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Dave Denniston, CFA, is a regular reader of this website (and has purchased advertising from time to time) and recently wrote one of the best physician-specific personal finance/investing books out there entitled Freedom Formula for Physicians: A Prescription for First Class Financial Health for Doctors. As a long-time reader of this site, I suspect Dave knows exactly what this review is going to say. He has clearly learned from the reviews I have done of books written by financial advisors in the past- he left out the hard-sell of his services and “gets” the doctor-specific stuff that most of these books leave out- the backdoor Roth IRA, the student loan management stuff (PAYE, PSLF), and the asset protection piece. He even quotes me at several places in the book (and I think alludes to me in several others!) However, as I'm sure he expected, I've got a few bones to pick with his investing chapter which we'll get in to.
Overview of the Freedom Formula For Physicians
Where this book really excels, however, is in seeing the forest despite the trees. If you're having trouble seeing the big picture, get this book. His first chapter, Plan and Prosper, talks about coming up with a vision of where you want to be 10 years from now, and then taking that and making a 3 year and a 1 year plan. This chapter generated some good discussion between my wife and I, although all of my ten year plans seem to involve me working a lot less and spending more time outdoors, and yet I keep working more! A later chapter, apparently inspired by one of my posts, is about seven critical mistakes doctors make with their money and helps round out the big picture perspective of the book. Here's an excerpt:
What happens when people win the lottery? All of their “extended family” and “friends” who never cared before, suddenly show up with hat in hand…In your case, you've won a lottery too, although you earned your money through blood, sweat, tears and hours and hours of studying and working for an average to below-average wage while accumulating debt. Now, you are in practice and you are the “rich doc….” Can't you help out your [family and friends?]…No. You can't. You are not a bank. You are not going to do underwriting for, and credit checks on, friends and family. You do not have loan loss reserves. You're probably not even going to charge them interest. Let's call a family “loan” what it is: a gift! I love helping people and I love giving gifts, but within reason. Would you give a $50,000 Christmas gift to your brother? Maybe $1,000 or $2,000 if you feel badly that he is going through hard times, or you believe in his business….Be generous, and give gifts selectively to those you love and care about. Just don't expect the money back.
Get Out of Debt
The second chapter is the one about getting out of debt. It dives into the details of IBR and PAYE (although I have no idea why he prefers the acronym PER instead of PAYE for the Pay as you Earn program.) He finds an interesting hybrid between the behaviorally-focused “Pay Your Smallest Debts First” and the mathematically correct “Pay Your Highest Interest Rate Debt First” by suggesting you pay the smallest if the interest rate difference is 3% or less, and the highest interest rate if the difference is greater. That chapter also included a page or two on budgeting with the usual minor suggestions- cut out Starbucks, shop your insurance around. I thought it was pretty weak that he didn't focus on the big stuff here- the house payment, transportation costs etc. But he hit them elsewhere in the book when he encouraged you to focus on your five biggest bills.
The Taxes Chapter
The tax reduction chapter was pretty good. He accurately points out that the best way to reduce your taxes is to save for retirement in retirement accounts. I found the suggestion that residents should tax-gain harvest any inherited stocks they might have to be good, but rarely applicable. Shoot, if you had a bunch of stocks, why didn't you use them to pay for med school? Nice problem to have, I guess.
The Investing Chapter
The investing chapter, titled “Investing 201: The Advanced Course on Investments” is meant to be part 2. But part 1 is in a different book, which I think is a terrible way to write a book. Even worse is that Investing 201 consists of a bit on asset allocation and risk tolerance (so far so good) before diving into tactical asset allocation, market timing, The January Effect, Trend-Following, and Annuities. I have no idea what was in Investing 101, but I thought Mr. Denniston really missed a great chance here. There was no discussion of keeping costs low, staying the course, index funds, avoiding investment products made to be sold instead of bought, real estate investing, estimating necessary savings rates, calculating returns, Fama/French, rebalancing techniques, estimating amounts needed, Roth vs traditional etc etc etc. The remainder of the book is aimed at such a basic level, to dive into this stuff in the only chapter in the book on investing seems a major error to me. And 5 pages in the book dedicated to the relatively easily debunked January effect? (See here, here) Ugh. I mean, these things are fun to talk about and argue about (and we do that a lot around here), but have no place in a book that's explaining the basics of IBR and Backdoor Roth IRAs. It just doesn't fit the rest of the book.
The Best Chapter in Freedom Formula For Physicians
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The best part of the book is the estate planning chapter, entitled Eight Actions You Must Take To Protect Your Spouse and Kids. I thought he really nailed this one with his explanation of community property vs common law property, and the use of Pay on Death/Transfer on Death accounts.
Overall, I thought the book was very good, strongest in its discussions on personal finance and weakest in its discussion of investing. I'll be adding it to my list of recommended books. It would be a great selection for your annual Continuing Financial Education. Buy it now on Amazon, or roll the dice and leave a comment in hopes of winning one of the two review copies I was given.
What do you think? Have you read the book? What did you like or dislike about it? How about the gifts vs loans excerpt? Do you loan money to family or friends? Why or why not? Comment below!
great review WCI, very interesting.
thankfully, 14months into life as an attending, no one has hit me up for a “loan”
however, my wife and I love to give gifts!
and I’d love a copy, please put me in the raffle
Just rolling the dice. Will consider picking up this book. I also saw a 2nd edition of Bogleheads that I think I will pick up, too.
Great review and I really appreciate that you have no qualms about dishing out criticism when it’s warranted. Keep up the good word, and please enter me in the drawing.
Thank you for your review and regularity of posting, I’ve learned much since I discovered your website June 2014!
With Gratitude,
Rey
I think I’ll pick up a copy on amazon if I don’t get lucky from commenting. That ten year plan sounds like something I should talk to my wife more about and maybe having her read a little would be a good way to do it.
as a young man in his 20s, my brother borrowed money from me to start a business , and paid every penny back. RESPECT.
I have never won anything but I keep playing 🙂
I really have enjoyed reading from this website-WCI and the Bogleheads–I am 40 and just starting to get into all of this. I don’t regret not doing it sooner as basically until last year I lived on a residents salary and then part time work (had 3 high risk pregnancies). BTW I am getting ready to open a solo 401K this month (before I pay the Sept. quarterly taxes). I know people are saying there is a high risk of a market crash soon–but as you say “just stay the course”
Soon? You mean on the day of posting right, J/K :)? There will always be crashes, corrections, and bear markets. They are a normal and at times healthy part of markets. You should really consider it a gift as youre just starting and one pops out of the woods, lucky you now things are on sale.
A problem we all have, I myself, even knowing that things are long term and maybe a decade or three away from mattering we sometimes get caught up in the short term gyrations. They dont really matter unless you get lucky enough to invest your scheduled funds at that time, and you will over your career. In the long run it will just be a blip (the normal stuff that is, 10-30% drops) on your journey.
why recommend a book that cannot even explain the basics of personal investing with index funds, which is the gold standard.
once I hear annuities and market timing, I look the other way
just my opinion as there are surely many other better books from well known authors like swedroe and bernstein
I’m going to assume you don’t want to be entered into the drawing eh?
Would love a copy, sounds like a good read h
Free book please
The portion about loaning to family struck a cord with me. My brother has a truck driving business that I was considering investing in (loaning money to?). I haven’t made a decision about it yet. I need to research ways to make the money an actual investment and not a gift.
Also, please enter me into the raffle for the book as well.
*chord …I’m taking some much needed vacation time since finishing residency. Apparently, my brain is really on vacation this morning.
Add me to the raffle.
Please enter me. Interested in the “Eight Actions…” chapter (and any similar book/web recommendations), as that’s a knowledge area I’m relatively weak in
dice roll! I would love to add that to my annual reading update. Just recently introduced to your site, and have read your book – thank you for addressing the questions of young physicians who are starting off.
Interested in a copy of the book, thank you!
I want a copy!
Thanks WCI as always for doling out the great advice and guidance that you do. Having already gotten started on the basics, as well as welcoming a brand new baby last month, research into estate planning is now next on my list. Seeing that you approve of that section of the book, I’d love to win a copy. Thanks again for the work you do.
Big money, no whammies.
I’m in for the raffle.
Would like to join raffle. Thanks.
Color me raffled.
Thanks for the book review…like some other posters said, I really appreciate your honesty when you do these reviews!
I’d totally read that, if I just happened to have a copy to peruse at my leisure.
Never commented to win a book before. But, I have a newly found urgency about estate planning now since adding funds to an older account in my name alone with no POD or beneficiary designation possible. The default in my state is to give only 2/3 of my assets to a spouse.
The chapter on planning sounds interesting. I feel as if I don’t review my plan with my spouse enough.
Thanks for the review! You’re a great resource Jim!