% - Vanguard Institutional Index Fund Institutional VINIX, ER 0.04%
0.3% - Vanguard Total International Stock Index Fund VTSNX, ER 0.09%
0.2% - Vanguard Total Bond Market Index Fund Institutional VBTIX, ER 0.05%
0.1% - Vanguard REIT Index Fund Institutional VGSNX, ER 0.10%

Her 401k at Fidelity: 3% match
18.5% Vanguard Institutional 500 Index Trust, ER 0.014%
10.2% Fidelity International Index Fund - Premium Class FSPSX, ER 0.05%
8.1% Vanguard Institutional Total Bond Market Index Trust, ER 0.035%
4.1% Vanguard REIT Index Fund Institutional Shares VGSNX, ER 0.1%

His Roth IRA @ Vanguard
28.9% Vanguard Target Retirement 2035 Fund Investor Shares, ER 0.15%

Her Roth IRA @ Vanguard
28.7% Vanguard Target Retirement 2035 Fund Investor Shares, ER 0.15%

New contributions (annually for the next three years until the end of my fellowship)
$4650 to his 401k (includes 1.5% match)
$10530 to her 401k (includes 3% match)
$5500 to his Roth IRA
$5500 to her Roth IRA
Nice savings rate...around 20% towards retirement it looks like. Definitely don't slack up on this when you increase salary. You likely will be able to increase to close to 30% towards retirement if you don't let lifestyle creep catch ya too much. You're not used to the new salary yet, so "pay yourself first"...out of site out of mind. Trust me it's easy to get caught up with furnishing the new house, replacing the old car, buying all the various insurances (disability, term life, etc), finally having the time to take some nice trips, etc.

His 401k options @ TIAA:
American Funds Capital World Growth and Income Fund - R6 Equities ER 0.45%
Dodge & Cox Income Fund Fixed Income, ER 0.43%
TIAA Real Estate Account ER 0.89%
TIAA-CREF Lifecycle Index 2010-2060 Funda (Premier) ER 0.25%
TIAA-CREF Lifecycle Index Retirement Income Fund (Premier)ER 0.25%
Vanguard Emerging Markets Stock Index Fund Institutional ER 0.11%
Vanguard Extended Market Index Fund Institutional ER 0.07%
Vanguard Growth Index Institutional ER 0.07%
Vanguard Inflation Protected Securities Fund Institutional ER 0.07%
Vanguard Institutional Index Fund Institutional ER 0.04%
Vanguard PRIMECAP Fund Admiral ER 0.33%
Vanguard REIT Index Fund Institutional ER 0.10%
Vanguard Short-Term Investment Grade Fund Institutional ER 0.07%
Vanguard Small-Cap Index Fund Institutional ER 0.07%
Vanguard Total Bond Market Index Fund Institutional ER 0.05%
Vanguard Total International Stock Index Fund Institutional ER 0.09%
Vanguard Wellington Fund Admiral ER 0.16%
Vanguard Windsor II Fund Admiral ER 0.25%


Her 401k options @ Fidelity:
TARGET RET 2020 ER 0.1419%
TARGET RET 2030 ER 0.1624%
TARGET RET 2040 ER 0.1768%
TARGET RET 2050 ER 0.1925%
TARGET RET 2060 ER 0.3198%
TARGET RET TODAY ER 0.1257%
FID GROWTH CO POOL ER 0.43%
VANG INST INDEX CIT ER 0.014%
DFA US LG CAP VAL (DFLVX) ER 0.37%
BAIRD MID CAP ER 0.6662%
FID EXT MKT IDX IPR (FSMAX) ER 0.045%
RDGWTH MID CAP VALUE ER 0.6154%
EAGLE SM CAP GRTH R6 (HSRUX) ER 0.68%
ABF SM CAP VAL INST (AVFIX) ER 0.84%
FID WORLDWIDE (FWWFX) ER 0.91%
FID INTL INDEX IPR (FSPSX) ER 0.05%
TMPL INTL EQUITY ER 0.6535%
DFA EMERGING MARKETS (DFEMX) ER 0.58%
VANG REIT IDX INST (VGSNX) ER 0.1%
VANG INFL PROT INST (VIPIX) ER 0.07%
METWEST TOT RET BOND ER 0.2317%
VANG TOT BD MKT ER 0.035% .
FIXED INCOME FUND ER 0.1062%
TMPL GLOBAL BOND ER 0.5084%

Questions
1. The obvious one: how is my portfolio looking at this early stage?
I'm not a huge fan of target funds. I prefer to own the Indexes directly and rebalance things myself, but plenty of folks have them. Just a personal preference for me.

2. Is my asset allocation appropriate at 80/20? I know this is something only I can truly answer, but any input is greatly appreciated. Being a physician/physician couple, I expect our jobs and salary to be extremely stable.
As I mentioned above, the absolute amounts of swings early on likely won't cripple you with fear into making rash decisions given yalls higher salaries

3. I am interested in following the Boglehead method of a 3-4 fund portfolio moving forward (and staying as hands off as possible). I have read the white coat investor book, and Bogleheads guide to investing. Is there another solid book that would be beneficial to me at this time?
I love The Millionaire Next door by Thomas Stanley and The Only Investment Guide You'll Ever Need by Andrew Tobias. The Little Book of Common Sense Investing by Bogle. The Intelligent Investor by Benjamin Graham. I Will Teach You to Be Rich by Rhamit Sethi. The Only Guid to A Winning Investment Strategy You'll Ever Need by Larry Swedroe. Making the Most of Your Money Now by Jane Bryant Quinn. Unconventional Success by David Swensen. The Physician's Guide to Investing by Robert Doroghazi. These aren't all bogleish, but that's ok. Each has its pearls.

4. With my high income in the near future, is there anything specific I should do differently, or just stick to the plan?
One thing I think is critical for young physicians to protect is the income they've worked so hard to achieve. You've worked hard for it...so check into getting quality own occupation disability insurance. Talk with a broker to help shop around for you and to explain all the riders available. Also, know that you can get disability insurance now with future increase option that you can put into effect as soon as you sign the contract for your new job. You don't have to wait until you start your new job.

Doing this will provide you protection now and leave you the option to increase coverage without an exam in the future when your new salary kicks in. A friend of mine was waiting to get his policy and was diagnosed with something I can't recall at the moment and was no longer eligible. I just think of disability insurance as the cost of doing business--protecting the income steam. I know I sound like a salesman...it's just that it won't cost much to insure you and your wife at yalls current salaries and the FIO will allow you to up the coverage for when needed. Just a thought.

Listen to the folks here (except me of course), keep reading, learn what you can, and watch out for the whole life salesmen disguised as advisors or the guys selling equity indexed products guaranteed never to loose...I just loved it when they give you the "get equity returns without any of the risk. Heck, you should stop contributing to your Roth and just do this instead" sales pitch. The more you learn now, the better you will see through the crap that is presented to you later.


Again, thanks again everyone. This has been a great learning experience for me.

Dan

traveltoomuch
Posts: 516
Joined: Fri Mar 15, 2013 5:48 am

Re: Physician-Resident looking for Portfolio Advice

Post by traveltoomuch » Thu Mar 30, 2017 5:11 am

1. The portfolio looks pretty good. (And aside from using the 2035 fund, it looks great!) Good job. I'd reconsider the choice of the 2035 fund in the Roth, but this is not pressing. I personally use the TIAA Real Estate Account, and I would consider that in your 401k as an alternative to the REIT index. If you and your wife are willing to consider your finances as one and you're willing to do asset allocation across accounts, you might even consider putting more into TIAA Real Estate in your 401k and drop the REIT fund from her 401k. I love venkman's idea re: small cap value. Alternatively, add in the extended market index funds to both accounts. But this is really down in the weeds.

2. 80/20 is appropriate. I am willing to take on more risk (90/10), but you probably have no need to.

3. no comment.

4. YES!

First, try to never roll a 401k into an IRA - either keep it around or roll it into a new employer 401k. This is to make it possible to do backdoor Roth contributions later.

Form a plan for how to invest in taxable accounts, for later. Once you have free cashflow not earmarked for house buying, it would be good to have a plan so it doesn't sit around earning nothing. This will likely involve managing asset allocation across accounts so you can do tax-efficient fund placement. Once you're doing that, you might prefer to drop all target-date funds and manage the allocations yourself, anyway.

If you can, try to increase your 401k contributions now. I hate debt, but at 3.5%, I would not rush to pay down those loans.

As your incomes increase, keep your eyes open for 401k plans than give you the opportunity to do mega backdoor Roth.

Forsberg21
Posts: 19
Joined: Wed Mar 29, 2017 1:47 pm

Re: Physician-Resident looking for Portfolio Advice

Post by Forsberg21 » Thu Mar 30, 2017 7:40 am

Thanks for the amazing feedback everyone!

@randomwalker77
I appreciate your take on the 80/20 ratio. I agree it may prove to be a tad too aggressive since my need to take risk will be relatively low given my high income. I will definitely re-address when the larger salary begins in a few years. And yes, good call with the insurance - both my wife and I have occupation own disability insurance, and plan for term life insurance soon. I will check out Bogle's "Little book of common sense investing" as well - I have heard good things.

@In_reality
I know, I know, you have to follow the heart!

@Venkman
I figured I was going to get a question or two regarding the 2035 Target Fund. My thought process was that it is weighted at 80% stock/20% bond at this time, and I could re-evaluate as time went on. The main issue is that I don't have enough money in those Roth IRA accounts ($5500 each at this time) to purchase all 3-4 funds required for the diversified portfolio that I want ($3000 minimum per fund). I definitely agree with you though - it will be swapped over when I am able to do so (probably within the next year). I like the take on further diversifying with small caps - I would have to read a little more on it, as I am still very new to this process, but I appreciate the advice regardless!

@Maxdog
Agreed with the emergency funds! I am happy with the 3 months at this time, but my goal will be to have an available cash reserve of about 6 months expenses in the next 5 years. Do you (or anyone else) have an opinion about where the best place to keep this cash is? I feel like I have heard that high interest savings accounts (e.g. Ally bank) is the safest, although you will lose to inflation over the long term. Good advice with the home buying timeline - my guess is my wife won't let me hold out for another 4-5 years even if it's the smart thing financially to do, but hey, I can try! Great book recommendations - seems like Bogle's "Little book of common sense investing" is a popular one so I may check that one out next. I have occupation own DI already, so I am set from that standpoint, but you would be amazed at how many of my colleagues wait until attending life when the rates get majorly jacked up. Recommending buying early is such a valuable thing.

@Traveltoomuch
First of all, great name. I didn't mention it in my original post (because I didn't want to get yelled at), but I have a $300/month travel budget :shock: because this is super important to my wife and I. Gotta live a little! Interesting take on the TIAA Real Estate Account to replace the REIT index. Could you go into a little more detail as to why that is your thought process? I don't know much about the difference between them. At first glance, the ER is significantly higher in the TIAA Real Estate Account (ER 0.89% vs. 0.10% in REIT). I am very interested in AA across accounts, but wasn't sure when the appropriate time to start that was (the Roth accounts only have 5500 each right now, so I can only use them for one $3000 minimum fund at this time).

To all: The one feedback I was expecting, and definitely got, was the Vanguard Target Fund 2035. With $5500 in each Roth IRA account, do I have a better option at this time? I suppose I could begin AA across all accounts, and just put all the Roth IRA money into a single Vanguard fund (e.g. Total US stock index), but I guess I am just not overly comfortable with everything yet. Also, I remember reading something about Vanguard charging a fee for changing funds within a certain time frame? Anyways no major rush I guess - but I agree I will need to monitor this fund prior to it becoming more conservative.

Again, thanks a lot everyone!

User avatar
hand
Posts: 1172
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Re: Physician-Resident looking for Portfolio Advice

Post by hand » Thu Mar 30, 2017 7:57 am

Do you have a Roth 401(k) option available to either of you?

If you are projecting the $400k income to continue for a sustained period of time, you may be better off paying taxes now (Roth) at your lower tax rate than in the future (traditional 401(k)) when you'll presumably be in a higher tax bracket.

I'm hesitant to give the following advice as serious downsides are possible, but I'll lay out the math, and let others advocate for the behavioural approach (biggest predictor of success is good savings habits so save as much as possible now). If you knew that you would have a lower income for 4 years and then a $400k income for the following 25 years and were confident in amassing a substantial nest-egg over that time $5-$10M, if a Roth 401(k) is not available, you might consider reducing your 401(k) contributions to the minimum required to get the match since you'll likely be paying a higher tax rate on contributions & earnings at some point in the far future than you would on the "contributions" now. If the reduced 401(k) contribution can be repurposed to something good (repaying debt, saving for house) you likely have a long term financial win. If you just waste the money, or earnings don't pan out as expected, you would have been better off saving in the 401(k)

Also, not sure if I saw anything about disability insurance? Seems critical if you've taken on a bunch of debt for a high paying job.

Finance-MD
Posts: 315
Joined: Sun Mar 26, 2017 9:27 am

Re: Physician-Resident looking for Portfolio Advice

Post by Finance-MD » Thu Mar 30, 2017 8:07 am

Are you both really at for-profit institutions for residency with 401k's?

For your fellowship and her new job, will you be at non-profits with 403b's? 457's? Or are you staying at the same institution (and therefore unable to roll your money out into IRA's)?

Do you know what state you want to retire in? E.g. A state with state income tax?

Are your student loans still federal student loans?
Or are they privatized/refinanced?

What is the lowest percentage downpayment you would feel comfortable putting down on a house (assuming you have a well-funded emergency fund; lots of physician mortgages allow 5% down or even 0% down depending what state certain lenders will lend)
You could even qualify for a $300-$400k house already based on her new income (with a contract) and take advantage of the big tax deduction sooner. Interest rates are going up, and it may be cheaper to buy sooner rather than save and pay higher interest later.

What is the property tax rate over there?

A $400k mortgage with 0% down at 4.5% will only cost you about $1500 per month in interest and $500 in principal. The $1500 interest is tax deductible, which would end up giving you about $420 back per month at 28% marginal rate so the net monthly interest would only be about $1080/mo. The principal is negative cash flow, but it goes right back into your equity, so it's not a loss in net worth.

Any reason you can't max out 401k's for 2017 and throughout fellowship?

(i wouldn't put saving for a house or accelerating loan pay down in front of the tax advantaged space; long-term you would be way ahead.)

with her bump in income, you can max them all out and even have a nice new house. This might help decrease your excess cash thereby limiting the biggest curse of high income: lifestyle inflation. All the while, your net worth will be going up quickly.


Will respond again pending your replies!

Forsberg21
Posts: 19
Joined: Wed Mar 29, 2017 1:47 pm

Re: Physician-Resident looking for Portfolio Advice

Post by Forsberg21 » Thu Mar 30, 2017 8:08 am

hand wrote:Do you have a Roth 401(k) option available to either of you?
Unfortunately no Roth 401k option for either one of us. When my wife starts her attending job, I will certainly look into her new 401k plan to determine if 1. they offer one and 2. if it's still worth it to contribute to Roth vs. Traditional with a household income of $180k pre-tax (may be similar or likely lower in retirement).

If you are projecting the $400k income to continue for a sustained period of time, you may be better off paying taxes now (Roth) at your lower tax rate than in the future (traditional 401(k)) when you'll presumably be in a higher tax bracket.
Agree 100%

I'm hesitant to give the following advice as serious downsides are possible, but I'll lay out the math, and let others advocate for the behavioural approach (biggest predictor of success is good savings habits so save as much as possible now). If you knew that you would have a lower income for 4 years and then a $400k income for the following 25 years and were confident in amassing a substantial nest-egg over that time $5-$10M, if a Roth 401(k) is not available, you might consider reducing your 401(k) contributions to the minimum required to get the match since you'll likely be paying a higher tax rate on contributions & earnings at some point in the far future than you would on the "contributions" now. If the reduced 401(k) contribution can be repurposed to something good (repaying debt, saving for house) you likely have a long term financial win. If you just waste the money, or earnings don't pan out as expected, you would have been better off saving in the 401(k)
I also agree with you on this one, and in fact, this is exactly what I have done. The 401k contributions you see on my original post are the 6% minimum to maximize both matches (with the match money added in to my figures). It is only because of this that I am going to be able to max out my Roth IRA funds (or come close at least).

Also, not sure if I saw anything about disability insurance? Seems critical if you've taken on a bunch of debt for a high paying job.
Yes indeed - both my wife and I already have occupation-own disability insurance, and are in the process of purchasing term-life insurance.

Thanks for your comments, Hand!

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hand
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Re: Physician-Resident looking for Portfolio Advice

Post by hand » Thu Mar 30, 2017 8:21 am

traveltoomuch wrote: First, try to never roll a 401k into an IRA - either keep it around or roll it into a new employer 401k. This is to make it possible to do backdoor Roth contributions later.
This is an important point - probably worth reading about Backdoor Roth and "Mega-Backdoor Roth" to understand the requirements - it would be unfortunate to make a small mistake / optimization now that prevents a really attractive big opportunity in the future.

Forsberg21
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Re: Physician-Resident looking for Portfolio Advice

Post by Forsberg21 » Thu Mar 30, 2017 8:27 am

Finance-MD wrote:Are you both really at for-profit institutions for residency with 401k's?

For your fellowship and her new job, will you be at non-profits with 403b's? 457's? Or are you staying at the same institution (and therefore unable to roll your money out into IRA's)?
Whoops, I made a mistake. She does in fact have a 401k (but will be moving to a non-profit next year as an attending), and I actually have a 403b (my original post has been edited).

Do you know what state you want to retire in? E.g. A state with state income tax?
We're from PA, and my guess is we will retire there as well - state income tax is 3.07%

Are your student loans still federal student loans?
Or are they privatized/refinanced?
Privatized loans - our parents took out lines of credit to pay off the higher interest federal loans, hence the 3.5% interest rate I am currently at. It adds a twist in my re-payment schedule, as I don't want to have debt with my parents forever, considering their generosity.

What is the lowest percentage downpayment you would feel comfortable putting down on a house (assuming you have a well-funded emergency fund; lots of physician mortgages allow 5% down or even 0% down depending what state certain lenders will lend)
You could even qualify for a $300-$400k house already based on her new income (with a contract) and take advantage of the big tax deduction sooner. Interest rates are going up, and it may be cheaper to buy sooner rather than save and pay higher interest later.
This is a topic I have been doing an extensive amount of reading/research on because I am getting pressure from my wife to buy a home sooner rather than later. You are correct that I could qualify for a physician mortgage right now, with probably 0-5% down, with no PMI, but at the price of a higher mortgage rate. I could certainly afford to buy the house now, but the problem is that I would be doing so 1. before my wife begins her first job, and 2. Three years before I start my first job (and two years before I even know where I am going to work). Too much risk regarding timing for me. The mortgage interest rates could definitely go up, but that's life unfortunately.

What is the property tax rate over there?
Extremely variable based on neighborhood - unclear where I am going to live quite yet.

A $400k mortgage with 0% down at 4.5% will only cost you about $1500 per month in interest and $500 in principal. The $1500 interest is tax deductible, which would end up giving you about $420 back per month at 28% marginal rate so the net monthly interest would only be about $1080/mo. The principal is negative cash flow, but it goes right back into your equity, so it's not a loss in net worth.

Any reason you can't max out 401k's for 2017 and throughout fellowship?

(i wouldn't put saving for a house or accelerating loan pay down in front of the tax advantaged space; long-term you would be way ahead.)

with her bump in income, you can max them all out and even have a nice new house. This might help decrease your excess cash thereby limiting the biggest curse of high income: lifestyle inflation. All the while, your net worth will be going up quickly.
That is an interesting point. I will need to read a little more about the benefits of having a higher downpayment (10-20%) vs. maxing out tax deferred space. To be completely honest, the physician mortgages make me nervous - I feel like they are designed to take advantage of high income earners who are cash poor early in their careers. I don't know - do you think its worth putting down only 5% in order to put more money away in tax deferred space?


Will respond again pending your replies!

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Re: Physician-Resident looking for Portfolio Advice

Post by random_walker_77 » Thu Mar 30, 2017 9:36 pm

Forsberg21 wrote:
Finance-MD wrote:Are you both really at for-profit institutions for residency with 401k's?

For your fellowship and her new job, will you be at non-profits with 403b's? 457's? Or are you staying at the same institution (and therefore unable to roll your money out into IRA's)?
Whoops, I made a mistake. She does in fact have a 401k (but will be moving to a non-profit next year as an attending), and I actually have a 403b (my original post has been edited).

Do you know what state you want to retire in? E.g. A state with state income tax?
We're from PA, and my guess is we will retire there as well - state income tax is 3.07%

Are your student loans still federal student loans?
Or are they privatized/refinanced?
Privatized loans - our parents took out lines of credit to pay off the higher interest federal loans, hence the 3.5% interest rate I am currently at. It adds a twist in my re-payment schedule, as I don't want to have debt with my parents forever, considering their generosity.

What is the lowest percentage downpayment you would feel comfortable putting down on a house (assuming you have a well-funded emergency fund; lots of physician mortgages allow 5% down or even 0% down depending what state certain lenders will lend)
You could even qualify for a $300-$400k house already based on her new income (with a contract) and take advantage of the big tax deduction sooner. Interest rates are going up, and it may be cheaper to buy sooner rather than save and pay higher interest later.
This is a topic I have been doing an extensive amount of reading/research on because I am getting pressure from my wife to buy a home sooner rather than later. You are correct that I could qualify for a physician mortgage right now, with probably 0-5% down, with no PMI, but at the price of a higher mortgage rate. I could certainly afford to buy the house now, but the problem is that I would be doing so 1. before my wife begins her first job, and 2. Three years before I start my first job (and two years before I even know where I am going to work). Too much risk regarding timing for me. The mortgage interest rates could definitely go up, but that's life unfortunately.

What is the property tax rate over there?
Extremely variable based on neighborhood - unclear where I am going to live quite yet.

A $400k mortgage with 0% down at 4.5% will only cost you about $1500 per month in interest and $500 in principal. The $1500 interest is tax deductible, which would end up giving you about $420 back per month at 28% marginal rate so the net monthly interest would only be about $1080/mo. The principal is negative cash flow, but it goes right back into your equity, so it's not a loss in net worth.

Any reason you can't max out 401k's for 2017 and throughout fellowship?

(i wouldn't put saving for a house or accelerating loan pay down in front of the tax advantaged space; long-term you would be way ahead.)

with her bump in income, you can max them all out and even have a nice new house. This might help decrease your excess cash thereby limiting the biggest curse of high income: lifestyle inflation. All the while, your net worth will be going up quickly.
That is an interesting point. I will need to read a little more about the benefits of having a higher downpayment (10-20%) vs. maxing out tax deferred space. To be completely honest, the physician mortgages make me nervous - I feel like they are designed to take advantage of high income earners who are cash poor early in their careers. I don't know - do you think its worth putting down only 5% in order to put more money away in tax deferred space?


Will respond again pending your replies!
Tax deferred is great in that you don't pay the taxes today (unless we're talking roth) and it compounds without the overhead of taxes. It's really great if your tax rate is high today and lower in retirement. The great thing about your situation is that you could avoid carrying a mortgage for very long, given the high ratio of income to house price. That's a very nice position to be in.

Make sure you buy the house because you need a house, and you know where you want to live for at least 7+ years. You've got stable jobs, know the commutes and alternative commutes if you change jobs in town, understand if traffic is getting worse and where at. You'll probably want to know how the schools are, or distance to preferred private school(s). This is one area where you don't want to buy now and have regrets, because the expense and hassle to change houses is huge. There's no shame in renting a house. Buying a starter home and just accepting that you'll be paying the transaction costs associated with moving in several years is also fine, if you treat it as a luxury cost that you can choose to pay.

The other thing you're going to find out is that at your future income level, the tax deduction on a house isn't all it's cracked up to be. The mortgage deduction helps to the extent that it makes itemizing better than your standard deduction. Given your state taxes and income, that's probably already taken care of. But you're also going to be subject to the itemized deduction phaseout since your income exceeds ~311K. So let's see, a 300K mortgage at 5% is 15K/yr in interest. You'd get to deduct your state income taxes (which takes you a little past the standard deduction) and the mortgage interest, but you'd lose ~3K to the phaseout. So now you're getting back 1/3 of 12K which is a ~4K subsidy on your mortgage interest. It's not nothing, but I'd argue it's low enough that you shouldn't modify your actions based on the tax effects. You might save more by getting legally divorced (but staying together) to avoid the marriage penalty, and it's not like you're going to do that either right? (hmm, I checked, and that's approx 10K/yr http://calc.taxpolicycenter.org/marriag ... alculator/)

Don't let the tail wag the dog! (I learned that the hard way, and the tuition was steep $$$)

On the flip side, at today's low rates, and with the mortgage credit, the amount of interest you pay isn't a whole lot more than inflation. If inflation picks up, the bank ends up paying you to hold their money for them (aka a negative bond). If your mortgage's effective rate is 3.0-3.5%, but inflation is 5%, then the longer you hold the mortgage, the less you owe. :)

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Re: Physician-Resident looking for Portfolio Advice

Post by White Coat Investor » Thu Mar 30, 2017 9:51 pm

Forsberg21 wrote:Hey Bogleheads! Over the last few months I have begun to get my finances in order, and discovered this website and its rich source of information. I have spent a good deal of time reading different posts and the wiki, and finally feel like I am starting to understand a lot of the basics. I wanted to thank everyone who participates in this forum, as I have learned such a great deal already, and am finally ready to post and get some feedback.

I want to also thank Dr. Jim Dahle of whitecoatinvestor.com. You were the one who inspired me to get my finances on track, and I think I finally am. I have read your book, and I basically follow your blog and podcasts religiously at this point. I really appreciate everything you do, and have encouraged many of my colleagues to explore your website.

I am a 28 year-old resident doctor, and married to a 29 year-old resident doctor (I know, real smart to rack up those loans). We are both in our 3rd and final years of residency (currently making ~ $60k each). Starting in July 2017, she will start her attending outpatient pediatrics job at $120k/y, and I will continue my $60k/y salary for the next 3 years of a hematology/oncology fellowship (after which I expect my salary to jump to ~ $250-300k annually). So basically the next 3 years my household income will be $180k, and then starting in 7/2020, will jump to about $400k. My portfolio is nothing special at this point, as I really only began contributing this year. I am mostly interested in making sure I have a solid framework, so that when my household salary dramatically increases, I know what to do with it.

Background Information
- Emergency Funds: 3 months worth
- Debt: Student loans $240k at 3.5% interest rate. We are renting an apartment, so no mortgage. We own our two cars, which should last us until at least the end of my fellowship. I am basically paying the interest with some principal at this time. Not eligible for any of the gov programs. Plan to really begin tackling the loans off when I leave fellowship.
- Currently saving for a house: Have $10k towards that already, goal is to save ~ $2k/month and buy a $300-400k house in the next 4-5 years.
- Married, filing jointly. No children currently (planning for one in the next few years).
- Tax rate: 25% currently (will be 28% starting in July, then 33% in 2020). State: 3.07%
- Age: 28, Wife is 29
- Desired asset allocation: From what I have read, and with the help of some online calculator/estimators, I think 80% stock/20% bond
- Desired international allocation: unsure, maybe 30% of stocks

Portfolio Details
Currently low five figures (all in tax deferred or Roth)

His 403b @ TIAA: 1.5% match. I literally just began contributing to this.
0.9% - Vanguard Institutional Index Fund Institutional VINIX, ER 0.04%
0.3% - Vanguard Total International Stock Index Fund VTSNX, ER 0.09%
0.2% - Vanguard Total Bond Market Index Fund Institutional VBTIX, ER 0.05%
0.1% - Vanguard REIT Index Fund Institutional VGSNX, ER 0.10%

Her 401k at Fidelity: 3% match
18.5% Vanguard Institutional 500 Index Trust, ER 0.014%
10.2% Fidelity International Index Fund - Premium Class FSPSX, ER 0.05%
8.1% Vanguard Institutional Total Bond Market Index Trust, ER 0.035%
4.1% Vanguard REIT Index Fund Institutional Shares VGSNX, ER 0.1%

His Roth IRA @ Vanguard
28.9% Vanguard Target Retirement 2035 Fund Investor Shares, ER 0.15%

Her Roth IRA @ Vanguard
28.7% Vanguard Target Retirement 2035 Fund Investor Shares, ER 0.15%

New contributions (annually for the next three years until the end of my fellowship)
$4650 to his 403b (includes 1.5% match)
$10530 to her 401k (includes 3% match)
$5500 to his Roth IRA
$5500 to her Roth IRA

His 403b options @ TIAA:
American Funds Capital World Growth and Income Fund - R6 Equities ER 0.45%
Dodge & Cox Income Fund Fixed Income, ER 0.43%
TIAA Real Estate Account ER 0.89%
TIAA-CREF Lifecycle Index 2010-2060 Funda (Premier) ER 0.25%
TIAA-CREF Lifecycle Index Retirement Income Fund (Premier)ER 0.25%
Vanguard Emerging Markets Stock Index Fund Institutional ER 0.11%
Vanguard Extended Market Index Fund Institutional ER 0.07%
Vanguard Growth Index Institutional ER 0.07%
Vanguard Inflation Protected Securities Fund Institutional ER 0.07%
Vanguard Institutional Index Fund Institutional ER 0.04%
Vanguard PRIMECAP Fund Admiral ER 0.33%
Vanguard REIT Index Fund Institutional ER 0.10%
Vanguard Short-Term Investment Grade Fund Institutional ER 0.07%
Vanguard Small-Cap Index Fund Institutional ER 0.07%
Vanguard Total Bond Market Index Fund Institutional ER 0.05%
Vanguard Total International Stock Index Fund Institutional ER 0.09%
Vanguard Wellington Fund Admiral ER 0.16%
Vanguard Windsor II Fund Admiral ER 0.25%


Her 401k options @ Fidelity:
TARGET RET 2020 ER 0.1419%
TARGET RET 2030 ER 0.1624%
TARGET RET 2040 ER 0.1768%
TARGET RET 2050 ER 0.1925%
TARGET RET 2060 ER 0.3198%
TARGET RET TODAY ER 0.1257%
FID GROWTH CO POOL ER 0.43%
VANG INST INDEX CIT ER 0.014%
DFA US LG CAP VAL (DFLVX) ER 0.37%
BAIRD MID CAP ER 0.6662%
FID EXT MKT IDX IPR (FSMAX) ER 0.045%
RDGWTH MID CAP VALUE ER 0.6154%
EAGLE SM CAP GRTH R6 (HSRUX) ER 0.68%
ABF SM CAP VAL INST (AVFIX) ER 0.84%
FID WORLDWIDE (FWWFX) ER 0.91%
FID INTL INDEX IPR (FSPSX) ER 0.05%
TMPL INTL EQUITY ER 0.6535%
DFA EMERGING MARKETS (DFEMX) ER 0.58%
VANG REIT IDX INST (VGSNX) ER 0.1%
VANG INFL PROT INST (VIPIX) ER 0.07%
METWEST TOT RET BOND ER 0.2317%
VANG TOT BD MKT ER 0.035% .
FIXED INCOME FUND ER 0.1062%
TMPL GLOBAL BOND ER 0.5084%

Questions
1. The obvious one: how is my portfolio looking at this early stage?
2. Is my asset allocation appropriate at 80/20? I know this is something only I can truly answer, but any input is greatly appreciated. Being a physician/physician couple, I expect our jobs and salary to be extremely stable.
3. I am interested in following the Boglehead method of a 3-4 fund portfolio moving forward (and staying as hands off as possible). I have read the white coat investor book, and Bogleheads guide to investing. Is there another solid book that would be beneficial to me at this time?
4. With my high income in the near future, is there anything specific I should do differently, or just stick to the plan?

Again, thanks again everyone. This has been a great learning experience for me.

Dan
Thanks for your kind words. Should have expected that from an oncologist. Those guys are always so nice.

You guys are in great shape with only $240K in student loans between the two of you. Her salary is on the low side. I would encourage her to keep her ear to the ground and always be looking for another job. Even if she doesn't take it, it will give her negotiating power for a raise at the one she has. Your perspective is excellent. Great insight into what matters (i.e. being ready when the attending income hits)

1. Portfolio looks fine to me.
2. Sure. The next bear market is what will really tell you, but nothing wrong with starting there.
3. Great. That portfolio will work fine if you can stick with it. If you want to think about a more complex portfolio, The Investor's Manifesto, All About Asset Allocation, and Swedroe's book on Factor Investing are probably good places to go next.
4. I don't see anything wrong with your plan. It's working great so far, no? Keep your antennae up for opportunities to be an entrepreneur if you're interested in that sort of thing. The "get rich slowly" plan does work, but there's nothing wrong with mixing it with the "get rich quickly" plan as long as it doesn't imperil the get rich slowly plan. But for now, I'd just concentrate on becoming the best oncologist you can.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

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PhysicianOnFIRE
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Re: Physician-Resident looking for Portfolio Advice

Post by PhysicianOnFIRE » Fri Mar 31, 2017 9:13 am

4. With my high income in the near future, is there anything specific I should do differently, or just stick to the plan?

#s 1 - 3 have been addressed quite nicely above. #4 has too, but I'll add to the advice pile.

First, you probably know this, but you could both be earning double or more. I know pediatricians who earn $240,000 and hem/onc specialists have been known to clear 7-figures when owning the clinic.

Second, don't forget where you came from. Follow Dr. Dahle's "live like a resident" advice and slowly grow into your new income. I encourage physicians to live on half their take-home pay. Put the rest towards student loan debt and retirement, and reach financial independence before your 50th birthdays. At $400k, you'll have $250k or more after tax, so that's $125k to live on every year. Plenty of money in all but the highest cost of living areas.

Congrats on finishing residency in three short months!
:beer
-PoF

Woodlake
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Re: Physician-Resident looking for Portfolio Advice

Post by Woodlake » Fri Mar 31, 2017 10:08 am

just curious what outpatient job pay at 120k? from my impression I thought doctors all make 200-300k to start with?

aredhel
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Re: Physician-Resident looking for Portfolio Advice

Post by aredhel » Fri Mar 31, 2017 11:27 am

Woodlake wrote:just curious what outpatient job pay at 120k? from my impression I thought doctors all make 200-300k to start with?
Not hardly! Many primary care docs never reach 200k. (This is especially true in pediatrics and family practice.)

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Re: Physician-Resident looking for Portfolio Advice

Post by Woodlake » Fri Mar 31, 2017 11:58 am

aredhel wrote:
Woodlake wrote:just curious what outpatient job pay at 120k? from my impression I thought doctors all make 200-300k to start with?
Not hardly! Many primary care docs never reach 200k. (This is especially true in pediatrics and family practice.)
seriously? but all we heard about are those doctors making 500k+ to $1mil+

making 150k-200k are still very good nonetheless, but consider the 8 years of med school+residency and the debt, im not sure it's really worth it

and I thought pediatrics are very popular and in high demand, they should make good money imo

aredhel
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Re: Physician-Resident looking for Portfolio Advice

Post by aredhel » Fri Mar 31, 2017 12:10 pm

Woodlake wrote:
aredhel wrote:
Woodlake wrote:just curious what outpatient job pay at 120k? from my impression I thought doctors all make 200-300k to start with?
Not hardly! Many primary care docs never reach 200k. (This is especially true in pediatrics and family practice.)
seriously? but all we heard about are those doctors making 500k+ to $1mil+

making 150k-200k are still very good nonetheless, but consider the 8 years of med school+residency and the debt, im not sure it's really worth it

and I thought pediatrics are very popular and in high demand, they should make good money imo
Yes, seriously. The docs who make big money are by and large doing procedure-oriented specialties. Primary care doesn't pay all that well for the amount of work it involves, which is why it's getting harder to attract American medical students (who are carrying increasing amounts of debt at graduation) to go into those fields. Many who do an initial residency in general internal medicine or pediatrics then go on to do a sub-specialty fellowship in fields like cardiology, oncology, or nephrology, so when they are finished with their training they are mostly doing subspecialty work rather than primary care even though they technically have primary care training.

The average doctor, though paid well, is not making nearly as much money as the general public thinks they are.

Woodlake
Posts: 47
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Re: Physician-Resident looking for Portfolio Advice

Post by Woodlake » Fri Mar 31, 2017 12:28 pm

I see, but still 120-200k are very good income, that's what middle management at big companies make in their late 30s/40s/early 50s

200k is hard to break no matter what you do

Forsberg21
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Re: Physician-Resident looking for Portfolio Advice

Post by Forsberg21 » Fri Mar 31, 2017 1:35 pm

random_walker_77 wrote:Tax deferred is great in that you don't pay the taxes today (unless we're talking roth) and it compounds without the overhead of taxes. It's really great if your tax rate is high today and lower in retirement. The great thing about your situation is that you could avoid carrying a mortgage for very long, given the high ratio of income to house price. That's a very nice position to be in.

Make sure you buy the house because you need a house, and you know where you want to live for at least 7+ years. You've got stable jobs, know the commutes and alternative commutes if you change jobs in town, understand if traffic is getting worse and where at. You'll probably want to know how the schools are, or distance to preferred private school(s). This is one area where you don't want to buy now and have regrets, because the expense and hassle to change houses is huge. There's no shame in renting a house. Buying a starter home and just accepting that you'll be paying the transaction costs associated with moving in several years is also fine, if you treat it as a luxury cost that you can choose to pay.
Absolutely - the plan will be to buy a home at about 1x our gross income in the net 2-3 years (my wife does not want to wait any longer), and then potentially look at moving in the future if we wanted to. This later part would be at least 7-10 years down the road if everything goes to plan.

The other thing you're going to find out is that at your future income level, the tax deduction on a house isn't all it's cracked up to be. The mortgage deduction helps to the extent that it makes itemizing better than your standard deduction. Given your state taxes and income, that's probably already taken care of. But you're also going to be subject to the itemized deduction phaseout since your income exceeds ~311K. So let's see, a 300K mortgage at 5% is 15K/yr in interest. You'd get to deduct your state income taxes (which takes you a little past the standard deduction) and the mortgage interest, but you'd lose ~3K to the phaseout. So now you're getting back 1/3 of 12K which is a ~4K subsidy on your mortgage interest. It's not nothing, but I'd argue it's low enough that you shouldn't modify your actions based on the tax effects. You might save more by getting legally divorced (but staying together) to avoid the marriage penalty, and it's not like you're going to do that either right? (hmm, I checked, and that's approx 10K/yr http://calc.taxpolicycenter.org/marriag ... alculator/)

Don't let the tail wag the dog! (I learned that the hard way, and the tuition was steep $$$)

On the flip side, at today's low rates, and with the mortgage credit, the amount of interest you pay isn't a whole lot more than inflation. If inflation picks up, the bank ends up paying you to hold their money for them (aka a negative bond). If your mortgage's effective rate is 3.0-3.5%, but inflation is 5%, then the longer you hold the mortgage, the less you owe. :)
Haha, I like the idea of that. Somehow the banks will find a way around that.
White Coat Investor wrote: Thanks for your kind words. Should have expected that from an oncologist. Those guys are always so nice.

You guys are in great shape with only $240K in student loans between the two of you. Her salary is on the low side. I would encourage her to keep her ear to the ground and always be looking for another job. Even if she doesn't take it, it will give her negotiating power for a raise at the one she has. Your perspective is excellent. Great insight into what matters (i.e. being ready when the attending income hits)
Yeah, believe me, I am not overly thrilled with her starting at such a low salary (for a physician), but that's life in a HCOL area in academic medicine. I like the idea of keeping an eye out for other jobs to use as negotiating power - will follow your advice on this one for sure.

1. Portfolio looks fine to me.
2. Sure. The next bear market is what will really tell you, but nothing wrong with starting there.
3. Great. That portfolio will work fine if you can stick with it. If you want to think about a more complex portfolio, The Investor's Manifesto, All About Asset Allocation, and Swedroe's book on Factor Investing are probably good places to go next.
4. I don't see anything wrong with your plan. It's working great so far, no? Keep your antennae up for opportunities to be an entrepreneur if you're interested in that sort of thing. The "get rich slowly" plan does work, but there's nothing wrong with mixing it with the "get rich quickly" plan as long as it doesn't imperil the get rich slowly plan. But for now, I'd just concentrate on becoming the best oncologist you can.
I appreciate your comments, Dr. Dahle. It means a lot to me that you replied personally to my post! I will definitely check out those books as my portfolio increases in size and I become more interested in the nuances of investing
PhysicianOnFIRE wrote:4. With my high income in the near future, is there anything specific I should do differently, or just stick to the plan?

#s 1 - 3 have been addressed quite nicely above. #4 has too, but I'll add to the advice pile.

First, you probably know this, but you could both be earning double or more. I know pediatricians who earn $240,000 and hem/onc specialists have been known to clear 7-figures when owning the clinic.

Second, don't forget where you came from. Follow Dr. Dahle's "live like a resident" advice and slowly grow into your new income. I encourage physicians to live on half their take-home pay. Put the rest towards student loan debt and retirement, and reach financial independence before your 50th birthdays. At $400k, you'll have $250k or more after tax, so that's $125k to live on every year. Plenty of money in all but the highest cost of living areas.

Congrats on finishing residency in three short months!
:beer
-PoF
Thanks for replying to my message PoF! I should have thrown you a shout out in my original post, as I have been following your blog closely as well within the last 3-4 weeks. It's great to have multiple sources to pull information from. I plan on fully embracing "live like a resident" for as long as possible, as it will allow me to save big time early on in my career before I adjust to a higher salary. And yes indeed, I know we could be making more in our careers, but we love the HCOL city we are in, and are surrounded by both families - we are going no where, haha
Woodlake wrote:
aredhel wrote:
Woodlake wrote:just curious what outpatient job pay at 120k? from my impression I thought doctors all make 200-300k to start with?
Not hardly! Many primary care docs never reach 200k. (This is especially true in pediatrics and family practice.)
seriously? but all we heard about are those doctors making 500k+ to $1mil+

making 150k-200k are still very good nonetheless, but consider the 8 years of med school+residency and the debt, im not sure it's really worth it

and I thought pediatrics are very popular and in high demand, they should make good money imo
Not anymore, haha. It's unfortunate, but true

aredhel
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Re: Physician-Resident looking for Portfolio Advice

Post by aredhel » Fri Mar 31, 2017 1:51 pm

Forsberg21 wrote:And yes indeed, I know we could be making more in our careers, but we love the HCOL city we are in, and are surrounded by both families - we are going no where, haha
And those are excellent reasons to stay in a HCOL place! Think of it as a kind of "lifestyle tax," and remember that just living where you are constitutes a luxury lifestyle if down the road you should find yourself tempted by other luxury trappings such as super-expensive cars, exotic vacations, etc. It makes a lot more sense to spend your money to buy fun weekends and ready access to family and long-term friends than it does to spend it on a BMW!

And the fact that you even HAVE savings and investments puts you way ahead of many other young physicians. Any portfolio tweaking you decide to do is just gravy.

jalbert
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Re: Physician-Resident looking for Portfolio Advice

Post by jalbert » Fri Mar 31, 2017 11:35 pm

The US stock funds are all SP500 funds, which is ok, but you could additionally use:

Vanguard Extended Market Index Fund Institutional ER 0.07%

with the S&P500 holding for market completion (80/20 ratio).

You also could just throw everything in all the accounts into target retirement/lifecycle funds of the appropriate year for now, and focus your energy on your careers. When both incomes are higher post-training, you will eventually have a sizable taxable account, and will be revisiting asset location decisions then, and will want to split up stock and bond fund holdings for optimal placement in accounts, instead of holding the fund of funds lifecycle solution.
Index fund investor since 1987.

Forsberg21
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Re: Physician-Resident looking for Portfolio Advice

Post by Forsberg21 » Sat Apr 01, 2017 10:56 am

jalbert wrote:The US stock funds are all SP500 funds, which is ok, but you could additionally use:

Vanguard Extended Market Index Fund Institutional ER 0.07%

with the S&P500 holding for market completion (80/20 ratio).

You also could just throw everything in all the accounts into target retirement/lifecycle funds of the appropriate year for now, and focus your energy on your careers. When both incomes are higher post-training, you will eventually have a sizable taxable account, and will be revisiting asset location decisions then, and will want to split up stock and bond fund holdings for optimal placement in accounts, instead of holding the fund of funds lifecycle solution.
Yeah that is basically what I had done originally - everything in Target Funds, prior to me educating myself with this website and the books I mentioned above. I agree, it would certainly be easier, but I do enjoy managing the investments on my own - even with them being small at this stage. I like the idea of having some experience with re-balancing with my small accounts prior to having to deal with larger amounts.

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blaugranamd
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Re: Physician-Resident looking for Portfolio Advice

Post by blaugranamd » Sat Apr 01, 2017 11:14 am

One thing you COULD consider is viewing your loans as your "bond" allocation for now: aka your investments are 100% stocks and the money you are allocating to bond funds goes into student loan payments. 3.5% is pretty good for medical school loans, but bond returns are pretty similar if not possibly slightly less. You (or someone smarter than me) will have to do the math and tax implications (moving deductible bond contributions to non-deductible principle payments) on how much this will play out for your situation. Not a clear cut option, but something to consider. :sharebeer
-- Don't mistake more funds for more diversity: Total Int'l + Total Market = 7k to 10k stocks -- | -- Market return does NOT = average nor 50th percentile, rather 80-90th percentile long term ---

Forsberg21
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Re: Physician-Resident looking for Portfolio Advice

Post by Forsberg21 » Sat Apr 01, 2017 3:29 pm

blaugranamd wrote:One thing you COULD consider is viewing your loans as your "bond" allocation for now: aka your investments are 100% stocks and the money you are allocating to bond funds goes into student loan payments. 3.5% is pretty good for medical school loans, but bond returns are pretty similar if not possibly slightly less. You (or someone smarter than me) will have to do the math and tax implications (moving deductible bond contributions to non-deductible principle payments) on how much this will play out for your situation. Not a clear cut option, but something to consider. :share beer
It would probably end up being a wash over the course of a couple of years, but since I plan on majorly tackling my loans in the next few years (hoping to have them completely paid off 3-4 years after I start my attending heme/onc job), I think it's probably worth it to keep investing in bonds (30-40 year investment). I do like that idea though - I hadn't even really considered "loan repayment" as part of my AA.

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blaugranamd
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Re: Physician-Resident looking for Portfolio Advice

Post by blaugranamd » Sat Apr 01, 2017 4:47 pm

Forsberg21 wrote:
blaugranamd wrote:One thing you COULD consider is viewing your loans as your "bond" allocation for now: aka your investments are 100% stocks and the money you are allocating to bond funds goes into student loan payments. 3.5% is pretty good for medical school loans, but bond returns are pretty similar if not possibly slightly less. You (or someone smarter than me) will have to do the math and tax implications (moving deductible bond contributions to non-deductible principle payments) on how much this will play out for your situation. Not a clear cut option, but something to consider. :share beer
It would probably end up being a wash over the course of a couple of years, but since I plan on majorly tackling my loans in the next few years (hoping to have them completely paid off 3-4 years after I start my attending heme/onc job), I think it's probably worth it to keep investing in bonds (30-40 year investment). I do like that idea though - I hadn't even really considered "loan repayment" as part of my AA.
We are doing something similar in saving for our next home down payment: goal is 10k/year saved with a 30/70 AA - 30% goes to TSM index fund, 70% goes into our current mortgage at 3.5%. You're currently, based on the total investment numbers, putting $26,180 into your investment funds, at 80/20 AA that would mean you're putting $5,236 per year into bonds, which could knock $20,944 off your student loan debt in that time. I don't think you're wrong either way. If you had nice med school loans like I had that carried a hefty 6.8% interest it would be a no brainer.
-- Don't mistake more funds for more diversity: Total Int'l + Total Market = 7k to 10k stocks -- | -- Market return does NOT = average nor 50th percentile, rather 80-90th percentile long term ---

traveltoomuch
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Re: Physician-Resident looking for Portfolio Advice

Post by traveltoomuch » Sat Apr 01, 2017 7:43 pm

Forsberg21 wrote:Thanks for the amazing feedback everyone!
You are most welcome. Thank you for taking the time to so thoughtfully engage on our responses. I'm seeing this as a sign that you'll be a good doc. :happy
Interesting take on the TIAA Real Estate Account to replace the REIT index. Could you go into a little more detail as to why that is your thought process? I don't know much about the difference between them. At first glance, the ER is significantly higher in the TIAA Real Estate Account (ER 0.89% vs. 0.10% in REIT).
First, don't pay too much attention to TREA's ER. TREA owns properties directly, so the ER includes some costs normally attributable to "property management" like evaluating new properties for acquisition. The ER of a REIT fund doesn't include those costs - they're buried in the internal operating costs of the REITs themselves.

Because of the way TREA computes its property valuations, it has a very smooth price curve. It has only limited same-day exposure to the otherwise very-volatile REIT market. It has tended to track the REIT market over time but with a significant lag, measurable in months. If the real estate market plummets, there might an opportunity to get out.

I added it to my portfolio as a stabilizing force - an asset class that may be significantly decoupled from stocks and bonds, at least in the short term. It has the potential for stock-like returns with very low short term risk. Long term risk is still very high. I only suggest investing if you have some plan for market timing it. It may well be complexity that you do not want to take on at this stage.

Here are some longer threads on TREA.
viewtopic.php?t=123075
viewtopic.php?t=177204

MrUnsure
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Re: Physician-Resident looking for Portfolio Advice

Post by MrUnsure » Sat Apr 01, 2017 10:25 pm

If you have any "stuff" like old savings bonds from grandma, or stocks from Dad, sell them now. You will save a ton on taxes, as you will never be in as low a bracket again.
Use the money for funding roth/retirement or even buying new indexes.
Set yourself up with good habits to start, but leave most of the financial learning for later. Focus on kicking cancers butt right now. You will make more money by being a better MD than you will lose by making small mistakes now, even if they seem big now.

Live some, go blow some cash on a nice trip. I wish I had done that during residency. I scrimped by and saved a ton, maxing retirement accounts etc, even paid off some loans. My first attending paycheck was for more than I saved in 4 years on struggling. It is not worth it, even though those retirement accounts are worth >100k 5 years later.
Moderation is key.

Finally, when you graduate, dont start work right away, take a month off. It will be your last chance for that big a chunk off until you switch practices or retire.

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emp2b3
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Re: Physician-Resident looking for Portfolio Advice

Post by emp2b3 » Sun Apr 02, 2017 12:01 pm

I know that it has been mentioned multiple times, but even for a desirable area that salary is on the low side for general pediatrics. They only time I have seen a similar salary is in an academic center when graduating residents are hired as clinical instructors for the first two years before being promoted on the academic track. Even in LA there were private practice gen peds positions starting at 140-160. In the grand scheme of things it isn't a big deal, but I feel that often as fresh graduates we undervalue ourselves or are just so grateful to have a position that we don't realize that there may be much better opportunities just down the road. Good luck on your journey and good job getting so organized now!

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Re: Physician-Resident looking for Portfolio Advice

Post by rabbitrun » Sun Apr 02, 2017 12:31 pm

+1 to taking an extended break after training and before your first job if you can. it could be the last long vacation you'll have for years.

I really like the Investor's Manifesto by Bernstein for your next non-medical read.

Job security as a physician is good, but not as good as you might think. In my town, there have been many PP groups recently bought out, either by hospital systems or mega-national physician groups. You won't have to deal with this as much if you are in academics, obviously. You'll probably always have a job, but if you land your dream job things can always change.

My first five years in practice I spent too much. Nothing too crazy and nothing that I regret, I just never made any kind of money before and likely overreacted. It sounds like you are educating yourselves well on finance early enough, and you'll be fine. Once you get a nice salary just find that happy medium between saving enough and spending a little every now and then on things that you well deserve.

My student loans are currently <3%, so I am paying them off monthly, but investing more in my taxable.

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Raymond
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Re: Physician-Resident looking for Portfolio Advice

Post by Raymond » Sun Apr 02, 2017 12:47 pm

Not specifically portfolio advice, but a nonetheless excellent article by WCI:

"One House, One Spouse, One Job: Avoiding the True Pitfalls in Personal Finance" - mdmag.com
"Ritter, Tod und Teufel"

hmw
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Re: Physician-Resident looking for Portfolio Advice

Post by hmw » Sun Apr 02, 2017 1:16 pm

MrUnsure wrote: Live some, go blow some cash on a nice trip. I wish I had done that during residency. I scrimped by and saved a ton, maxing retirement accounts etc, even paid off some loans. My first attending paycheck was for more than I saved in 4 years on struggling. It is not worth it, even though those retirement accounts are worth >100k 5 years later.
Moderation is key.

Finally, when you graduate, dont start work right away, take a month off. It will be your last chance for that big a chunk off until you switch practices or retire.

+1

Forsberg21
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Re: Physician-Resident looking for Portfolio Advice

Post by Forsberg21 » Sun Apr 02, 2017 5:29 pm

traveltoomuch wrote:[
First, don't pay too much attention to TREA's ER. TREA owns properties directly, so the ER includes some costs normally attributable to "property management" like evaluating new properties for acquisition. The ER of a REIT fund doesn't include those costs - they're buried in the internal operating costs of the REITs themselves.

Because of the way TREA computes its property valuations, it has a very smooth price curve. It has only limited same-day exposure to the otherwise very-volatile REIT market. It has tended to track the REIT market over time but with a significant lag, measurable in months. If the real estate market plummets, there might an opportunity to get out.

I added it to my portfolio as a stabilizing force - an asset class that may be significantly decoupled from stocks and bonds, at least in the short term. It has the potential for stock-like returns with very low short term risk. Long term risk is still very high. I only suggest investing if you have some plan for market timing it. It may well be complexity that you do not want to take on at this stage.

Here are some longer threads on TREA.
viewtopic.php?t=123075
viewtopic.php?t=177204
Ah that is interesting to know, I will need to do some reading about the different real estate funds before pursuing it further. You may be right - I don't know if I am quite ready for increased complexity this early in my investing career.
MrUnsure wrote:If you have any "stuff" like old savings bonds from grandma, or stocks from Dad, sell them now. You will save a ton on taxes, as you will never be in as low a bracket again.
Use the money for funding roth/retirement or even buying new indexes.
Set yourself up with good habits to start, but leave most of the financial learning for later. Focus on kicking cancers butt right now. You will make more money by being a better MD than you will lose by making small mistakes now, even if they seem big now.
Good call! I am already in the process of selling some of those old bonds and stocks that I received as a kid.

Live some, go blow some cash on a nice trip. I wish I had done that during residency. I scrimped by and saved a ton, maxing retirement accounts etc, even paid off some loans. My first attending paycheck was for more than I saved in 4 years on struggling. It is not worth it, even though those retirement accounts are worth >100k 5 years later.
Moderation is key.
I have heard this from so many physicians, and am planning on embracing this recommendation completely. My wife and I are planning a two week vacation to Thailand/Cambodia/Vietnam in the next year or so. I completely agree with you - all of this investing business cannot come at the expense of living our lives.

Finally, when you graduate, dont start work right away, take a month off. It will be your last chance for that big a chunk off until you switch practices or retire.
Oh, absolutely.
emp2b3 wrote:I know that it has been mentioned multiple times, but even for a desirable area that salary is on the low side for general pediatrics. They only time I have seen a similar salary is in an academic center when graduating residents are hired as clinical instructors for the first two years before being promoted on the academic track. Even in LA there were private practice gen peds positions starting at 140-160. In the grand scheme of things it isn't a big deal, but I feel that often as fresh graduates we undervalue ourselves or are just so grateful to have a position that we don't realize that there may be much better opportunities just down the road. Good luck on your journey and good job getting so organized now!
Hoping her salary will bump over the next few years. Her contract does allow her to earn a 20% bonus on top of the base salary - which apparently most of the docs are able to obtain. However, I decided not to count on that money at all, and not even factor it into the budget. If she gets any or all of it, it will just be gravy.
rabbitrun wrote:+1 to taking an extended break after training and before your first job if you can. it could be the last long vacation you'll have for years.

I really like the Investor's Manifesto by Bernstein for your next non-medical read.
Perfect, thanks - I put it on my list.

Job security as a physician is good, but not as good as you might think. In my town, there have been many PP groups recently bought out, either by hospital systems or mega-national physician groups. You won't have to deal with this as much if you are in academics, obviously. You'll probably always have a job, but if you land your dream job things can always change.
Very true - the future of medicine is as much in question as it has ever been

My first five years in practice I spent too much. Nothing too crazy and nothing that I regret, I just never made any kind of money before and likely overreacted. It sounds like you are educating yourselves well on finance early enough, and you'll be fine. Once you get a nice salary just find that happy medium between saving enough and spending a little every now and then on things that you well deserve.
I think there is a nice balance to be struck - after all we work hard for our money. I want to make sure I have a solid savings plan, but not at the expense of living my life as I want to.

My student loans are currently <3%, so I am paying them off monthly, but investing more in my taxable.
Good to hear. I am going to need to work out the details when it comes to decided whether or not to dedicate full forces to the loans or increase investing
Raymond wrote:Not specifically portfolio advice, but a nonetheless excellent article by WCI:

"One House, One Spouse, One Job: Avoiding the True Pitfalls in Personal Finance" - mdmag.com
Nice! I haven't read this one yet, thanks!
Again, thanks everyone! My "investing notes" word document has expanded about ten-fold from this post.

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