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Last-Gen” Financial Planning Concepts

[By Steve Schroeder]

[By Dr. David Edward Marcinko; MBA, CMP]

DEM 2013

Welcome to this op-ed piece where we take pot shots at commonly accepted financial planning industry standards to sharpen your investing skills and stimulate your mind. With the recent sub-prime mortgage fiasco, and Wall Street’s problems and shenanigans with banks and investment houses like Bear-Stearns, Lehman Brothers, USB, Wachovia, Fannie Mae and Freddie Mac, WaMu, Merrill Lynch, SunTrust and AIG, etc, rethinking strategy and “conventional wisdom” seems a prudent idea. What about Wells Fargo, more recently.
 And so, what is the physician-investor to do? Select help from fiduciary–liable and physician focused consultants; suggest some pundits http://www.CertifiedMedicalPlanner.org
We suggest you now take a minute to think “outside the box”?
In this post, and as a physician-investor, we want to take a crack at all of your favorite themes, including:
  • Buying low and selling high
  • Staying in for the long haul
  • Asset allocation
  • Automatic portfolio rebalancing
  • Fees vs. commissions
  • Institutional money managers
  • Market timing
  • Personal capital gains inside of mutual funds.
  • Reinvest those dividends.

Buying Low and Selling High

What a silly concept this is! First of all, what is “low” and what is “high”?  If a stock is at an all-time high—like Apple was recently, for example—does that mean you should not buy it? Of course not! It probably means you should; there are good reasons when the stock is at an all-time high. So, the real statement should be changed to: “buy high and sell higher.” All you need do is sell it higher than the price you bought it. Don’t worry about all the weird definitions of low, high, and medium; that’s all conjecture. Next time you meet with your financial advisor, tell him to buy high and sell higher!

Staying in the Market for the Long Haul

What does this mean—to ignore problems like the perennial ostrich? What if you see events in the world that could lead to serious decline? Does that mean you just stand pat and ignore everything? This sounds absurd to me! I think this mindset should be changed to staying in for the “U-Haul.”

In other words, as soon as it looks like a good time to move, I pack my stock blanket and go elsewhere. Now, does this mean to leave stocks; altogether? Maybe; or maybe not! There are all kinds of investment options, ETFs, etc, other than mutual funds. With all the new technology and research available, we should be looking at strategies, sectors, styles, methods, shorts, puts, options—all kinds of different things; rather than a mindset to sit and ignore news as it happens. Yes, we are in for the long haul, but we are going to change our long-haul strategy many, many times throughout the trip. This sounds obvious, but many doctors and financial planners sit with the exact same strategy for 30 years when the game has obviously changed. Staying in for the long haul does not have to mean staying with the same strategy.

Asset Allocation

This is like betting on every horse in a race to win. Are you guaranteed to have a winner? Yes, you have to have one because you are holding a winning ticket on the entire field. The key is targeting risk and reducing asset allocation. Go with the sectors that are hot, and get rid of the ones that are weak. We are telling you, a blind dog can find good sectors with all the information we have at our fingertips. Tell yourself to forget every horse to win, do good research, bet on the best ones, and target their risk. If you have too many “horses,” you avoid too much loss, but you also limit your gain by huge margins.

Automatic Portfolio Rebalancing

Wow, do we hate this one! Portfolio rebalancing is the Robin Hood of investments: it takes from the profitable to feed the losers. Doctor-investors may have some good sectors making large gains until an automatic rebalance program their profits to buy more losers! What’s up with that?

Counsel yourself not to be in certain sectors that have much greater risk with much less chance of return. Do you know how many investors were invested in Japan two decades ago or the financial sector today; and don’t even know it? And when you find out that your money was automatically pulled from large cap US funds to be the financial sector; you will not be happy.

Fees vs. Commissions

Do you realize how much more a fee-based Financial Advisor [FA] takes from the doctor-client than a commission-based planner?

Look at 1% of $100,000; this comes to $1,000 per year. If a client is in “for the long haul,” we can see why: you want his money for the long haul. Twenty years of this philosophy comes out to nearly $50,000 in fees!

If a FA was going to stick you in some investment and leave him alone, would it not have been better to take $5,000 from the company, not from the doctor’s account? This way you keep the $50,000.

Now, don’t try to argue that this puts FAs on the “same side of the fence as the client”, and allows FAs to take better care of them. It may foster excessive risk taking. Remember, the “advisor” gets less money for bonds or cash, so s/he will not encourage these asset classes under this payment system. And, don’t think for a moment that this service is customized for you. It is not! Why do you think it’s called a “turn-key” asset management program in the business? Automation! Or, can you say; mass-customization thru technology, for “masses-of-asses?”

Q: To financial advisors.

A: Why not give all your clients a choice? Why not explain two ways you could get paid and let them decide?

Institutional Money Managers

Here is a great idea—as long as doctors are institutions; and they are not! I work with people, not institutions. Institutional money managers, for the most part, have a pre-tax mindset because they are used to dealing with large amounts from 401(k)s, 403(b)s, annuities or pension plans. This means they manage in a preservation-of-capital mentality, rather than a growth mentality. Now, I’d guess that most doctors are not institutions and need a much better investment philosophy than holding thousands of stocks with numerous money managers. By selecting an institutional money manager, you have assured them of mediocrity.

Market Timing

Can you time the market? Of course you can. It opens at a certain time and it closes at a certain time. “Seriously”; what is market timing?

We often hear this term bantered about when somebody wants to change his or her investment strategy. Changing investment strategies is not timing the market. In 2008, maybe you ought to make it a goal to initiate a new strategy, rather than waiting for the declining manufacturing industry to kill you financially? Should you have done this a few years ago when the mortgage industry began to implode? How about September 2017.

Mutual Funds

Let’s wrap this up with one of our favorites. I hate mutual funds and so should you. Everyone gets to share in the gains and losses together. How sweet. How democratic; or is it socialistic? Can you imagine telling your patients to buy all kinds of drugs at a price that was paid three years ago even though he or she has never used them a day! Who would take that advice? Why leave yourself vulnerable to the whims of someone he or she does not even know? How about having control over what stocks are bought and sold? Can you imagine an investment option that does all of these things? The mutual fund was good when we did not have computers or discount brokerage houses. Today, you would be much better off buying a few bellwether stocks, or whatever, and just holding them forever.

As simple as this sounds, at least the client is buying something and paying tax on the price he or she paid, not what someone else paid three years ago. Times have changed. Understand how mutual funds work and select 15 or 20 of their diversified stocks and hold them. That is much better than any mutual fund.

Reinvest those dividends

Many folks believe that the markets advance two steps, for every step it retreats; sort of a truism. If you are of the same ilk, then reinvesting dividends automatically only assures that you will buy high, 66.67% of the time. It will also be tax inefficient and not allow you to have some dry powder [cash] available cash for extra-ordinary opportunities [i.e., buying low].





Well, we hope you have enjoyed this op-ed piece. As always, we’re happy to debate the issues we address here.


Your thoughts and comments on this ME-P are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.

Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com


Risk Management, Liability Insurance, and Asset Protection Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™8Comprehensive Financial Planning Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™



9 Responses

  1. Colleagues,

    Although traditional financial planners and advisors advocate 3-6 months of cash-on-hand for emergencies; Certified Medical Plannershttp://www.CertifiedMedicalPlanner.com and the health economists from the Institute of Medical Business Advisors typically advocate at least 18-24 months of COH for medical professionals http://www.MedicalBusinessAdvisors.com

    After a day like today; no one should wonder why any longer?

    Financial Planning for Physicians and Advisors

    Dictionary of Health Economics and Finance

    Hope Hetico RN MHA


  2. Black Monday

    One of the oldest and most cherished tools that you will often hear about when markets sour, is what Andrew Horowitz:
    calls, “Placations for a Financial Crisis”.

    Here is a look at the top phrases which will be used in an attempt to soothe investors, especially following a day like Monday:

    Buy on the DIPs
    Diversification is key
    Remember, we are in it for the long haul
    Do not listen to the noise
    There is plenty of liquidity in the markets
    Great time to dollar cost average
    The situation is well contained
    They’re not losses until you sell
    It is time in the markets, not market timing…
    The 25 Year history of the S&P 500 shows….
    Now is the time to buy, not to sell
    80% of the S&P 500 returns are from the top 5 days
    This is healthy for the markets
    Do not let emotions control your decisions
    The S&P 500 has never had a negative 20-year return

    Don’t be fooled by the smokescreen that is meant to keep you invested so that fees can continually be generated from your portfolio. Be smart, do what you know to be right from all of the information that is available and resist the urge to just sit still and hope for the best. Re-evaluate your allocation, reassess your risk and act appropriately.



  3. DCA

    Dollar-Cost-Averaging is mind balm. It doesn’t actually reduce risk, and it doesn’t increase returns.

    In fact, there’s evidence that investors should approach the market more aggressively. Over short periods as well as long, investing lump sums is the equal of dollar-cost averaging, except in those rare times when the market is going straight up, when lump-sum investing does better.

    Very nice post.
    -Financial Advisor


  4. It’s about the Fees,
    The real purpose of the above aged aphorisms is to continue the income stream for fee-based “financial advisors.”

    If you don’t stay in the marekt; they don’t make any money.



  5. My Response,

    In the new-era, physician-investors should consider reviewing their advisors’ investment strategy and financial planning advice. Although the above post does provide some food for thought; I think all of the statements are not completely accurate.

    Using an advisor to assist you in choosing your investments and financial planning strategies can save you time and money. This of course, makes the assumption that you need to delegate the work.

    Example, let’s look at the analogy of fees vs. commissions. Yes it’s true that a fee based financial advisor will earn more over time versus just buying one fund family and taking advantage of break even points. However, if the need arises to rebalance the account, and the choices are inadequate, you might incur new sales charges to buy a new fund.

    Also, it may be time consuming to review all the funds available. Not all mutual funds are created equal and each provides different approach to investing. DFA or American Funds are two good examples of different fund families.

    Furthermore, if you decide to buy individual stocks and bonds, the research can be time consuming. What is your time worth? What would you pay for someone to provide you the research? The recommendation of the stocks and bonds do not come from computer software, but from real analysis.

    Also, it is not accurate to say that all advisors will take more risk since they get compensated less for cash and bonds. If you believe in the concept of asset allocation models, then offering these asset classes are going to define themselves based on your desired portfolio risk.

    In addition, what if you have a question related to another financial planning issue? You will not be able to call that mutual fund company for advice.

    In conclusion, physician-investors that decide to hire and advisor, should trust but verify the information provided to them. Hire an advisor who understands your specific needs and is willing to provide multiple solutions and fee structure.

    Think New-Wave, think for yourself, and use the resource available to make informed decisions. But, is this really new or just forgotten with the good times?

    -Amaury S Cifuentes, CFP®


  6. “New-Wave Thoughts on Investing

    After reading about the Bernard L. Madoff Wall Street scandal, I like my new-wave idea the best.

    Link: http://blogs.moneycentral.msn.com/topstocks/archive/2008/12/12/how-does-a-scammer-lose-50-billion.aspx

    TRUST NO ONE WITH YOUR MONEY. Sorry, if you lost any.



  7. Hello Steve, Dr. Marcinko, Ray, Amaury and Nigel; et cetra

    DIY – You Bet!

    I was shocked after reading the above post when it was originally published. At first, I thought “no-way’, I’ve been working with a financial advisor since 1997; a professional.

    Boy was I wrong, along with the rest of the industry. I mean, it seems like no one got it right his time and I am back to square one; even less after paying advisory fess and taxes, etc.

    The “experts” and so-called “financial advisors” have conflicts of interest. Mutual funds, ETFs, hedge funds, FAs and brokerages all want to keep you at the table so that they can continue to earn fees [commissions and assets under management percentages] from your nest egg.

    Keep investing, buy-on-the-dips, stay in the market; two steps forward and one step back, etc, etc.

    The reality is that they don’t care if you win or lose; they just want you to keep playing the game.

    And now, with this new publication on MSN, it seems that these new-wave ideas may be truer than ever suspected.

    Five Biggest Lies on Wall Street
    Link: http://articles.moneycentral.msn.com/Investing/CompanyFocus/the-5-biggest-lies-on-Wall-Street.aspx?page=2

    They say, the biggest myth of all believes that “this time it’s different.”

    Well, if former President Bush said that “we must suspend free market principles to save the free market”, or similar. Then, maybe this time IT IS different.

    DIY is sounding better and better, to me.
    At least it’s different!



  8. Financial Planners Going Hungry?

    All the financial advisors seem to do is quote PhDs, MBAs and other economists who hold overly optimistic market outlooks and industry opinions. After all, if you don’t buy from them, they don’t eat.

    Instead, why don’t they quote someone like Nouriel Roubioni, PhD, the Professor from New York University known as Doctor Doom. He has been sage-like in his predictions for housing, the credit crisis and the financial markets.

    As RoseAnne would probably say; never-mind! We all know the answer; why.

    Optimism sells; gloom starves.



  9. Here is an article that appeared on the Financial Advisor news website.

    Buy and Hold Under Fire
    April 14, 2009

    Back in February, I spent an hour interviewing FPA’s Robert Rodriguez, who made no effort to disguise his contempt for advisors, pension consultants and others who had dropped his fund because he could not find enough stocks selling at reasonable prices in early 2008 and had let cash build up in his portfolio. Rodriguez was so disgusted with everything—from asset management industry orthodoxy, to American consumers’ penchant for living beyond their means, to politicians in both parties spending money they didn’t have—that a month later he announced he was taking a sabbatical in 2010.

    From Evan Simonoff’s Blog
    Link: http://www.fa-mag.com/blog/evan-simonoff.html

    Now; notice the date of this ME-P [October 2008].The ME-P was ahead of the cruve; once again. Good job, all.



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