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Clueless Physician starting first real job
Old 05-29-2010, 11:12 AM   #1
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Clueless Physician starting first real job

Hello all,

I'm in my early 30s and just about to start a "real job" , I've been in medical school, a stint at grad school, residency and fellowship for the last 15 years and just about to start a private practice career. So really at the other extreme from those who are happily "FIRED", and I've had great fun reading some of the threads here. I'd like to learn from your experiences as I start my own path towards FI, so forgive my overlong introduction.

Having put in all that time into my career, I'm not really looking towards early retirement. I like what I do, but would like to do it on my own terms, specifically practice in my home country, which is still a developing economy, albeit a large one. I moved to the US about 10 years ago, a year or so after medical school, and while grateful for the training and the opportunity to work here, not terribly fulfilled with continually being away from my extended family (its just me, spouse and our toddler here), and paperwork, risk and regulations accompanying medical practice here.

Moving onto hard numbers, I'm fortunate to not have much student loans (the little I owe is to the Bank of Mom & Dad , negligible CC debt, and still rent a home (and planning to do the same for the next couple of years at least). On the asset side, about 8K in IRAs, and real estate in my home country worth around 50K. But the real increase in my FI assets is bound to come as I move forward. My specialty is relatively well paid (250K ish), and our living expenses are lowish (very LBYM) so
I expect to save atleast 50-60% of my after tax income, and plan to do that for the next few years, to amass a reasonable nest egg so that I can return home, and start a non-profit healthcare foundation doing the same as I do here, but concentrating more on medical practice in underserved communities without regulatory or legal hassles.

Healthcare there is quite different from the US, with little medical insurance to speak of, most rich patients either pay out of pocket,and the poor suffer through in a broken public healthcare system. Most hospitals and clinics are privately owned for-profit concerns, and so starting a practice requires significant capital investment, especially if it is a non-profit concern. My rough estimates for this investment as well as some funds to keep us FI are somewhere around 800K prior to my returning (I'll still be working and making a liveable wage in my home country though a fraction of the amount here)

So my initial concerns are,
1. Where do I invest these annual savings, over the next 5-6 years I plan to work here, given the type of short term growth I'm looking for?. I've read the usual investment guides etc, and am familiar with index funds, but these don't seem to quite
suit the short term growth I'm aiming for. I know folks here don't favor stock picking, but would identifying a small basket of high growth blue-chips yield greater short term returns?. I can tolerate some degree of risk since I'd still be working
and won't have to rely on these for my monthly income.

2. I will not have access to most of the usual tax protection strategies, no Roths, and 401K cappped at 16.5K etc. Would you recommend just a standard brokerage account with Fidelity etc, or any other strategy?

I'll probably have to talk to a financial advisor at some point (though my interactions with a couple so far have been underwhelming), but would really like to hear the groups' thoughts on my scenario. Thank you for your patience.
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Old 05-29-2010, 12:20 PM   #2
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Welcome to the forum Dr. Clueless....and I don't think you are clueless at all! You are asking some very good questions and you seem to have your goals in mind and your financial and LBYM house in order so far. Like you, I am a physician, and also grateful to the Bank of Mum and Dad. I hear that many of your peers are starting their careers with $300k in student debt. Their careers will be slaves to that debt for a while....but not you!

I don't live in the US, so I'm not the right person to comment on Roths, etc. But if you are going into private practice you may be able to incorporate, which may have significant financial and tax benefits.

As to investments, first of all, there is no free lunch. Just about every asset class has been underperforming of late. Your horizon is medium term, but you would be well advised to stay away from risky alternative investments at this stage in your career. (I'm not taking my own advice but I'm older and (financially) wealthier than you and I can afford to take calculated risks with 5-15% of my portfolio to diversify).

Speaking of wealth, Moshe Milevsky makes some points of relevance to you: you are young and have lots of financial capital (future potential earnings). Your task will be to convert them into financial capital over the years. As a physician, you will probably be pretty employable, so you could treat your earnings as a bond, making it perfectly acceptable to have a significant investment in equities at this stage. What about DW? Is she in a less secure career? If so, she should be more conservative in her investments.

Three suggestions from one MD to another:
1. Don't drink the "but I'm entitled" Kool Aid. You don't need a flashy car, a boat, etc. Who cares what people think? Stick with LBYM.
2. Get yourself good life and disability insurance as soon as possible.
3. Educate yourself about money management. There are many financial folks out there who are just waiting to get their hands on naive physicians who would rather be doing what they trained to do.
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Old 05-29-2010, 01:38 PM   #3
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Welcome Clueless. I think you've got a whole lot more than a clue going for you.

Quote:
Originally Posted by clueless View Post
...the real increase in my FI assets is bound to come as I move forward. My specialty is relatively well paid (250K ish), and our living expenses are lowish (very LBYM) so I expect to save atleast 50-60% of my after tax income, and plan to do that for the next few years, to amass a reasonable nest egg...
My rough estimates for this investment as well as some funds to keep us FI are somewhere around 800K prior to my returning
This roughly works out to $100,000 in annual contributions for six years, plus compounded returns, growing to $800,000.

This is an achievable goal. I ran these numbers through a simple investment return calculator ( Investment Returns - Financial Calculators from Dinkytown.net ):

  • Flat 100k contribution for 6 years
  • 7% return
  • 3% inflation
  • 20% tax rate
The end-of-period value is $867,000. Change the flat $100k contribution to one that increases with inflation and the number is $921,000. These equate to an inflation-adjusted 2010 value of $726,000 and $771,000, respectively.

Play around with the numbers a bit to get a feel for variations on the real return rate and taxes - I think you will find that you are definitely on the right track toward reaching your goal with the planned contribution rate.

Quote:
Originally Posted by clueless View Post
1. Where do I invest these annual savings, over the next 5-6 years I plan to work here, given the type of short term growth I'm looking for?. I've read the usual investment guides etc, and am familiar with index funds, but these don't seem to quite suit the short term growth I'm aiming for. I know folks here don't favor stock picking, but would identifying a small basket of high growth blue-chips yield greater short term returns?. I can tolerate some degree of risk since I'd still be working and won't have to rely on these for my monthly income.
Generally speaking, you shouldn't need to take on the concentration risk of individual stocks to get a 4 -5% real return over 6 years. Using a baseball analogy, you need your investment funds to hit singles and maintain a good batting average, not hit home runs.

Quote:
Originally Posted by clueless View Post
Would you recommend just a standard brokerage account with Fidelity etc, or any other strategy?
At this important point in your career, you want to take a low maintenance approach to your investments.

Pick 2 to 4 mutual funds, set up a mutual fund account at Vanguard or another low-fee company and pay yourself first with $8500 the first of very month. Use automatic contribution / transfer from your bank account where you deposit your paycheck.

Others will be along shortly to make more specific suggestions on the funds. You will want to make picks in tax-efficient, low volatility funds.

Write down your planned allocation among the funds and stick with it for at least two years. Take pride in being the tortoise when others around you brag about being the hare.

Mark your calendar to look at the account balance on the first weekend of every quarter and to rebalance to your asset allocation in one year.

Quote:
Originally Posted by clueless View Post
I'll probably have to talk to a financial advisor at some point (though my interactions with a couple so far have been underwhelming)
Welcome to the club on that reaction.

You might be better off consulting an accountant or tax advisor first. Your comment on the unavailability of tax-deferred retirement account options should be fully explored. (Or perhaps you meant it wasn't a necessary piece of the puzzle, since you plan to spend you later years in your home country.)

Also, I would look for someone who has some familiarity with tax rules for charitable endeavors in the U.S. and your home country. It's not my area of expertise, but since much of your goal relates to raising capital for a venture that will give health care to the poor, something like a charitable trust might save you taxes on both the contributions and the investment return.
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Old 05-29-2010, 02:17 PM   #4
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Welcome Clueless.

Quite frankly, given the short term aspect of your plan (5-6 years) and your very high savings rate, the increase in your portfolio value can be expected to come almost exclusively from contributions. So, I would dial down the risk. If it were me, I would stick with safer assets such as CDs, i-bonds/TIPS and cash. I would also protect myself from a decline in the US dollar by investing some of my money in the currency of my home country.
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Old 05-29-2010, 03:32 PM   #5
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The advise so far has been good.

Echoing what has been said before, you need to concentrate on tax savings strategies. There are huge potential tax savings since you intend to use the money for purely charitable purposes. As mentioned, this could involve something like a charitable trust which you will probably need professional help setting up. Your investing strategy should be very conservative since the time frame is short (6 years) and you need most of the money up-front.

Avoid non-liquid investment strategies like the plague (annuities and whole life), they offer tax-savings, but they do not match up with your withdrawal needs at all, and that does not even get into how expensive they are. Run very fast from anyone suggesting them for your situation.
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Old 05-30-2010, 10:16 AM   #6
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Quote:
Originally Posted by plex View Post
The advise so far has been good.

Echoing what has been said before, you need to concentrate on tax savings strategies. There are huge potential tax savings since you intend to use the money for purely charitable purposes. As mentioned, this could involve something like a charitable trust which you will probably need professional help setting up.
+1 Also, I have read some posts from people saying they can't use Vanguard, Fidelity, etc if they are not US residents. Is that true? If so, and if you see advantages using one of these firms to handle your account, it may be possible to set up the charitable trust here and maintain it after you have returned home. Who knows, if you stay long enough and invest enough in the fund to more than cover your clinic capital, you might even be able to tap some of it for personal expenses by naming yourself as a paid administrator of the fund.
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Old 05-30-2010, 11:22 PM   #7
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As with many immigrants today send your money saved back to your own country
where you can do what you want with it and not pay taxes on your investments.
Sponsor and hire your workers from your country so they can do the same.
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Old 06-11-2010, 01:10 PM   #8
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Quote:
Originally Posted by clueless View Post
I like what I do, but would like to do it on my own terms, specifically practice in my home country ...

I expect to save at least 50-60% of my after tax income, and plan to do that for the next few years, to amass a reasonable nest egg so that I can return home, and start a non-profit healthcare foundation doing the same as I do here, but concentrating more on medical practice in underserved communities without regulatory or legal hassles....

My rough estimates for this investment as well as some funds to keep us FI are somewhere around 800K prior to my returning (I'll still be working and making a liveable wage in my home country though a fraction of the amount here).
Since you want to go home as soon as possible, and have the ability to earn a living wage in your country, perhaps it would make more sense to return immediately, rather than sticking around the USA for another five or six years. Life is short, and you may as well spend it where you want to be, doing what you want to do.

A financial cushion is always nice to have, but it doesn't appear necessary in your case. You enjoy your work, don't intend to retire early, and have little apparent interest in accumulating a nestegg for its own sake.

Although running your own healthcare foundation might require some capital, working as an employed physician for an existing foundation or clinic would not. I acknowledge your information that most health care institutions in your country are privately-owned and for-profit, focusing on wealthy patients; but surely there are a few exceptions, which would welcome the services of a highly-trained specialist who has a genuine interest in serving the poor?
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