One of the biggest surprises of the CoronaBear for my readers and me is the decrease or even total loss of earned income. Physicians, dentists, attorneys, and other high-income professionals are used to having a relatively recession-resistant income stream. Now, dentists, plastic surgeons, and other self-employed doctors who do primarily elective procedures have closed up shop.
Without business interruption insurance (much of which excludes pandemics, I'm sure), not only are they without personal income, but they are facing difficult decisions regarding what to do with their employees. The employee salaries (and benefits) are massive drains on their business cash reserves and eventually personal assets, yet they hope to be back up and running full-speed in just a few weeks or months. Laying off the employees not only feels morally wrong, but is likely to hurt the business financially in the event that they are able to open back up quickly. Worse, some high-income professionals ARE those employees who are being laid off, offered fewer hours, or having their pay decreased in some other way.
Most stock market crashes, and even recessions, are buying opportunities for the typical doctor. By virtue of your very stable, high income, you can take advantage of great prices on stocks, real estate, and consumer goods. If anything is different about this bear market (all bear markets are unique, although it really isn't “different this time”), it's the fact that your income is at risk like that of many other Americans. Consider a recent poll (March 23) I did on Twitter.
As you can see, while there are plenty of emergency physicians, hospitalists, and intensivists who are ramping up their work, and 1/3 of doctors are fairly unaffected, there are 3% already laid off and 40% who are basically underemployed or rapidly headed that way. So today, I thought I would write a post for that 43%. At the end of the post, I'll discuss what can be done as an employer/small business owner.
How to Deal With Unemployment/Underemployment As a Doctor
The formula is relatively straightforward:
- Minimize the Time Period
- Build Up Cash
- Cut Expenses
- Increase Side Income
- Tap Assets Strategically
# 1 Minimize the Time Period
The sooner you can get back to working full-time, the easier this all is to deal with. So as soon as you get laid off (or even when you start seeing the writing on the wall), starting looking for another job. Call your contacts, buff up your resume/CV, and LinkedIn profile. Consider getting another state license. Gather your credentialing paperwork. There's a big difference financially between being out of work for three months (feels a bit like a sabbatical/extended vacation and you burn through your emergency fund) and being out of work for a year (get depressed and burn through your portfolio).
# 2 Build Up Cash
Your cash is your runway. You're not actually in financial trouble until you run out. So if you lose your job (or think you're about to), start amassing cash. That means stopping your 401(k) and other investments. That might even mean selling some stuff that you're not using. It means cancelling any large purchases or vacations you were planning. The more cash you have, the longer your runway. If you've followed the guidance of most financial advisors, authorities, and gurus, you have an emergency fund of 3-6 months of your household expenses. One of the biggest reasons to have that amount of cash is to allow you to deal with a 3-6 month period of unemployment without having to sell long-term investments.
# 3 Cut Expenses
Cutting expenses is a great way to make your runway longer. With careful budgeting and frugal living, you might be able to live off of a 3-month emergency fund for 12 months. One of the best things about living debt-free is that you have fewer fixed expenses, and in a situation like job loss, you need to make a large part of the variable expenses go away. It might even be helpful to make some of the fixed expenses go away, at least temporarily. Here are some ideas for cutting expenses:
- Stop going out to eat or ordering out. Food is cheaper when you make it at home.
- Eat your food storage. Hopefully, you have 1-12 months of food sitting around. This is why. I'm not talking about hard-core preppers. I'm talking about the pantry, the cupboards, and the full freezer. If you don't have to go to the grocery store as much, your cash will last longer.
- Cut utilities. Turn the therm0stat up (Summer) or down (Winter.) Get better at turning the lights off. Get the cheapest internet and cell phone packages.
- Cut entertainment costs. Cancel cable, Netflix, and Disney+. Stop buying books and use your county library. Cancel your gym membership and start running and doing body-weight exercises at home.
Decrease/delay housing costs. Call your landlord and ask for help. At a minimum ask for rent not to be raised. You can ask for a temporary rent decrease or even the ability to delay payments for a few months. People understand we're in a pandemic. Landlords don't want to have to find a new tenant in a pandemic. Lenders don't want to have to foreclose when it is difficult to sell a home. They'd much rather not be paid for a few months than go through that. Take advantage of that fact.- Don't go shopping. Most of us already have 5X as many clothes as we will wear for the rest of our lives.
- Give less. I'm a big fan of giving to those in need and to registered charities. But you can best help others from a position of strength. You're not in a position of strength right now. If you tithe a percentage of your income, that should pretty much go away when you've lost your job. Give the gift of your time instead of cash or an expensive gift.
- Cut your estimated tax payments. If you lose your job, your taxes will go down dramatically. If you've already made an estimated quarterly tax payment or two this year, you may have already paid more in taxes than you will owe. If so, stop or decrease those payments. Form 2210 isn't that painful.
- Find cheaper alternatives. You (and your kids) may find it particularly painful to cut back on their activities. Creativity can win the day. Instead of competitive soccer, maybe you play county league this year. Maybe you go to piano lessons once a month instead of once a week. Instead of an art class, you go to the museum on their annual free day and buy some cheap art supplies to use at home. Go from private school to the local charter school for the rest of this year.
- Decrease child care costs. If one parent is not at work, you should be able to substantially reduce child care costs.
- Your college student can switch schools, get a job, take a semester off, or take out student loans.
- Delay expenses if possible. 1st and 2nd quarter estimated taxes can be pushed back to July 15th without penalty. Federal student loan payments are currently suspended. Private student loan lenders generally have a hardship provision of up to a year.
- Follow some frugality/FIRE blogs. It would not be an unusual month for my family to blow through $10-15K in a month, even without any debt payments. But there are plenty of bloggers out there who live on 10-20% of that amount. They're more than willing to tell you how they do it. Copy them. You may discover that at your new level of spending you're actually financially independent!
- Remember this is all temporary. Maybe you can even make it fun.
# 4 Increase Side Income
As many retirees have discovered, a side income may not fully support you, but it sure makes your cash last longer. Many unemployed and underemployed doctors are looking at telemedicine opportunities, doing paid surveys, doing insurance/medicolegal/nonclinical work, and even doing some side gigs.
It is hard to spend 60 hours a week looking for a job. You probably have some time in there to do some other work. While becoming a paid content producer (blogger, podcaster, author, etc) might seem attractive, chances are good that you'll be back at your full-time gig long before you ever make any significant money doing it.
Be sure to file for unemployment and any other benefits you qualify for (Medicaid, Food Stamps, etc). Note that unemployment has NEVER been more generous than it is right now. The CARES Act passed a week ago provides $600/week more money and unemployment benefits last 13+ (varies by state) weeks longer. The Food Stamp program also received a bunch of money from the CARES Act.
# 5 Tap Assets Strategically
Losing your earned income in the midst of a bear market feels like a perfect storm. Cash is King, and it represents your runway. Do all you can to make the runway as long as possible so hopefully, you will be in the air (re-employed) before you get to the end of it. But what do you do if you don't make it? You're out of cash and still unemployed or underemployed. You've already cut your expenses and boosted your income. Now what? It's time to start tapping your other assets. Where to start?
Taxable account
One really nice thing about a taxable account is its flexibility. It's not restricted to health care expenses or education expenses and there is no issue with the Age 59 1/2 Rule. Retirees may not have an emergency fund simply because their entire portfolio functions as an emergency fund. Well, guess what? Your portfolio spends just fine. Naturally, in a downturn, you don't want to sell your stocks low. Fine. Sell bonds. No bonds in your taxable account? No problem. Sell stocks in your taxable account and exchange bonds for stocks in your retirement account. Same same. And even if you have to pay some long term capital gains taxes in that taxable account, it shouldn't be much given your new lower-income (LTCG rate is 0% at an income of <$80K MFJ) AND the smaller difference between basis and value due to the market downturn. Heck, you might even be able to book a useful loss and further reduce your tax burden. Obviously sell your highest basis stuff that you have owned for at least a year first.
Retirement Accounts
Retirement accounts are for retirement and I hate to see them raided for anything else. But tapping a retirement account beats starving to death. There are two main downsides to tapping your retirement accounts:
- Loss of tax-protected and asset-protected compounding
- The 10% penalty
There isn't much you can do about # 1, but there are LOTS of things you can do about # 2. For example, Roth IRA contributions can be taken out tax and penalty-free (careful with the 5-year rule). You can pull out up to $10K from a traditional IRA (or $10K in earnings from a Roth IRA) penalty-free for a new home (meaning you haven't bought one in the last 2 years). You can take money out penalty-free for higher education expenses (think money you spent a few months ago before you lost your job) and to buy health insurance too (especially if you're now, under COBRA, paying the entire premium.) You can pay an IRS levy penalty-free too.
But even if you need more than you can take out under all of those exceptions, it's not the end of the world. Maybe you save 35% when you put the money in and you're now pulling it out at 12% plus a 10% penalty for a total of 22%. That's still a nice arbitrage.
Borrow Money
This one can get tricky when you don't have any earned income. But if you already have something set up with guaranteed terms, you might be able to now take advantage of it. That might mean borrowing against your whole life insurance policy or your home using a HELOC. It isn't interest-free, but it is tax and penalty-free. Just realize that when you start borrowing against something, you are putting it at risk and if your economic situation never turns around, you may lose the asset. Borrowing against your 401(k) isn't a terrible option either. It used to really not be an option at all since it all had to be paid back within 60 days of losing the job. Now you get until your tax return due date, which could be as many as 15 months away. If you don't have it paid back by then, it basically just converts to a withdrawal and you would owe taxes and penalties. But if you're still in a terrible situation at that point, you should be in a pretty low tax bracket.
A Few Ideas for Employers
So what if you are that employer whose revenue has been dramatically reduced? What options do you have? Well, the obvious first option is to use your cash reserves, for as long as they may last. Just like families should have an emergency fund, so should a business.
Business interruption insurance is also a great option, although you need to have done this beforehand obviously. Be sure to check whether your coverage includes pandemics!
A business line of credit or mortgaging property owned by the business or business owner is also an option, but may have some significant upfront costs and in the long run, may cause you to lose the business or its assets. Your state and the federal government are offering low interest, potentially forgiveable SBA loans as part of their relief efforts.
Ask employees to share some of the risk. Your employees are terrified of losing their jobs completely. Using up a couple of weeks of paid vacation, having their hours temporarily cut, taking a salary decrease (or at least foregoing an increase) or even taking a little bit of unpaid leave beats losing their job completely.
Pivot the business. Maybe you didn't use to do telemedicine by video chat, email, or telephone. Why not add that service? Even if you're getting paid less, some income beats no income. Medicare and some insurance companies are now basically paying regular rates for telemedicine visits. You can continue this service after the pandemic is over as a new business line.
Cut the fluff. If your volume is down 80% or 90% for an extended period of time, you're probably going to have to let someone go for the sake of the business, you, and the other employees. If you've been looking for an excuse to fire a less productive or problematic employee, here's your chance. It sounds ruthless, but streamlining the business now means more secure jobs for your best employees in the long run and it may not even hurt the fired employee as much as normal since they can blame it on the pandemic in their future job interviews. If nothing else, firing the least productive employee may provide a little extra motivation to the remaining employees to maximize their value to the business.
[Update prior to publication: The CARES Act passed one week ago includes significant benefits to small business owners who agree to keep employees on rather than firing them. Make sure your employer knows about these if they start talking about letting you go or even cutting your hours. Those who are logical will realize that the government will pay a good chunk of your salary for them for the next 8 weeks.]
Losing a job, income, or business revenue isn't fun for anyone. But good financial planning can reduce the pain and dramatically reduce the anxiety associated with it. Lengthen your runway as much as you can and have a plan for what you will do if you get to the end of it.
What do you think? What tips do you have for docs who have lost their jobs in the CoronaBear? Comment below!
I thought it could never happen to me, but as an emergency doctor we just were asked to take a 45% pay cut overnight due to the lower patient volumes. It’s still a job and we won’t be starving by any means however I think for me it really drives home the current magnitude of the economic crisis. I mean, ED and ICU should be the hub of this response right? It’s also a gut punch to go suit up in a PAPR and intubate a COVID patient while earning less than I could make doing telemedicine at home. At least we have an emergency fund and low expenses. Thanks WCI for all the education over the years. We wouldn’t be as ready to tackle the financial challenges of these crazy times without the years of preparation up front.
Where is this? I’m in a similar situation as well. Not as much of a pay drop, but I’m feeling the same as you. My life has never been in more danger and the contract management group wants to hold onto as many of their nonsense, vampire administration jobs.
All after one month of ED volume drop…
I’m so confused by this paradox. I would think there would be more patients in the ED with COVID-like symptoms. How are there lower patient volumes in the ED? Is it because all of the other non-COVID patients aren’t showing up for fear of catching COVID?
There are only 1000-2000 COVID cases total in my state. There are 20 EDs just in the local metro area. Assume 5 shifts a day on average at each and that’s 100 shifts a day. If you see 15 patients a shift, that’s 1500 patients a day. How in the world could they all be COVID patients? Especially since most don’t come to the ED. We’re trying to conserve PPE and inpatient resources, but COVID would have to be 100X worse than it is to actually overwhelm all the outpatient resources we have in the community. Docs are going broke right now like many businesses.
Yes, people are scared to come to the hospital lest they catch COVID. They are also out of work and scared to spend money, even on health care.
Thank you for this and for all of your years of wisdom. I truly appreciate you highlighting the importance of an emergency fund from the beginning. I never thought I would not be able to work as a doctor especially during a health crisis. Can a doctor really file for unemployment benefits? Looking at the NY rules it says if an individual can telework for pay they are not eligible. https://www.labor.ny.gov/ui/pdfs/pandemic-unemployment-assistance.pdf
I have filed for unemployment benefits. I was furloughed from my two jobs and have no income. My filing was online and was approved within 24 hours. I am expecting my first payment next week.
Thank you for sharing that. To be honest, I didn’t even consider it until WCI mentioned it in this post. It definitely needs to be discussed more! Also, have you looked into EIDL 10K grant? My accountant mentioned this one to me today.
Sorry to hear it. After the whole experience is over consider sending a guest post in about it.
Yes, it feels pretty black-swanny for docs doesn’t it?
It’s not very nice to remind people NOW that they should have an emergency fund, but those who listened to my advice are certainly glad they did these days.
Yes, docs can get unemployment benefits if they lose their job. Unemployment law is state specific though I guess it’s possible you could get hosed there. I’m not expert in New York unemployment law.
It is amazing time for sure as you mentioned professions where reliable high income are now quite reliable.
I recently wrote about my own issues with my medical practice that truly demonstrate the white coat is no longer a shield. Our board of directors met after analyzing the financial outlook based on trending patient visits (spoiler alert, if was not good) and mandated a 40% cut from our normal salary draw (I am in a war what I kill payment model).
Surgical specialists are especially hit hard in my multispecialty group and the previously profitable ambulatory surgical center will now be a financial anchor as we are no longer allowed to perform elective surgeries.
Being debt free is helping me through these troubling times as I don’t have student loans or mortgage over my head to worry about but I know a lot of my colleagues are not so fortunate and some tough choices lie ahead.
Even my side income streams are going to take a bit as there is uncertainty about how much rent is going to be collected for real estate syndications in future.
Hopefully this will pass as the longer it takes the more medical practices will be at risk of closing down for good (and I can’t even begin to imagine the plight of dentists who are hit with this and can’t see patients at all).
A lot on this list is easy to do. My gym is closed. My library is closed. No expenses for travel, restaurants, comedy clubs, kids sports etc. We will make less but spend less too.
Many of us have been talking about building up cash and eliminating debt. There are good arguments against both of those. But I think peace of mind is easier to achieve with them now.
I also stopped my 457(b) contributions for now. My employer is about to be less financially strong. They likely will survive fine though so later in the year I can get caught up. The benefits of a non-governmental 457 b are slight to begin with so others may want to consider that option too.
Given the current situation, what is the likelihood that a hospital could belly-up & render 457(b)s susceptible to creditors?
Seems more possible than 3 months ago for sure! Despite all this focus on health care, most hospitals and doctors have had their revenue drop substantially. That includes our ED, hospitalists, and intensivists, the ones you would think would be getting hammered “on the front lines.”
Stopped my contribution to the 457 and I also dropped my 401k to the minimum to receive the match. I can catch up later if things mellow out. I’m employed and if let go can take the 457 as a distribution at separation. Taxed but no penalty. I’m an ER doc and our volumes are down by over 50% and in a rural area where we might never get a surge.
Amazing isn’t it?
While your advice #1 Minimize the Time Period is generally the right step forward in most job loss situations, this time is truly different. Many are sidelined because of the overall decrease or curtailment of elective procedures. If you were a busy skull base surgeon (for example) one month ago and the volume has dropped to nil, it is not like you are going to find work across town or across the state in a matter of days or weeks or even months. The work is just not getting done.
Related, the expectation is that this period of inactivity is relatively short-term. While how short-term, no one can say, and will the volume go back to before (or even surge to make up for months of inactivity), similarly no one really knows.
That said, for general, garden variety job loss (dropped from a practice, group imploded, etc.), the advice to get another job ASAP is spot on.
Yes, this time is different in that respect. But still, you want to be the first one picked back up if possible.
“All bear markets are unique, although it really isn’t “different this time”.”
This one might actually be different. The early stock market drop was extreme, then regained a little bit. But what is different and may drop it even further is that the potential unemployment that will occur from shutting down the economy may be larger than that of the Great Depression. On top of that, no models really yet predict second waves, yearly recurrences, or any economic impact. 20-30 million newly unemployed within 2 weeks may occur, followed by even more mind boggling numbers over the course of weeks and months, depending on how long this shut down lasts.
This may likely be an event that shapes a generation. Just as the Great Depression turned a generation into frugal people who never threw anything away, the economic impact of this event has the potential to shape the future for 50 years.
I agree it will shape a generation. I also think that, like the Great Depression, it too will pass.
And if it doesn’t, it doesn’t matter what you do with your investments.
Very helpful post, many high income professionals are being affected by this just as much as others. Also important to realize that even when things return to ‘normal’ that may mean something different. Must prepare as best we can for any scenario: https://mdspeculator.com/beware-the-future-has-changed/
Do you think there are any benefits to pulling 100k out of retirement account to earn for 3 years, pay capital gains rate, and then put money back in retirement account. May be lower tax rate than when removed from retirement later.
No. I see no reason at all to do that. Run the numbers, you’ll see you come out behind and you lose asset protection for those 3 years.
Never thought I would ever see a post like this here. Not at all to say it isn’t appreciated, but one of the huge reasons I (and I’m sure many others) went into medicine was for job security and income stability. Absolutely amazing.
Yes, my biggest surprise and most black swan like portion of this particular economic downturn for docs. It’s a health crisis and ED volumes are down 25%+ and many docs are out of work. Who would have thought?
What are your thoughts on continuing to aggressively payoff student debt if you’re on a salary guarantee? My volume is down by 80 percent as a sub specialty surgeon but have salary guarantee until the end of next year.
Why isn’t this time different? (I really don’t know. I’m a novice investor, but I’ve been studying this for a while) I’ve looked at the history, it just doesn’t prove that this is the same.
The market has come back many times, but the baby boomers are done right? No one else can spend at the rate that they did. Maybe 2008 should’ve been the start of a depression, but we bailed out and used stimulus , then we rallied around Trump. I’m not taking anything out of the market, in fact I’m putting in, I just don’t know how much (yes, I have goals, but I’m questioning those even). I’m beginning to think it’ll be quite some time before I see a return on the investment, if at all.
It’s not an entirely logical experience is it? It’s really hard to understand it until you go through it. But once you’ve gone through it, you recognize the signs, the media, the feelings etc. It truly feels like it is different this time. But it isn’t in the most significant aspect–what you should do with your money.
Either we’ll recover from this in a year or two or 10, or we won’t. In the first case, you’ll be glad you stuck with your plan, stayed the course, and bought all the way down and up the other side. In the second case, it doesn’t matter what you do with your money.
One thing that I wouldn’t expect an ED physician to know but is very pertinent is that prior to the pandemic, the rules CMS set out for providing telehealth physician visits were pretty draconion; rural patients only, no new patients, and the patient couldn’t have an appropriate CMS provider available within a 45 minute drive in order for it to be a billable encounter. On top of that, the available billing codes paid less than an in-person encounter of the same length/complexity. This was a major burden because many of my elderly COPD patients don’t drive and physically struggle to come to the doctor office, but didn’t qualify for telehealth because they lived “close enough” to a doctor.
There’s no guarantee that those rules won’t go back into effect whenever the pandemic is declared over. That’s why I am encouraging my patients who I am seeing via telehealth to lobby Congress to preserve telehealth for the longer term.
This may be one of the truly bright spots to come out of this pandemic.
Yes, it’s been a welcome surprise. Usually CMS moves at the speed of frozen molassas (their sepsis guidelines were no longer the standard of care by the time they were approved), but they have been moving rapidly to make some common sense relaxation of rules that would only hurt now (such as needing face to face visits to renew DME). Credit where credit is due.
Totally agree re: telemedicine. This should have been done 20 years ago
What are your thoughts on continuing to aggressively payoff student debt if you’re on a salary guarantee? My volume is down by 80 percent as a sub specialty surgeon but have salary guarantee until the end of next year.
Check the contract to see if there is a 90 day out. Many contracts have that. We have a “5 year contract” that is really just a continuously renewed 90 day one.
Yeah, there is a 90 termination, they can certainly use that.
Save your cash.
Thanks for the post:
Seems like writing is on the wall… on one hand it seems obvious I will be producing as soon as we can resume elective cases… on the other hand the hospital is currently in dire straights and the chief of surgery constantly sees me sitting on my thumbs in clinic (he is as equally not busy as I).
Nevertheless, I’ve wondered… since I have a contract and said contract says they need to give me 60 day notice to terminate me without cause… is there any legal way they can let me go without the notice? 3 month E fund is in position but 60 days is a long time to build that up even further.
Not really. If I were you and had serious concern for my job, I’d be amassing cash
I agree. I also just discovered that mg state has student loan refinancing options with 30 year term options with rates in the 2.3 range. Ran the numbers and that monthly payment would free up an additional 1700/month (current plan is 10 yr variable at 2.8). Recommended or hold the course on that front?
Ugh. 30 years? Who would want to be in debt that long when you can get PAYE/REPAYE forgiveness at 20-25 years?
How long do you want to be in debt?
I mean, if you’re desperate I guess it’s an option, but you’re not there yet.
I have a guaranteed salary through next year and my CEO just handed me a letter asking me to take a voluntary 20% pay cut to basically help lessen the pain of everyone else who is feeling the hurt from the pandemic. When I quizzed him on it he then basically threatened that furlough or contract terminations are the only other options. The verbiage in the letter said the pay cut would be “for the foreseeable future” and I told him I wasn’t comfortable with that. Amazingly he replied that they aren’t willing to put anything in writing which makes me worry I’ll never get the salary I’m due back! My fighting spirit makes me want to get a lawyer to fight to have something in writing but I’m worried they’ll just furlough (which I still don’t understand how they can do that when there’s a contract in place) or lay me off. Anyone have any similar experiences? Any thoughts from WCI? Thank you
The contract remains binding. You can insist on receiving the pay as outlined per your contract. The employer can initiate termination if they so desire, again based on the termination terms in your contract.
Thanks for the reply! It seems now they can furlough me and that somehow gets them out of the contract? Anyone have experience with furloughs?
I don’t think there is a special “furlough” law out there that I don’t know about that is a get out of jail free card. It comes down to the contract. That said, if they go out of business, the contract obviously won’t be honored. Also, there is nothing to keep them from giving you 90 days notice (or whatever the contract says) and then treating you like dirt from now until then.
Tough situation to be in. Not uncommon either. Be aware that many docs are facing 50% pay cuts.
Read your contract. Go over it with an attorney if necessary.
To summarize, the choices are 1) take the pay cut or 2) get laid off/furloughed (I think these are the same thing) or terminated. A lot depends on your specialty, how busy you are right now, where you are in your career arc, your relationships, length of service, stability of your Hospital (which is decidedly less stable than a few months ago, as they all are), etc. Based on what you wrote, there would be little hope for you to get back pay from lost wages, and it sounds as if your pay may be reduced indefinitely going forward. It sucks!
That said, it sucks a whole lot less than what other docs are experiencing. Some, like myself, have a 100% pay cut, and others are down 70-90% with practices that are hemorrhaging cash due to overhead.
It does not sound like you are going to get your full salary going forward, but perhaps you could something else in return for agreeing to the “voluntary” reduction of your wages, perhaps dropping a non-compete, a discount on office space at the next renewal, an additional assistant or scribe when things pick up again, etc.
I’d also throw more vacation on that list.
I never imagined doctors being out of work for more than a month. In Psychiatry, I have never been out of work and have always had a contract with at least 30-60 day termination clauses. I’ve always had “job in hand” before giving notice. I have given notice to my employers five times in 26 years. Two of them hired me back when I found the grass was brownish everywhere.
I’m lucky to have a job right now and I know it. That has not stopped me from canceling all the “extra” stuff I can and hoarding cash despite having two months of expenses in an emergency fund.
We have five cars with my two teenagers, my wife and I and our “travel van.” I put 3 of them on “storage” status, cancelled a few recurring services and our XM. I’m reviewing all of my statements looking for things to cut out.
Some months ago at the market peak, I wondered if I should take money out of my 457 via a loan and pay off a vacant land loan at 6.5% and was dissuaded. I wish I had done it. That $50,000 would now be a loan coming off my paycheck averaging back in instead of…gone. My 457 dropped from $180,000 to $140,000. Anyway, hindsight, blah blah.
Pundits suggest the market has another 20% to fall. I have raised my cash position to 35% and everything I sold on the way down is still available at fire sale prices.
I’m not sure having mostly index funds will be the best plan in this particular type of pandemic related immediate drop and lingering sell off, the subsequent recession, and differing effects on various types of companies.
Right now, fund managers are picking new winners and active management shows (its only) advantage in bear markets.
Good luck to us all.
I am going to disagree that active management is superior to index funds in bear markets. I think that this is a myth (to some degree propagated by the active mutual fund industry).
There are plenty of articles on that subject, but here is a recent one:
https://www.fa-mag.com/news/active-funds-haven-t-shined-during-the-bear-market-54750.html
And another:
https://www.aesinternational.com/blog/do-index-funds-perform-better-during-a-bear-market
And the WCI position on active vs. passive:
https://www.whitecoatinvestor.com/10-reasons-invest-index-funds/
The crystal ball of the pundits is just as cloudy as yours and mine. Don’t rely on it to make decisions.
I disagree that active management works in bear markets. If it did, it would be mostly the effect of reverse cash drag since active managers tend to carry more cash.
Well, the best managers have some cash for bargains…even old Buffett …128 billion.
He bought DAL in Feb at $48 a share and sold a big chunk at $25 a share yesterday….and some LUV. Seems he’s no longer that big on airlines…
Now that is weird. I wonder if he thinks it will shake out DAL shareholders and recent bargain buyers and then he can re-buy and average down. Only Warren knows.
All the airlines recently re-crossed their lowest lows and continue to drop.
The ongoing and constant government involvement, actions and programs make it quite difficult to know where to allocate money outside of something like bond and stock indices I suppose. I’ll read those articles, but there are others that suggest having a seasoned manager with five star performance for twenty years may be worth 0.5%.
My 401A and government 457 remain unchanged and have ~ $5500 a month (with the match on the 401A) going in across the debacle.
I am very grateful to have LCOL, live well below my means, emergency fund. My clinic volume has dropped 50+% but ICU shifts will more than keep me employed. The big unknown I think every doc should be asking themselves is, “Will all the elective cases I do come rushing back as soon as the epidemic is over?” While we certainly hope that’s true, or even working overtime, I worry that there will be a cascade of people losing health insurance and ongoing economic depression, leading to people forgoing procedures they might otherwise do. No way to know for sure but it’s definitely an extra source of anxiety.
Good point
Just want to point out that many em docs and hospital workers are employed by private equity firms saddled egregiously with debt. Much of this is on us. These employers tease us with high pay but offer limited social protection- ie they dont care about us ultimately.
My employer is a hospital that has been careful with its money and promised no cuts.
Its important we as doctors reflect who our employers should be and maybe use this experience to take back what should be a better way- take the private equity system out of it. Take the poorly run hospital systems out of it. Demand that academic centers pay doctors fair wages and not use our work to pad themselves.
Maybe its time we just learn to say no.
Moving forward one step would be for doctors to list every hospital system that fired or reduced pay for doctors during this outbreak and use it as a litmus to either deny employment with them or change employers.
It would be an interesting list wouldn’t it?
I am also wondering about decreasing student loan payment amount. At the moment I have six month emergency fund, job isn’t in imminent danger but I see some fraying at the edges and am anxious. I have a private student auto pay 3.2k a month, 80k left at about 2% interest. Was paying on average 7-10k per month prior to this. Now wondering about refinancing to get monthly payments down to under 1.5k per month, but with increase in interest rate to about 5%. Seems painful to do that so haven’t pulled the trigger. Any wise words?
It would be odd not to be anxious. We’re all anxious. I can’t think of a time when I was more anxious, including on the eve of deploying to a war zone.
But you have to step back at your position logically. Your loans are at 2%. You only have to pay $3200. You still have a job. The only thing I would do if I were you is pay the minimum on the loans and start piling up cash. If you ride through this no problem income wise, then you simply take that cash and throw it on the loans in a few months and wipe them out all at once.
A V shaped recovery is out of the question, a long recovery is most likely. Consumption comprises a majority of our economy. With millions in lockdown for three plus months, many are cutting their own hair, cooking their own meals and slashing spending. Emergency reserves and savings accounts are being raided in masse. Our brains are being temporarily rewired to spend less. When the all clear is sounded, less than a majority will quickly resume their spending ways. The rest will continue with their frugal lifestyle, out of necessity. We need to plan for another dip in the stock market and a prolonged recovery.
Your crystal ball seems much clearer than mine. I have no idea how long recovery will take nor how long the economy will be in lockdown.
I do agree that your financial plan should encompass a wide range of future possibilities. But if one were sure that it would be prolonged, and then it happened quickly, you could be caught in cash while the market soared never to return to those lows. Best to be somewhat agnostic on matters like these.
Thankfully, my income is unchanged so far. And I have a lot of dry powder available.
I am wondering if real estate prices will drop to the point that they will become highly attractive cash flowing investments, or if stocks will drop to the point where they will represent the best investment choice. Right now, stock valuations are not looking attractive to me.
My better half qualifies as a real estate professional, so it would be great if real estate prices become attractive. The tax advantages of paper losses for real estate depreciation cannot be beat if the underlying investment is cash flowing well with high returns.
If stock valuations still aren’t attractive after prices drop 20%+, what are you hoping for? 80% drop?
Second that!
Are you saying that if something was overpriced by 50%, I should now buy it because it is only overpriced by 30%? I would rather look at stocks as buying a future earnings stream rather than looking at the discount from a grossly inflated value. And the future earnings stream is looking poor from my vantage point.
I agree with your sentiment. Prior to the pandemic, valuations were extremely high. Many companies were carrying way too much debt relative to cash on hand. Price to earnings and growth were way up. A regression to the mean was long overdue. There are a lot of unintended consequences of this crisis that will spring out of
nowhere. A vaccine is out of the question for at least 12-18 months. Barring a novel therapy, we are going to see a long recovery.
I should add- please do not go to NYC to “volunteer.” There are plenty of local docs looking for extra work; hospitals are exploiting the pandemic to bring in unpaid volunteers instead. It’s not a staffing emergency, just a money-saving measure.
If hospitals need you and value your skills, they will pay you.
Interesting.
Reading this a year later, this post and its comments have been useful educational tools. Nobody knows nothin.