By Dr. James M. Dahle, WCI Founder
It is no secret that I am a big fan of getting rich slowly, but getting rich quick does sound awfully nice. Over the course of a full career, it is relatively easy, heck, almost guaranteed, that a physician can become a multi-millionaire and maintain their standard of living in retirement simply by doing the following:
- Earning an average income for their specialty
- Paying off their student loans in the first 5 years by living like a resident until they're gone
- Carving out 20% of gross income for retirement savings
- Placing that money into retirement accounts as much as possible and in taxable accounts thereafter
- Investing that money into boring old stock and bond +/- REIT index funds
- Staying the course with their career, marriage if any, and their investing plan for the next 25-35 years
Getting rich is really not that complicated. The formula works and it works well. While there are no guarantees in life, I can't find anybody with any sort of credibility arguing that this formula will not work to become at least a millionaire.
However, many of you are in a hurry and want to get rich quick. You might be in a hurry because you hate your job. You might want to get rich fast because you do not actually want to work full-time for your whole career. Maybe you are in a hurry because you would feel more financially secure if you were financially independent earlier. Maybe you are in a hurry because you want to retire early or go do another career. Maybe you're in hurry because you didn't actually do the above. Perhaps you didn't save anything for a decade or have been dragging out your student loans. Or have been divorced once or twice. So what are your options? There are actually quite a few.
The Secrets to Getting Rich:
- Make a lot of money
- Don't spend a lot of money
- Make your money work as hard as you do
So we will use those pearls as the framework to examine your options.
#1 Make a Lot of Extra Money
In my opinion, if you are in a big hurry, your best option is simply to make more money. Frankly, I think most people dramatically overestimate the difficulty of doubling their income. Now, while it may be harder to double your income if you are a high-paid surgeon working 60 hours a week than if you're delivering pizzas, it is certainly still possible. Get well educated AND learn a trade/job skills/a profession that pays well. It is much easier to have a high net worth when you have a high-income.
All else being equal, the more income you have, the more you can save and invest.
Boost Clinical Income
I have always been amazed to see intraspecialty income differences that are larger than the classic interspecialty income differences. Here is the specialty compensation chart from the 2020 Medscape Compensation Survey:
While there is an impressive difference between the average pediatrician who makes $232K and the average orthopedist who makes $511K, I know both pediatricians and orthopedists who make twice those averages. While the exact methods vary, the usual formula involves one or more of the following:
- Owning the practice
- Having other docs or Advanced Practice Clinicians (APCs) working under you
- Working a lot of hours
- Optimizing your procedure/pathology mix
- Optimizing your payor mix
- Negotiating hard with insurers, employers, etc.
Become an Entrepreneur
Perhaps an easier, but less reliable, method of boosting income is to become an entrepreneur. Lots of doctors, scared by their income drop during the COVID pandemic, became very interested in side gigs, passive income, and entrepreneurial pursuits. The most successful of these do not lend themselves well to just following a formula (every entrepreneur gets rich differently) but there is no doubt that if you can pull this off that you can certainly shortcut the process to financial independence. Katie and I knocked off almost a decade from our timeline to FI via The White Coat Investor.
Combine Investments and Second Job
Lots of franchisees and real estate investors love to tout how their investment returns are higher than they would get with more passive investments. What they often fail to mention, however, is all the time and effort they are putting into these “investments”. There is nothing wrong with that, of course, so long as you acknowledge that part of your return is coming from your work. It still boosts your income and speeds you along your way to your financial goals.
Learn more here:
10 Reasons You Should Own a Business
An Appropriate Amount of Investing Risk
#2 Don't Spend a Lot of Money
This is often the most disappointing method of speeding up your progress. It is hard for most to get super excited about spending less money. I'm going to let you in on a couple of little secrets that will help you get rich.
- Start saving early. Remember that every dollar you save in your twenties and thirties is 8 times as valuable as one saved in your fifties.
- Keep your fixed expenses low so when hard times come you can cut your lifestyle back rapidly.
- Realize that buying a house or cars that are too expensive for you will likely keep you from getting rich. The big things matter most.
- Be prudently frugal and selectively extravagant. Be sure that you are spending your money on the things you value most If you can’t afford to pay cash for it, you can’t afford it. The only exception is a house (because it will generally appreciate at just over the rate of inflation), where the rule is if you can’t afford to put 20% down and use a 15 year fixed mortgage you can’t afford it.
- Marry well, marry once, marry someone who shares the same thoughts, or with whom you can work out an acceptable compromise beforehand, on “The Big Four” (Money, Religion, Kids, and Sex) and STAY MARRIED.
- Credit cards aren’t for credit; if you have paid interest at a higher rate than 3% or paid a late or over-the-limit fee more than once you shouldn’t use a credit card.
It is hard for most to get super excited about working more or taking on more risk. Spending less involves zero risk and zero additional work.
Spending less money works on both ends. Not only do you have more money to invest now, but you need less money later to maintain that level of spending. This is the reason why Mr. Money Mustache's famous chart is so dramatic and inspiring to the FIRE crowd:
Note that the left column in this chart is net pay, not the gross pay figure I typically refer to when telling you to put 20% of your gross income toward retirement. Combining # 1 (make more) with # 2 (spend less) can be very powerful.
Learn more here:
6 Reasons to Have a High Early Savings Rate
How to Get Rich by Driving a $5,000 Car
One House, One Spouse, One Job
#3 Make Your Money Work as Hard as You Do
Now we get into the meat of the post. You have a partner in this quest for financial success. Your partner is your money. In fact, this is the essence of capitalism—that your capital, or savings, can make money at the same time you do. At a certain level, your money can make even more money than you can. Unfortunately, many of us do not have our money working as hard as we need it to. Before you can effectively invest your money, you need to invest time on becoming financially literate.
Read at least one good basic personal finance book, one good investing book, and one good behavioral finance book. Consider Personal Finance for Dummies, The Boglehead’s Guide to Investing, and Why Smart People Make Big Money Mistakes.
Basic Principles to Use Your Money to Get Rich:
- Get the market return; use fixed asset-allocation, index mutual fund investing as your default strategy.
- Minimize taxes. Know the basics of the tax code, max out tax-advantaged savings accounts, and use them to your advantage.
- Keep investing expenses low.
- Understand basic financial calculations and lingo. Understand compound interest, the time value of money, financial risk, and the expected rate of return of various financial assets. Know how to use the excel functions — FV, XIRR, PMT, PPMT, etc
- Simplify your financial life. Put bills on automatic payment and investments on automatic withdrawal. Minimize the number of accounts you hold and the number of investments you have as much as possible
- Understand why your savings rate matters a lot when you’re young and very little as your approach retirement. Understand why your investment return matters little when you’re young, more as you approach retirement, and a great deal during your first decade after retirement. Understand the concept of a safe withdrawal rate.
- See the end from the beginning. If you fail to plan you plan to fail. Have a written investment plan you can refer to often to keep you focused on what is most important for reaching your financial goals. Either read books and blogs to DIY your own plan, take the course that will help you create it, or go hire a good fee-only financial planner.
Here is a more detailed look at some ways you can get your money working a little harder than it is now. None of these are a free lunch, but they are likely at least part of your solution if you are in a big hurry.
Reduce Advisory/Management Costs
The bicycle land speed record was set here at 183 mph. This is not a photo of that event.
I have demonstrated before that becoming your own competent financial advisor and investment manager can be worth a lot of money. Let's put it in terms that are easy to understand. Let us compare two doctors that are exactly the same. They earn 5% after inflation on their portfolios before advisory fees, save $50K/year, and need $2.5M to be financially independent. One of them pays an “industry standard” 1% of assets under management to an advisor. The other has learned how to make a financial plan and manage her investments just as well as the advisor could do and so keeps that fee. How much longer does the first need to work in order to reach her goals?
With advisory fee: =NPER(5%-1%,-50000,0,2500000) = 28.0 years
Without advisory fee: =NPER(5%,-50000,0,2500000) = 25.7 years
If you can be your own (competent) financial advisor, you get to your goal 2.3 years faster.
Use a More Aggressive Asset Allocation
Here's an option that a lot of people choose, for better or for worse. The more compensated risk you take with your portfolio, the higher your expected returns will be. Obviously, you can get burned doing this, as expected returns are not always actual returns. But it basically works like this:
Based on Vanguard's basic portfolio models, from 1926-2018, the following asset allocations (stock/bond mix) had the following returns:
- 100% Stocks: 10.1%
- 80/20 Stocks/Bonds: 9.4%
- 60/40 Stocks/Bonds: 8.6%
- 40/60 Stocks/Bonds: 7.7%
So what does that mean if you are in a hurry? Well, if you increase your stock to bond ratio from 60/40 to 80/20, how much sooner can you retire? Again, let us subtract 3% for inflation and assume you are saving $50K/year and need $2.5M in today's dollars to be financially independent. We'll also make the big assumption that future returns will resemble past returns.
60/40: =NPER(5.6%,-50000,0,2500000) = 24.5 years
80/20: =NPER(6.4%,-50000,0,2500000) = 23.1 years
By taking on more risk, you just cut 1.4 years off your career. Aside from the possibility that taking on this additional risk does not pay off, there is also the issue that you cannot handle the additional volatility inherent in the riskier portfolio. Selling low just once during a market downturn will definitely add more time to your career, despite the additional returns the rest of the time.
There are other ways to add risk to the portfolio. You can choose riskier stocks, such as small and value stocks. Just be aware that just like taking on more stock risk, this doesn't always pay off. See the last decade for details. If you are not super comfortable with the stock market, there are other risky assets with similar long-term returns, such as real estate.
Use More Leverage
Another method frequently used by those in a big hurry is leverage. Real estate investors are very much aware of this feature. If you pay for a property with cash and it doubles in value over a couple of decades, you have 2Xed your money. If you only put 20% down, you will 6X your money (actually a little less since you've been paying off the loan over time). Of course, leverage works both ways. If you pay in cash and the property falls in value 20%, you lose 20%. If you only put 20% down, you will have a total loss.
So you need to be careful with how much leverage you use on any given investment as well as the overall leverage in your life. Frankly, most doctors are entirely too comfortable with debt. But there are some guidelines out there for how much leverage is a reasonable amount for those who choose to take on that risk. With real estate, you generally need to put down about 33% in order to ensure the property is cash flow positive. You can also leverage those boring old index funds, but margin accounts are limited to 50% leverage due to Regulation T. (If you don't understand why, see 1929 for details.)
Since money is fungible, however, you can use leverage from any part of your financial life to increase your leverage. You don't have to borrow against your investment property or your portfolio. You can borrow against your house, your car, your credit cards, or even your cash value life insurance policy, all with different terms and interest rates. So how much is reasonable? I think Thomas Anderson gives some good guidance in his “Value of Debt” book series. He suggests, at least if you are within 20 years of retirement, that you limit your debt to 15-33% of your total assets. So if your total assets are $2 million, you should have between $300K and $667K of debt. Obviously, that is less than half as much as many real estate investors have and most young doctors already have! If you decide to use leverage to speed up your financial progress, keep in mind that nobody ever went bankrupt without debt.
Leave Less Money to Heirs
Here is another option for those in a hurry—just leave less money to your heirs. Most people leave a lot of their nest egg to their heirs. It isn't necessarily intentional, it is just a function of using standard investments to fund their retirement. If people are invested in real estate, they tend to just spend the income and their heirs inherit the full value of the property. If they own their house in retirement, they usually don't borrow against it, and so their heirs inherit the full amount. If they have a mutual fund portfolio, they're likely taking out something like 4% of it a year to ensure it lasts throughout their retirement of unknown length. On average, that strategy leaves 2.7X your original nest egg amount to your heirs. And half the time, you leave more than that! They might have cash value life insurance, and usually leave the death benefit to their heirs. At any rate, if you want to be done sooner, you can simply use a different retirement income strategy that leaves less to your heirs.
- You can buy your own pension (i.e. a Single Premium Immediate Annuity—SPIA). In exchange for a lump sum of money, an insurance company will pay you a benefit every month until the day you die. This will put a floor under your retirement savings and ensure you never run out of money. But your heirs will not receive any of those dollars you put into the SPIA.
- Living off your IRA or other investments to delay Social Security to age 70 works similarly—you have more to spend if you live a long time in exchange for a smaller inheritance for your heirs.
- You can live off your home equity, either by selling your house and using the proceeds to rent or using a reverse mortgage.
- You can borrow the cash value out of your whole life insurance and spend that. Yes, your heirs will receive less, but you can retire earlier and still have the same retirement lifestyle.
All of these techniques involve taking money from your heirs and using it to shorten your career. It's your money, so it's your decision.
Become More Flexible
It can be amazing how much less money you need to sustain your retirement if you can be very flexible with your spending in retirement. If most of your expenses are variable and can be cut back in the event of market losses, you can actually spend significantly more than 4% of your portfolio each year. Meaning you can retire with less. Meaning you can retire earlier.
Roll the Dice
Finally, there is a strategy that many employ but that I cannot really recommend. I call it rolling the dice. It involves taking on unwise risks in hopes of a big lottery-like payday. Spending a lot of money on the lottery would fall into this category. Putting a lot of money into a speculative investment would also qualify. Consider something like Bitcoin. Now I'm not talking about somebody who is putting 2% of their portfolio into cryptocurrency and 2% into gold as some kind of an inflation hedge. I'm talking about dedicating 50% of your portfolio to Bitcoin or trying to market time silver or buying a bunch of highly-leveraged empty land on the edge of town. It's possible your bet will pay off, but considering the risk that it does not, I do not think it is worth it, especially given the relatively guaranteed pathway discussed at the top of this post.
Learn more here:
10 Reasons I Invest in Index Funds
7 Ways the Rich Pay Less in Taxes (and You Can Too)
How to Calculate Your Return – the Excell XIRR Function
6 Reasons to Have a High Early Savings Rate
#4 Don’t Lose Your Money
Finally to get rich and stay rich you must protect the wealth that you have accumulated.
- Insure well against catastrophe — Life, Disability, Health, Liability, Property.
- Self-insure whenever possible using a safe, liquid emergency fund (High benefits/limits but high deductibles/waiting periods).
- Self-insure against medical expenses by maintaining a healthy lifestyle.
- After you retire, consider a single premium immediate annuity to insure against outliving your money and long-term care insurance to insure against having an extended period of dependence at the end of your life.
- Don’t mix insurance and investments. Cash-value (non-term) life insurance and variable annuities are generally products meant to be sold, not bought.
- Get rich once, get rich slowly. Good investing is boring investing.
- Hire professionals to teach you, not just to “do it for you.” This includes accountants, tax advisors, estate attorneys, legal and contract review, mortgage professionals, and investment advisors. Be sure to bounce the advice you’ve received off someone with no conflict of interest in the transaction, realizing that no one cares about your financial success nearly as much as you do. If you are reasonably well-educated and interested, you can teach yourself to do your own taxes, sell your own house, and invest your own money.
Learn more here:
What You Need to Know About Whole Life Insurance
The investor matters more than the investment. While getting rich quick sounds great on the surface, I would counsel you to be patient in your quest for financial success. Patient investors are usually better investors and make more logical and less emotional decisions. But if you have a need or desire to speed the process getting rich more than the standard pathway, consider the options above.
What do you think? Are you in a hurry? Why or why not? If so, what have you done to try to speed up your progress? Comment below!
On getting rich… isn’t it frequently said concentrate investments to get rich and diversify your investments to stay rich?
Or, eggs in one basket and watch that basket closely when getting rich, then diversify eggs and baskets once you are rich?
I guess for physicians, our human capital (being a physician!) is the concentrated investment, and focusing on juicing that investment can get us rich. Many seem to do that well. It is steps two and three above that we need help with!
TSLA, baby, TSLA.
Oh, and BTC. 😉
APPL, baby, APPL.
Lief, are you disappointed that geographic arbitrage is not on that list? Likely because if, like me, you are locked in a good job and bought a doctor home, the round trip cost of selling and buying a new home and the lost income of getting a new job does take a big chunk out of your net worth and would take awhile to just break even from geoarbitrage, even if moving from NJ to Florida or Texas. Have you come up with a dollar amount where geoarbitrage hurts your FIRE journey and is not worth it, even if going from NJ or Cali to a no income tax state? I guess it also depends on the amount of doctor home you bought.
Oh yea, that’s a big miss. Should have included that.
How I did it
1. Specialize
2. Move to an in demand location for said specialty with minimum competition from community and hospital
3. Low tax state
4. Cheap house. (650k for me)
5. No private school tuition
6. Live in half monthly pay check
7. Side hustle allowing for creation of llc and write offs plus extra income all diverted to saving
8. Index fund investing. Like up cash and buy every dip on market as it presents itself
9. 8 years to FI
10. Live off side hustle and work from home or wherever now making salary level investment income and not touching profits as living off side hustle
You can all do this too! Learned it all from this amazing web site that change my life
Before thought make more then upgrade lifestyle and work till 75. No way! I’m fired up and life could t be better. Less stuff better anyway. This really works. Amazing how much spending by high income people is thought to be necessary. Big house. Boat. Porsche. Maid. Nanny. Private schools. Private college. Such a waste.
I did it by being one of the first female OB/GYNs in my area. Scary at the time. Now commonplace. Very selective with payor mix. Owned my practice. Worked very hard.
Ha ha, that one isn’t a differentiator anymore. I think something like 3/4 of OB/GYN residents are women these days.
First mover advantage.
Ha! Like Jim Dahle and the physician finance space 🙂
Yes and No,
It would be harder to start now than in 2011.
But I started before him (2007) and therefore had a “first-mover advantage.” Bill Bernstein started in 1998.
Jim Dahle (WCI) outsmarted me, outworked me, out marketed me, outearned me, etc., and still continues to. Those with brains, a wide array of useful skills (technology, writing, marketing, speaking, energy, etc), and a tireless work ethic are unstoppable.
Anyone have a link to the savings rate/years to retirement chart that uses gross income instead of net?
I like how this post pulled together a number of resources and concepts into a simple framework.
Bottom line is that physicians are generally blessed with a higher income, with many options to use that income to generate wealth.
The devil’s in the details, of course!
Dr. Freedman, above, hit on a winning formula (congrats!), but it’s one I sadly can’t replicate for now. While stuck in a HCOL area like Los Angeles, we’ll have to get a bit more imaginative.
It’s a good formula:
Work hard, have a second gig, control spending, pay off student loans quickly, invest wisely and invest a significant portion of your income.
I paid off my wife’s and my combined student loans of $120,000 in 8 years as we had a $100,000 house in 1994. Unfortunately, my higher wages in an area with a shortage of psychiatrists was offset by the absence of much price appreciation in my original starter home. It was a rental for many years and we sold it for $108,000 last year after owning it for 25 years! It did produce about $25,000 in profits at the sale that went into taxable retirement accounts.
I’ve always made more money by taking the hardest jobs in psychiatry: inpatient work, taking call, working weekends and Medical director positions. These things are usually worth about a 15 to 20% premium in comparison to 40 hour, no call, no weekend positions.
By far the three best steps I took were:
1) working for an employer that had a defined benefit pension plan that vested in five years. I worked there 11 years and it is worth $25,000 a year from age 60 to when I die and continues to pay my wife until she dies. It does not have a COLA, though. Still, that pension is worth a half million dollars if I live to age 80 (which is about the same as my social security from age 67 to age 80), and
2) taking on a side gig of weekends and holiday that has added about 1/7 of my retirement dollars over 10 years while boosting my income from the average for Psychiatry to the average for Radiology or Cardiology. It also paid for a lot of excellent family vacations and helped towards a retirement home in the mountains on 25 acres. With the equity in this property, the side gig added another $200,000 to my net worth so far, and
3) working at a facility that offers a 401A with a 5% match, an HSA, and a 457 plan that I have maxed out every year. The tax savings is notable and these plans now account for one third of my retirement funds after only 6 years.
The investments have been in mutual funds, index funds, and have been roughly 65% (stock), 25% (bond), and 10% (alternatives, including REIT) for the past decade. From age 30 to 45, it was mostly all stock mutual funds. In 2008, my accounts lost 45% and took five years or so to come back. In 2020, my accounts lost ~24% and took less than a year to come back despite some trading shenanigans on my part.
I’ve made plenty of mistakes, but my extra work and the wages of a physician have buffered them. The biggest one was likely putting away nothing until age 30. Another was building a big expensive house in a non-growth area that is currently worth about what I have in it after living in it for 17 years. A third was not leaving my investments alone in the 2020 debacle. I would have done better doing nothing and waiting it out like I did in 2009, than I did selling some investments and day trading with my bond money after the Fed bail out. My YTD total return is about 9% with 55 % stock, 10% alternatives and the rest in cash. My cash allocation has been 35-40% from April to November. At age 57, I would not have much more in stock, anyway. Even with the day trading producing a 19% return on my liquidated bond money, I would have done better to leave it all alone and not look at it. Lesson learned. Good thing the market was easy to trade in and I was able to work from home these past eight months. I did retire a lot of debt this year due to my lucrative (although COVID risky) inpatient side gig. I was in an ER yesterday in head to to PPE seeing a COVID positive psychiatry patient.
Now, my only debt is mortgage debt. I was also able to refinance the retirement place down to 2.5% and the funny thing is the payment is now about the same as our $100,000 starter home from 1994 that was at 8% interest back then…
very interesting that you didn’t know your risk tolerance after the Great Financial Crisis- what changed? did you go to more equities after 2009? or is it your diminished risk capacity that compelled you to sell and start day trading? I myself am 39yo and 100% equities, slept like a baby back in March when my AA was 80/20, but not sure how I will react as I get older and my risk capacity diminishes and my losses in a next bear as I keep investing may be much more.
When my accounts tanked 24% in March, I had read all the projections that the pandemic would take several years to recover from. Even though my stock allocation was not overly aggressive at 55%, I did not count my 15% REIT allocation in my equities, but most are equities and they tanked as much as 60-75% due to the pandemic’s likely effects on real estate, mortgages, malls, and such.
I thought my upcoming retirement from full time work that was only two years away (July of 2022) was shot. I had been selling some stocks in February (like Disney) due to reading about the pandemic and had done a bit of day trading in the past with some success.
I sold my bonds after yields bottomed out and the Fed had jumped in to support the bond markets. I figured I could make more than the yield on the bonds with day trading and that further bond price appreciation was not likely.
I left my 401A, 403B, and 457 alone and did the day trading at my Fidelity rollover IRA account. I made about $57,000 day trading from 3/20 to 11/20 with my bond money and the stocks I sold in February and March.
It turns out it wasn’t a bad idea to sell some bonds and buy stocks. Had I done that alone in March it would have been a good play. The trouble is that no one knew the market would recover in 7 months.
Anyway, it was interesting and a bit desperate. I also put $100,000 of new money into the market across the entire crisis (401A, 457, SEP-IRA, my kids college funds, my kids Roth accounts).
So far, my YTD return (subtracting out all the new money) is about 8% and I’m still at 30% cash. For the bulk of the eight months, I was at 40% cash. The bond money and liquidated stocks day trading money returned 19% when divided by 0.75 (for the nine month time frame).
Overall, it would have been better to trust my original allocation, but let’s be real. No one knew the Feds intervention would be so effective and no one knew a vaccine would be distributed by Christmas. I got all my money back, am up on the year and learned a lot. But it was risky, dumb, and did not have to work. It was also a lot of work, but I was stuck at my desk at home all day since March anyway. I also walked hundreds of miles, took several family vacations to our retirement home, invested heavily across the crisis, and retired almost all non-mortgage debt by working extra weekends and all the holidays on the front line.
So you bailed out of a 55/45 portfolio at the market low and began day trading?
What asset allocation do you plan to hold moving forward into your retirement?
Not exactly, but I’m happy to try to explain my weird choices.
My allocation was 55% stock, 15% REIT’s of different sorts, and about 25% bonds and 5% cash in February.
I took some of your advice in the early part of the year (Jan/Feb) and was exiting some individual stock positions due to “uncompensated risk”.
I raised cash a bit as I knew in March that the entire world economy was going to be markedly affected. I did not believe the USA pandemic response would be on par with India and Peru, but one could write a book on that.
Anyway, I was day trading stocks that I did not mind getting stuck with: AAPL, VZ, JPM, and such. I also sold my small cap index and bought BRK.B thinking I could trust Buffett more than small business.
One fourth of my money stayed as it was in my 457, 401A, SEP, and I invested in my kids (Roth) at the bottom.
I bought stocks that seem to be doing well in COVID world thinking indexes might not be the place to be in what I thought was really going to be a new world. You disagreed on a prior post.
I kept my equity position at 45-55% and cash at 35-45%.
Here we are with my accounts up by the $100,000 I put in (cost averaged in across 7 months) and gains of about 9% YTD. I also own some stocks that have been COVID tested.
Unfortunately, I never bought Teledoc, Zoom, Tesla, and the like. I bought Apple, BRK.B, pharmaceutical ETF’s, Pfizer. Ford, McDonald’s and Walmart. Big companies that were making money.. I even own half a Bitcoin.
So, my allocation is being rebuilt for COVID-19 world. It’s heavy on large caps. I missed the run up in small caps.
Now, I have to adjust this strategy and come up with the new allocation. I have a free meeting with my Fidelity Advisor this week.
I still own all the same old stuff in my 457, 401A, 403B, and SEP.
It will likely be 50% stock (including 10% international, half of which may be EM), 10% REIT, and some mix of bonds…what else is there? I’m almost 57 years old. I drop to one day of work a week in 7/2022.
I did start a Fundrise account, and a Yieldstreet account to diversify my taxable “play money” investments.
I worry that COVID-19 could mess up 2021 also, but 2020 was a bit unique.. I guess it was too unique for me to trust my allocation which was dumb, but I thought it would take 2-3 years to recover.
I know what you are going to say. Write a plan, pick an allocation and stick to it, and that my reaction was foolish and I was lucky it didn’t go much worse.
That would be good advice.
Is that stressful to try to invest in a way that seems to require you to have the ability to predict the future in order to be successful?
Yes.
I’ll see what the Fidelity person says.
I fired my financial planner in 2017 and started using your website in around 2016 I think.
Recently he contacted me and wanted me to buy a $400,000 variable annuity to “lock in a minimum 7% simple interest gain over the next decade, while decreasing down side and preserving upside opportunity.”
He said that some of his high net worth clients were doing that with a chunk of their bond money because of the low yield environment. I said no.
One good thing is that I’ve doubled my retirement monies from 2016 to 2020. Of course putting $90,000 a year in them helps a lot.
OMG! a VA!!! did he mention the 500 basis point fee? or the trailing commission? or that you should buy it inside your IRA? Is he is from Northwestern Mutual?
I myself was a proud owner of a Northwestern Mutual VA within an IRA. Talk about me am stupid, on top the WLI policies on me and the wife and my 2 kids.
even if you think about an annuity would be a SPIA, but sounds like you have a financial plan to sustain you where you don’t need a guaranteed floor for your retirement, and unfortunately despite being healthy if you take after your father longevity might not be on your side. If you think about a VA, which I don’t think you should, the one to choose would be Fidelity low cost VA, which I use after I 1035 exchanged my old WLI policies and only has 25 basis point fee, along with the ER of the subaccounts inside which for a total stock index is 12 basis points.
just don’t blow it man! you are set! I envy what you’ve done. keep to a simple asset allocation, use a variable 4% withdrawal strategy in your nest egg, and don’t use your nest egg for entertainment- keep kayaking, biking, etc.!
“I myself am 39yo and 100% equities, slept like a baby back in March when my AA was 80/20, but not sure how I will react as I get older and my risk capacity diminishes and my losses in a next bear as I keep investing may be much more.”
Excellent point. In the 2009 bear, I was age 45 years old and my accounts dropped from about $520,000 to about $270,000. At that time, I thought I had a twenty year horizon. I did nothing. It was all in stock mutual funds. It took about 4-5 years to bounce back, from what I recall. In 2012 when it had substantially recovered, I sought out a financial planner, whom I paid $1000 a year, and an additional 0.75% AUM fee as I had lost a bit of faith in my own skills. I can say that I remember my nest egg being $130,000 after my first seven years of work from 1994 to 2001. Back then the 401K limits were around $9250 and I was also putting $2500 in “non-deductible IRA’s” for my wife and myself and had a UTGMA account for our eldest. We only had one child.
The 2001 amount of $130,000 became $520,000 in about 7 years investing it myself with no help, putting in the max 401K amount. I remember giving about $600,000 to Ameriprise Financial in 2012. When I started using this site in about 2016 after reading the WCI book, I fired my financial planner in 2017. At that time, the AUM fee was going up to 0.9% off the top and that was becoming real money. Also, the planner was trying to sell me high commission products and illiquid oddities and I’d seen that show before. One of my doctor friends told me recently he figures he lost one million dollars funding a large whole life product these past thirty years. I took over all my money in late 2017.
From 2017 to now, I have done well except for 2018 when all asset classes lost money on the year. As you said, when this bear hit, I thought it was new. It was caused by something I’d never seen before in my whole life. When my accounts dropped by 24%, I pooed in my pants. It was a huge sum of money and my time horizon had been scrunched down to “a few years” more of full time work. I was riding the bull of 2019 and had lest my allocation get too risky. I thought REIT’s like Realty Corp (O) and LADR, and PK were not very correlated with the market and sort of thought of them as “Bond proxies” seeking yield. As I said, some tanked in a major way by up to 60-70%. The pandemic hit REIT’s very hard.
So, you are right. I was scared and saw two to three years “extra” full time work popping back into the picture for me. I’ve been working a regular job and a side gig since the last recession. I’m a little toasty. I want out. I’m almost 57 and I have four kids. I promised them all a debt free four year degree. That will cost about $300,000 at state schools. That money has not gone into my retirement accounts. So, when my accounts got spanked hard, I panicked a bit. It was not pretty. It was not smart.
I lucked out that the four accounts I left alone had decent exposure to TECH. Also, my Fidelity Funds like FOCPX, Contrafund, and even Fidelity Balanced had a lot of FANG exposure. My day trading went well as anyone could have made money in this rapid recovery (look at the kids on Robinhood who bought Tesla, Zoom, Teledoc, and such). Heck, you could have tripled your money with Bitcoin.
Anyway, it was a wild ride. Now I’m looking to get back to a more risk averse allocation. it may have 40% US equity, 10% international equities, and 10% REIT (tilted towards lower risk types). It’s the other 40% I wonder about. High quality corporate bonds, high quality soveriegn debt, and a boring bond index?
Our cabin on top of a mountain is calling me. I actually own a lot of the mountain, with 25 acres. I can really tell the effects of aging more from age 50 to 57 than any prior similar interval. Even though I am a sprint triathlete and swam across five connected lakes in 2019 (no kidding, it was 5000 meters ), I’m slower and have more aches and pains and my back is more easily injured. (I was attacked by a patient in 2011 and it left me with a “glass back”). I’m tall at 6’3″ and no male in my family for five generations has lived past age 80. I’d like to work part time (like one day a week) from age 59 to 62 for fun money and get on with more hiking, kayaking, and travel while I’m able. The recent bear scared me more than the one in 2009. Once you get up to a couple million…a 25% bear is perhaps $500,000 and if you are closer to retiring, one has to be able to stomach such a bear and “sleep like a baby” as you said. The prefer the bears on the mountain. I can stay a safe distance from them.
What state are you in that college costs $75K a year?
Maybe that was misleading. The total cost for ALL four children is projected to be $300,000, not for one child.
Eldest: two years at a Community College on scholarship, then two years at a private school she picked on a partial scholarship, total $60,000.
Second child: Four years at a state school, cost about $70,000 or $17,500 a year with room and board. She is in an apartment with roommates for the Junior and Senior years. This was “out of state” tuition in a NC Promise school.
Third child: likely three years total to become a dental hygienist, although I will push for a B.S: cost about $75,000. Fourth child also about $75,000. By then, we will be “in-state” in NC (2022).
These last two are estimated. It will depend if the school in North Carolina continues to be a NC Promise school and the last two get accepted there and want to go there.
The state schools in NC cost between $16,000 and $20,000 a year on campus. The $300,000 was a rough estimate. The first two cost $130,000 or so, but the last two will be more.
That sounds much more reasonable.
I usually put $10,000 a year in my three younger kids MESP accounts.
This year I put an “extra” $10,000 total in at close to the bottom (in to index funds) and maxed out my 26 year old’s Roth. She did not have the $5500 due to the pandemic, so I gave it to her and bought QQQ and SKYY. My college junior made $2500 last summer as a camp counselor, and I put that in for her, half fee free index and half APPL.
With these, and funding all my retirement accounts and the Fundrise, YieldStreet, and a small Coinbase Pro account, I deployed about $110,000.
With paying off my Jeep loan and “family travel van” loan, I now have no debt except mortgages. That was sort of your idea…”don’t buy things you can’t afford”. They were both at 3%.
I’m listening to you WCI, I just have occasional lapses…I’m trying to be all-in with WCI principals.
My daughter going into PT school will get your book and your course. I send the older two your salient posts.
I know…sell the APPL and buy QQQ. I will after the holidays IPhone 12 “super cycle”. I just bought two.
Maxing out ret.plan contributions plus a well diversified p/ortfolio o.f index funds guarantees wealth
Unfortunately too many highly educated think they are smarter than the mats
A second grader can be taught how to invest passively
allan Roth would agree with you 🙂
I am using a lot of strategies to reach financial freedom. I don’t think that I am trying to hurry but I am making it a priority. I think that is important.
Far and away, the best thing that I did to accelerate this process was my contract negotiation and job selection. Like you mention, the intraspecialty difference can be amazing. The difference between the job I took and some others was >100K. Money is not the inly or even top reason I took this job but certainly played a role.
Now, with this money and a 41%+ savings rate, I have the “seed” money to invest in index funds in tax advantaged accounts as well as in real estate not to mention paying off huge amounts of debt ($10K+) each month. That’s how my net worth increased by over $250K in only 6 months after graduating training (still negative 6 figures though…)
Keep doing this and you will be free from the shackles of indebted servitude quickly. Congrats and good decisions.
Medscape underreports physician compensation. Why not use MGMA or Doximity? Those are more accurate estimates.
It’s convenient. You have to pay for MGMA data. Doximity is actually pretty new on the scene in this space, but I do agree the Medscape numbers are bit low in my experience.
Holy Cow!!!
“Now I’m not talking about somebody who is putting 2% of their portfolio into cryptocurrency and 2% into gold as some kind of an inflation hedge.”
You are starting to discover the true power of the dark side Jim… ;). j/k
Good post in general. Thanks,
I’ve been thinking about writing a post about all the uses for Bitcoin. You and your fellow Bitcoin fanatics will probably wet yourselves when I run it.
HAHAHA…that’s funny. I hope you do run it. Things have changed a lot since your last serious BTC post. I definitely wouldn’t qualify myself as a BTC fanatic. But back when it was at 9-10K in July, I was going to see if I could make a charity bet with you. 1 BTC vs the same amount of $ in any index fund of your choice for 10 years with all proceeds going to the charity of the winners choice…a la the Buffett bet. I never pulled the trigger and emailed you. Although I would still consider it, with the home renovation I’m doing I don’t really have 20K lying around for charity at this moment.
All that being said, I definitely see the best reward/risk profile compared to any other asset class in the near term being Bitcoin. Time will tell. I just think it is really unwise to not have at least a fraction of ones portfolio in BTC at this time. Especially for the high net worth individuals that frequent your site.
Keep your mind open if you do the post. You should get some good traffic and comments. Talk about click-baity!
You know I’d take that bet given my charitable tendencies right?
You would accuse me of being closed minded unless I agreed with you, which I’m probably not going to do as you know.
I’d add money to that bet, but on Jim’s side.
Napoleon—do you mainly invest in Bitcoin or also in any of the other cryptocurrencies like LiteCoin and Ethereum?
Only Bitcoin. At this time, I don’t believe that altcoins meet my investing goals, even though they may have higher short term upside potential. I have concerns about their long term use. There are a couple threads on the general investing forum that I started in May and more recently if you want to know my opinions on it.
I figured you would take the bet (Charity is a good thing man)…I even thought we might be able to get a couple blog post/posts out of it…A Pro/con…discussing misconceptions, how things have changed over the past few years etc.
We could still consider it but my 250K home renovation that has turned into a 400K home renovation has taken a bite out of my pocket change right now. Email me offline if you want to try and do something with this though.
It’s an easy bet to take because I don’t care if I lose. I’m going to give to charity either way.
But I don’t see what your concern is. I mean, you seem so sure you can’t lose so what does it matter that you don’t have the money? 🙂
As usual, this is very sold advice.
I used ALL THREE steps to become FI in just over 15 years.
Simple, but not Easy. So True!
Make More Money!!!!!!
JustSayin’
My formula was:
1. Good pay specialty + geographic arbitrage (landing me around 550k/year, albeit in not the best, but not the worst, little city)
2. Initial 20% savings with aggressive debt repayment (300k of student loans knocked out in mid 30’s)
3. Kept living the same life, and added said aggressive debt repayment monthly amount (once erased) to the initial 20% savings, throwing basically 100% of the excess to the total stock market index fund in a brokerage (all tax advantaged accounts maxed of course)….I am a very lazy investor.
4. I am 40 now, on track to FI(re?) very very early.
These questions always feel like a “how is the Rock so fit?!” He works out a TON (make more money) and he eats wisely/healthy (spend wisely). Really no secrets in either game
It’s simple but not easy.
I will say the one thing that has made it “easier” is automated allocation.
Retirement accounts automatically filled through our group. The additional amount that was initially going toward loans was made into a monthly auto-invest. “Savings” as a whole is automatic, everything else left in the bank account is fair game for fun money, projects, home improvement etc since the amount needed to FIRE is already set aside. Out of site, out of mind.
Your Retirement Plan is the best and fastest way to wealth
ANY PLAN with mandatory contributions is the way to go