going to med school in the fall, need financial advice

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Topic Author
kiwipie
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Joined: Mon Jul 09, 2007 3:32 pm

going to med school in the fall, need financial advice

Post by kiwipie »

Hi, I've recently taken an interest in investing. I'm a bit late in the game, as I keep hearing stories about how people started investing when they were 21 or younger. Anyway, I'd like some advice and this forum was recommended.

I'm heading to medical school in the fall and while I'm there, I'd like to start investing in an index fund (still trying to figure out which one(s).). However, I need loans to actually attend medical school and I am worried that if I open an account and start buying, I'm going to have to report something on my tax return the following year.

A friend tried to explain to me that I will only be taxed if I sell my shares. However, I think he was also trying to say that I will get taxed in other areas because of this account. What is really going to happen? Should I even start this right now?

I want to have something waiting for me once I get out of med school and while I can't open a Roth IRA, I want to start with something. What do people recommend?
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ddb
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Post by ddb »

I am worried that if I open an account and start buying, I'm going to have to report something on my tax return the following year.
Why does this worry you? Does the existence of investment income on your tax return have some sort of negative implication on your loans and/or financial aid?

The short answer is that most mutual funds will pay out some sort of taxable distributions in any given year, but they will typically be less than 5% of the total value of the account each year (will vary from 0-5% depending on what type of investments you purchase). So, even if you invest $100,000 today, is the few grand of claimed income going to hurt you in some way?

I'd like to make a plug for the Vanguard Target Retirement Funds. The most aggressive of the funds, Target Retirement 2050, pays an annual yield of around 2% (which would likely be re-invested, but it would still be taxable income). These funds provide exposure to all major asset classes within a single low-cost fund (expense ratio of around 0.21% per year). If you want to invest, but don't know much about investing, these funds should be viewed as the default option, IMO.

- DDB
donocash
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Post by donocash »

If you need loans for school and living expenses, that means you'll need even bigger loans for money to invest in the stock market.

Borrowing more money so you can invest in the stock market is not a good idea.

Use what money you have to minimize your loans. You'll have plenty of time and money to start investing after your residency.
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kiwipie
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Post by kiwipie »

Well, yeah, I'm worried because if I report anything that makes me look like I'm making some kind of money, the school is less likely to give me the loans that I need. It's just how schools are. My parents completely stopped investing when I went to college because my college wouldn't have given us as much financial aid if my parents had been investing.
mptfan
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Post by mptfan »

kiwipie wrote:My parents completely stopped investing when I went to college because my college wouldn't have given us as much financial aid if my parents had been investing.
:shock:
Topic Author
kiwipie
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Post by kiwipie »

Donocash-
Well, I have some money to invest. I don't want to put it in the bank and let it accumulate interest when I have an opportunity to make more. It sounds stupid, yeah, but I just don't feel right about putting it in the bank and letting it sit there.
xenial
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Post by xenial »

kiwipie,

Welcome to the Bogleheads Forum! You're not at all a latecomer to the world of investing. Going to medical school is a great investment in your human capital!

Assuming you're not currently working and eligible to contribute to a retirement account, I think you should use your current assets to minimize the debt you'll incur in medical school. Also keep in mind that you need some resources to deal with potential financial emergencies: credit, cash on hand, parents :) , etc.

Best wishes,
Ken
rockH
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don't forget tuition credit

Post by rockH »

If you're paying tuition, you probably won't have any tax worries. Taking the lifetime learing credit can give you up to a $2,000 a year tax credit (credit not deduction!). This can cover some pretty good dividends or capital gains. I think you have to be financially independent (IRS definition) to qualify for this credit.
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nick22
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Advice

Post by nick22 »

Want financial advice? Do not go to medical school (I did).

Just kidding. If you really want financial advice, don't go into Pediatrics (I did).

OK, now for real. Medical school will give you skills in regards to human capital that will give you a good, steady, stable long-term income. There aren't many areas of training that provide a reasonable guarantee like that.

The real question is what resources do you have to invest? Most Stafford loans are in the 6-8% range (guessing) which means you are better off minimizing your debts in medical school as opposed to dreaming up exotic taxable investments. Keep an emergency fund and minimize your loans.
Nick22
Rajsx
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Investing while taking loans

Post by Rajsx »

Hi,
Congratulations in getting accepted to Med School. Better if it is a state school or stll good if it is a private school.

1) I would not bother investing at this stage, because it will be of NO CONSEQUENCE in the larger scheme of things, when you look back at your investments say after 10 yrs in practice.

2)IF it makes you feel better that you are using the time for compounding the money for the 4 yrs while you are in school, then YES go ahead.

3)Investments often make good conversation topics in the Resident Lounges on call nights, and IF it make's you feel good to get involved then YES go ahead.

4)Now the RISKS, if you will be looking up frequently as to how the Stock Market/Your Mutual Fund is doing, then do yourself a favor, DO NOT. I can imagine how the crazy Wall St may affect the emotions of a Med Student

5)If you HAVE TO INVEST, then I would suggest Vanguard's Total Stock Market (Minimum initial is $3000) a tax efficient low cost Mutual Fund for your taxable acc. which you can add to during your residency.

I was there where you are now many moons ago. Study hard, cut down on non essential expenses during your student years, you have many years for investing, once you start your practice.Your investment gains now will be 0.5% of your Portfolio later in life, & I would not risk my time effort & piece of mind for that.

But you have discovered a great site, where many of us have come after making lots of mistakes.
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White Coat Investor
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Post by White Coat Investor »

Hmmmm....extra money and going to medical school. Here are some things to think about:

1) An emergency fund. How much do you need? Hard to say, but you would be wise to figure this out. Many people living on loans run out of money in April and it would behoove you to have a little something to make it to the next July/August or whenever you get the next year's loans.

2) Are you adequately insured? It doesn't do much good to go to school for a decade and then saw off a couple of fingers shortly after completing your ENT residency. Spouse? Kids? They're investing a decade of their life in you too. Better make sure you have some term life insurance (on you) for them.

3) The ONLY reason I would consider investing rather than minimizing loans is to maximize the amount of money you can get into a Roth IRA. IMHO, there is NO other reason a medical student should be investing "on margin."

4) If you do choose to invest, put it on auto-pilot with something like a Vanguard Target Retirement fund so you can concentrate on your studies, rather than the market's gyrations.
Last edited by White Coat Investor on Tue Jul 10, 2007 3:39 pm, edited 1 time in total.
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
Valuethinker
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Post by Valuethinker »

EmergDoc wrote:Hmmmm....extra money and going to medical school. Here are some things to think about:


2) Are you adequately insured? It doesn't do much good to go to school for a decade and then saw off a couple of fingers shortly after completing your ENT residency. Spouse? Kids? They're investing a decade of their life in you too. Better make sure you have some term life insurance for them.
Excellent point!

In fact I believe some Long Term Disability policies can be bought when you are still in medical school. Doctors, as professionals, get preferred rates.

The biggest asset the OP is going to have is his/her human capital. the most important investment they can make is to protect that capital.

Once as a practising physician, there will be ample time to build up financial capital (amazing how many doctors don't, though-- they get into the sports car and the posh pad mentality too quickly, and of course they have those huge student loans to pay).
Topic Author
kiwipie
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Post by kiwipie »

Hi,

to all who replied, thanks for your input.

I guess I should be a little more clear. I have some money (~2500, maybe more). I don't intend to take out loans to invest, I feel that's a bit foolhardy and very risky. I'm a little scared even to use my own money. But this is extra, I've been working to pay off my undergraduate loans and I did, so this is leftover money. I've been living on my own for a year, so I have an idea what to expect with rent, utilities, food, etc.

When you guys say taxable account, that screams to me "you have to report to the IRS during tax time anything that happens in this account." However, you might mean something else, something like the taxable account means that if I sell my shares, I'll get taxed then. Perhaps I should talk to a tax advisor about this.

Yes, I have thought about minimizing my loans and that's probably the best plan, but I still feel really ... I don't know ... weird about not investing my money now. I certainly am not going to get in that sports car and posh pad mode, I'll be too poor. I was just hoping to put in money, then leave it for four years, then look at it once more when I get out.

However, there's yet the other problem. As I mentioned before, I have to be really careful about investing because my mom has advised against me opening any account. She wants me to give her the money and she'd invest it in a separate account under her name. Which sounds good, but I'm having a hard time grappling with this.

The reason why she wants me to give her the money is because schools have a tendency to not give you as many loans when they see on your tax return that you've made some kind of money that year. That's just the environment that I've grown up with, I'm not trying to be stubborn and say "this is the only way to do it." I only know this way, really. And I'm really scared about going any other way.

So far, I've gotten some information and advice, but I'm still doing research. Index funds seem like a good choice, but I want to put some money in a Roth as well.

What exactly goes into your decisions of choosing an index fund anyway? I know a lot of you are vanguard people, but why did you choose it? Is it the diversity? The whole package? I apologize for all the questions.
Valuethinker
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Post by Valuethinker »

kiwipie wrote:Hi,

to all who replied, thanks for your input.

I guess I should be a little more clear. I have some money (~2500, maybe more). I don't intend to take out loans to invest, I feel that's a bit foolhardy and very risky. I'm a little scared even to use my own money. But this is extra, I've been working to pay off my undergraduate loans and I did, so this is leftover money. I've been living on my own for a year, so I have an idea what to expect with rent, utilities, food, etc.

When you guys say taxable account, that screams to me "you have to report to the IRS during tax time anything that happens in this account." However, you might mean something else, something like the taxable account means that if I sell my shares, I'll get taxed then. Perhaps I should talk to a tax advisor about this.

Yes, I have thought about minimizing my loans and that's probably the best plan, but I still feel really ... I don't know ... weird about not investing my money now. I certainly am not going to get in that sports car and posh pad mode, I'll be too poor. I was just hoping to put in money, then leave it for four years, then look at it once more when I get out.
But you might get less out. Or you might have an emergency that needs the money sooner.
However, there's yet the other problem. As I mentioned before, I have to be really careful about investing because my mom has advised against me opening any account. She wants me to give her the money and she'd invest it in a separate account under her name. Which sounds good, but I'm having a hard time grappling with this.
I may be completely off base on this, so take it with a bit of salt, but:

I am sure this is done all the time, but professional ethics comes into this. Doctors (and lawyers) operate under quite strict professional codes of ethics. Little things like *lying* on paper can come back to haunt you with ethics committees and panels, a long long time in your future. Consider your 50 year risk on this one.

Believe it or not, there are quite strict rules when lawyers can and cannot lie :D
The reason why she wants me to give her the money is because schools have a tendency to not give you as many loans when they see on your tax return that you've made some kind of money that year. That's just the environment that I've grown up with, I'm not trying to be stubborn and say "this is the only way to do it." I only know this way, really. And I'm really scared about going any other way.
I would lend your mom the money, if you can, for no interest (as long as that doesn't cause an IRS problem) and let her put it in a money market fund. If you need it back, you can just demand that she repay it.

Note you lent your mom the money, you didn't give it to her. And you are not earning interest on it. Now I don't know if the existence of the asset (interest earning or not) would screw up your position with the school?

So far, I've gotten some information and advice, but I'm still doing research. Index funds seem like a good choice, but I want to put some money in a Roth as well.

What exactly goes into your decisions of choosing an index fund anyway? I know a lot of you are vanguard people, but why did you choose it? Is it the diversity? The whole package? I apologize for all the questions.
Commendable. But I think you are jumping the gun (a bit). Wait until your internship.

On Vanguard funds, amongst index funds they tend to have:

- faithful tracking of the index (minimal 'tracking error')
- low costs - Vanguard is unique in that it is owned by its fund investors, therefore there are not shareholders to feed out of the same pot
- good range of products (although not perfect)
- generally investor-friendly culture: customer service, not afraid to restrict trading on 'hot' funds (trading in and out of funds damages other fund unit holders) etc.

Now if only we had Vanguard in the UK :cry:
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nick22
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What?

Post by nick22 »

I am not sure this is how medical school loans actually work. If you are going to school this Fall, you should be able to find out what your loan package is right now. You are not going to have any investment earnings on $2500 that will impact this.( you will not earn more than a few hundred dollars here) This isn't need-based funding and almost everything comes based on predetermined Stafford loan maximums, etc.

So before pontificating about investing consequenses that may not be true, can I ask that you just call the financial aid office at med school to ask about your first year of funding.

If you take out any loans and then invest $2500, yes then that $2500 is essentially on margin. If you have $2500 in earned income to start a Roth IRA, then consider it, but otherwise just put this money in a money market account getting 5% and use it as an emergency fund.

And lastly, you are too old to be giving money to your mom to invest. Read some investment books and learn on your own.
Nick22
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LarryG
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Here Goes

Post by LarryG »

So it is time for the ME generation to go to medical school.

1. How can I hide my portfolio so that I can get a student loan that some needy student without a portfolio could better use.

2. Let's see if you can find someway to qualify for low income housing that might house a poor family.

3. I'm sure that you can find a way to get food stamps and misrepresent ourself at a food pantry.

4. As long as misrepresentation and cheating are acceptable, it is probably not hard to find a way to cheat in medical school.

5. When you go into practice be certain that you do not treat medicare or medicaid patients because they do not pay as well as private insurance.

I don't have to worry because I am on medicare, and I know that I would not want you as a doctor.

Larry G. MD
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greg24
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Re: Here Goes

Post by greg24 »

LarryG wrote:So it is time for the ME generation to go to medical school.
Don't just point at his generation. There are plenty of jerks and cheaters in your generation.
Saleen
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Re: Here Goes

Post by Saleen »

greg24 wrote:
LarryG wrote:So it is time for the ME generation to go to medical school.
Don't just point at his generation. There are plenty of jerks and cheaters in your generation.
QFT.

I am also a student, about to start law school in August. My portfolio isn't outstanding (less than 4k) but it is something that I am proud of and I am glad I started early, even if it is only $100 a month at this point.

When it comes time to apply for loans should I be punished because I chose to be a little more frugal then many of my counterparts and put my money into a roth ira instead of spending it on a new video game or putting it towards a big screen tv payment? We may be in the same income bracket and very similar financial situations but because I save some money and they join the masses of the conspicuous consumer they may get offered more loan money?

The original poster has a valid concern for people in our situation. While I am also taking out loans to pay for school I believe that if one has the cash to pay for school they should do that. My investments are more of a get the right start and keep the right methodology strategy.


Anyways, I'm really not sure how all this affects how much loan money you are offered, that whole process has always been too difficult for me to understand. I just wanted to make a counterpoint to some of the posts here.
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White Coat Investor
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Re: Here Goes

Post by White Coat Investor »

LarryG wrote:So it is time for the ME generation to go to medical school.

1. How can I hide my portfolio so that I can get a student loan that some needy student without a portfolio could better use.

2. Let's see if you can find someway to qualify for low income housing that might house a poor family.

3. I'm sure that you can find a way to get food stamps and misrepresent ourself at a food pantry.
Fair criticism. I had many a classmate who qualified for low-income housing and food stamps while in med school. In addition, they had their children on Medicaid. Responsible? No. Legal? Yes. Ethical? Not IMHO, but it certainly was in theirs. Most were excellent, compassionate students and I suspect they will be the same as they start practicing.

The debate comes down to whether it is ethical to take government welfare if you qualify for it, even if you don't really need it (in the grand scheme of things.)

Now, Larry, here's a question for you: Do you really "need" to take medicare benefits? Could you afford health insurance premiums from your savings? Don't be too quick to judge.
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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