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Personal Financial Management after Your Residency. Chris Lamoureux, PhD Head of Finance Estes/Neill Professor of Finance University of Arizona. First & Foremost: Do No Harm. Finance is a tool—not an end unto itself.

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personal financial management after your residency

Personal Financial Management after Your Residency

Chris Lamoureux, PhD

Head of Finance

Estes/Neill Professor of Finance

University of Arizona

first foremost do no harm
First & Foremost: Do No Harm

Finance is a tool—not an end unto itself.

Most “Financial Advisors” are selling something—your interests are not in mind.

Develop a plan of conservative management, and stick with it.

Personal Finance for MDs

congratulations
Congratulations!

By becoming an MD you have already made the best investment I know of: education (human capital).

The returns on this investment far outweigh any risks, and I encourage you to support education throughout your lives. Make this an on-going investment.

(Can you tell I’m a university administrator?)

Personal Finance for MDs

what s easiest
What’s Easiest

Avoid debt!

Credit Card debt is worst. Never use credit card for borrowing.

Interest Paid is not tax deductible, interest earned is. If you’re in a 40% tax bracket, consider the effect of paying off 12% credit card debt. It’s equivalent to earning 20% on a risk free investment. (Not bad when 2-Year Treasury Bills are yielding 2%.)

Personal Finance for MDs

the easy stuff 2
The Easy Stuff 2.

Payoff student loans as soon as possible.

Never speculate. A reporter asked me the other day: “With the stock market so low, shouldn’t we borrow as much as we can and buy stocks?”

I was aghast.

Avoid hedge funds.

Personal Finance for MDs

the easy stuff 3
The Easy Stuff 3.

Fully insure. (This is a corollary of the last point.)

Try to diversify. This is often violated:

  • Dentists investing in equipment.
  • Farmer buying Caterpillar stock.
  • You buying Merck (you’ve heard about a promising new drug, . . .)

Personal Finance for MDs

the easy stuff 4
The Easy Stuff 4.

Buying a house has been historically an excellent investment.

  • Mortgage interest and property taxes are deductible expenses.
  • Mortgage is a collateralized, standard loan so rates are reasonable.
  • 30 year mortgage is paid off before retirement—affording reduced housing costs at a good time.

Personal Finance for MDs

buying a house cont d
Buying a house? (Cont’d.)
  • Housing prices have risen steadily over time.

But:

  • House is an illiquid asset.
  • Current concern about asset price bubble.

So: I prefer to think of buying a house as more of a consumption decision rather than an investment decision. (Buy a house if you want to. Don’t blame me when you figure out the maintenance costs!)

Personal Finance for MDs

the easy stuff 5
The Easy Stuff 5.

Start saving for retirement.

Probably don’t want to count on social security.

Contributions to (qualifying) retirement plan are pre-tax (i.e., you can avoid paying taxes on that income).

Personal Finance for MDs

the retirement spreadsheet
The retirement spreadsheet

Compounding has big effect over time.

Base case: $200,000 annual income, 4% earning on portfolio (My recommendation TIPS), monthly contributions of 14% of gross salary.

Amount in account on retirement:

Over $2,247,000.

This would require a lump sum of $533,000 today under the same market conditions.

Personal Finance for MDs

retirement
Retirement

Don’t count on partnership value to insure your retirement:

Arthur Andersen.

Personal Finance for MDs

how to contact me
How to Contact Me.

Chris Lamoureux

Head of Finance and Estes/Neill Professor of Finance

Eller College of Business

University of Arizona

Tucson, AZ 85721-0108

www.bpa.arizona.edu/~finhome/lam/lamhome.html

(520) 621-7488

Personal Finance for MDs