Personal Financial Planning For Physicians Basics to Financial Wellness Michael Weis Chief Financial Officer American College of Physicians 56 of physicians admit to making investment mistakes such as real estate stock investment or ID: 767308
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Personal Financial Planning For PhysiciansBasics to Financial Wellness Michael Weis Chief Financial Officer American College of Physicians
56% of physicians admit to making investment mistakes, such as real estate, stock investment, or otherwise Over 50% of physicians believe they are behind in their retirement preparednessOnly 6% of physicians believe they are ahead on retirement savings Many older physicians have less than $1M in retirement assets Doctors mainly have 25-30 years to save for retirement Facts
You can’t afford not to!You have something very valuable: Time Time = the magic of compound interest Why Build a Financial Foundation
Emergency Cash or Rainy Day FundRetirement PlanningInsurance ProtectionCollege Education FundHome Ownership Vacations Save or Invest for What?
Pay yourself first!Bank 10-20% of your monthly salary if you can. One unexpected crisis can create havoc.Establish an “emergency fund” or financial safety in case things don’t go as planned. Think and plan beyond debt pay back. Three quarters of physicians graduate with debt. Understand the costs & benefits associated with your work or employment. Such as insurances & employee matching retirement vehicle.Consider a financial advisor.Steps to Building a Financial Foundation
Topics That We Will Cover TodayInvestment Types Education Funding (529’s) Retirement Planning Determining Risk ProfileConcluding CommentsQuestions
Myriad of Investment Options
Major Types of InvestmentsStocks Bonds Mutual FundsCash
Title Diversify!
Stocks or EquitiesCommon Stock is the most common form of equity investment A share of stock represents a partial ownership in a company If a firm liquidates you are entitled to any residual value left based on your proportional share
Ways to Invest in Stocks Purchase stock on a publicly traded exchange through a broker or by establishing an account yourself Purchase a mutual fund- easier and lower transaction feesPurchase an ETF (Exchange-Traded Fund)Through your IRA or 401K if your employer has one..This offers many advantages….. like tax free benefits!Dollar Cost Averaging
Use Dollar-Cost Averaging Save a fixed dollar amount at regular time intervals Invest in variable price investments (stocks, mutual funds, etc.)By default, you buy more shares when the price is low, and fewer when the price is highAutomate it
Bonds IOU…..Debt Security obligation of the company. Principal and interest must be paid to the bond holder Purchasing a bond makes you a creditor of the companyReceive periodic payments based on the interest rate of the bondIn most cases principal is paid when bond maturesSome potential for appreciation in priceNo voting rights or right to share in profits of company** A better option now is mutual funds with a “mix of bonds”
Broad Categories of Bonds
What is a Mutual Fund?A mutual fund is a pool of money managed by a professional money manager or team. The objective and the risk level are outlined in a document called a prospectus. The prospectus provides detailed guidelines for the types of investments the manager can purchase .
Why Purchase Mutual Funds? Professional Management : The fund company hires skilled money managers supported by resources behind (including a team of people dedicated to researching, tracking, identifying trends, and performing analyses)Diversification: Lowers the risk because, regardless of the size of your investment, each unit purchased is made up of many different investments.Liquidity: Mutual funds can be sold anytime, and easily Flexibility: Mutual funds allow you to purchase as much or as little as you want, and offer a variety of purchase plans
Some Mutual Fund BasicsClosed end fund (10% of funds) has limited number of shares issued initially and can only purchase shares from another investor willing to sell theirsOpen end fund (90% of funds) has no limitations on the number of shares the investment company can issue. Shares are issued and redeemed by the investment companyLoad Fund - pay a commission to a sales agent when you buy shares usually 3-8%No Load Fund - no sales charge paid and purchased directly from the investment company
General Types of Mutual FundsMoney Market Funds Liquid & secure on short term basis. Low risk and not guaranteed. Ex: treasury bills and short term notesBond FundsProvides steady stream of income. Bonds are issued by government or corporation.Balanced FundsMix of investments – cash, equity and income producing. Better return than fixed and less risky than equity.Similar to “lifestyle” funds – driven by age now to age of retirement
General Types of Mutual FundsEquity Funds Main objective is long term growth through equity/stock investments. Types are: Diversified Sector specific Index International equitySpecialty FundsMain objective is one particular sector or geographical region Ex: Health care, telecommunications, technology, financial services, Euro markets
Types of CashCertificate of DepositsMoney Market accounts Savings Accounts
Title
Children’s College Education Like retirement, but sooner Some of you may need to start saving during residency!Compound interest works here, tooLong-term investment focusVarious Options
Probably Best – 529 Savings Plans Like Roths for collegeAppreciation/gains are tax-exempt All public/private university/college/professional schoolsTuition, fees, room, books, suppliesCan choose any state’s programbut, tax advantages often best in own statewww.savingforcollege.com
Retirement TipsBiggest and best advice is to begin saving today! Consider allocating half of any future salary increase to your or your employer’s tax advantaged plan Monitor your progress at least annually; preferably more oftenDetermine how much you think you’ll need at retirement
How Much Will I Need at Retirement?Popular rules of thumb Retirement annual income should equal 70% of your pre-retirement salary You should have saved 8 times your ending salaryTarget Age 35…..saved one times annual salaryAge 45……saved three times annual salaryAge 55……saved five times annual salary Many calculators out there on Web
Factors Influencing Savings for Retirement Target retirement date Percentage of salary you defer into 401(k), 403(b),governmental 457(b) or other retirement planSocial Security etc,Employer provided defined benefit plan if applicableInheritances
Retirement – Basic Principles Take maximum advantage of matching programs Take maximum advantage of tax-advantaged programs (401-k’s, 403-b’s, IRA’s, Roths, etc.)Don’t count on Social SecurityIf you’re planning early retirement, budget a flexible cushion (to avoid early W/D penalties prior to age 59). Better budget for health care, too
Roth vs Traditional IRA
A Critical Decision You Need to MakeNow that I know the most popular types of investment options, “How much risk am I willing to take?”
Once you know your risk profileBegin to develop your investment plan Determine asset allocation-how much are you willing to invest in stocks, bonds, commodities and cash. (This is also called asset allocation or diversification) Make periodic payments to your investment portfolio in the same percentages as your asset allocation (this is called dollar cost averaging) Take advantage of your employer’s planIf they offer a tax advantaged plan and amounts are deducted each pay and then reinvestedYou are automatically doing dollar cost averaging!
Title Return vs Risk
Game Plan - For Financial HealthAddress Debt Know what your student debt is: Refinance & consolidate Create a financial planComprehensive plan with an advisor is a MUST DOSpend conservativelyThe new BMW after residency can waitTrack your spendingUnderstand compound interestSaving money is magnified 20 years from now
Thanks and Questions
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