“Regrets, I’ve had a few. But then again, too few to mention…” These famous lyrics from Frank Sinatra’s My Way unfortunately remind me that my financial decisions during my first decade earning an attending’s salary were chock full of regrets. I did it my way, and I paid dearly. With the sincere hope that you avoid these same pitfalls, following are some of my costliest mistakes.
Mistake #1: Using A Financial Advisor
I regret the significant fees that would otherwise have compounded our earnings over the decade we used a financial advisor. I had no shortage of excuses: a new job, a new love, planning a wedding, becoming a new parent, having a second child.
The key is understanding that these fees eroded our earnings in three ways. First, the fees paid to our advisor were lost to us. Second, our advisor invested us at times in actively managed, load funds with high expense ratios and excessive fees that we’d never have picked knowing what we know now. Third, those lost fees represented a missed opportunity for money to be re-invested and earn compound interest over time. This combined triple loss ranged in the tens of thousands of dollars over a decade.
I’d have done considerably better by choosing a brainless default option: An extremely low cost, tax-efficient total stock market index fund (like VTSAX at Vanguard), which would inevitably be a core holding of any investment strategy I chose once I learned to passively manage my own portfolio of index funds.
Mistake #2: Waiting Too Long To Study The Most Relevant Material
Why was finance so intimidating? I had certainly studied more esoteric topics during medical school (acid base, anyone?), so I was not averse to working hard at understanding challenging material in which I held little innate interest. In fact, thanks to our medical school clinical lottery I began my 3rd year rotations at UCSF with a two week elective in nephrology.
Nothing against my renal colleagues, but I imagine a rotation in which I’d studied the underpinnings of modern portfolio theory, asset allocation and passive index fund investing for two weeks would have had a far greater lifetime return on investment.
Committing to reading at least one book on investing and personal finance a year, or better yet, assigning myself a book a week during ostensibly light clinical months (like my introductory 3rd year renal rotation) would have saved me thousands of dollars in the long haul.
Mistake #3: Underestimating My Abilities And Overestimating The Challenge
I’ll run a code, intubate a trauma, and pop in a chest tube without giving it a second thought, but investing had always seemed daunting. Every visit with my advisor seemed to reinforce how difficult it was to understand the gazillion financial products on the market, much less predict where the markets were going and time them as my advisor seemed to attempt to do. The wife and I would depart our annual meeting grateful that he understood what he’d said (we certainly did not) and appreciative that such complexity was being handled by an expert.
In retrospect, my advisor used jargon that may (consciously or not) have been self-serving in it’s attempt to make his job appear more complex than it actually was.
Financial literacy for physicians is less difficult to achieve than paid advisors would have you believe. Managing your own portfolio involves avoiding a laundry list of stupid errors and opting for time-tested financial strategies that are plain vanilla boring in their simplicity. You set it and forget it, then you hurry up and wait to grow wealthy.