Jim Dahle, MD, practices emergency medicine and runs a website to help physicians achieve their financial goals. His book, The White Coat Investor, is written primarily for doctors; nevertheless, its Boglehead Philosophy is valuable for ALL investors. These are excerpts:
Thank you, Jim Dahle, MDFrom the Forward by Wm. Bernstein, MD:
“You have probably already been taken advantage of by an insurance agent, a stockbroker, a financial planner, a realtor, a banker, or a lender once or twice in your life due to your lack of financial knowledge.”
“Even if they are a distinct minority, there are still plenty of good advisors out there, and this book will teach you how to find them and hire them at a fair price.”
“Your high income alone will not automatically lead to financial success. You must convert your high income into a high net worth in order to become financially independent.”
“Most physicians, no matter what their specialty, labor under the illusion that because they were smart enough to get into med school, that talent somehow carries over to investing. Rest assured it doesn’t.”
“Finance academics have been collecting and analyzing data on financial forecasting for more than eight decades, and they have concluded that no one—no one—has ever been able to consistently call market direction.”
“Think you know how to pick stocks? Then guess again. Every time you buy or sell the person on the other side of the trade likely has an IQ of 160, spends 70 hours per week analyzing his industry, and has access to computing power and databases you can only dream of.”
By the author, Jim Dahle, MD:
“The classic case of so-called ‘reversion to the mean’ was William Miller’s Legg Mason Value Trust, which beat the S&P 500 for fifteen straight years, before giving all of that outperformance back in the five subsequent years.”
“The biggest enemy you’re liable to face is staring out at you from the mirror.”
“No matter how much you learn and plan, nothing prepares you for the trauma inflicted by the first bear market you encounter.”
“Money isn’t the most important thing in life, but mismanaging it can sure make you miserable.”
“The Trinity Study famously demonstrated that you can spend about 4% of your retirement portfolio each year, adjusted up for inflation, and expect to have the money last throughout your retirement.”
“In generaI I’m not a big fan of annuities, but I make an exception for a single premium immediate annuity (SPIA).”
“I took a couple of years off in college to be a missionary and do not consider a minute of it wasted.”
“Pay yourself first, and then spend the rest.”
“The first dollars you save also have the longest amount of time for compound interest to work on them.”
“Most calculations of a break-even period demonstrate that it typically takes three to five years just to break even when comparing buying and renting a house.”
“Plan on spending 5% of the value of the home to buy it, 10% to sell it, and 1%-2% a year to maintain it.”
“Term life insurance is essentially a commodity, and by using an online service such as http://term4sale.com you can quickly compare prices.”
“Never worrying or fighting about money is an important part of living the good life.”
"Show me what happened to the money you made in your first year out of residency and I can predict your financial future with surprising accuracy.”
“In personal finance, there is little that is more important than you and your spouse being on the same page.”
“Pay off any high-interest debt (>8%) such as credit cards, car loans, expensive private student loans, etc. This is a fantastic guaranteed investment return.”
“The good life is not making payments on a mansion and two luxury cars upon residency graduation. The good life is having a job you love where you are making an important contribution to society.”
“At a minimum, force yourself to read one book on personal finance or investing each year of residency and throughout your career.”
“The truth is that putting only 5%-10% of your gross income toward retirement probably isn’t going to provide a very nice retirement.”
“The Rule of 72: Divide the interest rate into 72, and the result is the number of years it takes your money to double.”
‘Expect your money to grow at a rate of just 3%-7% after taxes, expenses, and inflation.”
“You have limited control over your income, your investment returns, and how many years you have to save for retirement, but you have a great deal of control over your savings rate.”
“Taylor Larimore, one of the authors of The Bogleheads’ Guide to Investing, is fond of saying, ‘There are many roads to Dublin.’”
“Focusing your investment efforts on five factors that are within your control-- risk, diversification, investment expenses, taxes and your own behavior, will keep you on the Motorway to Dublin.”
“Do not put money into the stock market that you need anytime soon.”
“Risks include: market risk, individual security risk, sector risk, manager risk, credit risk, default risk and interest risk. After market risk, the most important risk to keep in mind is the risk of not meeting your investment goals.”
“You want to take enough risk to meet your goals, but no more.”
“The simplest way to decrease risk is to avoid putting all your eggs into one basket (diversification).
“One of the biggest contributions made by Jack Bogle, founder of Vanguard, was to point out that, in investing, you get what you DON’T pay for.”
“Costs matter and they matter a lot: If two investors make the same 8% per year before expenses on a lump sum investment and the first is paying 2% per year in investment expenses and the second is paying 0.1% per year, then after thirty years the second investor will have 70% more money than the first.”
Numerous studies show that very few mutual fund managers can outperform an index fund when expenses are taken into account, and those few who will outperform cannot be identified in advance.”
“Investing is a constant battle against inflation, investment expenses, and taxes.”
“Perhaps the best way to minimize investment-related taxation is through the use of retirement accounts.”
“The wise investor will take advantage of lower long-term capital-gain tax rates, qualified dividend tax rates, tax-loss harvesting opportunities, charitable donations, and the step-up in basis at death.”
“Investors are notorious for investing with their emotions and chasing performance by repeatedly buying high and selling low.”
“It is better to have a less-aggressive plan with lower expected returns than to have a plan that will self-destruct due to your inability to control your own behavior.”
“Retirement accounts and low-turnover index funds minimize your tax bill and investment costs.”
“A good portfolio is broadly diversified, low cost, mostly or completely passively managed, and appropriately risky.
“Managing your behavior matters more than optimizing your asset allocation.”
“In times of market turmoil, you merely need to refer to your written investment plan and follow it. You can go for literally months without looking at your investments or investment-related news.”
“Rebalance your portfolio back to your original allocation once a year.”
“You can be financially successful without investing in anything but a handful of index funds.”
“The worst part about real estate investing is that it is a combination of an investment and a second job.”
“As a general rule, mixing insurance and investing is not a good idea.”
“80% or more of those who buy whole life insurance get rid of it prior to death.”
“Investors will generally find they will be much better off covering their life insurance needs with an inexpensive term policy and investing the difference into a portfolio of index funds.”
“In investing, like baseball, hitting singles and avoiding errors is a better strategy than swinging for the fences.”
“Unfortunately, the vast majority of those who bill themselves as financial advisors neither charge a fair price nor give good advice. More than any other market I know, the market for financial advice is ‘let the buyer beware.’”
“A stockbroker’s incentive is to generate as many fees and commissions as possible. Instead of having his goals aligned with yours, he is incentivized to do exactly the opposite of what you need.”
“The best mutual funds are sold as ‘no-load funds through such companies as Vanguard, DFA, Bridgeway, Fidelity, and T.Rowe Price.”
“If you know nothing about this ‘financial stuff’ and are willing to pay a significant fee rather than learn it, then the advisor can provide a lot of value for you.”
“The main difficulty with choosing an investment advisor is that by the time you know enough to choose a good one, you probably know enough to do your financial planning and asset management on your own.”
“The financial advisor credentials are a sea of alphabet soup. There are really only three designations that deserve any significant respect: CFA; CFP; and ChFC.”
“If your advisor thinks he can pick winning stocks, choose winning actively managed mutual funds, or time the market -- steer clear!”
“Investing in cash value life insurance or complex annuities is inappropriate for the vast majority of people, including physicians.”
“Most who call themselves financial advisors are commissioned stock brokers, mutual fund salesmen, or insurance agents in disguise.”
“If you need or want a financial advisor, be sure to hire a fee-only financial advisor.”
“Tort law, that portion of the law concerned with civil suits such as malpractice and personal liability, is state specific.”
“In most states, 100% of the contributions and earning of your 401(k) and Roth IRAs are completely protected from your creditors.”
“Retirement accounts pass to your beneficiary outside of probate and can be ‘stretched’ by your heirs, providing exceptional estate planning benefits.”
“The biggest risk to a physician’s assets is divorce. Marry the right person the first time. Put at least as much effort into your marriage as into your practice.”
“Many doctors fall prey to expensive state planning solutions provided by unscrupulous insurance agents to help them avoid estate taxes that they won’t have to pay anyway. In 2014, the federal estate tax exemption is $5,340,000 ($10,680,000 married).”
“If you are lucky enough, or stupid enough, to die without giving away all your money above the estate tax limits, then the federal government takes 40% of the amount above the exemption.”
“Giving assets away prior to death is a good way to reduce estate tax, but holding on to asset until death is the best way to reduce income tax.”
“Everyone needs a will, especially if you have any significant assets, or any minor children.”
“As an emergency doctor, I have been involved with many end of life decisions, and I do not recall a single one where a living will or a healthcare power of attorney was of much use.”
“I would encourage you to do your own taxes at least once. You will be surprise how much you learn about money, the tax code, and how our government works.”
“It is important to understand the difference between a tax deduction and a tax credit – credits are better than deductions.”
“It is critical to understand the difference between your marginal tax rate and your effective tax rate (the effective tax rate is much lower).”
“As Bill Bernstein has famously explained, ‘If you assume that every financial professional you interact with is a hardened criminal, you’ll do okay.’”
“The White Coat Investor blog regularly posts as many as three posts a week written by yours truly. Sign up at http://feeds.feedburner.com/TheWhiteCoatInvestor"
“Being in control of your financial life means you can control your own destiny, and isn’t that what we all want?”
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Best wishes.
Taylor
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