I said “goodbye” to my medical career in 2024 when I decided to retire. I began my professional career in 1984 as an intern with a negative $30,000 net worth. Looking back over the past 42 years of investing and wealth-building, I particularly remember the mistakes that I have made to a greater degree than the successes.
Successful long-term investing is typically consistent, planned, repetitive, and not notably exciting, while the mistakes are often unforgettable and stand out like spots on a blank sheet of paper. To assist my colleagues in understanding what worked well for me and what ended up as money-losing purchases, I am recounting the lessons that I have learned over the past 42 years—lessons that have allowed me to build a total net worth of $27 million.
Live Like a Medical Student
WCI founder Dr. Jim Dahle frequently states that once you become an attending, you should live like a resident for a few years with respect to your spending. I have always believed that was cogent advice, and I had taken it a step further when I became a resident—I lived like a medical student.
My first-year salary as an intern was just over $19,000, and that year I saved about $5,000 by living one block from the hospital, eating most meals at the hospital (some meals were discounted, and some were free), and forgoing the purchase of a car. This may seem like a lot of sacrifice for only saving $5,000; however, I had invested that money into a relatively new mutual fund at the time: the Vanguard 500 Index Fund (VFINX).
Over the past 42 years, that initial investment alone has become approximately $400,000 today. In fact, the money that I saved during my four years of residency currently amounts to about $1.2 million of my current net worth. The moral is that even ostensibly small amounts of saving early in your career can yield dramatic results over time due to the powerful effect of compounding.
More information here:
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Commit to Saving
It is important that you make an early commitment to saving. Saving may include your retirement plans or paying off your student loans (I had $30,000, a significant number at the time). Your commitment to saving requires you to live within your means. A good goal is to save at least 25% of your pretax income. Over my lifetime, I have not lived an austere lifestyle; yet, I have saved 25%-80% of my pretax income—an income that was in the top 10%-20% range for emergency physicians.
When you make it a habit, you stop thinking about spending on the fancy vacation, the hot sports car, or the purchase of a new McMansion. I have never regretted the money that I have saved, and I have never felt that I denied myself something that I really wanted. There have been times, however, that I have regretted the money that I did spend as I did not feel that it gave me the pleasure that I anticipated it would.
Commit to savings and stick to it, and you will be rewarded in the long term.
Educate Yourself About Taxes, Finance, and Investing
By my second year of residency, I was still relatively naïve about finance. I was married, and our combined income had increased substantially. Because of this change, I hired a CPA to complete our taxes. This was completed without incident; however, in the subsequent year, I realized that the accountant had made a $300 error in her preparation of my federal tax return. At that time, I had an epiphany. I realized that no one will be as conscientious and thorough with our money than I would be and that I needed to educate myself about tax preparation, finance, and investing.
I read books, subscribed to newsletters, and voraciously read newspaper articles on these topics. This knowledge has been invaluable to me for the past 42 years. Even if you hire accountants and investment advisors, having a rudimentary understanding of these topics will assist you in making better decisions with your money, in combination with the advice from these professionals.
Don’t Eschew Side Gigs
Early in my attending career, I had treated a patient with obvious food poisoning. The patient did well, but about six months later, I was contacted by an attorney requesting that I testify in court as an expert regarding her illness in a case against the food establishment. Initially, I said no. But he was very tenacious, and after a couple of weeks, I relented and testified in court. I was compensated for my time.
After the trial, the defense attorney approached me and said that I was very good on the stand and asked me to review a case for her.
I continued to do consulting work over the next 25 years. Although this was only about 10% of my overall income, it was “bonus” income that went directly to savings. Over time, these savings grew substantially. In addition, I learned about the law, giving depositions, and testifying in court, which assisted me in my emergency medicine career.
When side gigs present themselves, don’t dismiss them reflexively; consider the opportunity and whether it can be beneficial to your career and savings.
Insurance Is Not a Good Investment Vehicle
Without a doubt, the worst investments that I have made in the past 42 years have been with insurance companies. To be fair to the insurance industry, I have not lost money, but I have experienced decreased appreciation due to onerous fees and rules associated with the product.
The insurance agents are very enthusiastic and polished in their presentations. They may even really believe in the products that they sell. However, the projections that they use are unrealistically optimistic and do not reflect reality over time. In addition, they are surreptitious with respect to their fees and costs and sometimes are disingenuous (if not deliberately deceptive).
Despite knowing that, in general, insurance investments are not a good deal, I have, over the past 42 years, purchased a whole life policy during residency and a variable annuity. I estimate that these “investments” resulted in a decrease of my current net worth by approximately $900,000 compared with traditional equity investments, even after accounting for the value of the life insurance component of the policies.
Insurance is very important to mitigate traditional risks that you face—malpractice, homeowners, auto/boat, disability, and premature death (term life). But do not use it for your investing. Using insurance as an investment vehicle is a money loser.
More information here:
Why Mixing Insurance and Investing Causes So Many Problems
The Downsides of Whole Life Insurance
Tax-Advantaged Investing
Since getting my first job as a resident, there have been opportunities for tax-advantaged investing and savings. When I first became an attending in 1988, the physician group had an involuntary profit-sharing/money purchase pension plan where 25% of my salary was saved for retirement every year. I have participated in numerous tax-advantaged plans, including a 403(b), 401(k), 457(b), profit sharing, money purchase pension, cash balance plan, HSA, IRA, SEP-IRA, Roth IRA, Backdoor Roth IRA, Mega Backdoor Roth IRA, QSEHRA, ICHRA, and 529 plans. My experience has been that these are tremendously advantageous, and they enable the professional to defer taxes for many years until retirement.
I also had observed that profit-sharing plans, money purchase pension plans, HSAs, and cash balance plans also provide a legal vehicle to eliminate Social Security taxes, Medicare taxes, local income taxes, and possibly state income taxes. When I established a cash balance plan, I avoided paying about $35,000 in taxes every year by taking only a token salary and funneling clinical income through the plan and by using appreciated stocks, which I sold for my expenses. These are taxes that I will never have to pay, and they were added to my savings every year that I maintained the plan.
The single biggest factor in accumulating my net worth was establishing that cash balance plan for my wife and me. At that time, I was earning about $450,000 and putting about $400,000 annually into the plan. This was in the early 2000s, and those contributions grew dramatically.
In addition to tax deferral and elimination, using tax-advantaged plans enabled me to lower my adjusted gross income to the point where I could utilize the 0% tax rate on capital gains and 0% tax rate of savings bonds used for college, take the tuition and fees deduction, and use the American Opportunity Tax Credit for my children.
Don’t pass up an opportunity to participate in these plans. If you work as an independent contractor with your own corporation, investigate how these plans could potentially save you thousands of dollars and facilitate savings for your retirement.
How to Invest in Equities
My first equity investment was in the Vanguard 500 index fund. As I saved more, I thought that I would have better performance if I picked individual stocks and actively managed mutual funds. I chose my picks based on articles and recommendations of public investment advisors. We generally think that we are more insightful and smarter than we actually are, and I initially thought I could beat the index. Although I did select some big winners (BRK/A, INTC, MSFT), I also picked some big losers (BG, BP, BAC). Over time, it became evident that I was doing no better (I was probably worse) than the VFINX fund that I had selected as my first investment. In addition, individual stocks consumed a fair amount of my time as I monitored those assets.
VFINX, however, was totally low stress. I basically invested the money as it was available and forgot about it.
Investing passively performed better than actively managed funds or my individual stock picks. This is not surprising insofar that 85% of actively managed large cap mutual funds do not exceed the performance of the S&P 500. With a few exceptions, it is unreasonable to expect that I could do better than those professional managers. And if your investment performance is in the top 15%, you will be doing better than the vast majority of investors.
While it is important to diversify your investments among asset classes—including foreign stocks, value stocks, bonds, real estate, etc.—passive investing, while boring, works better than active management with less stress to the investor. It is simple and easy to do yourself, and it does not require a financial advisor. Quoting Jim, “Being your own financial planner and investment manager is still the best-paying hobby in the world, especially when you become very wealthy.”
More information here:
Some Surprising Things I’ve Learned in 20 Years of Investing
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Don’t Get Emotional About Investing
It is human nature to have emotions; however, acting emotionally can be detrimental to investing. Our emotions tell us to invest more when the market is rising and to be fearful and take our money out of the market when it is declining. This is contrary to what good investors should do. Warren Buffett once stated in his annual statement that investors should “be fearful when others are greedy and greedy when others are fearful.” This has been my observation over the past 40 years.
I was subject to my emotions when I was investing years ago. I had planned to invest $10,000 per month into a stock mutual fund. Four months into this plan, the market took a temporary, sharp decline. I panicked and stopped my monthly investment for four months. The market recovered and then substantially increased over the next year. My result two years later was $30,000 in lost appreciation because I panicked when stocks dropped. Really, I should have continued investing per my plan.
Trust But Verify
Even if you educate yourself regarding saving and investing, there may be times in your investing career when you need the services of an expert. For me, that occurred when I set up my cash balance plan. For a cash balance plan or a defined benefit plan, the IRS requires the involvement of a certified actuary. You may also require an attorney for estate planning or the establishment of a corporation or trust.
Before you engage an expert consultant, it's important to educate yourself about the topic prior to meeting that individual. In that way, you can form an understanding of what you need, what the rules of the product are, and what options you have to make that product better for you. Whether it's retirement plans, investing, tax advice, insurance products, tax planning, or estate planning, being knowledgeable before the meeting will provide you with the most benefit and help to ensure that the expert is giving you what you need.
I failed in this with respect to my transition from private health insurance to Medicare and a Medicare supplement plan. Although I did attend a lecture regarding Medicare supplement plans that was given by an unbiased representative from the state department of insurance, I missed a key point. When I met with an insurance agent for the supplement plan, he made an error that cost me almost $3,000 over the next year. Being more diligent on my part would have prevented this error and my loss.
What Asset Accumulation Has Done for Us
For my wife and me, accumulating substantial assets over our careers did not involve substantial sacrifices along the way. We enjoyed a very comfortable life. It is very unlikely that we will ever spend the assets that we saved. What those assets provide for us now is a sense of security rather than a need to spend money on extravagant purchases.
How will it end? Although we have not yet reached the end, my wife and I have decided that the assets be left to charity when we are gone, which makes estate planning simple and allows those assets to do the most good. We have two adult children, and we believe that suddenly inheriting a large sum of money is not constructive for their careers or lives. They both emerged from college debt-free and with a new car, which is more than many college graduates receive.
I hope that you can avoid the mistakes and profit from the good decisions that I have made over my 42-year investing career. Investing is long-term, and it can sometimes be difficult to understand exactly where you will be in 40 years. However, being disciplined, consistent, conscientious, and avoiding errors with your savings and investments will yield substantial results when you are ready to retire.
What do you think? Is becoming a multi-deca-millionaire a possibility for you? What would you have to do to get there? Would the sacrifices made today be worth it in the end?