By Dr. James M. Dahle, WCI Founder
So much of personal finance and investing isn't about winning; it's about not losing. That's because investing is a single-player game; it's you against your goals, not you against your neighbor or your partner or some yahoo on social media. However, there are precious few whose ultimate financial goal is to be broke, and if you can avoid doing that, well, that's one mark of success. There really aren't that many ways for doctors to go broke.
But in today's post, we're going to discuss them so you can avoid them.
#1 Go to Medical/Dental School
First, let's get this one out of the way. For the vast majority of doctors, the decision to become a doctor means not only going broke, but becoming worse than broke. Broke is a net worth of $0. A typical medical student graduates with >$200K in student loans, and it usually gets worse before getting better. Just getting back to broke is a milestone worth celebrating for most docs.
Unfortunately, too many doctors don't realize that income isn't wealth and end up living their income instead of their net worth shortly after completion of training.
Aside from the usual pathway, there are a couple of other professional school-associated ways to go broke. The first is for a medical student to not match. While that is relatively rare, the number of medical students who endure this financial catastrophe is far from zero. Some of them manage to scramble into undesirable positions. Others will wait around for a year, apply again, and match. But there is a certain number of people every year who will eventually walk away from medicine with all the debt and none of the income. This number is even higher if you chose to attend a Caribbean school, where overall match rates are 50%. The fact remains that borrowing hundreds of thousands of dollars to become a doctor is a huge financial risk.
Becoming a “professional student” is also a great way to hurt your finances. Five or six years in undergrad, a master's degree, a special pre-med year, four (or more) years in medical school, an MPH, a long residency, a fellowship that doesn't actually boost pay, and maybe a second fellowship can all add up to many years of lost earning potential and compounded student loans.
#2 Leverage
Leverage refers to borrowing money in an attempt to make money. Sometimes being highly leveraged pays off spectacularly well. A WCI reader bragged recently about becoming a millionaire in only 3 1/2 years using only $130,000 of his own money and investing in real estate. The problem is that leverage works both ways. If you leverage an investment 9/1 (think 10% down on a real estate property) and that property drops in value 10%, you've lost your entire investment. If it drops another 10%, you're massively underwater. When your investments drop 50% in value and don't recover for years, you declare bankruptcy. It's practically impossible to go bankrupt without debt. That doesn't mean that you should NEVER use debt, but don't underestimate its risks, its temptations, and its effect on your well-being. Moderation in all things.
A Waverunner is a terrible investment. A lot of fun though, especially at sunset on Lake Powell like this three-generation photo.
#3 Dumb Investments
I had an elderly couple contact me the other day after having their entire nest egg wiped out well into a long bull market. They had ignored several basic investment principles—doing due diligence on advisors, diversifying, and not chasing income. But now they found themselves well into their 70s, not really able (or willing) to go back to work and living off Social Security. It sounds dumb, I know, but it happens all the time, even to otherwise very smart people. Diversification protects you from what you don't know.
#4 Divorce
Here's one that is even more common, although only about half as common among physicians as the average American. When you get divorced as a doctor, you typically lose half of your net worth and a huge chunk of your ability to rebuild that net worth going forward. Want to make building wealth really hard or even impossible? Get divorced two or three times in the same lifetime. Marriage actually builds net worth, but do everything you can to “do it right” the first time. Date night is likely your best investment AND asset protection strategy.
#5 Live Hand to Mouth
There are a surprising number of doctors who go broke the old-fashioned way—they just spend all their money. Anonymous polls show that about 25% of doctors spend all, most, or more than their income. If you hang around here for long, this seems appalling, but I assure you it is very easy to spend all or most of a physician's income. We often spend something like $13,000-$14,000 a month, and we don't even have student loan payments, car payments, or a mortgage. That's not including charitable contributions or taxes either. We just live in a nice house, drive expensive cars, have a boat, eat well, and go on nice vacations. OK, a lot of nice vacations. Basically, a single-earner physician family making the average physician income can't spend as much as we do and expect to ever build any significant wealth. So I fully understand how easy it is to blow through that whole doctor paycheck. But that still doesn't give you permission to do it. We certainly didn't do it when we were making the average physician income.
#6 Home Renovations
While driving a fancy car will keep the average American from ever building wealth, that's probably not enough by itself to sink the typical doctor. It's just not a big enough rock relative to income. But you know what is? A house. Especially in a high cost of living area. And especially if you become a constant renovator. And especially, especially if you change houses every few years and renovate the new one every time you move in. Being surrounded by the latest, like-new furnishings is incredibly expensive. Some mistakenly assume that all these improvements are good investments.
The truth is that even the best renovations (usually kitchen and bath) only return 80% of their value when you sell the home, and that's assuming you sell it right after you do the renovation—not five years later. Some improvements, like a roof, don't add any value at all. Others, like a pool, could even subtract value to some buyers. Want to make it even worse? Buy a second home and renovate it. I knew a doc who had three homes at once, and despite having two jobs wasn't making any financial progress. While a home has some investment qualities, it is mostly a consumption item. Consume carefully.
#7 Frequent Job Changes
Here's another good way to keep yourself from building wealth, especially when combined with one of the other items on this list. Changing jobs, especially when the job is in another location, is very expensive. You have the home transaction costs (about 15% of home value), the moving costs, the opportunity cost (for the time you spend moving, credentialing, out of work, etc.), and the practice or partnership buy-in. Be careful violating the one house, one spouse, one job recommendation. Try to get to know yourself and what makes you happy, evaluate potential jobs carefully, and get your employment/partnership contracts reviewed.
#8 Failed Practice
Last but not least on this list is the cost of a failed practice. Imagine a practice where the volume and payor mix steadily got worse while the costs of compliance and overhead gradually climbed. Most docs wait far too long to close it down and walk away because they don't want to abandon their patients and employees or admit defeat. A failing practice not only prevents you from building wealth, but it could also even consume the wealth you do have. Some doctors assume they're going to be able to sell their practice at retirement for a huge sum of money and instead of saving for retirement just concentrate on building the practice, assuming it can be sold for enough to pay for their post-work life. Then, when they realize they can't find a buyer or have to sell it at “fire sale” prices, they end up with far less than they expected.
There you have it—eight ways to go broke as a doctor. It can be surprisingly easy. Take steps now and throughout your life to prevent it from happening. By not losing, you win.
What do you think? Do you think it's impossible for doctors to go broke? What examples of doctors going broke have you seen? Comment below!
I think the “hand to mouth” phenomenon can be a touch of grey, too. Some people literally live paycheck to paycheck because their expenses have amounted to the point that it consumes their entire paycheck. I presume that’s the 25% number you quoted.
However, a substantially higher number (25-50%?) of doctors are still living a life that is expensive enough that they cannot retire by age 60. Some studies suggest that ~50% of doctors aren’t even maxing out their retirement accounts at work.
While these doctors didn’t go “broke”, they still lost the game and are relatively stuck working late into their 60s because their hand to mouth habits are preventing them from making real progress.
There is still a huge need to increase financial literacy in physicians, and posts like this do a great job of reminding us why.
P.S. I passed “not broke” about 9 months out from training (after starting at negative $208,000), but my next milestone happens next month as we finish paying off $200K in student loans in 19 months. We are really excited about that! I’d take a picture, but that might ruin my anonymity 🙂
TPP
Despite violating each component of the one house, one spouse, one job rule, it still is possible to claw your way back to the top as I am a living example of it. With as high an income as most physicians have (and I am extremely fortunate that my income is far above the MGMA range for even my high paying specialty) it gives you a huge shovel to dig out of debt.
It is a definite risk going to medical school, especially a foreign one, as you are not guaranteed the ability to practice medicine despite having an MD behind your name. This personally effects me as my girlfriend fell into this situation. She fortunately paid her way through medical school with the exception of one year but still had a $50k student loan after completion that she had to pay without the ability to get into a residency and practice as a physician. Carribean medical schools tend to be even more expensive to attend and as you mentioned, less chance for matching.
Celebrating back to broke is a great trend to start. I don’t know the exact time frame when my net worth finally was $0 because it happened during a very tough personal time (divorce, civil lawsuit which I wrote about in my blog) and I just didn’t even want to deal with finances because I was hemorrhaging money during this time and it was too depressing to document it. I had previously been keeping up with my net worth and new I was negative $750k+ a year prior to divorce and was positive $700k a couple years after my divorce so that was when the crossover occurred.
A $1.5M swing in net worth in 3 years is pretty impressive.
I am a retired dentist after 38 years in a very successful practice. I am doing a bit of subbing here and there so I can use a Schedule C, which has a number of advantages. While my practice sale contributed to my retirement nest egg, it was by no means the sole funding source. I graduated from dental school with very little debt. My wife worked full time and I worked a couple of nights a week at a hospital that understood I was a student, so I had time to study and sleep. I think it is a crime that professional students are coming out of school with a quarter million dollar plus debt, but I digress…. I borrowed $100,000 at 14.5% in the summer of 1979 to set up my practice. BTW, 14.5% was a good deal back then. Anyway, my practice was successful from the beginning and I exceeded my cash flow projections 3-4 months into the practice. A year or two later, after having used up all of the deductions that are available for starting up a new business, I set up a defined contribution retirement plan and funded it as fully as I could in addition to IRAs all throughout my career. I treated these contributions like any other bill that had to be paid instead of waiting to contribute any excess cash I had left over. (We all know how that works!) Secret is to live like a student for a few years after you graduate; spend less than you make by 20% or so and save the difference. You’ve all heard the old cliché, “Pay yourself first,” I’m sure. Cliché or not, it works. Conspicuous consumption will do nothing to enable your retirement.
JML
Kudos!
Not specifically mentioned but alluded too is the fact that physician income is ramped up quick in the first few years and can remain flat for the rest of the career. It makes lifestyle inflation dangerous if you are always living your income but it can also be wonderful if you slowly grow into it and live like a resident. Not many other places can someone in their early/mid 30’s make >250K a year. If done right it can really be used to your advantage. Thanks to the WCI network many physicians are coming out on the right side of this.
“# 4 Divorce
Here’s one that is even more common, although only about half as common among physicians as the average American.”
Is this true? I’ve always thought it was the opposite.
Some things I’m surprised didn’t make the list: kids, private schools, recurring payments, cars, credit card debt
I also found this amazing. I would expect it to be higher. I guess the only good reason I can think of that doctors don’t get divorced as often or more often is that it is too expensive…”cheaper to keep her” motto ends up working out. (Or cheeper to keep him to not be sexist, but doesn’t rhyme well).
I’d hypothesize getting married later in life, but who knows? I thought doctors were more likely to get divorced although that may be old time thinking.
The stats don’t bear that out.
When I started med school they warned us of the 4 D’s: Depression, Drugs, Drunk, and Divorce — all supposedly risks of entering the medical career, so yes, I thought rates were higher. I think that the overall national averages have increased PLUS docs may be getting divorced less for a variety of reasons. My speculations: perhaps male docs doing better valuing their marriages (not cheating) than their older counterparts, more female docs in the workforce than before, more educated people who have more to lose in divorce and work harder on their marriages, getting married and having kids later as mentioned above, and also many more (esp female physicians) choosing not to marry at all — all these forces would lower our divorce rates, combined with a national average likely doubling since the old stats were assessed.
Divorce is less common for physicians, but “Female physicians have a substantially higher prevalence of divorce than male physicians.” https://www.ncbi.nlm.nih.gov/pubmed/25694110
Very interesting! Especially the finding that “greater weekly work hours were associated with increased divorce prevalence only for female physicians”.
It’s also a lot harder for female physicians (especially once out of training) to partner/marry than male physicians (same with other ‘high-power positions’ according to some books on the subject) — likely same phenomenon. It’s really too bad.
Yes, it actually is. And it’s even lower for two doc families.
A lot of those things you cite that “didn’t make the list” are encompassed in # 4.
Just yesterday I saw a physician patient, married to a physician, both working full time in their late 60s, who was very stressed about them not making enough money to get by comfortably. I cannot fathom how a dual physician couple in the US working for 35+ years doesn’t have an enormous net worth.
It’s quite simple, don’t pay any attention to finances and you end up old and broke.
You left out a huge problem that affected us, embezzlement. People find ingenious ways to embezzle from doctors. Our CPA at the time was extremely negligent, when we started going broke he should have locked the office to do an audit but didn’t. We found out later that would have been the “ standard of care” for CPA’s.
Sorry to hear about that. Certainly it is common in small practices and really any small business.
A very successful solo practice plastic surgeon client of mine allowed his secretary to handle the books, collect deposits, go to the bank, sign office checks and payroll, purchase and pay for supplies and equipment. She also handled his personal checkbook. He was earning more than $750,000, and spending most of it on airplanes, boats, real estate, trips, women, etc, so he was “too busy” to notice any problem. His long-time CPA retired and he hired a new firm which insisted on a thorough audit before taking over. They found rampant fraud and theft by the secretary, stealing from both his personal and office income, plus paying large premiums for supplies from a single vendor. The vendor was her husband. Both of them were very “friendly” with the doctor and his wife.
No charges were brought, but she was forced to sell her home to repay the physician.
Not unusual at all.
I’d add another way to go broke here, or perhaps a modifier: not talking about finances.
I’m in the tail end of urology residency and so my co-residents are in the throws of job and fellowship searches. Even though I’ve now known my co-residents and our faculty mentors for years, and even though we all have great relationships, talking about money still feels taboo. To WCI’s point about fellowships that don’t boost pay: worse than that, even asking about this seems to make people uncomfortabel. I suppose it’s not surprising that workers in a field that is so opaque about finances then don’t have the financial habits to avoid WCI’s 8 ways in the decades following training.
Frequent job changes and wrongful terminations by narcissist employers can leave a person broke. But it’s always good to have a Plan B up your sleeve by having a side hustle and a “side hustle millionaire” mindset.
Lets share some success stories in a future post, no?
I like the list but the spin is one of be careful, be cautious.
JustSayin
I’m not a doc, I have other professional training and run businesses. In my circles, I know hundreds of very high income people: I can say with some certainty that this is a great list of reasons to washout (some physician specific but mostly not).
You may think it’s conservative and I’d respect your opinion. But I know far more “money stupid” high income people than “money smart”. Likely by a 4:1 ratio.
They can make the dough just fine. But they sure don’t know how to save it or build it up!
Just sayin….!
There are so many ways doctors mess up their financial lives. This covers a lot of them.
Overspending is the biggest one that I see in the doctors I know. Getting them to understand the concepts of “Net Worth vs Income” is huge.
I tell them they are mostly, “All hat, no cattle.” Sometimes that wakes them up.
Enjoy your writing and this is a fine list. It is tough to go broke with a firehose of cash shooting into your accounts every month. Yet, folks still manage to do it! Not an MD but high income. I agree with “You may think it’s conservative and I’d respect your opinion. But I know far more “money stupid” high income people than “money smart”. Likely by a 4:1 ratio.” My DW works with some genuine idiots who have great incomes but manage to blow it all in a LCOL area where 900k will buy a palace.
The level of finance education in the USA is truly pathetic. MDs are an extremely educated and hard working bunch but a tip of the cap to you for trying to provide education to the MDs with poor finance skills.
My take on doctors’ financial problems: They are “highly educated”, so they believe that if they can master something as complex as medicine, the financial world should be easy. Just watch CNBC and read a couple of books on finance. Or go to a seminar on “asset protection” at the next medical meeting in Florida or Aspen.
You don’t need to master the financial world to handle your own finances mostly on your own.
Among my circle of physician friends, I know one in his 50’s who is broke and living check to check, despite being single and making around 300k per year. When he asked to borrow money for some bills, I felt so bad for him I gifted him some money. I wouldn’t loan money to an irresponsible person, but I felt so sorry for his circumstances that I did grant a gift.
Another physician friend who is around retirement age had defaulted on her student loans many years ago. The interest charges and penalties shot the outstanding balance into the stratosphere. She continues to have her wages garnished because of a judgment based on the loan default.
I have other physician friends who have made all the right decisions and are sitting pretty. It pays to read WCI, and to develop a financial plan you can live by to achieve financial security.
I’m not a physician but I’m married to one so I travel in those circles. In our own small world of colleagues and and acquaintences in the medical world in Texas and Washington State I’ve seen a few additional ways to go broke.
1. Mission work. We lived in a fairly evangelical/baptist community in TX and saw a number of physicians get wrapped up in overseas mission work that sucked up years of their life and all their resources. Non-physicians who want so serve overseas tend to join existing organizations like the Peace Corps that pretty much take care of all expenses. There’s something about the evangelical/baptist community that makes doctors want to go the DIY route, establish their own personal clinics overseas, that sort of thing. Years of your life and earning potential gets sucked up into establishing a clinic in someplace like Uganda then you come back to the US in your mid-40s without really knowing how to work as a physician in the US anymore.
2. Family disasters. I’ve seen a couple of physician families who wind up spending hundreds of thousands of dollars dealing with kids who became substance abusers. Private rehab is a VERY expensive undertaking, especially if you do it multiple times. My wife is currently working with a single female pediatrian who is currently taking care of two elderly sick parents and a brother with lukemia. She’s the sole source of income for her family. I have no idea what she will be left with she she comes out at the other end but it won’t be pretty.
Not mentioned at all in this list are disability and lawsuits. There is a lot of discussion of liability and disability insurance around here. I would expect to hear about some examples of people who weren’t properly insured. I guess that is very uncommon.
I am sure there are stories and examples of physicians who didn’t have disability coverage, but I’d like to give a real example of one who did. Years ago, disability insurance was readily available and not egregiously expensive. My client, an ENT specialist, was establishing a new solo practice after being in a large one dominated by the founder. I was referred to him as a financial advisor. As part of our planning, we made sure to acquire as much of his “own occ” disability coverage as he could afford, and as his practice grew and prospered, we continued to increase the amount of monthly benefit. At age 55, he developed a condition that affected his eyesight. Once the hospitals found out about it, they withdrew his surgery privileges. By that time, his practice had expanded to include two younger doctors, so he thought he could see patients in the office and manage the practice affairs. However, the younger docs became upset that he was continuing to draw his large salary that they believed they were supporting, and threatened to form their own group. It was probably going to get messy from a legal point of view. Eventually, his condition worsened and he was unable to practice at all. His disability income insurance will pay him $160,000 per year (tax free) until his age 70, then half that for the rest of his life. Disability insurance is like carry a gun; you would rather have it and not need it, than need it and not have it.
Good additions to the list.
What’s the cure for disability and potential liabilities?
1. Disability Insurance. You’d rather have it and not need it than need it and not have it (same as a firearm).
2. Asset protection using family partnerships, corporations, LLC’s, trusts, etc. This takes a skilled attorney with experience in the discipline.
3. Large amounts of liability insurance. If your teenage child is having parties at home when you are away, or he/she is driving an automobile who do you think is going to be sued over a slip and fall accident, drunk teenagers fighting or injury, automobile accidents, etc. The possibilities are endless.
As a wealth management advisor who has worked with high income high net worth physicians and business owners for over 30 years, I have “seen it all”. The most egregious example of ways to go broke by physicians is one plastic surgeon I was introduced to years ago. He had a 7 figure income from his solo practice and was known in celebrity circles for his breast and face work. He was married with 3 adult children and lived in a large home in one of the most desirable areas of the city. 2 country club memberships. A vacation home at the beach. 2 airplanes (one of these was for his son who was away at medical school). He completely supported one daughter who could not ever find a suitable job. The other daughter was a real estate agent married to a contractor. She always had real estate projects that needed dad to co-sign a loan. Need I mention that he had a girlfriend on the side and a condo and boat at a nudist resort that “nobody” knew about? But, other than these personal weaknesses, he was one of the most generous and interesting guys you would ever meet. As a P.S. , he was also a terrible businessman with his practice management. When he changed CPA firms, the new one insisted on a thorough audit before taking over. They discovered significant fraud. He had allowed his secretary to do all the banking, check signing, and bookkeeping. She was not only stealing money, she was paying large amounts to vendors supplying the practice. Her husband was a major vendor. We didn’t prosecute her, but did receive a financial settlement.
A very wealthy friend of his told me that the doctor needed a financial advisor, but what he needed most was a “keeper”, someone who could control his worst impulses. Over the next several years we developed a great relationship as I came to understand that he needed someone that he had confidence in who would function as his “financial quarterback”. Eventually, he turned the situation around and used me as the “bad guy” to stand between himself and the leeches and deliver the bad news that dad was no longer the world’s banker. We paid off all his debt, sold one of the airplanes, started renting out the beach place when he wasn’t using it, got rid of one country club and the girlfriend/condo/boat, sold the real estate ventures at a profit, and fully funded two retirement plans. The bottom line is if you have tremendous resources, you have great opportunity. Don’t blow it.
Yes to all of these. I see the overspending daily in our physician’s parking garage – maseratis, ferraris, porches, etc, all owned in one of the most expensive cities in the US. I’m shocked when I hear these same physicians haven’t even paid off their student loans yet. I’ve been to their homes in the most expensive part of the city and find that the homes are in major disrepair and they don’t even have the money to fix it. Physicians like to put up appearances, but humility and frugality are crucial.
My loans are at 2.7% why pay um off- JustSayin
But I agree on your report of showing off-
However- not certain I agree with all the small think here – there is a ton of money in this world – making 500k a year is alot to some but not to someone making that per month or per week! Stop the limited thinking make more money – you can only save so much – upside is unlimited – only limited by your thoughts and the story you tell yourself…discuss…
JustSayin
Where does one get student loans @ 2.7%? I know people that have tried to refinance their 6-7% loans at a better rate but are unable to do so. I’ll agree, I wouldn’t be in any hurry to pay off 2.7% money.
Call it roughly 18 months ago – through this site I saw an add for SoFi refi – figured why not look at it – chose a 5 year variable
I only have 100k left –
Rather buy another rental property ( settling on another one on the 4th) than pay of debt –
Did 3 deals in 8 months – hope to make current AGI in passive in the next decade
FIRE at 50 –
Why set reasonable goal – I fear hitting a reasonable goal
1 life! Dream big – dont settle
Playing small serves nobody
I’m fine with small. Just sayin’
Those who graduated in 2003 refinanced their loans to 0.9% Interest rates vary over time and it wasn’t that long ago that you could get 2.7% at SoFi, Laurel Road, CommonBond, Earnest etc on a 5 year variable loan.
Rates are a little higher now, but might as well see what you can get: https://www.whitecoatinvestor.com/student-loan-refinancing/
If all is going well for you on $500,000 and you don’t need more “stuff” why not play a game to see just how much cash you can accumulate on the next marginal after-tax dollar? Set a goal, make a chart, keep track of your net worth on a monthly basis. It’s really very simple.
Because it provides a guaranteed 2.7% return and when paid off, improves cash flow.
If you have no need to take on leverage risk to reach your goals, why do it?
Another big reason that I think most people are unable to build wealth is due to the small things that add up. I am not saying specifically to stop the $5 daily latte as realistically that only amounts to $150 a month (which is not much for a high earner) but more the lifestyle of convenience. Those small little payments here and there all add up to substantial amounts and slowly drain the daily budget and you cant figure out why. Yes, sometimes convenience can be great but shouldn’t be used daily. Simplify your life and do more chores at home yourself and not only will you have more happiness but also will notice extra thousands in your bank account.
That’s why you need to set up a savings program and treat it like any other bill that you have. i.e., 20%. If you do that these other small things will work themselves out. You need to remember to pay your credit card bill in full each month, too. Otherwise you will not win.
Thanks for an insightful article. I’m probably guilty of 2 1/2 of the 8 things listed (the medical school one, obviously is one), but with the other 5 1/2 intact, I have been able to retire from pediatric practice at age 61 in an expensive area. I have to watch pennies a bit, but for what I want to do, it will be enough.
What worked for me is to assume that “stuff happens” and simply not spend all that I made. I was comfortable with low-end cars; I bought lower-cost homes than realtors and banks said I could afford; and fortunately had relatively low-cost hobbies. My one economic vice was travel, but except for my one economic vice of first- and business-class flights, I was able to do that pretty frugally as well.
I would tell people to decide what’s important to them and prioritize spending. Maybe sending kids to private school or living in a pricier town with better public schools is a priority. Or maybe having a boat keeps you sane. Be frugal in other ways. And don’t get into debt–I have always paid things down so that I could walk away from anything when the time came!
I retired 19 months ago at 66 after 35yrs. of practice and I agree with all of your points. A financial planner I met a few yrs. back whose practice is 100% with docs said the single biggest mistake he sees them make is too much house saddling them with too much debt and expenses. I am invested 80% real estate and 20% stock market and many financial planners would be horrified by that but the income producing real estate is my retirement income and I’ll never have to cannibalize my investments to be able to live like most “financial planners” advise their clients. Keep up the good work.
While I don’t have a problem with an 80% real estate and 20% stock portfolio, I think using the word “cannibilize” is a bit dramatic and you’d benefit from taking a total return perspective on your investments.
https://www.whitecoatinvestor.com/the-pros-and-cons-of-income-investing/
However, I do wonder why analysis and recommendation of real estate deals/funds etc isn’t a more common skill set among financial advisors. It would certainly be a value add that most advisors don’t have.
It’s a philosophical thing with about how to view assets and leave a legacy for my family. I am loathe to sell assets to live and believe you should live off the income derived from the assets without touching the principal. My kids didn’t go into medicine and won’t be able to generate the assets I have, however my son is going the real estate route with investment and is up to 7 rental houses himself. I have involved them with one of the LLCs with them each owning 25% so they have direct investment there. Unfortunately I will hit RMDs in 3 yrs. so won’t have any choice but to do some sales due to IRS rules.
I think most financial planners have no knowledge of real estate and therefore it isn’t even possible for them to give balanced advice.
As a “financial planner” as you call them, I have many clients who have made fortunes in real estate. They are successful at it because they are astute, diligent and know what they are doing. If you presume that I would tell them to sell their real estate and do something else with the proceeds, they would laugh me out of the office.
Just yesterday, I got a message from a client who owns $20 million of commercial real estate. His question was should he refinance a 2 3/4% interest only adjustable rate mortgage that will reset in 5 years with a 4.5% fixed-rate 30-year mortgage, or should he continue with the low rate adjustable. This is on a $875,000 loan. Obviously predicting interest rates in 5 years is a fools game, so my answer to him is did he want to spend around $55,000 over the next few years to guarantee his position then. He said no, he would apply the $55,000 to principal on the existing loan and deal with the new interest rate at that time.
Since I am not a mortgage broker or a real estate broker, I have no skin in the game that depends on what he decides to do. My fees are based on his total gross assets, so I am just required to understand his asset picture, cash flow, taxes, insurance, wills, trusts, estate planning, retirement objectives, etc.
You have either been dealing with the wrong type of financial planner, or you actually don’t need one.
Actually I use one for a portion of the stock market investments only and don’t need one for the rest. No offense, but, I would personally resent someone charging me a percent of assets invested in real estate since I’m the one who makes all of the decisions about finding the properties, doing the due diligence, talking with the lawyers, buying and selling the real estate assets and the financing.
Of course you would resent it, so that’s why you are able to dictate to your advisors specifically what you want from them and what you are willing to pay for. It sounds like you are very successful in this approach, as are the vast majority of wealthy individuals. However, keep in mind that I did not say that I was advising this client or any other client specifically on his real estate dealings or on the operation of their privately held business. If I was competent in those areas, I wouldn’t be in the financial advice business. But, as I pointed out, there is a lot more to financial life than the buy-sell-hold decisions on specific assets.
No one person can know everything they need to know to manage complex financial issues by themselves and do it consistently and at the highest efficiency level. A team approach that includes a financial “quarterback”, the attorney, the CPA, an insurance broker and perhaps (in your case) a real estate agent and a private banker. The financial advisor’s job is to know and have all the information available, analyze it, make recommendations to the client and the team, get feedback from them, and then manage and coordinate the implementation of the decisions made by the client based on the best advice by the relevant team member.
Why are you loathe? I mean, the stuff you’re selling is just reinvested dividends from last year or the year before. The money you actually invested originally is still in there just like a rental property. This idea of “never touch the principal” just means you’re spending and giving less than you otherwise could have during your life.
You don’t have to sell due to RMD rules, you just have to move it from tax protected to a non-qualified account (and pay some taxes.)
At any rate, real estate is great but don’t let some weird idea about how only the investment should get to decide how much of the return comes to you as income and how much comes as capital gains instead of you. It all spends the same. Think of it as declaring your own dividend.
Oooh, yeah, med school debt. Unless you’re a foreign medical grad whose medical education was paid by their government then moves to the US to mild the Medicare and Private Insurance of cash cash cash with no educational debt. And people wonder why Trump got elected.
So, which is it? I’m not sure what you’re saying. Do you prefer doctors to be highly indebted? Or do you prefer to keep highly educated, legal immigrants from coming to the US to practice medicine? Or do you just wish medical school were as inexpensive here as in some other countries? I hope it’s the third because the first two seem like untenable positions in any rational debate.
I’m a male physician married to a another physician. Before marriage, I only dated educated and successful women who are my financial equal or close. Given the 50% divorce rate in this country, I would highly suggest for all doctors to do the same, especially especially female docs. I think that would be pretty embarassing for a female doc to be paying alimony!! I’ve heard horror stories about some divorced docs, how much money they’ve lost.
Also I think a lot of physicians are too into status symbols like fancy clothes, private schools, elite expensive colleges, etc etc.
I’m a male physician married to a another physician. Before marriage, I only dated educated and successful women who are my financial equal or close. Given the 50% divorce rate in this country, I would highly suggest for all doctors to do the same, especially especially female docs. I think that would be pretty embarassing for a female doc to be paying alimony!! I’ve heard horror stories about some divorced docs, how much money they’ve lost. Or get a prenup if you marry someone who’s income is much less than yours. Don’t assume your marriage will last forever.
Also I think a lot of physicians are too into status symbols like fancy clothes, private schools, elite expensive colleges, etc etc.