When you interact with as many doctors about their personal finances as I do, occasionally you notice a theme. When I notice a theme, I write a blog post about it.
There are many doctors out there who want and probably even need a good financial advisor. It might be as much as 80% of doctors. I don't have a problem with that. These docs don't have the interest required to develop the discipline and knowledge required to be successful as do it yourself financial planners and investment managers.
But lately, I've been getting emails and comments from people who clearly do have the interest, discipline, and knowledge to do this themselves. I mean, it isn't rocket science and it certainly isn't medicine. It's just not that complicated. A lot of them just need to sit down with their spouse and an honest financial planner and be told “Dude, your plan is fine. There's no way what I can do for you would be worth what I have to charge you to stay in business.”
Here are three examples, with enough details changed and omitted to protect the innocent:
Two Doc Couple Making $725K
I have read a good portion of your website and listened to your book via Audible (which I plan on re-listening to). I only wish I had stumbled upon your writings earlier! Your writings have inspired me to further financially educate myself – I've either finished or am working on books by Bernstein, DeMuth, Bogle, etc. “Millionaire Next Door” is also a favorite of mine.
I am currently a GI fellow (with $140k Federal debt @6.55%, making payments via IBR since intern year) and have already locked up a contract with a hospital system that files under 501c3. I plan on filing for PSLF, assuming it will save me some money. My partner will be finishing his dermatology residency in 2 years (with ~$220k Federal debt @6.55%, also enrolled in IBR, but we are assuming he will be in private practice, thus negating the opportunity for PSLF).
Given that we are both in high paying specialities, we will try to aggressively pay off his loans within 2 years of him finishing (refinancing the loans once we can demonstrate a higher income), while maximizing our retirement accounts (I have a 403b and 457 — we are not sure what he will have yet) and saving up 20% for a downpayment. This is our short-term plan.
My general question is this: is spite of reading your website/blog/book and the aforementioned books, I remain nervous about managing our future income (between my partner and me, I'm conservatively estimating an income of $725k/yr, but will likely be closer to $800-850k). I am, by nature, risk adverse and fiscally conservative. My greatest fear is mismanaging everything we work so hard to earn – I am really hoping to avoid a mistake that will cost us $20K, $50K, 100K or more. At the same time, I don't want my risk adverse nature to adversely affect investment opportunities. In addition, given our future high income I anticipate being unsure how to minimize our future tax burden. So my first question is a) Would you recommend a financial investment advisor/fiduciary in this circumstance? I have researched the majority of the advisors you have vetted on the WCI website, but I am unsure about how to actually pick one (aside from desiring the lowest fees/%AUM — indeed these add up…I have a hard time rationalizing 1% AUM fee on a given 2MM portfolio = $20K, ouch!)
It's almost comical, isn't it?
- Way less than average student loans with a great plan for taking care of them.
- Way more than average income.
- Way more than average financial knowledge.
- A willingness to continue to learn.
- Solid knowledge of the cost of financial advice.
- Clearly price-sensitive about fees.
Not only does this doc not need a traditional financial advisor, but an honest AUM financial advisor probably doesn't even want her as a client. She'll always be questioning the fees! It's just not a good fit. What does she need? Maybe nothing, but certainly no more than a couple hours with an hourly rate advisor every couple of years and a good CPA to help with the taxes for her first few years of attendinghood. Probably less than $5-10K total in fees over a number of years. What they're probably going to really need down the road is a good estate planning attorney. She's worried about a mistake that'll cost her $100K. The truth is she can probably use $100K a year as firestarters and should still be incredibly financially successful.
Here's another example from a military physician.
I am an active duty internist. I stumbled upon your site a few months ago when I started to get serious about investing, retirement planning, budgeting,etc. I am still very new to the game but have read your book as well as a few others, a couple of audible great courses on money management and the history of investing, and spent hours of blog post reading on your website, PoF Website and Bogleheads. Unfortunately just like many interns I now know “just enough to be dangerous” and am having what you referred to in one of your posts as “analysis paralysis”. I am having difficulty on taking the next step because I do not want to take a wrong step.
I am 32 and married with three kids. I have been maxing out mine and my husband's Roth IRAs (80K total) since residency and have been maxing out my TSP for the last 4 years since completing residency. I had gone through a USAA financial advisor for my ROTH IRA and now realize that they had put me in underperforming overpriced funds (Cornerstone Moderately Aggressive Fund and World growth fund) both through USAA with expense ratios of 1.10% and 1.17% respectively. Knowing what I now know about compound interest I have realized this mistake already has cost me $5-10K.
I have started drafting my investment plan and am looking at the KISS strategy for things and will probably only have 4 or 5 areas; US stocks and Intl Stocks as a large percentage and then Bonds +/- REIT and Small cap stocks. My biggest problem is I am unsure where the next best step is and am so hesitant after seeing what USAA did to me….
I will most likely do 20 years since I enjoy the job and the pension for an O6 with 20+ years of active service is 60K+ with healthcare for you and your family covered. With signing for the 4 extra years there is a healthy yearly bonus which I plan on investing and now will need to have a taxable account for contributions after maxing out both Roths and TSP yearly.
I have been unable to find any good posts on how to take that next step and am really just looking for some guidance or a swift kick in the backside.
So I gave her a swift kick in the backside. Seriously, this doc has totally got this. She's maxing out Roth IRAs and the TSP, anticipating a pension, and investing even more in a taxable account. She's reading multiple blogs, has read multiple books, and is participating on good forums. We discussed a few very minor questions about asset allocation and where to open accounts and such, but nothing that anyone in their right mind would pay thousands to a financial advisor for. Again, she would likely spend a couple of hours with a good hourly rate planner who would basically confirm to her that she knows what she is doing.
A Doc Who Screwed Up His Taxes
This doctor got a little overzealous with the retirement savings. He maxed out the $18K employee contribution for a 403(b) at one job and a 401(k) at another. Neither employer knew about the other, so nobody stopped him. The IRS hadn't noticed yet, so I gently pointed out the error of his ways. He started the ball rolling on making the changes (reversing the contribution, requesting an updated W-2 from one employer etc.) Then he got worried:
I get a bit nervous and start thinking I need an accountant . . . but I should be able to handle this, right?
This from a doc who's been handling his own finances and doing his own taxes for a decade or more.
Guess what? Accountants screw up on taxes too. It's not a big deal. It's pretty easy to file a 1040X. As I went back through a decade's worth of tax forms for a post I did a few months ago, I found 4 or 5 1040Xs in there. Apparently, I screw things up all the time (although most of them were to maximize my loss on that stupid rental property.) What do they expect when they make the tax code so complicated? The way I see it, I don't have to be perfect, I just have to be honest. If I make an honest mistake, maybe I'll have to pay some penalties and interest (or more likely I'll have to file a 1040X and I'll get an extra refund with interest from the IRS), but nobody is going to throw me in jail. Don't expect perfection from your accountant and certainly don't expect it from yourself.
Now, there's no sense in being prideful or arrogant. You don't know everything about financial stuff and you never will. But at a certain point, you know enough to manage your own affairs with occasional, minimal input from a professional. A little while later you'll know more about the financial situations of doctors than the majority of those who call themselves “financial advisors.” Hundreds of financial advisors read this blog. Ask yourself why that is! It's not that entertaining. It's because they don't know all this stuff either. Don't be so afraid of making a mistake that you don't do the things that are obviously good things to do like:
- Maximize your income
- Save a big chunk of it
- Max out some retirement accounts
- Invest in some combination of low-cost, broadly-diversified index funds
- Buy some liability, disability, and life insurance
If you need some help, go get some help. I'm lucky that when I have a financial question I can't find the answer to that I know dozens of the good guys in the industry to bounce it off of. If you don't have that luxury, then pay somebody a reasonable price to answer your questions and don't feel a bit badly about it. Hiring a financial advisor isn't an “all or none” thing. Check-ups, second opinions, or a tax strategy session can all be great uses of your time and money. But if you've read half a dozen financial books, most of this blog, and you check in with a financial forum once a week, you don't need a full-service financial advisor.
What do you think? Why do you think we worry we're missing something when we're clearly competent to any rational observer? Why is it so hard for a “mostly do-it-yourselfer” to consume financial advice in small quantities? Why is someone who holds the life of another in his hands worried about losing $20K or screwing up his Backdoor Roth IRA? Comment below!