new physician out of residency portfolio build

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familythriftmd
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new physician out of residency portfolio build

Post by familythriftmd »

Emergency funds: ~50k. Most is in Chase with some in a local bank. It’s just checking and savings right now.

Debt: Student loans. About 6.8% US Dept of Ed Direct loans (I would look up precisely the IR, but right now everything's fixed at 0%. I can edit this post again in January). 254k principal and with 47k interest it’s just above 300k. About 1/3 of the loans are in Graduate PLUS and 2/3 of balance in Unsubsidized. Doing PAYE and PSLF-eligibility will be November or December 2026. I already paid off the Perkins.

Tax Filing Status: Married Filing Jointly

Tax Rate: xx% Federal, xx% State

State of Residence: Wisconsin

Age: early 30s

Desired Asset allocation: roughly 90% stocks / 10% bonds (edited from 80/20)
Desired International allocation: 33% of stocks

Approximate size of current total portfolio: about 50k.
403b including previous rollovers: 31k, all in FDKLX target date 2060. I am maxing it out right now so that this year’s contribution will be 19.5k by year’s end.
457b: I just started at my new employer and they only do enrollment in May. So I will plan to max that out, because it looks strong to me.
HSA: 2.5k, most of which is in cash, but some in FDKVX with some DCA $100 every 2 weeks into that fund (for Medicare era down the road) and $50 every two weeks into FFEDX target date 2025 (for stuff like orthodontia coming up in a few years)
Roth IRA: at Vanguard, invested 6k but just over that right now. All in VTTSX. I decided to DCA it for the year, so some is still in cash.
Spousal Roth: at Vanguard, same as above. Cash and VTTSX with 100% AA in VTTSX by year’s end.
Brokerage. Just got started so I just have the VFIAX at 3.6k. I have it set to DCA from Chase checking $500 per biweekly period, but will plan to increase to at least $750 per biweekly period.
Lastly, there is a pension. I don’t count that at this point, but I will be more serious about that in my asset spreadsheet the longer I stay.

Show each fund or holding as a percentage of the entire portfolio, not as a percentage of the account that holding is in. If this instruction is not clear, see the example under the Key Points section below. For example:

Current retirement assets

Taxable - Vanguard
0% cash. I just have it linked to my Chase checking.
100% Vanguard 500 Admiral VFIAX as above

My 403b
100% Fidelity Target Date 2060 FDKLX
Company match? Yes, I believe it’s 4%, but it was only recently reinstated

His/my Roth IRA at Vanguard
100% Vanguard Target Date 2060 VTTSX
Her/spousal Roth IRA at Vanguard
100% Vanguard Target Date 2060 VTTSX
Next year my income will be too high for direct Roth IRA, but I will plan to employ back door Roth via opening a non-deductible IRA and then transfering the funds to the Roth account before investing.

Contributions

New annual Contributions
$19,500 his 403b. Employer is about $200 per biweekly period
$6,000 his Roth IRA
$6,000 her Roth IRA
$4,500-6,000 taxable. Set for 4,500 but may increase contributions to make it 6,000.
$7,100 HSA.

Available funds: Almost exactly as above

Questions:
What would be the next step for taxable? I am thinking about VTIAX sometime in 2021. And bond funds I would think adding in the second half of 2021. What are your thoughts on VTEAX?
My plan was to pay off the rest of my 3.25% mortgage by 2026 so that all my liabilities are going away at roughly the same time. I have 125,000 remaining. That way I can do aggressive investing but still gives me the SWAN (sleep well at night) effects from no debts. I am relatively debt-averse, especially given my sizeable med student debt. Does this plan make sense to you guys?

Feel free to ask any clarifying questions. I will occasionally make edits to this original post in the event that I had made some mistakes in the above or as things change.
Last edited by familythriftmd on Fri Oct 16, 2020 1:01 pm, edited 7 times in total.
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Doctor Rhythm
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Re: new physician out of residency portfolio build

Post by Doctor Rhythm »

This looks pretty solid and straightforward. Agree with simplicity of using a passive target date fund in your tax deferred accounts and keeping stocks in the brokerage account. Also agree with your plan to enroll in the 457 plan when possible. To answer question 1:

You could conceivably keep your taxable account 100% in the S&P 500 fund, unless you want your portfolio to reflect the global capitalization. The Vanguard target date funds have 40% of their stock allocation invested internationally. VTIAX is sort of the default international fund on this forum if you want to add it, though. Since you have a lot of tax-deferred space available, I wouldn’t bother with a tax-exempt bond fund in your brokerage account. If you want more bonds, put them there (or change TD 2060 to a less distant year).

Also quick terminology clarification: you don’t “have a large growth tilt.” You have an aggressive growth portfolio, which tries to get higher returns by taking more risk. A growth tilt means your portfolio overweights stocks of growth companies in lieu of value companies.
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familythriftmd
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Re: new physician out of residency portfolio build

Post by familythriftmd »

Doctor Rhythm wrote: Sun Sep 27, 2020 1:42 pm
...

Also quick terminology clarification: you don’t “have a large growth tilt.” You have an aggressive growth portfolio, which tries to get higher returns by taking more risk. A growth tilt means your portfolio overweights stocks of growth companies in lieu of value companies.
Thanks for the advice! Good point that the TDs do have international holdings. Keeping 100% in the 500 in the brokerage makes DCA a lot simpler and I can go up and down (hopefully just up) to optimize savings rate.
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familythriftmd
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Re: new physician out of residency portfolio build

Post by familythriftmd »

I did make my equity/bond allocation a little more aggressive to 90/10 in my original post, mainly because I am very very early in the accumulation years and I want that compounding to work earlier on. I am working on my HSA plan right now with some help from my BH friends, seen here: viewtopic.php?f=1&t=326675
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familythriftmd
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Re: new physician out of residency portfolio build

Post by familythriftmd »

I was just listening to an old BH podcast with Larry Swedroe. He was recommending having less cash in the bank and replacing that AA with some short-term bonds. What would you think if I decreased the cash in bank and replaced say 10-20k of it with short-term bond funds, like VWSTX?
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Doctor Rhythm
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Re: new physician out of residency portfolio build

Post by Doctor Rhythm »

familythriftmd wrote: Fri Oct 16, 2020 12:54 pm I was just listening to an old BH podcast with Larry Swedroe. He was recommending having less cash in the bank and replacing that AA with some short-term bonds. What would you think if I decreased the cash in bank and replaced say 10-20k of it with short-term bond funds, like VWSTX?
I’d say that this would have small benefit, especially given your projected income and savings as a physician. I haven’t checked yields lately, but would guess $10K in total bonds versus cash would only generate enough extra income to buy a large latte per month. $10K in a short term bond fund instead of cash means giving up a latte per month.
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familythriftmd
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Re: new physician out of residency portfolio build

Post by familythriftmd »

Doctor Rhythm wrote: Fri Oct 16, 2020 8:18 pm
familythriftmd wrote: Fri Oct 16, 2020 12:54 pm I was just listening to an old BH podcast with Larry Swedroe. He was recommending having less cash in the bank and replacing that AA with some short-term bonds. What would you think if I decreased the cash in bank and replaced say 10-20k of it with short-term bond funds, like VWSTX?
I’d say that this would have small benefit, especially given your projected income and savings as a physician. I haven’t checked yields lately, but would guess $10K in total bonds versus cash would only generate enough extra income to buy a large latte per month. $10K in a short term bond fund instead of cash means giving up a latte per month.
Good point. And that podcast was August 2019, so over a year ago. Since I make my own lattes at home, I guess I might as well opt for simplicity! Thanks, DR!
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bi0hazard
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Re: new physician out of residency portfolio build

Post by bi0hazard »

Few generic points. Maybe doesn’t answer all your points, but some may be useful.

1. You’re ahead of the curve since you are on this website. I spent years doing stupid things with my portfolio, right out of my fellowship . Important: do NOT ever hire a financial advisor .

2. In my opinion, the stock:bond ratio is not as important as sticking with it. Meaning, many people change this during market cycles, and that can be costly. Your 90/10 portfolio is pretty aggressive, and if you can stomach the ups/downs, than it may be perfect. However, when market drops by 50%, it is easier to tolerate your current saved amount, than say 1 or 2 million in the stock market. I’m risk averse, and never really got over 50/50... cost me $$ but I can sleep at night. You can read countless threads about folks selling stocks in March 2020, for example (I was buying).

3. Live as frugal as you can. But do enjoy life. Tough balance.

4. I would pay off highest interest loans ASAP. Maybe paying off your house in a hurry is not the best idea; that’s a controversial topic.

5. When deciding about holding cash/CDs/bonds, be aware of tax implications! For example tax exempt bond fund may be better for you than a higher yield CD, which is taxed as income...

Just few thoughts, some things I wish I knew when I started PP.
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familythriftmd
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Re: new physician out of residency portfolio build

Post by familythriftmd »

bi0hazard wrote: Fri Oct 16, 2020 9:21 pm Few generic points. Maybe doesn’t answer all your points, but some may be useful.

1. You’re ahead of the curve since you are on this website. I spent years doing stupid things with my portfolio, right out of my fellowship . Important: do NOT ever hire a financial advisor .

2. In my opinion, the stock:bond ratio is not as important as sticking with it. Meaning, many people change this during market cycles, and that can be costly. Your 90/10 portfolio is pretty aggressive, and if you can stomach the ups/downs, than it may be perfect. However, when market drops by 50%, it is easier to tolerate your current saved amount, than say 1 or 2 million in the stock market. I’m risk averse, and never really got over 50/50... cost me $$ but I can sleep at night. You can read countless threads about folks selling stocks in March 2020, for example (I was buying).

3. Live as frugal as you can. But do enjoy life. Tough balance.

4. I would pay off highest interest loans ASAP. Maybe paying off your house in a hurry is not the best idea; that’s a controversial topic.

5. When deciding about holding cash/CDs/bonds, be aware of tax implications! For example tax exempt bond fund may be better for you than a higher yield CD, which is taxed as income...

Just few thoughts, some things I wish I knew when I started PP.
Thanks!

1. I do not plan to hire a financial advisor, at least not any time soon. Why do you say never to hire one? Fee-only advisors would probably be nearly, although not completely, free of conflicts of interest. And Bill Bernstein says only about 1% of investors should go it alone.

2. Yes I do have a fairly aggressive AA overall. I may build it into my IPS that once I hit certain net worth milestones, then I will rebalance manually. But I have time to read a lot and ponder and do some journaling to discover myself in the meantime. I will say that back in February, I actually increased my contribution percentages while still in residency. When March/April looked lousy, I just watched and did nothing. Now I didn't have much money in at that point, but I do think that I am less risk averse than I had initially thought. Also, I do not practice factor investing. In fact, if you wanted to say I practice factor investing, then I suppose you could say I tilt toward large blend, but that would be like tilting zero degrees. Since the equity portion is not too risky, I think it's OK with me that I have an aggressive equity/bond asset allocation overall. Larry Swedroe went equity risk and small value tilting pretty well in the podcast, I thought. (BH podcast episode 13).

3. That's my plan! Some experiences are very enjoyable, but do not cost much, such as reading books from the library or pilfering the Little Free Library boxes (and re-donating when done), going hiking at state parks, finding deals at Goodwill, etc.

4. Here are some reasons that I am paying off the house fairly aggressively:
a) The mortgage is significantly less than 1x, so I thought that I could.
b) It feels good from a behavioral finance perspective to have one less thing on which I am owing payments plus interest
c) I would have refinanced and paid off the student loan more aggressively, but I am in 501(c)(3) and I am pursuing PSLF. I have another thread about a PSLF side fund right that I started after I just joined this forum. Here is the link in case you were wondering: viewtopic.php?f=1&t=326098&p=5509918#p5509918
d) Other than that, I don't have credit card, personal loans, or car loans

5. Yes I will plan on just keeping the EF in cash or splitting it maybe half-and-half with bank account and Vanguard short-term tax-exempt (muni) bond fund. However, I will not make any significant changes until I have revised the IPS in writing.

And, what is PP?
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zlandar
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Re: new physician out of residency portfolio build

Post by zlandar »

I wouldn't consider tax-exempt bonds until your mortgage is take care of. Doubt you are going to beat a guaranteed 3.25% after tax return aka your mortgage with bonds unless interest rates climb significantly higher.

Going 90% (or even 100%) equities while aggressively paying down your mortgage is not unreasonable given your long time horizon but if you can't handle the volatility stick with a less aggressive portfolio.
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familythriftmd
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Re: new physician out of residency portfolio build

Post by familythriftmd »

zlandar wrote: Sat Oct 17, 2020 8:21 am I wouldn't consider tax-exempt bonds until your mortgage is take care of. Doubt you are going to beat a guaranteed 3.25% after tax return aka your mortgage with bonds unless interest rates climb significantly higher.

Going 90% (or even 100%) equities while aggressively paying down your mortgage is not unreasonable given your long time horizon but if you can't handle the volatility stick with a less aggressive portfolio.
Thanks! Do you consider aggressive mortgage pay-down to be bond-equivalent? I've accidentally fomented heated arguments over that concept. If so, then it makes sense to keep a healthy proportion of AA in equities while there is still mortgage debt.
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bi0hazard
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Re: new physician out of residency portfolio build

Post by bi0hazard »

familythriftmd wrote: Sat Oct 17, 2020 6:39 am
bi0hazard wrote: Fri Oct 16, 2020 9:21 pm Few generic points. Maybe doesn’t answer all your points, but some may be useful.

1. You’re ahead of the curve since you are on this website. I spent years doing stupid things with my portfolio, right out of my fellowship . Important: do NOT ever hire a financial advisor .

2. In my opinion, the stock:bond ratio is not as important as sticking with it. Meaning, many people change this during market cycles, and that can be costly. Your 90/10 portfolio is pretty aggressive, and if you can stomach the ups/downs, than it may be perfect. However, when market drops by 50%, it is easier to tolerate your current saved amount, than say 1 or 2 million in the stock market. I’m risk averse, and never really got over 50/50... cost me $$ but I can sleep at night. You can read countless threads about folks selling stocks in March 2020, for example (I was buying).

3. Live as frugal as you can. But do enjoy life. Tough balance.

4. I would pay off highest interest loans ASAP. Maybe paying off your house in a hurry is not the best idea; that’s a controversial topic.

5. When deciding about holding cash/CDs/bonds, be aware of tax implications! For example tax exempt bond fund may be better for you than a higher yield CD, which is taxed as income...

Just few thoughts, some things I wish I knew when I started PP.
Thanks!

1. I do not plan to hire a financial advisor, at least not any time soon. Why do you say never to hire one? Fee-only advisors would probably be nearly, although not completely, free of conflicts of interest. And Bill Bernstein says only about 1% of investors should go it alone.

In my opinion, managing $1000 is similar as $1mil. Fee-for-one-time-service advisors may be fine, but many physicians I know have their entire savings with one dude that does nothing at all and charges them 1-1.5% yearly. That is a LOT when you have millions saved. I’ve been through it when I started, and thankfully got out in time . Multiple threads on these, especially the awkward “how do I leave my advisor without hurting their feelings “...,

2. Yes I do have a fairly aggressive AA overall. I may build it into my IPS that once I hit certain net worth milestones, then I will rebalance manually. But I have time to read a lot and ponder and do some journaling to discover myself in the meantime. I will say that back in February, I actually increased my contribution percentages while still in residency. When March/April looked lousy, I just watched and did nothing. Now I didn't have much money in at that point, but I do think that I am less risk averse than I had initially thought. Also, I do not practice factor investing. In fact, if you wanted to say I practice factor investing, then I suppose you could say I tilt toward large blend, but that would be like tilting zero degrees. Since the equity portion is not too risky, I think it's OK with me that I have an aggressive equity/bond asset allocation overall. Larry Swedroe went equity risk and small value tilting pretty well in the podcast, I thought. (BH podcast episode 13).

You’re talking about very little money, right now. Imagine watching your portfolio drop hundreds of thousands in a few weeks. It’s hard to get a feel for it, until you actually go through it. Some people need to risk, bc their income is not very high. That may or may not be your case, but remember that domestic and international equities ARE “risky”, even the index funds that bogleheads have. Not as risky as individual stocks, but when things go downhill, all stocks go down. Do what makes you sleep well at night, but I don’t think 90/10 will make your savings go up as significantly at this point as high salary savings. Whatever you do, stick to classic BH mantra, and keep it simple. ie: total stock market index, total international index . By the way, Larry does not really do traditional BH investing, which is not wrong, but not truly in keeping with the bogle way .

3. That's my plan! Some experiences are very enjoyable, but do not cost much, such as reading books from the library or pilfering the Little Free Library boxes (and re-donating when done), going hiking at state parks, finding deals at Goodwill, etc.

👍

4. Here are some reasons that I am paying off the house fairly aggressively:
a) The mortgage is significantly less than 1x, so I thought that I could.
b) It feels good from a behavioral finance perspective to have one less thing on which I am owing payments plus interest
c) I would have refinanced and paid off the student loan more aggressively, but I am in 501(c)(3) and I am pursuing PSLF. I have another thread about a PSLF side fund right that I started after I just joined this forum. Here is the link in case you were wondering: viewtopic.php?f=1&t=326098&p=5509918#p5509918
d) Other than that, I don't have credit card, personal loans, or car loans

Sounds good.

5. Yes I will plan on just keeping the EF in cash or splitting it maybe half-and-half with bank account and Vanguard short-term tax-exempt (muni) bond fund. However, I will not make any significant changes until I have revised the IPS in writing.

And, what is PP?

I wouldn’t do EF in munis, but that’s just me. Emergency fund is traditionally cash, cd, MM...On the other hand , some people use cd, cash to account for the fixed income portion of their portfolio, which in your case would be %10. My point was: be aware of tax implications, which gets more and more complicated in your taxable accounts as you accumulate wealth.

PP is private practice.


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familythriftmd
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Re: new physician out of residency portfolio build

Post by familythriftmd »

bi0hazard wrote: Sat Oct 17, 2020 10:24 am ... [trimmed for brevity sake]
Thanks. One takeaway from what you said is to potentially go 80/20 or so. I'll have to think about it though, and not until I put it in writing in my IPS. One way to do that would be to change the TDs to 2050 or 2055, and another would be to do a long-term muni bond fund in the taxable once I feel like putting another 3k in at once to get that fund started. I understand what you're saying, that savings rate is much more important than rate of return when one is in the early accumulation phase.
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Re: new physician out of residency portfolio build

Post by zlandar »

familythriftmd wrote: Sat Oct 17, 2020 8:24 am
zlandar wrote: Sat Oct 17, 2020 8:21 am I wouldn't consider tax-exempt bonds until your mortgage is take care of. Doubt you are going to beat a guaranteed 3.25% after tax return aka your mortgage with bonds unless interest rates climb significantly higher.

Going 90% (or even 100%) equities while aggressively paying down your mortgage is not unreasonable given your long time horizon but if you can't handle the volatility stick with a less aggressive portfolio.
Thanks! Do you consider aggressive mortgage pay-down to be bond-equivalent? I've accidentally fomented heated arguments over that concept. If so, then it makes sense to keep a healthy proportion of AA in equities while there is still mortgage debt.
I do. I listen to the white coat investor podcast and heard Jim Dahle describe it as a negative bond equivalent. Before the 2017 tax changes there was a reasonable chance a high-income earner could itemize mortgage interest and come out ahead of taking the standard deduction. Now with the SALT cap of $10k and the increased standard deduction many high-income earners are not getting any benefit from a mortgage deduction. Why have bonds if you are 20+ years from retirement and have debt with interest that exceeds the return of any bond fund you could buy?

The stock answer is bonds reduce portfolio volatility. A person's ability to handle market volatility is a legit concern. You don't have enough in the market yet to truly comprehend what it's like when the market drops >30% and you are staring at six-digit paper losses. If that kind of paper loss is going to cause someone to panic and sell out then have more bonds. There are a couple Boglehead posts where people have sold out and looked foolish in hindsight. Even if they guessed right they don't know when to "get back" into the market and they begin to micromanage their portfolio to death.
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Re: new physician out of residency portfolio build

Post by KingRiggs »

Realize that the term "fee-only advisor" is used differently by different people.

When I started in practice, our retirement fund was run by such an advisor. They charged a very "reasonable 1% fee" to run our individual retirement accounts. Pitched to us that this was in our best interests, since if our account balance increased, the advisor's fee would go up. Sounds logical, right?

And in those early years of practice, it was hardly noticeable...$2,000 to manage a portfolio? Heck, I could make more than that in a day! so I didn't really think much of it.

Fast forward to age 50...portfolio balance approaching $2M...I realize that the fee is now $20,000 yearly...almost A THIRD of what I'm contributing each year is going right to him! That's when I saw the Boglehead hight...

Others use "fee-only advisor" to mean paying a person a set, one-time fee for financial or portfolio investment advice. I would say that this is reasonable as your portfolio and net worth grows. It's nice to get a fresh set of eyes on your investments from time to time whoo might notice things you haven't. The problem is, these types of advisors are actually pretty hard to find. Most want to manage your money and collect that annual fee...
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familythriftmd
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Re: new physician out of residency portfolio build

Post by familythriftmd »

KingRiggs wrote: Sat Oct 17, 2020 11:13 am Realize that the term "fee-only advisor" is used differently by different people.

When I started in practice, our retirement fund was run by such an advisor. They charged a very "reasonable 1% fee" to run our individual retirement accounts. Pitched to us that this was in our best interests, since if our account balance increased, the advisor's fee would go up. Sounds logical, right?

And in those early years of practice, it was hardly noticeable...$2,000 to manage a portfolio? Heck, I could make more than that in a day! so I didn't really think much of it.

Fast forward to age 50...portfolio balance approaching $2M...I realize that the fee is now $20,000 yearly...almost A THIRD of what I'm contributing each year is going right to him! That's when I saw the Boglehead hight...

Others use "fee-only advisor" to mean paying a person a set, one-time fee for financial or portfolio investment advice. I would say that this is reasonable as your portfolio and net worth grows. It's nice to get a fresh set of eyes on your investments from time to time whoo might notice things you haven't. The problem is, these types of advisors are actually pretty hard to find. Most want to manage your money and collect that annual fee...
Yes AUM can be killer over the length of a portfolio unless the percentage drops as assets increase.
I don't plan to have a financial advisor any time soon, but if so I would do the hourly or yearly fixed rates and I would probably utilize Physician Wealth Services from Financial Residency or one of the recommended advisors from White Coat Investor.
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Re: new physician out of residency portfolio build

Post by Iggymn »

Kudos on having a plan with thought into it.

My advice is to think long and hard about the 457 options. The Rabbi Trust concept can have catastrophic consequences. Many will say that it won't happen... You have to be realistic that all of your funds could just get revalued at a few cents on the dollar. The only plus side is the deferred tax. I can only sleep with less than 1% of my retirement portfolio in a 457b. When you look at it that way, just putting that money into a very tax efficient taxable account is a pretty attractive option. Definitely wouldn't put money in a 457b over paying down some high interest debt as well.
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Re: new physician out of residency portfolio build

Post by Doctor Rhythm »

Yes I will plan on just keeping the EF in cash or splitting it maybe half-and-half with bank account and Vanguard short-term tax-exempt (muni) bond fund.
If you do want to swap cash for bonds in your taxable EF, don’t just assume you’re better off with a tax exempt bond fund. Before you buy tax exempt bonds, calculate the tax equivalent yield. Vanguard says VWSTX has a 7-day SEC yield of 0.33% while their total bond fund VBTLX has a yield of 1.16%. Even 12-month CDs can be had at 0.65%. Since you went to med school, I’ll let you do the math yourself, but even as a physician living in California, my tax savings don’t make up for the lower yields of Munis. In other words, tax-tail/dog/wag etc.

Also, you should really consider if squeezing out an extra $5 interest per month is worth the effort and behavioral risks of trying to optimize everything.
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Re: new physician out of residency portfolio build

Post by familythriftmd »

Doctor Rhythm wrote: Sat Oct 17, 2020 4:57 pm
If you do want to swap cash for bonds in your taxable EF, don’t just assume you’re better off with a tax exempt bond fund. Before you buy tax exempt bonds, calculate the tax equivalent yield. Vanguard says VWSTX has a 7-day SEC yield of 0.33% while their total bond fund VBTLX has a yield of 1.16%. Even 12-month CDs can be had at 0.65%. Since you went to med school, I’ll let you do the math yourself, but even as a physician living in California, my tax savings don’t make up for the lower yields of Munis. In other words, tax-tail/dog/wag etc.

Also, you should really consider if squeezing out an extra $5 interest per month is worth the effort and behavioral risks of trying to optimize everything.
Very insightful, thanks!
I know Dave Ramsey has some pros and cons, but one thing I heard ascribed to him was to think of the EF as insurance. In that sense, insurance costs you money, so losing vs. inflation is just the "fee" or "premium" you pay for protecting yourself.
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Re: new physician out of residency portfolio build

Post by familythriftmd »

So for this next year, besides cash-flowing into my various existing accounts, I will be:
-contributing to my roth (backdoor fashion)
-contributing to my wife's roth, also backdoor
-starting VTIAX in the taxable, which would require 3k to get it started

Which one do you think I should do first?
Last edited by familythriftmd on Wed Oct 21, 2020 6:18 pm, edited 1 time in total.
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Re: new physician out of residency portfolio build

Post by retire2022 »

Op is the 457b Plan government or non government?

If it is government then you could transfer to your choice of custodian, if it is non-government the plan has to stay with employer. Your Human Resources department should be able to answer that question.

https://www.bogleheads.org/wiki/457(b)

Nongovernmental plans
Nongovernmental 457 plans have a number of restrictions that governmental ones do not. Money deferred into nongovernmental 457 plans may not be rolled into any other type of tax-deferred retirement plan. It may be rolled only into another nongovernmental 457 plan. Also, money deferred into nongovernmental plans is not set aside in a trust for the exclusive benefit of the employee making the deferral. The Internal Revenue Code requires that money in a nongovernmental 457 plan remains the property of the employer and not taxable until time of distribution for specific situations as allowed by the original 457 plan or in cases of withdrawals for emergency cash needed situations. If funds are set aside or provided in a separate account for the employee or in the employee's name then that type of 457 plan is not a tax-deferred plan and becomes a nongovernmental 457(b) funded pretax plan.


for Government plans you can transfer:

Here is a chart from IRS Publication 590a page 22 which it shows where you are allowed to transfer to and from:

https://www.irs.gov/pub/irs-pdf/p590a.pdf

https://en.wikipedia.org/wiki/457_plan

Depending what your tax bracket in post retirement or whether you have a pension, Roth 457 could work better for your beneficiaries.

Roth 457(b)

If an employer offers a Roth 457(b) provision, an employee can designate all or a portion of their 457(b) as an after-tax Roth contribution. These contributions are made with after tax earnings. Unlike the advantage a pre-tax 457(b) has over pre-tax 401(k) and 403(b) plans, withdrawals from a Roth 457(b) are subject to the same age 59.5 restrictions as other Roth plans. Worse yet for those taking pre-59.5 withdrawals, Roth 457(b) distributions are taken on a pro-rata basis between contributions and gains, unlike the "contributions first" treatment given to Roth IRA distributions.[6]

Employees have the option of making pre-tax 457(b) contributions, Roth 457(b) contributions, or a combination of the two. Total contributions cannot exceed the year's contribution limit. [7]
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familythriftmd
Posts: 149
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Re: new physician out of residency portfolio build

Post by familythriftmd »

retire2022 wrote: Wed Oct 21, 2020 5:47 pm Op is the 457b Plan government or non government?

If it is government then you could transfer to your choice of custodian, if it is non-government the plan has to stay with employer. Your Human Resources department should be able to answer that question.

https://www.bogleheads.org/wiki/457(b)

Nongovernmental plans
Nongovernmental 457 plans have a number of restrictions that governmental ones do not. Money deferred into nongovernmental 457 plans may not be rolled into any other type of tax-deferred retirement plan. It may be rolled only into another nongovernmental 457 plan. Also, money deferred into nongovernmental plans is not set aside in a trust for the exclusive benefit of the employee making the deferral. The Internal Revenue Code requires that money in a nongovernmental 457 plan remains the property of the employer and not taxable until time of distribution for specific situations as allowed by the original 457 plan or in cases of withdrawals for emergency cash needed situations. If funds are set aside or provided in a separate account for the employee or in the employee's name then that type of 457 plan is not a tax-deferred plan and becomes a nongovernmental 457(b) funded pretax plan.


for Government plans you can transfer:

Here is a chart from IRS Publication 590a page 22 which it shows where you are allowed to transfer to and from:

https://www.irs.gov/pub/irs-pdf/p590a.pdf

https://en.wikipedia.org/wiki/457_plan

Depending what your tax bracket in post retirement or whether you have a pension, Roth 457 could work better for your beneficiaries.

Roth 457(b)

If an employer offers a Roth 457(b) provision, an employee can designate all or a portion of their 457(b) as an after-tax Roth contribution. These contributions are made with after tax earnings. Unlike the advantage a pre-tax 457(b) has over pre-tax 401(k) and 403(b) plans, withdrawals from a Roth 457(b) are subject to the same age 59.5 restrictions as other Roth plans. Worse yet for those taking pre-59.5 withdrawals, Roth 457(b) distributions are taken on a pro-rata basis between contributions and gains, unlike the "contributions first" treatment given to Roth IRA distributions.[6]

Employees have the option of making pre-tax 457(b) contributions, Roth 457(b) contributions, or a combination of the two. Total contributions cannot exceed the year's contribution limit. [7]
Thanks for the info. To answer your question, it is non-governmental, but with a sturdy organization.
It allows distributions over a period of up to 15 years, which seems pretty not-bad to me.
Thrift stores, outlets and market corrections have this in common: you're buying on sale.
retire2022
Posts: 1540
Joined: Tue Oct 02, 2018 6:10 pm
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Re: new physician out of residency portfolio build

Post by retire2022 »

familythriftmd wrote: Wed Oct 21, 2020 6:20 pm
Thanks for the info. To answer your question, it is non-governmental, but with a sturdy organization.
It allows distributions over a period of up to 15 years, which seems pretty not-bad to me.
Since you had mentioned pension, and you are a physician the likely hood you will be in a high tax bracket for the see able future.

I recommend if I were in your shoes go Roth, 403/Roth 457, or Roth 401K, others may have disagree but it is up to you.

assuming you are 30-67=37 years of compounding

You could project into the future your contributions.

30 present age-67 (Full Retirement Age FRA) =37 years of investing

This calculation does not factor in market conditions, and does not include "catch-up" contributions over 50, nevertheless this will give you an idea what to work towards, it does not include your spouse portfolio nor contributions.

By no means this is conclusive, with compound interest, https://www.investopedia.com/terms/c/co ... terest.asp

your projected pay outs could be this

37x19,500=$721,500.00 total of 37 years of contributions

at 3% annualized compounded =$1,329,109.26
at 6% annualized compounded= $2,630,632.01

With pension and of course it is difficult to predict whether or not 37 years in the future Required Minimum Distributions will be required of traditional IRA, 403b, or 457 or 401k but you get the idea.

With Roth accounts you don't get tax deduction but you don't get taxed on withdrawals.
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familythriftmd
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Re: new physician out of residency portfolio build

Post by familythriftmd »

retire2022 wrote: Wed Oct 21, 2020 7:09 pm
familythriftmd wrote: Wed Oct 21, 2020 6:20 pm ...
Since you had mentioned pension, and you are a physician the likely hood you will be in a high tax bracket for the see able future.

I recommend if I were in your shoes go Roth, 403/Roth 457, or Roth 401K, others may have disagree but it is up to you.

assuming you are 30-67=37 years of compounding

You could project into the future your contributions.

30 present age-67 (Full Retirement Age FRA) =37 years of investing

This calculation does not factor in market conditions, and does not include "catch-up" contributions over 50, nevertheless this will give you an idea what to work towards, it does not include your spouse portfolio nor contributions.

By no means this is conclusive, with compound interest, https://www.investopedia.com/terms/c/co ... terest.asp

your projected pay outs could be this

37x19,500=$721,500.00 total of 37 years of contributions

at 3% annualized compounded =$1,329,109.26
at 6% annualized compounded= $2,630,632.01

With pension and of course it is difficult to predict whether or not 37 years in the future Required Minimum Distributions will be required of traditional IRA, 403b, or 457 or 401k but you get the idea.

With Roth accounts you don't get tax deduction but you don't get taxed on withdrawals.
I like your thinking. Given I am in PSLF (related topic here: viewtopic.php?t=326098), I am planning to do the tax-deferred accounts until forgiveness in order to reduce adjusted gross income with the Pay as You Earn (PAYE) program. Ben White, MD has a good book on student loans, by the way. At any rate, I will be doing that and then I may consider Roth thereafter.

Therefore, for now I am doing Roth IRA (2021 and on will be backdoor route, both for me and for my wife), and pre-tax 403b and pre-tax 457b.
I didn't even realize there was such a thing as Roth 457b, by the way!
Thrift stores, outlets and market corrections have this in common: you're buying on sale.
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Topic Author
familythriftmd
Posts: 149
Joined: Fri Sep 18, 2020 10:15 am
Location: Wisconsin

Re: new physician out of residency portfolio build

Post by familythriftmd »

This is a projected market accounts table assuming annualized growth of 6% and not increasing contributions. Hopefully I did the tabulations correctly

Code: Select all

2020	$12,000.00	$0.00		$40,000.00	$6,000.00	$58,000.00
2021	$24,720.00	$19,500.00	$61,900.00	$25,860.00	$131,980.00
2022	$38,203.20	$40,170.00	$85,114.00	$46,911.60	$210,398.80
2023	$52,495.39	$62,080.20	$109,720.84	$69,226.30	$293,522.73
2024	$67,645.12	$85,305.01	$135,804.09	$92,879.87	$381,634.09
2025	$83,703.82	$109,923.31	$163,452.34	$117,952.67	$475,032.14
2026	$100,726.05	$136,018.71	$192,759.48	$144,529.83	$574,034.07
2027	$118,769.61	$163,679.83	$223,825.04	$172,701.62	$678,976.11
2028	$137,895.79	$193,000.62	$256,754.55	$202,563.71	$790,214.68
2029	$158,169.54	$224,080.66	$291,659.82	$234,217.54	$908,127.56
2030	$179,659.71	$257,025.50	$328,659.41	$267,770.59	$1,033,115.21
2031	$202,439.29	$291,947.03	$367,878.97	$303,336.82	$1,165,602.12
2032	$226,585.65	$328,963.85	$409,451.71	$341,037.03	$1,306,038.25
2033	$252,180.79	$368,201.68	$453,518.81	$380,999.25	$1,454,900.54
2034	$279,311.64	$409,793.79	$500,229.94	$423,359.21	$1,612,694.58
2035	$308,070.34	$453,881.41	$549,743.74	$468,260.76	$1,779,956.25
2036	$338,554.56	$500,614.30	$602,228.36	$515,856.41	$1,957,253.63
2037	$370,867.83	$550,151.16	$657,862.07	$566,307.79	$2,145,188.84
2038	$405,119.90	$602,660.22	$716,833.79	$619,786.26	$2,344,400.18
2039	$441,427.09	$658,319.84	$779,343.82	$676,473.44	$2,555,564.19
2040	$479,912.72	$717,319.03	$845,604.45	$736,561.84	$2,779,398.04
2041	$520,707.48	$779,858.17	$915,840.71	$800,255.55	$3,016,661.92
2042	$563,949.93	$846,149.66	$990,291.16	$867,770.88	$3,268,161.63
2043	$609,786.93	$916,418.64	$1,069,208.63	$939,337.14	$3,534,751.33
2044	$658,374.14	$990,903.76	$1,152,861.14	$1,015,197.37	$3,817,336.41
2045	$709,876.59	$1,069,857.98	$1,241,532.81	$1,095,609.21	$4,116,876.60
2046	$764,469.19	$1,153,549.46	$1,335,524.78	$1,180,845.76	$4,434,389.19
2047	$822,337.34	$1,242,262.43	$1,435,156.27	$1,271,196.51	$4,770,952.54
2048	$883,677.58	$1,336,298.18	$1,540,765.64	$1,366,968.30	$5,127,709.70
2049	$948,698.23	$1,435,976.07	$1,652,711.58	$1,468,486.39	$5,505,872.28
2050	$1,017,620.13	$1,541,634.63	$1,771,374.28	$1,576,095.58	$5,906,724.62
2051	$1,090,677.34	$1,653,632.71	$1,897,156.73	$1,690,161.31	$6,331,628.09
Thrift stores, outlets and market corrections have this in common: you're buying on sale.
retire2022
Posts: 1540
Joined: Tue Oct 02, 2018 6:10 pm
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Re: new physician out of residency portfolio build

Post by retire2022 »

familythriftmd wrote: Wed Oct 21, 2020 7:30 pm
I like your thinking. Given I am in PSLF (related topic here: viewtopic.php?t=326098), I am planning to do the tax-deferred accounts until forgiveness in order to reduce adjusted gross income with the Pay as You Earn (PAYE) program. Ben White, MD has a good book on student loans, by the way. At any rate, I will be doing that and then I may consider Roth thereafter.

Therefore, for now I am doing Roth IRA (2021 and on will be backdoor route, both for me and for my wife), and pre-tax 403b and pre-tax 457b.
I didn't even realize there was such a thing as Roth 457b, by the way!
You are very welcomed

If you do Roth Conversions you will have to pay tax on the converted amount.

The likelihood in your early career your salary will be lower rate and the tax laws more than likely revert back to 2025.

It will be an opportunity lost the Roth 457 if you could invest in the future past.

So because of that If I were you I would do Roth all the way.

I am not a physician, but a state civil servant who been in the Pre Tax 457 plan for the last 30 years, and have 1.3 million at 60. In twelve years at a 6% growth rate it is projected to be at least $2,615,855.41.

As single, I will be at 32% tax bracket retired at 72 from 24% tax bracket while working. I am an over saver, and live below my means. That and 2.8 net worth I have fulfilled the American dream.

I would check with your Human Resources to see if your plan offers the Roth 457 plan.
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familythriftmd
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Re: new physician out of residency portfolio build

Post by familythriftmd »

retire2022 wrote: Wed Oct 21, 2020 7:46 pm
familythriftmd wrote: Wed Oct 21, 2020 7:30 pm ...
You are very welcomed

If you do Roth Conversions you will have to pay tax on the converted amount.

The likelihood in your early career your salary will be lower rate and the tax laws more than likely revert back to 2025.

It will be an opportunity lost the Roth 457 if you could invest in the future past.

So because of that If I were you I would do Roth all the way.

I am not a physician, but a state civil servant who been in the Pre Tax 457 plan for the last 30 years, and have 1.3 million at 60. In twelve years at a 6% growth rate it is projected to be at least $2,615,855.41.

As single, I will be at 32% tax bracket retired at 72 from 24% tax bracket while working. I am an over saver, and live below my means. That and 2.8 net worth I have fulfilled the American dream.

I would check with your Human Resources to see if your plan offers the Roth 457 plan.
Thanks. Our CFP on staff is top-notch and fiduciary (probably straight salary, too, which also helps remove some conflicts of interest) so I talk with him regularly. We're not able to do the mega backdoor Roth, but I'll see if we can do Roth 457b. I know at least that Roth 403b is possible.

By the way, you are definitely not living the American dream if you're actually saving money! You need to be buying more designer labels and driving nicer cars and forgetting about that saving stuff, right? :wink:
Thrift stores, outlets and market corrections have this in common: you're buying on sale.
retire2022
Posts: 1540
Joined: Tue Oct 02, 2018 6:10 pm
Location: NYC

Re: new physician out of residency portfolio build

Post by retire2022 »

familythriftmd wrote: Wed Oct 21, 2020 7:49 pm
Thanks. Our CFP on staff is top-notch and fiduciary (probably straight salary, too, which also helps remove some conflicts of interest) so I talk with him regularly. We're not able to do the mega backdoor Roth, but I'll see if we can do Roth 457b. I know at least that Roth 403b is possible.

By the way, you are definitely not living the American dream if you're actually saving money! You need to be buying more designer labels and driving nicer cars and forgetting about that saving stuff, right? :wink:
I don't consider myself a mega backdoor Roth expert, but seen this article which could be of interest to you:

https://www.madfientist.com/after-tax-contributions/

others could chime in
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