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CHRISTMAS GIFTS: Keeping Up with the Jones Clauses

Posted on December 7, 2023 by Dr. David Edward Marcinko MBA

Feeling the Pressure to “Give”

By Rick Kahler MS CFP®

Are you feeling any pressure this Christmas season to give, give, give? Keeping up with the Joneses all year is hard enough. It gets even worse during the holidays, when we feel pressured to keep up, not just with the Joneses, but also with the expectations others, and ourselves, put on Santa Claus.

Some Christmas shoppers overspend on gifts and end up paying off credit card bills for months. Others drive themselves crazy trying to find exactly the right gifts for the right people. Others hate the whole idea of shopping so much that they find it hard to enjoy the season.

If you fit into any of these categories, the cause may be your money scripts. The unconscious beliefs about money that we all hold are especially likely to kick in this time of year. We are surrounded by expectations and pressures about “ideal” holiday celebrations with the perfect gifts, the perfect decorations, and the perfect foods. As a result, we are especially vulnerable to making money decisions blindly in response to beliefs we don’t even realize we hold.

You may be one of those who regularly end up spending significantly more on gifts than you intended to. You may impulsively buy additional, unbudgeted gifts for people you’ve already bought presents for. You may not even try to set holiday spending limits. You may overspend on things for yourself while you’re Christmas shopping.

If any of these are true for you, you may have some unconscious beliefs about money that drive you to overspend. See whether any of the following money scripts might fit for you:
“The more you spend, the more love you show.”
“It takes the joy out of giving if you pinch pennies.”
“It’s the season for giving lavishly, not for being a Scrooge.”
“If I don’t buy just the right gifts, people won’t like or respect me.”
“I need to give my kids more than I got when I was a child.”
“More gifts and more spending will make the holidays okay (and make my guilt go away).”
“It’s tradition. Everyone expects (whatever) from me.”
“I do so much for everyone else; I deserve something for myself, too.”

It’s also possible you may go to the opposite extreme and be a Grinch when it comes to the holidays. If you hate Christmas shopping, grumble about the holiday being so commercialized, and look forward to January, it’s possible you may hold some money scripts that drive you to underspend. Your beliefs may be similar to the following:

“It’s wrong to spend money except on necessities.”
“You aren’t a spiritual or religious person if you spend too much money.”
“Christmas shouldn’t be about money.”
“It’s wrong to spend money on luxuries when poor people are suffering.”
“It isn’t good for kids to get too much.”
“My kids shouldn’t have more than I had when I was a child.”

Christmas Wreath

If you’d like to change some aspects of what you do and how you feel about holiday spending, you may find it useful to take a closer look at your own beliefs about the season. One way to begin this is to quickly write answers (short statements are best) to the following questions: What do I believe about money and each of the following? Christmas? Family celebrations? Presents? Giving? Spending? Receiving?

Assessment

You may uncover some money scripts similar to the ones listed above. Learning why you tend to overspend or under spend this time of year won’t instantly change what you do. Yet understanding what is behind your pattern of holiday spending is an important way to start becoming a more conscious Christmas shopper.

Conclusion

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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.

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Passive Investing, Like Buying Used Cars, Is a Wise Strategy

Posted on August 29, 2023 by Dr. David Edward Marcinko MBA

More on Passive Investing

By Rick Kahler MS CFP®

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Need a car? Buy used. It’s what I always do. My sweet spot is a low-mileage vehicle two or three years old, which I routinely can find for 25% to 35% less than the original cost. I recommend this strategy to my clients, staff, and friends.

If everyone followed this advice, you’d think the approach would eventually fail dismally. After all, someone has to buy new cars. No worries, though; there are millions of people who will continue to buy new cars. Financial planners have recommended this strategy for decades, and nothing has changed in the supply of great deals on low-mileage cars.

The same applies to investors who invest “passively” in index mutual funds. Passive investors embrace a philosophy that extremely few investors can beat the average return of the stock market. Research by Dalbar, Inc. shows that over a 20-year-period, 97% of fund managers who tried to beat the market actually ended up doing worse than the market average. They suggest that, instead of paying a manager to try and beat the market, you pocket that money yourself and beat them by investing in low cost index mutual funds that simply earn average market returns.

As you might guess, those pushing the high-fee mutual funds that are actively trying to beat the market returns are the big Wall Street firms that need your money to keep their companies thriving. Not surprisingly, these firms regularly attempt to dissuade investors from passive investing.

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active mamt

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An article at ETF.com by Larry Swedroe, the director of research for The BAM Alliance, lists a few of these attempts. Representatives for two large brokerage firms call passive investing “worse than Marxism” and those that do it “parasites.” Another, however, gives a more reasoned warning that is worth exploring. Tim O’Neill, global co-head of Goldman Sach’s investment management division, says “if passive investing gets too big, the market won’t function.”

Up to a point, this idea has some validity. Swedroe says, “Active managers play an important societal role. Specifically, their actions determine security prices, which in turn determine how capital is allocated. And it is the competition for information that keeps markets highly efficient, both in terms of information and capital allocation.”

Passive investors get a free ride at the expense of active investors. As Swedroe notes, they receive all the benefits from the role that active managers play without having to pay their costs. Passive investors need active investors to continue to believe they can beat the markets, just as used car buyers need new car buyers to supply them with used cars.

Just how likely is it that all the people who invest with active investors will figure out that paying active managers is not in their best interests and will shift to passive investing? About the same chance everyone will stop buying new cars.

Consider this. A study by Vanguard, one of the largest passive fund managers, found that $10 trillion, or 20% of the global market equity, is invested in index funds. More importantly, this 20% accounted for only 5% of all the trading. It’s the trading that drives market prices and makes markets efficient and liquid. Swedroe says “we are nowhere near” the chance that passive investing will become so dominant that the efficiency of the markets would be threatened.

Just as there is no immediate threat of the used car supply drying up because no one is buying new cars, there is also little chance that the majority of investors will give up the delusional dream of beating the market. That means wise used-car buyers and wise passive investors can keep on following their wise wealth-building strategies.

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Conclusion

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DOCTORS:

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“Fiduciary Financial Planning for Physicians” https://tinyurl.com/y7f5pnox

“Business of Medical Practice 2.0” https://tinyurl.com/yb3x6wr8

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***

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Dr. Richard H. Thaler and Behavioral Economics

Posted on February 28, 2023 by Dr. David Edward Marcinko MBA

A behavioral scientist

By Rick Kahler MS CFP®

Human beings make most of our decisions—including financial ones—emotionally, not logically. Unfortunately, too much of the time, our emotions lead us into financial choices that aren’t good for our financial well-being. This is hardly news to financial planners or financial therapists. Nor is it a surprise to any parent who has ever struggled to teach kids how to manage money wisely.

Economic Model Assumptions

Yet many of the economic models and theories related to investing are based on assumptions that, when it comes to money, people act rationally and in their own best interests. There’s a wide gulf between the way economists assume people behave around money and the way people actually make money choices. This doesn’t encourage financial advisors to rely on what economists say about financial patterns, trends, and what to expect from markets or consumers.

2017 Nobel Prize in Economics

It’s significant, then, that the 2017 Nobel Prize in Economics went to Dr. Richard H. Thaler, professor of behavioral science and economics at the University of Chicago Booth School of Business. Dr. Thaler’s work has focused on the differences between logical economic assumptions and real-world human behavior. His research not only demonstrates that people behave emotionally when it comes to money; it also shows that in many ways our irrational economic behavior is predictable.

This predictability can help advisors and organizations find ways to encourage people to make financial decisions in their own better interest. The book Nudge, by Dr. Thaler and Cass R. Sunstein, describes some of those methods.

Example:

One example is making participation the default option for company retirement programs like 401(k)’s. Employees are free to opt out, of course, but they need to actively choose to do so.

A second example is the “Save More Tomorrow” plan, which offers employees the option of automatically increasing their savings whenever they receive raises in the future.

Both of these examples rely on a predictable behavior—human inertia. Most of us tend to postpone, ignore, or forget to take action even when that action would be good for us. So if a system is set up so not taking action leaves us with the choice that serves us better, we are “nudged” toward helping ourselves toward a healthier financial future.

Integration

As one of the pioneers in integrating the emotional aspect of money behavior into the practice of financial planning, I’ve long since come to understand that managing money is about much more than numbers. The world of investing may seem to be cold and calculating, but it’s actually driven by emotions. I’m familiar with the work of researchers who have demonstrated that some 90% of all financial decisions are made emotionally rather than logically.

I was pleased in 2002 when one of those researchers, psychologist Daniel Kahneman, won the Nobel prize in economics for his studies of human behavioral biases and systematic irrational behaviors. (That research was done jointly with psychologist Amos Tversky, who died in 1996.)

I’m even more pleased to see the economics Nobel prize go to a behavioral researcher for the second time. Maybe the realm of economics is beginning to integrate the untidy realities of human emotions into its theories. Eventually, this might lead to new economic models that take into account the emotions that shape people’s money decisions and the fact that money is one of the most emotionally charged aspects of our lives.

Assessment

Perhaps economists are beginning to appreciate the truth of the statement Dr. Thaler made at a news conference after his prize was announced. “In order to do good economics, you have to keep in mind that people are human.”

Conclusion

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EDITOR

Contact: MarcinkoAdvisors@msn.com

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Filed under: iMBA, Inc. | Tagged: Amos Tversky, behavioral economics, Daniel Kahneman, Richard H. Thaler, Rick Kahler MS CFP® | 4 Comments »

PODCAST: Suicide Financial Crisis Risk?

Posted on December 8, 2022 by Dr. David Edward Marcinko MBA

By Rick Kahler MS CFP

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I lost over $450,000, I cannot pay the bank, I’ll become homeless. Suicide is the only way out.”

This desperate plea summarizes one of the top posts a few months ago on a Reddit forum for the cryptocurrency Terra Luna. Like other cryptocurrencies, it has recently lost more than 99% of its value.

Over the past five years I have written several columns and given a number of media interviews on the risks of speculating in cryptocurrencies. My most recent one generated a conversation with several of my financial planning peers about the recent crypto meltdown. One of them called my attention to the discussions about suicide on cryptocurrency forums, where some members were posting suicide prevention phone numbers.

READ HERE: https://kahlerfinancial.com/financial-awakenings/money-psychology/financial-crisis-and-the-risk-of-suicide

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COMMENTS APPRECIATED

Thank You

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ORDER: https://www.routledge.com/Comprehensive-Financial-Planning-Strategies-for-Doctors-and-Advisors-Best/Marcinko-Hetico/p/book/9781482240283

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More on “income inequality” and financial planning

Posted on October 17, 2022 by Dr. David Edward Marcinko MBA

“The rich get richer and the poor get poorer”

By Rick Kahler CFP®

One of the pillars of my profession of financial planning and counseling is to help people get richer. For many people, this statement might evoke the idea of “income inequality” as summed up by the phrase “the rich get richer and the poor get poorer.” This is a common money script around a topic that evokes a lot of difficult emotion.

Of course, there are people who have wealth that tends to increase over time. This includes some who inherit vast wealth and others who achieve wealth through business ownership or creative successes. It also includes those who live on less than they make, invest the difference, and make sound investment decisions with the money they have saved.

Goals of financial planning

Regardless of the economic class people start out in, one of the goals of financial planning is to help them expand their lifestyles—in in other words, to get richer. We help them build wealth so they can afford to send their children to college, or can take care of themselves in old age, or can someday not have to work for an income. We help the poor to become middle class, the middle class to become affluent, the affluent to become rich, and the rich to become richer.

When I frame “the rich getting richer” in that manner, people typically respond, “I never thought of it that way.” It contradicts the popular interpretation that the way the rich get richer is by taking from the poor, hence “the poor get poorer.”

Certainly it’s true that some rich people and companies do exploit the poor or try to influence legislation in their own interests. The artificially high prices they charge can be one factor in causing the poor to get poorer. Examples of this might include the secondary educational system as well as industries where excessive regulations limit competition.

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https://www.amazon.com/Comprehensive-Financial-Planning-Strategies-Advisors/dp/1482240289/ref=sr_1_1?ie=UTF8&qid=1418580820&sr=8-1&keywords=david+marcinko

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Reasons

However, just as most of the rich don’t get richer by exploiting the poor, most of the poor don’t get poorer by being exploited by the rich. Some get poorer because they lack education or don’t know how to access help. Some get poorer by events out of their control, such as job layoffs, serious illnesses, or cultural, racial, or sexual discrimination. There are many reasons.

Some get poorer through choosing careers with little future, not taking care of their health, or making poor money decisions such as financially enabling children. Others are caught up in destructive behaviors like addictions or compulsive gambling. A few even choose poverty for religious or philosophical reasons.

Complex

As with many things, income inequality is complex.

For example, some people choose to take large risks that could result in their becoming very rich or very poor.

Others choose the security of a steady paycheck. There could ultimately be a huge wealth gap between the entrepreneur who hits it big and the more conservative person who wants to play it safe. Does that mean the gap is inherently bad, or that the risk-taker doesn’t deserve the rewards of success?

Certainly, the risk-taker could have ended up far worse than the person who played it safe. Does that make one right and the other wrong? I don’t believe so.

Assessment

Just as with other money scripts, “the rich get richer and the poor get poorer” is true in some circumstances. At other times, the truth can be that “the rich get poorer and the poor get richer.” It can also be true (think of the 2008 economic crash) that “the rich get poorer and the poor get poorer.” And the final truth—one that financial planners work toward—is to help “the rich get richer and the poor get richer.”

Conclusion

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.

Book Marcinko: https://medicalexecutivepost.com/dr-david-marcinkos-bookings/
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Filed under: Ethics, Financial Planning | Tagged: “Money Scripts”, Financial Planning, Income Inequality, Rick Kahler MS CFP® | Leave a comment »

On Poor Financial “Specialist” Advice

Posted on July 3, 2022 by Dr. David Edward Marcinko MBA

Dubious Financial Specialists?

By Rick Kahler MS CFP®

Even if you work with a financial planner, there are times you may also need the services of a financial specialist such as an attorney, accountant, or insurance agent.

Conflicted

In a situation where the specialist’s advice may seem to conflict with the suggestions of your financial planner, as a rule the specialist always has the last word. After all, they are the experts. Their particular knowledge is the reason your generalist financial planner recommended consulting them in the first place.

Occasionally, however, a specialist’s recommendations may not be in your best interest. Most are skilled professionals who are very good at their jobs and provide a great service to their clients in moving the financial planning process forward.

However, as in any profession, there are exceptions.

One example of this is when a specialist’s knowledge doesn’t adequately cover the particular needs of a client’s situation.
Another example is a specialist who has a conflict of interest because of receiving commissions for the sale of financial products.

Both of these may be more likely to occur when specialists are chosen less because of their skills and more because of a prior relationship with the client.

While most specialists are open to listening to another point of view, acknowledging errors, or learning new information, some are not. It’s those specialists who lack needed knowledge and are unwilling to admit errors that cause financial planners to lose sleep.

A Choice

If a planner disagrees with the client’s specialist and says so, this can put the client in a difficult and unenviable position of having to choose between two trusted professionals, one of whom may have some incorrect information.

Unfortunately, the client usually doesn’t have the training or knowledge to know which. If the client is forced to side with one professional against the other, at best this damages the ongoing ability of the professionals to work together and at worst it finds the client firing one or both.

Planners who choose to keep silent about the disagreement and defer to the specialist can save face as well as retain working relationships with both the client and the specialist. They can only hope that the apparent poor advice the specialist has given the client works out in the long run.

Most planners I know will weigh the severity of the issue, as well as the strength of the client’s relationships with them and the specialist, when deciding how forcefully to oppose poor advice. If the consequences are significant, many financial planners will risk losing their relationship with the client to point out a specialist’s error.

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To Do List

What can you do to encourage your planner to level with you if one of your specialists is giving you advice that doesn’t serve you well?

I don’t have a definitive answer to this difficult question.

One thing I can suggest is that communication is essential. It’s important that you fully and openly explore any disagreement a planner expresses, no matter how insignificant it sounds.
My second suggestion is to minimize the chances of getting poor advice in the first place. Avoid anyone who might have a conflict of interest, especially if they receive commissions for selling you something. Don’t assume a professional you’ve worked with in other areas is qualified for this particular concern.

Assessment

Make sure your planner has thoroughly researched the specialist’s expertise, and don’t be afraid to ask questions about anything you don’t fully understand. Partner with your financial planner to choose a specialist carefully in the beginning, and you increase the likelihood that all of you will be able to work effectively as a team.

Conclusion

OUR OTHER PRINT BOOKS AND RELATED INFORMATION SOURCES:

PRACTICES: www.BusinessofMedicalPractice.com
HOSPITALS: http://www.crcpress.com/product/isbn/9781466558731
CLINICS: http://www.crcpress.com/product/isbn/9781439879900
ADVISORS: www.CertifiedMedicalPlanner.org
FINANCE: Financial Planning for Physicians and Advisors
INSURANCE: Risk Management and Insurance Strategies for Physicians and Advisors
Dictionary of Health Economics and Finance
Dictionary of Health Information Technology and Security
Dictionary of Health Insurance and Managed Care

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Filed under: Estate Planning, Ethics, Financial Planning | Tagged: poor financial advice, Rick Kahler MS CFP® | Leave a comment »

Passive Investing, Like Buying Used Cars, Is a Wise Strategy

Posted on June 10, 2022 by Dr. David Edward Marcinko MBA

More on Passive Investing

By Rick Kahler MS CFP®

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active mamt

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Conclusion

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Subscribe: MEDICAL EXECUTIVE POST for curated news, essays, opinions and analysis from the public health, economics, finance, marketing, IT, business and policy management ecosystem.

DOCTORS:

“Insurance & Risk Management Strategies for Doctors” https://tinyurl.com/ydx9kd93

“Fiduciary Financial Planning for Physicians” https://tinyurl.com/y7f5pnox

“Business of Medical Practice 2.0” https://tinyurl.com/yb3x6wr8

HOSPITALS:

“Financial Management Strategies for Hospitals” https://tinyurl.com/yagu567d

“Operational Strategies for Clinics and Hospitals” https://tinyurl.com/y9avbrq5

***

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Bundle Charitable Giving Through Donor Advised Funds

Posted on November 15, 2021 by Dr. David Edward Marcinko MBA

Bundle Charitable Giving Through Donor Advised Funds

By Rick Kahler CFP®

With changes to standard and itemized deductions under the new tax law, many CPA’s and tax attorneys are recommending a strategy of bunching or bundling deductible spending into alternate years. I wrote about this approach a few weeks ago.

One way to bundle charitable deductions efficiently and effortlessly is through a Donor Advised Fund (DAF).

Here’s how it works

Suppose you budget $15,000 a year for charitable donations. Around half of this goes to local charities you support regularly. The rest you give in different ways, depending on the needs you become aware of throughout the year.

You could double your denotations to charities you support regularly and give directly to them every other year, but you would lessen your ability to give spontaneously. Giving through a DAF allows you to keep that spontaneity. A DAF allows you to make a large, tax-deductible gift in one year, but decide in the future (a day, ten years, or 100 years later) when and how to distribute that gift. The money stays with the DAF, which invests it, until you instruct the DAF to disburse the funds to the charity of your choice.

New tax laws

With the advent of the new tax law, DAFs have become all the rage in charitable giving. According to an article in Advisor Perspectives by Ken Nopar, the senior philanthropic advisor for the American Endowment Foundation, there are now 300,000 DAF accounts. This is twice the number eight years ago and nearly four times the number of private foundations. But all DAFs are not equal, so establishing one should be done only after some thorough investigation.

Some of the areas the article suggests that you explore with your financial planner or tax preparer are:

1. What is the appropriate amount to donate to a DAF account? Donate too much or too little, and you may not realize the maximum benefit from your gift. Be sure to check with your tax preparer.

2. With some DAF sponsors, it’s possible for your financial advisor to continue to manage your assets in well-diversified, low-cost investments. Otherwise, you may be forced to choose from a very limited number of funds with higher expenses—funds your advisor would be unlikely to recommend. Management by your advisor, in many cases, can produce greater returns, actually allowing you to donate more.

3. Investigate these things before choosing a DAF: The fees they charge, whether they appear to have enough staff and experience to administer the DAF properly, how promptly they send out grants, whether they can accept complex assets like appreciated real estate, and whether you could transfer the fund to another DAF sponsor if you should want to do so.

4. Also ask about limitations and requirements. Some DAFs may limit how much you can give each year to individual charities. Others require a certain percentage (sometimes 50% or more) to be donated to the DAF sponsor itself. A DAF’s rules may require the entire balance to be distributed to the DAF sponsor upon a donor’s death.

As Advisor Perspectives notes, many CPAs and attorneys are providing wise advice in recommending that clients establish DAF accounts. It would be a good idea to take that advice one step further and consult your financial advisor first. Otherwise you might end up with a DAF sponsor that may not be the best fit for your needs or those of the charities you support.

Assessment

As good as bundling donations to a DAF can be, don’t make a decision to use one based on the tax advantages alone. Just as with any investment, it’s important to do your research carefully before you write a check.

Conclusion

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DOCTORS:

“Insurance & Risk Management Strategies for Doctors” https://tinyurl.com/ydx9kd93

“Fiduciary Financial Planning for Physicians” https://tinyurl.com/y7f5pnox

“Business of Medical Practice 2.0” https://tinyurl.com/yb3x6wr8

HOSPITALS:

“Financial Management Strategies for Hospitals” https://tinyurl.com/yagu567d

“Operational Strategies for Clinics and Hospitals” https://tinyurl.com/y9avbrq5

***

Filed under: Estate Planning, Ethics | Tagged: Donor Advised Funds (DAF)., Ken Nopar, Rick Kahler MS CFP® | Leave a comment »

Small Companies Get Tax Breaks, Too!

Posted on May 8, 2019 by Dr. David Edward Marcinko MBA

How can this possibly be fair?

By Rick Kahler MS CFP®

An April 29th headline in The New York Times got my attention: “Profitable Giants Like Amazon pay $0 in Corporate Taxes. Some Voters Are Sick of It.” My immediate reaction was outrage. Amazon had a 0% tax rate. My company’s overall tax rate was 24%, and its net profit was less than 0.000025% of Amazon’s. How can this possibly be fair?

The Times article, by Stephanie Saul and Patricia Cohen, gave few specifics but left the impression that Amazon simply gets out of paying taxes on its profits because of a legal, but unfair, manipulation of the tax code afforded only to wealthy corporations, leaving the heavy lifting to the rest of us poor saps.

I wanted to know how Amazon did it, so I did some research

First, let’s put the $11.1 billion profit into perspective. The past 18 months are the first time Amazon has shown any meaningful profit since 2011. Many of those years saw them losing billions of dollars.

The total value (market capitalization) that shareholders have invested in Amazon is $954 billion as of April 29, 2019. That means the 2018 profit of $11.1 billion represents an earnings yield of 1.16% return on investors’ money. The average earnings yield on a large US company is 4.5%, significantly higher than Amazon’s. While $11.1 billion sounds like a lot of money in dollar terms, when viewed in the amount of money it takes to generate those profits, Amazon’s financials are significantly subpar.

Amazon reduced their taxes to zero by primarily doing four things:

They reinvested their profits in equipment and buildings, and were able to deduct a portion of these expenses. They will have to repay the taxes they deferred on these purchases when they sell the equipment or property. And the money spent was not available for distribution to their shareholders.
They received a tax credit for spending on research and development. This credit is an incentive for any company to help offset the high risk of the up-front costs of developing new ideas, not all of which pay off.
They paid some employees in the form of stock, rather than cash. While still a real cost to the company, this is used to minimize cash outflows, while giving employees an opportunity to reap the rewards of their hard work in future profits.
In their start-up years, Amazon lost billions of dollars. Out of fairness, the tax code allows any business to carry losses over into future years to offset profits, when and if they ever materialize. This type of “write off” is real money that was lost.

The article cited a carpet layer who had a profit of $18,000 and paid more in taxes than Amazon. He was so upset at this injustice that he joined the Socialist Party.

The article failed to mention that many of the same write-offs used by Amazon were available to him, too. If his business was incorporated, the tax bill on his profits was probably 21%, or $3,780. If he had reinvested his profit in a new carpet cleaning machine, had losses from previous years to carry forward, spent money on developing a new type of carpet cleaner, or paid his employees in stock, he would have paid nothing in taxes.

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Assessment

Critics of big corporations might say such strategies would not be realistic for a one-person company. Yet I have seen many small business owners use them, particularly carrying forward losses that result from the essential start-up costs. The corporate tax code generally applies equally to all businesses and is meant to encourage small companies as well as large ones to take the risks necessary to create new jobs.

Conclusion

Your thoughts are appreciated.

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Filed under: Experts Invited, Investing, Taxation | Tagged: Amazon, New York Times, Rick Kahler MS CFP® | Leave a comment »

Consider Taxes Before Retiring Abroad

Posted on April 2, 2019 by Dr. David Edward Marcinko MBA

Physicians Considering Retirement in Another Country?

By Rick Kahler CFP®

One way for a retiring doctor to stretch a retirement nest egg is to relocate your retirement nest. Finding a place with a lower cost of living can include considering retirement in another country.

International Living

According to International Living, Panama is one of the best options for Americans looking for affordable living costs, good medical services, and an appealing climate. Costa Rica, Mexico, and Belize are also good possibilities.

Before you pack your sunhat and flip-flops and head for a low-cost retirement haven like Panama, however, take a look at all the factors affecting your retirement income and expenses. One of those is taxes.

Taxes

Moving out of the country does not mean your tax bill to the US government or your current state will decrease. Short of giving up your US passport, there is nothing you can do to escape paying US taxes on your income, even if you don’t live in the US. We are one of two countries worldwide—the other is Eritrea—that taxes our citizens based on both residence and citizenship.

You might assume, however, that moving out of the country would end your liability for state income taxes. That isn’t always the case. Some states still want to tax your income even though you don’t live there. According to Vincenzo Villamena in a December 2018 article for International Living magazine titled “How to Minimize Your State Tax Bill as an Expat,” it’s especially problematic if you end up returning to your old address in the state and start filing an income tax return. Eventually, he says, “the state will see the gap” and may require you to pay taxes on the missing years.

You have nothing to worry about if you live in one of the seven states with no income tax: South Dakota, Wyoming, Nevada, Washington, Texas, Florida, and Alaska. Tennessee and New Hampshire aren’t bad, either, as they don’t tax your earnings but they do tax your investment income. Most other states will let you off the hook if you submit evidence that your residence is in another country and you haven’t lived in the state for a while.

Then there are the states that won’t let go of their former residents easily. Those are California, Virginia, New Mexico, South Carolina, North Carolina, Massachusetts, and Maryland. Assuming that when you leave you will be coming back, they require that you continue to pay state tax on your income.

***

Solutions?

The solution to this issue takes a little financial planning and some extra time. The best way to escape paying taxes to a state you no longer live in is to move to a state with no income tax first before relocating abroad. You must prove to your old state that you have left and have no intention of ever coming back.

***

This means moving for real—cutting as many ties to your old state as possible and establishing as many as possible in your new state. You will want to sell your home, close bank accounts, cancel any mailing addresses, change healthcare providers and health insurance companies (including Medicare), be sure no dependents remain in the state, and register to vote and get a driver’s license in the new state. As a final good-bye you will want to notify the tax authorities that you are filing a final tax return for your last year that you lived in the state.

Assessment

In case you need a good state from which to launch your leap into expat status, consider South Dakota. Not only would my income tax-free home state let you go easily, it would welcome you back if you should decide to return to the US.

Your thoughts are appreciated

[PHYSICIAN FOCUSED FINANCIAL PLANNING AND RISK MANAGEMENT COMPANION TEXTBOOK SET]

***

Filed under: Financial Planning, LifeStyle, Retirement and Benefits, Taxation | Tagged: Consider Taxes Before Retiring Abroad, physician retirement planning, Rick Kahler MS CFP® | 1 Comment »

Why is it SO DARN difficult to talk about money?

Posted on December 19, 2018 by Dr. David Edward Marcinko MBA

The SCREAM?

[By Rick Kahler MSFS CFP®]

Do you have difficulty talking to people about money? Specifically, about their money or yours?

Here’s a quick test that will give you an amazingly accurate answer to that question:

Ask the next five people you see how much they make and what they are worth, then share with them the same information about yourself. If you can do that with ease, you probably don’t have difficulty talking to people about money.

Of all those to whom I have suggested this test, hardly anyone has reported back that it was easy. Actually, most people encounter intense emotions just imagining doing the test. Very few complete or even attempt it.

That includes financial professionals. Many people will admit they find it difficult to talk about money, but few financial professionals will. After all, their profession is all about money, so how could they have trouble talking about it? Yet they do, when the money is theirs.

Research

Research finds that most people have such difficulty talking about their money that they will pay to keep their salary a secret. According to an October 16, 2018, article by Jacob Passy in Market Watch, researchers at Harvard Business School and UCLA found that 80% of those surveyed would be willing to pay money to stop coworkers from receiving an email containing their salary information.

“Employees may be afraid to ask coworkers about their salaries because that may force them to reveal their own salaries, which they dislike,” the researchers said.

Why, regardless of our profession, do we dislike telling people what we make or how much we are worth?

Net worth

To find out, try this quick exercise. Imagine asking the next five people you see to reveal their earnings and net worth and sharing your earnings and net worth with them. Then write down all the one-word feelings you can identify that this brings up. Next, write down the thoughts, beliefs, or reasons that come to mind that would keep you from asking or answering these financial questions. Don’t censor your responses, and keep writing until you have nothing else popping up.

You should now have a really good list of why you dislike talking about what you or other people earn and are worth financially.

***

Some of the common feelings are terror, panic, embarrassment, shame, guilt, shock, surprise, and anxiety.

Some of the thoughts are:

If I ask that, people will reject me and think I am a nutcase.
If people find out what I am worth, they will shame and reject me.
It’s too vulnerable to share financial information, I would rather talk about my sex life.
I am afraid of being hurt, rejected, and shamed if I ask someone about their finances
If people find out I don’t have much money, they’ll lose respect for me and take advantage of me.
If people find out I have a lot of money, they’ll lose respect for me and take advantage of me.
If they make more or are worth more than me, I will feel small and insignificant.
If they make less or are worth less than me, I will feel guilty and unworthy of having more.
People don’t like people who make more money or are worth more money than them.
A person’s net worth is equal to their self-worth.

Assessment

Given the emotional weight of money as a topic, at your company Christmas party you may want to stick to talking about politics or religion. If you do want to spice things up and ask “The Money Question,” I would be interested to know about your experience.

Conclusion

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***

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Tis the HealthCare Insurance Renewal Season

Posted on December 12, 2018 by Dr. David Edward Marcinko MBA

A Story on Health Savings Accounts

[By Rick Kahler MS CFP®]

Tis the season to select our health care plans for the coming year. It brought me a little bit of holiday joy to see that my high-deductible bronze plan only went up 6%, to just over $2,000 a month. This is my lowest increase since Obamacare was enacted.

I wasn’t as pleased when I found out my family $4,500 deductible increased to $6,600, with a maximum out-of-pocket cap of $13,200. After analyzing all the options, I decided to stick with this plan. The way I figure it, the minimum I will pay for health care for my family of four is $3,100 a month. The year before Obamacare my family premium was $660 a month for much better coverage.

HSA

Since I have a high-deductible plan, I take advantage of having a health savings account (HSA). An HSA allows me to set aside funds for health costs and receive a tax deduction for the full amount. The limit is $7900 for 2018 and $8000 for 2019 (including an extra $1000 for those over 55). This means that if I chose to use the funds for current health care expenses, I could deduct about half of my annual out-of-pocket expenses.

The HSA rules require that you use the funds for health care expenses, but they set no time limit on when you must use the funds. Many people with HSAs need immediate access to the funds to pay medical insurance. Others, like myself, can afford to cover the deductible out of pocket, allowing the HSA funds to accumulate tax free for future use.

I’ve decided to let my HSA funds accumulate with the intention of creating a financial cushion for future use when Medicare won’t cover a medical need.

Letting an HSA accumulate combines the best features of a traditional IRA and a Roth. Like a traditional IRA, you get to deduct 100% the contribution from your income taxes. Like a Roth, the funds are tax free when you take them out. Another advantage is that the annual $8000 limit is greater than either the IRA or a Roth.

You will need to open a specific account for your HSA. Where you open that account depends on whether you plan to use your account for current health expenses or allow it to accumulate for future use.

Most banks and credit unions offer HSA accounts. These accounts usually carry low costs and work well if you plan to use the funds immediately. However, they are not so good if your intention is to let the funds accumulate.

***

Long term accumulation

For long-term accumulation (with over a 10-year time horizon), you need an HSA account that allows you to invest the funds in low-cost equity funds. Like any investment account, you need to pay attention to the fees. A great site, The HSA Report Card, compares the features of various HSAs. It lists the top 10 HSA providers in each of three categories depending on your needs: current spending, interest bearing, and investing.

For long-term accumulation, I went to the invest category. I was pleased to see my current provider, Health Savings Administrators, was listed among the top 10, but not so happy that they only rated a “C” for fees. The top plan is Fidelity, which carries no fees and offers four mutual funds with zero (yes, 0.00%) expense ratios. Opening a Fidelity account online and transferring the funds from my existing HSA account was easy and efficient.

Assessment

You and I can’t control the rising costs of health care. But by opening and investing with an HSA, we can be smart about how we pay for that care today or in the future.

Conclusion

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***

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Money Beliefs and Luxury Lifestyle TV

Posted on September 19, 2018 by Dr. David Edward Marcinko MBA

Money Beliefs and Luxury Lifestyle TV

By Rick Kahler CFP

***

If you watch TV shows that flash luxury products and feature rags-to-riches stories or the lives of the rich and famous, will you become more materialistic and cold-hearted toward the poor? You might, according to an August 1 story by Sarah Knapton in The Telegraph, “Keeping Up With the Kardashians may make viewers cold-hearted towards poor, study suggests.” It cites research done by the London School of Economics showing that “just 60 seconds of exposure to materialistic media is enough to significantly increase anti-welfare sentiment.”

The article mentions two studies. In the first, participants were divided into two groups. One group was shown clips of luxury products, rich and famous people, and rags-to-riches stories. The other group saw neutral images of London sights, natural scenery, and headlines about dinosaurs. Both groups were then asked questions that evaluated their attitudes toward wealth and success, government benefits, and impoverished people. The group shown the materialistic media scored more negative attitudes toward welfare and welfare policies.

In the second study, participants were asked if they regularly viewed shows like The Apprentice and X-Factor. Those who did were found more likely to hold materialistic and anti-welfare attitudes.

I have some doubts about these studies. For one thing, they mix data on two very different issues—an acute reaction to a stimulus and a chronic behavior.

In the first study, both groups were exposed to stimuli and their reactions were immediately measured. What the research apparently did not do was follow up in one day, one week, or one year to see if the negative anti-welfare impact persisted. My hunch is that, had they tested the two groups one week later, there would have been no significant difference between them in their materialistic or anti-welfare sentiment.

My belief that this is a short-term phenomenon is supported by similar research in neuropsychology made popular by the field of behavioral finance. For example, if two groups are asked to guess the price of something and one group is given a random number before guessing and the other isn’t, the guesses of the first group will be closer to that number than those of the second group. This is called Anchoring, which lasts but moments. A person’s ability to price the object into the future is not permanently impacted.

This is a separate issue altogether from the second study. Here we are talking about a long-term, chronic behavior. People who regularly watch these shows are drawn to them, in part, by their beliefs about money, known in financial therapy as money scripts. I would make the case that many regular viewers held money scripts of valuing wealth and materialism before they watched the shows. While it is unlikely viewing the show created these beliefs, it probably reinforced them.

Can media affect our attitudes toward money? This is a chicken-and-egg question. What comes first? Does the money script attract the viewer to the show, or does the show form the money script? My experience suggests it’s mostly the former.

Perhaps a more accurate headline summing up these studies might have been, “Keeping Up With the Kardashians may give viewers a momentary cold heart toward poor, study suggests,” or “The Apprentice attracts viewers more given to materialism and a cold heart toward poor, study suggests.”

The media play to what their consumers find attractive. I am guessing in an anti-materialistic and pro-welfare culture these shows would attract fewer regular viewers. While the media certainly can influence our attitudes toward money, it’s more probable that our collective attitudes toward money affect the media more than the media affects us.

Drs. Home

Assessment

Your thoughts are appreciated.

Conclusion

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***

Filed under: iMBA, Inc., LifeStyle | Tagged: Money Beliefs and Luxury Lifestyle TV, Rick Kahler MS CFP® | 1 Comment »

More on US Health Care Costs

Posted on August 24, 2018 by Dr. David Edward Marcinko MBA

Highest in the World?

By Rick Kahler MS CFP®

The soaring cost of health care in the United States is painfully obvious to anyone who looks at a medical bill. This aspect of our system has been out of control for decades.

For example, a recent study by the Kaiser Foundation compared health care prices in the U.S. with those in other developed nations, virtually all of which have some form of universal health care. It found ours to be the highest in the world. The average American spends more than $10,348 a year on health care, amounting to a total of 18% of GDP. The average for citizens in other developed countries was about $5,198 per year, or 9% of total GDP.

Despite paying more, Americans average fewer physician consultations. Our rate of about 3.9 per person per year is well below the 7.6 average in the other countries studied. The researchers also found American hospital stays to be shorter, averaging 6.1 days while the average in other countries was 10.2 days.

The Kaiser study also compared costs for several expensive drugs and various medical procedures, including angioplasty and coronary bypass surgery, MRI exams, colonoscopies, appendectomies, and knee replacements. Costs in the U.S. were significantly higher. In fact, the average cost of replacing one knee here ($28,184) would almost pay for two new ones in Australia, where the average cost per knee is $15,941.

The study doesn’t attempt to assess the impact of the Affordable Care Act on U.S. medical costs or to offer any suggested solutions. Nor does it address the respective tax burdens of the various countries. This last is a shortcoming of the study that is important to consider.

***

Many of the European countries that feature significant “cradle to grave” universal health systems also have considerably higher taxes than does the U.S. According to data from the Tax Policy Center, the taxes at all levels of government in many European countries exceed 40 percent of GDP. Taxes in the U.S. are low in comparison. In 2015, U.S. taxes represented 26 percent of GDP. Of the 34 member countries of the Organisation for Economic Co-operation and Development (OECD), only four (Korea, Chile, Mexico, and Ireland) collected less than the United States as a percentage of GDP. It may not be surprising that these countries generally provide more extensive government services than the U.S. does.

Let’s put this into perspective. If Americans pay 18% of GDP in health care costs but spend 14% of GDP less in taxes than many European countries, that would leave the US paying a net of 4% of GDP for health care. This is almost half of what Europeans pay. Perhaps the lower amount we actually spend on health care is explained by the fewer physician visits and shorter hospital stays.

Certainly, not all of the 14% higher GDP in taxes collected by European nations goes to health care. Still, it is reasonable to assume that a significant portion of it does.

***

Another fact that is often omitted by studies critical of the US for not having universal health care is that the US does have government funded health care that (as of April 2018) covers over 130 million people through Medicare, Medicaid, and CHIP. This compares with some 179 million people (2016 numbers) with private insurance. In addition, many U.S. citizens currently qualify for health insurance premium subsidies. A family of four with an income under $72,000 a year would qualify.

Assessment

The high cost of U.S. health care is certainly a serious problem that needs to be addressed. However, a valid comparison of costs here to those in other countries needs to include the differences in tax burdens.

Conclusion

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***

Filed under: Health Economics, Health Insurance | Tagged: Rick Kahler MS CFP® | 3 Comments »

On Medicare Bureaucratization

Posted on August 10, 2018 by Dr. David Edward Marcinko MBA

Isn’t limited to governments

By Rick Kahler MS CFP®

A client recently told me about her first medical checkup after becoming eligible for Medicare. “The doctor said things like, ‘They require us to fill out this form,’ and ‘This test is covered every three years, so we can’t do it this year,’ and ‘Medicare will pay for a baseline EKG even though you have no history of heart disease.’ I’ve gone to this doctor for ten years. I’m the same person I was a year ago. Yet it felt as if I had moved to a category where the appointment was all about the paperwork instead of my health. ”

A situation like this, where the paperwork seems more important than the person, demonstrates something I call the Principle of Bureaucratization: the idea that the more layers of decision-making are added to an organization, the less efficient it becomes in delivering its goods or services.

While this phenomenon affects organizations and governments of all sizes, the negative outcomes seem to increase the larger a company becomes or the further away the seat of government is from its constituents. Municipal services seem to be delivered more efficiently than state services. State services tend to be more efficient that those coming from the federal government. There are some exceptions, but not many.

One reason is that the further removed from you the decision-maker is, the less personal the services will be. Moving from the private health care system to the government-run health care system called Medicare is just one example. The same principle seems to apply in other countries. I have visited the UK numerous times, and it seems that every time I’ve read a newspaper article about some specific failing of the NHS (National Health Service). Just recently, at a workshop in Europe, a participant from the UK told me that the waiting list to see a psychiatrist was one year. “The NHS simply works against you,” she said with exasperation.

I think most Americans can agree that our healthcare system is badly flawed. We may disagree on the causes and cures. I see as one major problem that our federal government has created a regulatory structure which allows a select number of health insurance and pharmaceutical companies control over the health care system. These regulations have sent insurance costs soaring by almost eliminating competition. Third-party payment of medical bills means those receiving the services don’t have any incentive to even ask about costs.

***

Bureaucratization isn’t limited to governments. It also affects large companies where the policies are made by people many layers away from the customers, and the employees dealing with customers don’t have the authority to make decisions or solve problems. Who hasn’t experienced having a seemingly easy problem to solve with a service provider, calling a customer service representative, and ending up on the phone for 45 minutes being passed from department to department and supervisor to supervisor?

Many employees of large firms and governments are equally frustrated by the bureaucracy created in their organizations. Bureaucratic organizations stagnate innovation and responsiveness. They are especially inefficient when those dealing directly with consumers don’t have any significant consequences riding on the quality of the goods or services provided. This is one reason why many, like Brian Robertson in his book Holacracy, believe the “best practices” governance model for organizations is a self-organizing structure that empowers employees closest to consumers to make decisions.

What’s the bottom line?

You’re ultimately responsible for your own well-being. Ask questions, be the squeaky wheel, and, above all, make connections with those working in the bureaucracies you deal with. Help them keep in mind that their purpose is to serve people, not paperwork.

Conclusion

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***

Filed under: Experts Invited, Health Insurance | Tagged: Bureaucratization, medicare, Rick Kahler MS CFP® | 1 Comment »

On Shoplifting

Posted on June 26, 2018 by Dr. David Edward Marcinko MBA

An Invisible and Costly Money Problem

By Rick Kahler MS CFP®

In all my experience with problematic money behaviors, there’s one I’ve never addressed—shoplifting. It’s not discussed in the books I’ve co-authored. While I estimate that I’ve worked with or spoken to around 1000 people about their money scripts, I can’t once recall anyone mentioning a money script that they deserved to steal from retailers or that it was okay to shoplift. In 27 years of writing this column I can’t recall ever writing one about shoplifting. Until now.

The NASP

When I did a little research on shoplifting, the results were sobering. One source, the National Association for Shoplifting Prevention (NASP) estimates that 27,000,000 people in the U.S. have shoplifted at least once. That’s 1 out of 9 people. This means of the 1,000 people I’ve worked with, none of whom identified a money script around shoplifting, it’s safe to assume that 110 had shoplifted. That is mind-boggling to me.

Root Causes

What causes a person to shoplift? According to a research study of 43,000 people that appeared in the American Journal of Psychiatry (Prevalence and Correlates of Shoplifting in the United States, 2008), we don’t fully know. We do know that it isn’t because of economic status. Some high profile and very wealthy celebrities have been caught shoplifting, including Brittney Spears, Winona Ryder, Lindsay Lohan, and Courtney Love.

The NASP website lists the following facts:

· There is no gender profile for shoplifters; it affects both men and women equally.

· About 25% of shoplifters are kids and 75% are adults.

· The majority of shoplifters, 55%, started in their teens.

· Shoplifting is largely not a premeditated crime; over 70% say it’s impulsive.

· Shoplifters say the true reward is the high of getting away with it, not what they steal.

· Shoplifters go undetected in 47 out of every 48 attempts.

· About 57% of adult shoplifters continue to shoplift after being caught.

· Habitual shoplifters steal an average of 1.6 times a week.

Popular Items

What are the most popular items to steal? Lists vary according to the type of survey, but common items include alcohol, cosmetics, small electronics and accessories, clothing, and over-the-counter medications. Many of these are tempting because they are easy to slip into a pocket or handbag.

It’s easy to dismiss shoplifting as an insignificant and relatively harmless crime. We tend to think of it as something that kids might do on a dare or a few adults might do occasionally on impulse. I wonder if this is why it so rarely comes up in discussions of money scripts. Even the word itself is minimizing. “Shoplifting” sounds much less serious than what this behavior really is: stealing.

Yet shoplifting is a serious crime that costs all of us a lot of money. The National Retail Federation’s annual National Retail Security Survey measures “inventory shrink.” The 2017 survey found 1.44% of retail inventory came up missing. More than a third (36.5%) of this loss was due to shoplifting.

Direct losses of inventory are far from the only cost of shoplifting. Security technology and staff time also increase expenses. So does all the wasteful, landfill-clogging packaging that manufacturers add to make small items too bulky to hide in a pocket or bag. The retailers’ response to all these costs, of course, is higher prices for law-abiding consumers.

Assessment

My most important realization from this research is that shoplifting, which NASP calls a “silent crime,” deserves more attention than it receives. When we as consumers naively ignore it, we are ignoring a costly problem that all of us pay for. Perhaps the most damaging money script around shoplifting is the belief that it’s too minor to matter.

Conclusion

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***

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Becoming financially independent to help other people?

Posted on March 4, 2018 by Dr. David Edward Marcinko MBA

Help both the planet and the poor

By Rick Kahler CFP®

Here’s is how you can help both the planet and the poor: Live frugally and save for your own old age.

In other words, become a millionaire or close to it.

Are you concerned about saving the planet?
Would you like to see more government funding for research into projects like developing clean energy?
How about helping people who cannot help themselves?
Would you like to see more government spending for marginalized populations?

It’s easy to see that reducing your lifestyle can reduce your carbon footprint to help the planet. But how does your becoming financially independent help other people?

It means you will not become a consumer of precious government or charitable resources that could be redirected to making a difference in both preserving the planet and eliminating poverty. If you don’t provide for yourself financially, chances are good that you will end up dependent on government funding for your existence.

Take long-term health care, for example

Forty-five percent of all nursing home spending is funded by our tax dollars. Of Medicaid’s $565 billion dollar annual budget (2016 figures), 20% or $113 billion goes for nursing home care. The federal government—meaning we the taxpayers—picks up the tab for 65% of all people in nursing homes. Medicaid pays for about 1 million of the some 1.5 million nursing home beds in the US.

The average annual amount the government spends is $113,000 for a semi-private room. What’s interesting is the actual average cost of a semi-private nursing home room is around $225 a day, or about $82,000. I am not sure where the other $31,000 goes, but my hunch is that it’s inefficiently spent on the salaries of those who administer the program. So, if you can save enough to pay your nursing home costs, you get an extra bonus of saving an additional $31,000 in government spending.

One way to relieve the government of the cost of your nursing home care is to purchase long term care insurance. According to Morningstar, the average annual premium for long-term care policies being sold in 2014 was $2772. While this isn’t cheap, neither is it prohibitively expensive for many middle-class Americans, especially compared to common expenditures like unlimited cell phone service or annual vacations.

In addition to direct payments like Medicaid, there’s another cost to society from those who fail to or are unable to provide for their own old age. This is the need for family members to become unpaid caregivers. For 2013, Morningstar estimated the dollar value of such care at $470 billion. If caregivers quit jobs or take time off, or if they are forced to take Social Security benefits early, the result is lost tax revenue and increased government spending. In addition, those who sacrifice their own resources to care for parents may carry a pattern of retirement scarcity on into the next generation.

The wealthy

It appears to be a common misperception that “the wealthy” are somehow a drain on society who use more than their fair share of resources. There may be some validity to this perception for the relatively few uber-rich with multiple homes and conspicuously lavish lifestyles.

However, quite the opposite is true for the much greater number of ordinary people who accumulate enough wealth to take care of themselves until the end of their lives. When you are able to fund your own lifetime care, you do not need your family members and fellow taxpayers to provide the resources you require. And at the end of your life, you might even be able to bequeath some of your estate to help the poor and the planet.

***

Conclusion

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***

Filed under: Ethics, Financial Planning, LifeStyle | Tagged: government funding for research, Rick Kahler MS CFP®, saving the planet | Leave a comment »

“Getting Old is Better than the Alternative”

Posted on December 11, 2017 by Dr. David Edward Marcinko MBA

More on Retirement Planning

By Rick Kahler CFP®

At the gym where I work out it’s not uncommon to hear us old guys complaining in the locker room about our aches and pains. When the complaining subsides, inevitably someone will remark, “Well, at least getting old is better than the alternative.”

If you are fortunate enough not to die prematurely, you are going to grow old one day. As youth begins to gradually fade and health limitations increase, the reality that you will not be able to earn a living forever will present itself. At some point in time your financial support will need to come from something other than your job or business.

It’s very easy to dismiss this when we are young, because we’ve never known anything but being young. We take our health, vigor, and capabilities for granted. Just like anything that is “normal,” only when it’s gone do we tend to really appreciate it.

Normalacy

I never gave any thought to opening a door, drinking a cup of coffee, or cutting up the food on my plate—until I tore my rotator cuff and my right arm was rendered useless. A few weeks of doing without it taught me a whole new appreciation for the value and ease a functioning right arm brings to my life.

Unfortunately, many of the capabilities we lose with aging do not return after a few weeks of healing. The harsh reality is that eventually most of us will not be able to take care of ourselves in the ways we are used to.

Retirement planning

So when you think about “retirement planning,” here is what that really means: When you can’t earn an income, how will you be provided for? Where is the money for rent and utilities going to come from? How are you going to get to doctor appointments and the store when you can’t drive anymore? Who will help you pay your bills when your eyesight or your mind aren’t as clear as they once were? Who is going to help you with meal preparation or remind you to take your medications?

If you have fully funded your retirement, you can feel secure that, no matter what care and assistance you may need, you will have the means to pay for it. If you haven’t saved adequately, you will need to rely on others to take care of you financially as well as physically.

The “others”

For many people, “others” mean first spouses, then children, and finally governmental or charitable organizations. These all have limitations.

Spouses. What happens if you don’t have a partner? Or when they can no longer care for you? Or when both of you need care?

Children. Unlike many other countries and cultures, “living with the kids” is not necessarily expected or accepted in the U.S. Most children are not equipped emotionally or especially financially to become caretakers for aging parents.

According to studies I’ve read, the cost of caring for a parent who has not provided for themselves ranges from $250,000 to $700,000 in lost wages, opportunities, and out-of-pocket expenses. People may have to quit jobs to care for a parent or hire care at a cost of up to $100,000 a year. Few in American can afford that.

Government and charities. Social Security provides only a minimal income. Medicaid pays for only basic care such as shared living space. Services like public transportation, subsidized elder housing, and reliable in-home services are not available everywhere, especially in rural areas.

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https://www.amazon.com/Comprehensive-Financial-Planning-Strategies-Advisors/dp/1482240289/ref=sr_1_1?ie=UTF8&qid=1418580820&sr=8-1&keywords=david+marcinko

***

Assessment

This is not a pretty picture of retirement. Unfortunately, it is reality for millions of Americans. The consequences of neglecting to prepare financially for old age are all too real.

Conclusion

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On Investing Risk Tolerance

Posted on October 24, 2017 by Dr. David Edward Marcinko MBA

Determining Risk Tolerance

By Rick Kahler CFP®

If you are new to investing, or if you aren’t sure how much risk you are taking in your current portfolio, it may be helpful to spend a little time to determine your risk tolerance.

A good place to start is by taking a few risk tolerance surveys. A variety of free assessments are available online; three examples are at Vanguard, Schwab, and Morningstar.

Examples:

I like surveys that express your risk in terms of downside volatility, or how much loss you could tolerate. Most will express the downside in terms of how far your portfolio would have to go down over a 12-month period before you would jump out.

Unless you only look at your portfolio once a year (which I highly recommend), you most likely won’t tend to think of a decline in your investments as being over a 12-month period. Because we all “anchor” on the highest value, it’s more typical to compare a portfolio’s peak value to its lowest point. You may want to ask yourself how far would the markets need to drop from their highs before you would want to get out “before it’s all gone.” It’s important to understand that the peak to trough drop will usually be much higher than the annual drop. For example, in 2008-2009 the peak to bottom drop in some portfolios was 40% when the 12-month drop was closer to 20%.

What is the right number for you?

So, as the Sleep Number bed commercials ask, what is the right number for you?

If your 12-month tolerance is a 15% drop, you will need to be in a very conservative portfolio, perhaps something like an allocation of 25% in equities and 75% in fixed income investments like bonds. If your tolerance is 25%, a 50/50 allocation may fit. For a tolerance of 35%, maybe a 75/25 allocation will be comfortable.

Don’t take these numbers as gospel. There are many, many variables that will determine what is right for you. I use these simply to give you a context that the less of a drop you can stomach in your portfolio before selling out, the lower your allocation needs to be to equities and the higher your allocation needs to be to fixed income.

If your answer to the question of how much risk you are taking in your investment portfolio is, “I have no clue,” now is the perfect time to get a clue. Why? We are in the ninth year of a bull market in stocks, the third longest in history. Also, 22 out of 23 of the last bear markets bottomed in the first two years of the Presidential cycle.

******

If you find yourself taking too much risk in your portfolio, lighten up on equities and increase your allocation to bonds. Lightening up doesn’t mean selling out of equities. It may mean shifting a 70/30 allocation to a 60/40 or a 50/50. Maybe it means adding some asset classes or investment strategies that do well when stocks drop. Sometimes a slight tweak can do a great deal to keep you in the market when the economy looks to be in a death spiral.

The time to do that tweaking is before the stock market crashes (goes into a bear market), not after. As the six months from September 2008 to February 2009 reminded us, bear markets develop very quickly.

Assessment

The important thing is to take action today to become aware of the risk that is in your portfolio and assess whether you need to make a change.

Conclusion

Contact: MarcinkoAdvisors@msn.com

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On Retirement Planning Risks

Posted on October 18, 2017 by Dr. David Edward Marcinko MBA

How Much Risk?

By Rick Kahler CFP®

If I asked you how much risk you are taking with the investments in your retirement plan, what would you say? My guess is nine out of ten people couldn’t answer that question in a meaningful way. Answers like “A lot,” “Just right,” or “not much,” may as well be “I have no clue.”

Risk tolerance

We typically think of risk levels in terms of “risk tolerance.” This is the appropriate portfolio risk that a person would be most comfortable taking with their investments. While investment advisors are required to assess your risk tolerance and you can measure it yourself on various internet sites, determining what risk you are comfortable with is more of an art than a science. It depends on the investment return you need to produce an acceptable retirement income and the asset allocation that will give you that return, and it is a delicate balance between emotions and financial reality.

When markets are rising, everyone is comfortable with their risk tolerance. I have known retirees who had their entire retirement portfolio in a handful of small company growth stocks—a powder keg of investment risk by any definition of risk.

Yet they were entirely comfortable with that risk, because the stocks they were in “always went up.” Anyone with a stock that “always goes up” either hasn’t held the stock during a bear market or only looks at their brokerage statements once every five years.

Uncomfortable!

To find out what comfort really means when it comes to risk tolerance, it helps to define “uncomfortable.” While risk tolerance tests will ask you how far must your portfolio drop before you freak out and sell, the best way to find this out is when markets are in a free fall.

If you stay in the markets long enough to see them turn around and rise again, your risk tolerance was probably comfortable. If you sell out, it’s a pretty good indication your risk tolerance was not as great as you or your advisor thought. Unfortunately, selling out at a market bottom is a very costly way to find out the risk you had in your portfolio was “uncomfortable.”

A decade

If you have been investing for over 10 years, finding your risk tolerance may be simple.

1. Think back to 2008-2009. Did you stay in the markets or get out?
2. Look at old statements and find out what percentage of your investments was in equities (owning things) and what percentage was in fixed income investments (loaning money through CD’s, money markets, and bonds).
3. Express this as a fraction with your equity percentage first and your bond percentage last. If you were 66% in equities and 34% in fixed income your asset allocation was 66/34.
4. If you stayed in the markets, your allocation was probably “comfortable.” If you got out, it was certainly “uncomfortable.”

***

If your allocation was 70/30 and you stayed in the market, maintaining that allocation should serve you well. Maybe you could even increase the equity portion to 75/25 or 80/20 and still be comfortable.

Conversely, if your allocation was 70/30 and you sold out or reduced the percentage you held in equities, your allocation clearly offered an uncomfortably high level of risk. You will need to reduce the equities in your portfolio. This is especially true if you got back into your old allocation, or something even riskier, to “make up time.” You may well be taking too much risk and setting yourself up for failure all over again. You will need to reassess

Conclusion

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Is money more instinctual than cognitive?

Posted on October 11, 2017 by Dr. David Edward Marcinko MBA

On Financial Therapy

By Rick Kahler MS CFP®

My research in psychology, along with 35 years of experience working with people and their finances, suggests that how we handle money is more instinctual than cognitive.

It’s more a factor of our brains’ hard-wiring than it is learned intelligence. Apparently, some people are just wired to do money well and others are not.

This can sound like a complete copout. The idea that you either have the money gene or you don’t seems simplistic. Yet I believe there is some truth to it.

R&D

Researcher and educator Russ Hudson finds that two centuries of data suggest every human being has three basic instincts that are necessary for survival: social (for getting along with others), sexual (for extending ourselves through generations), and self-preservation (for maintaining our physical life and functioning).

For most of us, these three are not equally balanced. One tends to be dominant, a second supports the dominant one, and the third and weakest one typically creates a blind spot. The dominant and weakest instincts give us the most trouble.

Evidence supports the idea that those with a dominant instinct of self-preservation tend to instinctually be successful savers. They are the people who find it relatively easy to, in the words of the late Dick Wagner, “Spend less, save more, and don’t do anything stupid.”

This doesn’t mean they have a good relationship with money; that they sleep peacefully at night, don’t worry about money, or are not obsessed with money. It doesn’t mean they are happy. But it does mean they tend to be frugal, which is the common denominator of accumulating wealth. They understand instinctually that you can’t spend more than you receive if you are going to thrive and prosper financially. Living life on the edge or focusing on the welfare of others is instinctually foreign to them.

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On the other hand

Someone with a dominant social or sexual instinct may be living hand to mouth, but be blissfully happy doing so. What’s instinctually foreign to them is learning to manage money prudently and take care of themselves financially.

As Jonathan Clements recently wrote in his HumbleDollar blog, “Why is change so difficult? Improving behavior is toughest when it means bucking our hardwired instincts. Intellectually, we may know we should exercise more, lose weight and save more—and yet our instincts keep telling us to stay on the couch, eat Cheez Doodles and shop online.” That’s why more financial education or discipline isn’t enough to motivate most Americans toward finding financial wellness.

For those who don’t have self-preservation as the dominant instinct, the enormity of learning to practice more self-preserving financial habits can feel depressing and hopeless. Yet it is certainly possible. It just isn’t going to be easy.

Idea

One approach that may be helpful is to get assistance and support from others. Clements says he has come to believe the best thing to do is tell friends about your financial goals like saving money for a down payment on a home, paying off a debt, or increasing your retirement plan contributions. This can help motivate you to commit to following through.

Announcing an intention to friends with the hope that the shame of not following through will motivate you to create a new behavior may work for a few. Yet for most, it probably won’t help to change a hard-wired instinct.

Assessment

A better idea might be finding and reporting to an accountability partner who would kindly, without scolding or shaming, help motivate you to establish a habit.

Even better may be engaging a financial therapist to help you with the hard work of cultivating new instinctual behaviors.

Conclusion

Contact: MarcinkoAdvisors@msn.com

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On Institutional Mutual Fund Shares

Posted on October 5, 2017 by Dr. David Edward Marcinko MBA

Institutional Shares

By Rick Kahler CFP®

One of the low points of my career was the day I lost a client because another advisor “had found a way to put their clients into the lowest cost shares available only to large institutions.”

This experience was especially painful because, through my office, the client already was invested in those same low-cost shares. I just hadn’t made sure the client knew that. It was a significant mistake in my personal communication.

Mutual Fund Classes

Many investors don’t know that most mutual fund companies offer a special class of share available only to investors with sizable minimum investments (usually over $1 million per fund). These shares carry the lowest expense ratio (annual fees paid to the fund manager) of any other share class and usually waive any front-end or trailing sales charges. Because it’s generally large private and public intuitions that have the large sums to meet the minimum investment, these are called institutional shares.

Most Registered Investment Advisers (RIAs) who don’t receive commissions have special access to institutional shares through their custodian. Over the life of your investments, these low-cost shares can result in thousands upon thousands of dollars of savings.

If you are in class A, B, C, or R shares, the expense ratio is higher than the fund’s institutional shares, often called I shares. The other share classes often include a commission paid to the broker/advisor. The average annual expense ratio of these funds is around 1.25%. That charge can drop to as little as 0.03% when an advisor places clients in institutional shares.

Example:

For example, take the Rydex S&P 500 Fund, Class C (RYSYX). The Rydex fund tracks the S&P 500, just like hundreds of other index funds. It charges investors 2.33 percent. As an alternative, you can buy the retail share of Vanguard’s S&P 500 Index Fund (VFINX) with a cost of just 0.14 percent, a 94% savings. But you can still save another 71% if your advisor places you in Vanguard’s institutional share of the same fund (VINIX), with a expense ratio of just 0.04 percent.

Any RIA who doesn’t accept commissions and who uses a major custodian like TD Ameritrade, Schwab, or Fidelity has access to institutional class shares. These advisers not only can use them, but are strongly encouraged by the SEC to use them if at all possible. RIAs who don’t put clients in institutional shares had better have a good reason: perhaps a company doesn’t have that class of share, or the client is so small that using a higher cost class of share which eliminates a transaction fee to the investor is actually cheaper.

Selling Point

t had never occurred to me to use our firm’s use of institutional shares as a selling point to prospective clients. After all, every other RIA not only does the same, but is basically required to do so by the SEC.

If you don’t use the services of a RIA and don’t have the $1 million minimum per fund to get into the I shares of the funds, you have several options.

One would be to look for a similar fund with a lower expense ratio, like the example above of replacing the Rydex 500 with the Vanguard 500.
You can also consider an online robo advisor that for 0.25 to 0.50 will put you in institutional shares.
Or you can consider engaging an advice-only planner who is an RIA.

Assessment

Whatever you do, check the share class of your mutual funds. If they are not I shares, ask your fund company or advisor why they are not and how you can move into the I shares. The savings could be phenomenal.

Conclusion

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When You are Not a Financial Numbers Cruncher?

Posted on September 25, 2017 by Dr. David Edward Marcinko MBA

“When I see big numbers in an article, my brain just skips over them”

By Rick Kahler MS CFP®

If you are not a natural number cruncher, you may be like one of my clients who says, “When I see big numbers in an article, my brain just skips over them.” Unfortunately, skipping over numbers can lead to serious misunderstandings.

Here are three questions to ask that can help you clarify those big numbers:

1. What’s the time period? The reported cost or savings of something is completely irrelevant unless you know the length of time over which it is calculated.

For example, the August 11 Wall Street Journal included this headline: “U.S. Is Overhauling Its Nuclear Arsenal.” A secondary headline below read, “A $1 trillion revamp begun under Obama is under way as tensions rise with North Korea.”

It would be reasonable to assume this means an up-front cost of $1 trillion, which might strike you as outrageous, especially if you know the total U.S. annual budget is around $4 trillion. Yet reading the article would make clear that the $1 trillion price tag is over 30 years. This breaks down to an expense of $33 billion a year, roughly six percent of the $550 billion annual defense budget. A headline reading, “6% of annual defense budget to be spent modernizing the nuclear arsenal,” is less likely to make the hairs on your neck stand up in horror.

It’s no different than my saying I plan to spend $100,000 fixing up my house, which has a market value of $200,000. If you assume I’ll spend this immediately, it sounds shocking. But over 30 years it comes to $3,330 a year, which is a reasonable amount to spend on annual maintenance.

This tactic of lumping together multiple year’s expenditures is frequently employed when someone wants to make an expense or a savings seem far larger than it really is.

2. Does the number include interest? If I said the average home in Rapid City, SD, cost $648,679, local residents who know the average home price is around $200,000 might call me a liar. Yet the cost of mortgage interest over 30 years on that $200,000 house brings the total to $648,679. This larger number might seem deceptive, because our society refers to the cost of something based on today’s cash price, not in terms of the total initial cost plus interest.

3. Did you read the whole article carefully? If you speed read and miss the minutia, numbers can be misleading. In recent weeks, the Rapid City Journal has published several articles on the controversial issue of remodeling or replacing the city’s civic center. A July 9th article cited the cost of a new civic center as $182 million; on the second page the cost of a previous proposal for a civic center that was defeated in a public vote was listed as $180 million. A quick read would make it appear the new proposal would cost $2 million more than the previous proposal.

A closer read would show that the $182 million for the new center included interest over 30 years, while the $180 million number for the former included no interest. With interest, the cost of the previous proposal would have been $340 million to $420 million, numbers which did appear elsewhere in the article. If we compare actual cost without interest, the estimated cost of the new proposal is around $100 million to $130 million, which is $50 million to $80 million less than the $180 million cost of the previous proposal.

Assessment

You don’t have to be a “numbers person” to understand big numbers in media reports. You just need (with the help of a calculator, if necessary) to read carefully.

Conclusion

Contact: MarcinkoAdvisors@msn.com

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The EQUIFAX hack; and me!

Posted on September 14, 2017 by Dr. David Edward Marcinko MBA

About the massive computer hack

By Rick Kahler MS CFP®

The massive computer hack of Equifax, one of the three largest US credit reporting agencies, exposed the Social Security numbers, names, and contact information for up to 143 million of us.

How should you respond?

A lot of conflicting advice is floating around; here is what I am doing and what I would recommend:

Go to EquifaxSecurity2017.com and enter your last name and the last six digits of your Social Security number to find out whether you are one of those potentially affected by the breach. There is a question on how accurate this is; one person entered their name as “test” and number as 123456, and was told they were affected by the breach.
Consider (also through EquifaxSecurity2017.com) enrolling in Equifax’s free one-year credit monitoring service. Starting this process put me on a waiting list to actually sign up; I have until November 7 to complete the enrollment. I will wait to sign up until more is known. The fine print of that offer initially appeared to require waiving your right to join a class action lawsuit against the company. The website now reads: “In response to consumer inquiries, we have made it clear that the arbitration clause and class action waiver included in the Equifax and TrustedID Premier terms of use does not apply to this cybersecurity incident.”
Monitor your bank accounts, credit card statements, and other financial information carefully for the next year. Immediately report any suspicious transactions.
Do not rush out and buy identity theft insurance. The big winners out of this mess will be insurance companies that sell this protection, as millions will take out new policies. I do not plan to be one of them, as my opinion that identity theft insurance is of limited value has not changed.
If a check of your Social Security number through Equifax’s website shows your information has potentially been compromised, you could consider canceling credit cards or closing bank accounts that may not protect you against fraud. However, most major credit cards and financial institutions will cover successful fraudulent attempts to use your account.
Consider placing a free fraud alert on your account with the three major credit bureaus to warn creditors to verify your identity before issuing credit in your name. If you contact one agency, it is required to notify the others. You can also put a freeze on your credit, which blocks anyone (including you) from accessing your credit reports without your permission.
Unfortunately, one of the best actions to take is one that none of us can easily do: change our Social Security numbers. It is possible to change one as a result of identity theft, but the application process requires evidence of serious ongoing problems.
Consider contacting your Senators and Representatives to raise the issue of whether it’s time to discuss more flexibility around Social Security numbers. The good news is that elected officials may well be among the millions of us in this boat.

While Equifax has handled this debacle poorly (it took them a month to disclose it), they are not the only company that will suffer serious consequences. I see banks and credit card companies, who ultimately pay the tab for identity theft, as the biggest losers.

Assessment

This data breach potentially involves many people who have followed recommended strategies, such as using strong online passwords and guarding credit cards and account numbers, to protect against identity theft. I recommend following the Equifax story as it unfolds in the media, as it may have an impact on how you should safeguard your data in the future.

Conclusion

OUR OTHER PRINT BOOKS AND RELATED INFORMATION SOURCES:

PRACTICES: www.BusinessofMedicalPractice.com
HOSPITALS: http://www.crcpress.com/product/isbn/9781466558731
CLINICS: http://www.crcpress.com/product/isbn/9781439879900
ADVISORS: www.CertifiedMedicalPlanner.org
FINANCE: Financial Planning for Physicians and Advisors
INSURANCE: Risk Management and Insurance Strategies for Physicians and Advisors
Dictionary of Health Economics and Finance
Dictionary of Health Information Technology and Security
Dictionary of Health Insurance and Managed Care

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Filed under: Information Technology | Tagged: EQUIFAX hack, Rick Kahler MS CFP® | 2 Comments »

Bitcoins for Retirement?

Posted on September 10, 2017 by Dr. David Edward Marcinko MBA

In a Balanced Portfolio?

By Rick Kahler CFP®

A reader recently sent me the following email: “As you know, there are ‘market experts’ pitching bitcoins as an ‘investment’. Has a Huge YTD gain. I’d bet a lot of your readers would like to know if a bitcoin position has a place in a balanced financial portfolio.”

I always appreciate hearing from readers, especially when they challenge me with topics I would normally not have considered. Bitcoins are not something to which I’ve paid serious attention.

How they Work

First, let me explain that a Bitcoin is a type of digital currency which is traded person to person. It is not backed by a government or considered legal tender. While Bitcoin is one of the earliest and most widely known digital currency systems, it is not the only one that is available. These are sometimes called “altcoin,” “virtual currency,” or crypto-currency.”

Unlike government-created currencies where a central bank controls the creation of the currency, Bitcoins are uncontrolled or tracked by any government. This allows people to send or receive money across borders freely, with none of the restrictions, tracking, or caps that are normally placed on transactions by governments.

A digital money system has an inherent problem common to all money systems. How do you keep the currency, especially one that is entirely digital, from being counterfeited? What stops someone from creating Bitcoins or selling the same Bitcoin multiple times?

The solution is a type of open source, public ledger that tracks every Bitcoin transaction from the beginning of Bitcoin time. It makes it virtually impossible to cheat. The creation of new Bitcoins is controlled via a process called mining. Only a limited number of new Bitcoins are allowed into the system annually, similar to how the precious metal supply gradually expands annually based on the mining of new metal.

The market in trading Bitcoins is probably as “free” as a currency market can get. The price of Bitcoins is based on supply and demand. Since Bitcoin was only created in 2009, it has less than a decade of performance to evaluate, but throughout its short history the price has fluctuated wildly. For example, it reached $31 in July of 2011, then dropped back to $2 by that December. In November of 2013 it hit a high of $1,242. The following month, the price dropped to $600, rebounded, crashed, and eventually stabilized to a range of $650 to $800.

The reader who asked me about Bitcoin was certainly right about its impressive 2017 year-to-date performance. On January 1, 2017, a Bitcoin sold for $496.90. As of August 19 it closed at $4,109.10, nearly a ten-fold increase in just eight months.

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Operating History

An article on Investopedia offers a good overview of Bitcoin‘s operation and history.

It also describes some of the risks to evaluate before considering it as an investment. These include the relative novelty and lack of track record of digital currency, the possibilities for hacking and fraud, the uncertainties of future regulation, and the competition of other developing virtual currency systems. It also points out that Bitcoin transactions are similar to dealing with cash. They are “permanent and irreversible,” with “no third party or a payment processor, as in the case of a debit or credit card – hence, no source of protection or appeal if there is a problem.”

Assessment

While I like the libertarian freedom of the idea of a currency uncontrolled by government intervention, I don’t consider owning such a currency an investment. I do consider buying or selling digital currencies like Bitcoin a speculation. Like other speculative investments, these do not belong in any retirement portfolio.

Conclusion

OUR OTHER PRINT BOOKS AND RELATED INFORMATION SOURCES:

PRACTICES: www.BusinessofMedicalPractice.com
HOSPITALS: http://www.crcpress.com/product/isbn/9781466558731
CLINICS: http://www.crcpress.com/product/isbn/9781439879900
ADVISORS: www.CertifiedMedicalPlanner.org
FINANCE: Financial Planning for Physicians and Advisors
INSURANCE: Risk Management and Insurance Strategies for Physicians and Advisors
Dictionary of Health Economics and Finance
Dictionary of Health Information Technology and Security
Dictionary of Health Insurance and Managed Care

***

Filed under: Investing, Retirement and Benefits | Tagged: Bitcoin, Bitcoins, cryptocurrency, Rick Kahler MS CFP® | 7 Comments »

On Veterinary Physicians

Posted on August 24, 2017 by Dr. David Edward Marcinko MBA

“Want a kitten? It’s free”

Rick Kahler MS CFP®

This is an offer I would turn down in a heartbeat. My lack of enthusiasm for cats would far outweigh my frugal appreciation of getting something for nothing.

Even the most ardent cat lover, though, would be wise to think twice before accepting a free kitten. Just as there is no such thing as a free lunch, there is absolutely no such thing as a free pet. I don’t care how “free” the initial cost of any pet is, there will be a cost to owning it. For most pets, the expense of ongoing maintenance is so substantial that the initial cost of the pet becomes insignificant.

A Story

My family once inherited a “free” pet, Sammy the Salamander. He lived the life of Riley for the next 7 years, with a continuous supply of fresh crickets, water, and mulch. At $2 a week, our total cost over his lifetime was $700. Fortunately, he passed peacefully under his rock, so there were no vet costs.

I once had a retired client, with an annual income of $60,000, who opted for medical intervention when her 12-year-old cat was diagnosed with cancer. Her vet bill for surgery and medication came to $12,000. The cat died shortly afterward, but the blow to her standard of living lasted for years while she paid off the debt. I don’t know how much, if anything, she paid for the cat originally. What I can tell you is the initial cost of the cat paled in comparison to its life-long upkeep.

Vet bills can end up to be a significant cost for any pet. According to a July 2017 survey of 1,000 pet owners by Ask.Vet, 40% of pet owners spend more than $500 a year at the vet. The site suggest one reason is that pet owners often ignore their pet’s wellness until a crisis materializes. Maybe annual physicals are as important for pets as they are for people. Of course, in this regard, many people don’t take any better care of themselves than they do of their pets.

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Survey

According to a second survey of 500 dog and/or cat owners by LendEDU, dogs cost their owners an estimated total of just over $2,000 per year while cats averaged just over $1,000. Those who owned only dogs said they would spend over $10,000 to save a dog with a life-threatening condition. Cat-only people were willing to spend about $3,500. Those with both dogs and cats would spend over $10,000 for either one.

Ironically, the Ask.Vet survey found that the highest vet bills come from the smallest pets, with a gerbil being the most expensive. Eighty percent of gerbil owners surveyed spent more than $500 a year on vet bills. Mouse owners were close behind at 79%. Rounding out the top ten were alpacas (75%), goats (72%), chinchillas (70%), sheep (67%), hedgehogs (67%), guinea pigs (64%), pot-bellied pigs (63%), and finally frogs (60%).

Frogs, really? Who would spend $500 a year on vet bills for a frog? I guess the same person that would spend $500 on a gerbil.

I was surprised that the top ten list didn’t include some of the most common pets like dogs, cats, and horses. The survey found that the five pets with the lowest vet bills, in order from top to bottom, were dogs, cats, fish, birds, and turtles.

Assessment

I think the message here is clear. Before you take on any kind of pet, consider whether you can afford the care it will need. And if someone offers you a free gerbil or a free turtle, go for the turtle.

Editor’s Note: This is the first ME-P on the topic. Continue reading →

Filed under: iMBA, Inc. | Tagged: Rick Kahler MS CFP®, vet bills, veterinarian, Veterinary physicians | Leave a comment »

What I Didn’t Know Then?

Posted on July 30, 2017 by Dr. David Edward Marcinko MBA

About Money

[By Rick Kahler MS CFP®]

Fifty years ago I scraped together $100 that I earned moving lawns and invested in my first stocks. I had heard a person could make a lot of money owning stocks. The ones I bought were all very small regional companies that I selected with the help of a stock broker who said they had great promise. They all eventually went out of business.

The next time I had some money to invest, at age 19, I bought a house. My $1,000 down payment grew into $4,000 in a couple of years. I took that money and invested it into the futures market. Within days it was gone.

It probably isn’t a surprise that, after these painful lessons, I put my investable dollars into buying real estate. It took me 10 years to even consider investing money into the stock market.

While I did okay investing in real estate, my foray into more liquid investments could have been much less painful had I known then what I know now.

Here’s what I finally learned: buying individual stocks and trying to beat the market is a game very, very, very few people do well at.

Had I taken that first $100 and purchased an index fund that invested in the 500 largest companies in the US (the S&P 500), 50 years later my $100 would have grown to $12,600, which is 10.2% a year. But I didn’t know that then.

My kids, however, are a little smarter. Six years ago they invested around $100 each into the Vanguard Dividend Appreciation Fund that owns just over 100 large company stocks. Their $100 is now worth around $300, which is a little over 20% a year. If that return would continue, at the 50-year anniversary of their original $100 investment they would each have just over $920,000. While I will guarantee you the 20% returns will not continue, they are well on their way to doing far better with their initial $100 investments than I did with mine.

Which leads me to wonder if the growth of their stock investments is likely to equal the growth of the past 50 years. According to Jonathon Clements of HumbleDollar.com, in a July 1, 2017 blog post , repeating the returns of the past is probably unlikely.

First he contends that because of “the aging of America and the accompanying slow growth in the workforce, the current century’s real economic growth has been sluggish, averaging 1.9% a year over the past 17 calendar years. That’s likely to continue.”

If you take real economic growth of 2%, add inflation of 2%, and add the average 2% dividend yield of stocks, you are looking at a 6% long-term return. Based on Clements’s math, that means $100 will grow to $1,840 in 50 years. That’s a fraction of the $12,600 accumulation of the past 50 years.

***

Clements notes the focus here is on just US stocks, suggesting the outlook for international stocks is much brighter. Other asset classes that could also do well are real estate and commodities.

Assessment

he bottom line is often the same: placing your bets on one stock, one asset class, or one country carries with it a high amount of risk. Most long-term investors need to seriously consider diversifying their nest egg globally in several asset classes. While such investors will never hit a home run, they will also never have to forfeit the game.

After my early attempts at investing, it took me a long time to learn what I didn’t know then. My hope is that writing about my mistakes can help others learn sooner what I do know now.

Conclusion

OUR OTHER PRINT BOOKS AND RELATED INFORMATION SOURCES:

PRACTICES: www.businessofmedicalpractice.com
HOSPITALS: http://www.crcpress.com/product/isbn/9781466558731
CLINICS: http://www.crcpress.com/product/isbn/9781439879900
ADVISORS: www.certifiedmedicalplanner.org
FINANCE: Financial Planning for Physicians and Advisors
INSURANCE: Risk Management and Insurance Strategies for Physicians and Advisors
Dictionary of Health Economics and Finance
Dictionary of Health Information Technology and Security
Dictionary of Health Insurance and Managed Care

***

Filed under: Book Reviews, Investing | Tagged: HumbleDollar.com, Investing, Jonathon Clements, Rick Kahler MS CFP®, What I Didn't Know Then? | Leave a comment »

The New DOL Rule Survey

Posted on July 24, 2017 by Dr. David Edward Marcinko MBA

A Conversation?

[By Rick Kahler MS CFP®]

I recently learned about an unexpected response to the new Department of Labor rule which mandates that all financial advisors and brokers act as fiduciaries (that is, in the best interest of the consumer) when dealing with customers’ retirement plans.

This means brokers will be discouraged from selling high fee and commission products to a customer’s IRA or similar retirement plan. The ruling may force many brokers to revamp for IRA products that have lower fees and commissions.

The Survey

However, according to a J. D. Power survey as reported in Financial Planning, customers are not happy with their brokers charging them lower fees. While the survey found that the clients of fee-only advisors were “generally more satisfied with what they pay their firm,” it also found that commission-based clients are going to leave in droves if their advisors switch to a lower-cost, fee-only model.

Let me get this straight

A broker who until now has owed no fiduciary duty to the customer, and who sells high fee and commission products to that customer, will now be forced by their company to place the consumer’s interest first. When dealing with the customer’s IRA, the broker cannot receive commissions and can only earn a lower fee. The broker places a low-fee product in the client’s IRA.

The result?

The client is so upset they will take their business to another firm.

According to J. D. Powers, that is correct. Their survey says around 60% of the customers of brokerage firms that may have to switch to fee-only when dealing with customer’s IRAs will “probably” or “definitely” take their business to another firm.

***

I am imagining the following conversation between a customer and a broker

Broker:

“Because of the new DOL regulations I can no longer sell you a high fee and commission variable annuity to be owned by your IRA. To comply with the ruling, my company has eliminated the 7% upfront commission on this annuity; we will now charge you a 1% annual fee. They also reduced the annual management expenses from 3% to 1%. Plus, now any advice I give you or product I recommend must be in your best interests.”

Customer:

“So you are eliminating the upfront 7% commission and replacing that with a 1% annual fee, which means 7% more of my money immediately goes to work for me in the investment, right?”

Broker:

“That’s right.”

Customer:

“And instead of the upfront commission you are charging a new 1% annual fee, but reducing the annual management costs of the investments from 3% to 1%. So I’ll still make an additional 1% every year I own this, in addition to saving 7% up front, right?”

Broker:

“That’s right.”

Customer:

“And further, you’re now going to look out for my best interests rather than the best interests of your company.”

Broker:

“Yep.”

Customer:

“This is ridiculous. I’m outta here!”

Broker:

“Where are you going?”

Customer:

“To find a firm that will continue to sell me high commission, high fee products for my IRA and that will work against my best interests!”

Broker:

“You probably won’t find any. Every financial company selling investment products to IRAs has to comply.”

Customer:

“I’ll find someone, somewhere. Goodbye!”

Assessment

This defies all logic. I can only make up stories as to why the survey found the majority of brokerage customers would leave. Might some believe the new fees would cost them more than they currently pay?

My best assumption is that there was no explanation of what “fee-only” or “fiduciary” meant. So, if the results of the J. D. Power survey don’t make a lot of sense to you, join the crowd.

Conclusion

OUR OTHER PRINT BOOKS AND RELATED INFORMATION SOURCES:

PRACTICES: www.businessofmedicalpractice.com
HOSPITALS: http://www.crcpress.com/product/isbn/9781466558731
CLINICS: http://www.crcpress.com/product/isbn/9781439879900
ADVISORS: www.certifiedmedicalplanner.org
FINANCE: Financial Planning for Physicians and Advisors
INSURANCE: Risk Management and Insurance Strategies for Physicians and Advisors
Dictionary of Health Economics and Finance
Dictionary of Health Information Technology and Security
Dictionary of Health Insurance and Managed Care

***

Filed under: Ethics, Investing | Tagged: DOL, DOL fiduciary ruke, fiduciary, Investing, IRA, J. D. Power, Rick Kahler MS CFP® | 1 Comment »

Mid-Year US Markets Investment Update 2017

Posted on July 17, 2017 by Dr. David Edward Marcinko MBA

Second Quarter 2017

[By Rick Kahler MS CFP®]

Most clients I have met with recently show surprise when I tell them the first half of the year was a good one for investors. As one client said,

“How is that possible with all the problems in the world?”

She ticked off the unrest in the Middle East, ISIS, our strained relations with Russia, the instability of North Korea, not to mention the tweeting antics of President Trump and Congress’s inability to fix health care or provide tax relief. To her, all these appear to be good reasons for markets to be going down, not up.

Her response isn’t unusual

Most people mistakenly assume that markets rise when there is good news and do poorly when there is turmoil and pessimism. Actually, it’s often the opposite.

The U.S. stock market has more than tripled in value during the runup that started in March 2009, when the world as we knew it seemed to be ending. The most recent quarter somehow managed to accelerate the upward trend. We have just experienced the third-best first half, in terms of U.S. market returns, of the 2000s.

Still, as good as markets were to investors, economic growth was admittedly meager in the first quarter. The U.S. GDP grew just 1.4% from the beginning of January to the end of March.

Round-up

The S&P 500 index of large company stocks gained 2.41% for the quarter and is up 8.08% in the first half of 2017. International stocks are finally delivering better returns to our portfolios than US stocks. The broad-based EAFE index of companies in developed foreign economies gained 5.03% in the recent quarter and is now up 11.83% for the first half of calendar 2017.

Real estate, as measured by the Wilshire U.S. REIT index, gained 1.78% during the year’s second quarter, posting a meager 1.82% rise for the year so far.

The energy sector, which was a big winner last year, has dragged down returns in 2017. The S&P GSCI index, which measures commodities returns, lost 7.25% for the quarter and is now down 11.94% for the year, due in part to a 20.43% drop in the S&P petroleum index. This proves once again the value of diversification. Just when you start to question the value of holding a certain investment or wonder why the entire portfolio isn’t crowded into one that is outperforming, the tide turns. If only this were predictable.

In the bond markets, longer-term Treasury rates haven’t budged, despite what you might have heard about the Fed raising interest rates. The coupon rates on 10-year Treasury bonds have dropped a bit to stand at 2.30% a year, while 30-year government bond yields have dropped in the last three months from 3.01% to 2.83%.

Some good news

The unemployment rate is at a near-record low of 4.7%, and wages grew at a 2.9% rate in December, the best increase since 2009. The underemployment rate, which combines the unemployment rate with part-time workers who would like to work full-time, has fallen to 9.2%, its lowest rate since 2008.

The current bull market is aging, however. The runup has lasted far longer than anybody would have expected after the 2008 crisis. Inevitably, although it’s impossible to predict exactly when, we are approaching a period when stock prices will go down. It is always good to remember that the stocks in your portfolio will eventually plunge by more than 20% (which is the definition of a bear market).

Assessment

This might be a good time to revisit your stock and bond allocations and be sure you are diversified into five or more asset classes.

***

***

Conclusion

OUR OTHER PRINT BOOKS AND RELATED INFORMATION SOURCES:

PRACTICES: www.BusinessofMedicalPractice.com
HOSPITALS: http://www.crcpress.com/product/isbn/9781466558731
CLINICS: http://www.crcpress.com/product/isbn/9781439879900
ADVISORS: www.CertifiedMedicalPlanner.org
FINANCE: Financial Planning for Physicians and Advisors
INSURANCE: Risk Management and Insurance Strategies for Physicians and Advisors
Dictionary of Health Economics and Finance
Dictionary of Health Information Technology and Security
Dictionary of Health Insurance and Managed Care

***

Filed under: Experts Invited, Investing | Tagged: bond markets, investments, real-estate, Rick Kahler MS CFP®, S&P index, US GDP | 2 Comments »

Are your investment returns beating the market?

Posted on July 6, 2017 by Dr. David Edward Marcinko MBA

A Mid 2017 Update

By Rick Kahler MS CFP®

The question isn’t as simple to answer as you might think.

First of all, “the market” isn’t easy to define. You can compare your investment returns to the Dow Jones Industrial Average, but that index is made up of only 30 large companies.

If your portfolio is properly diversified, it will include a much broader range of asset classes. My preference is eight or nine different classes held in index funds. A typical mix might include stocks from large, medium, and small companies in both the U. S. and foreign countries; international bonds; real estate investment trusts, commodities like wheat, gold, and oil; market neutral funds like managed futures; and Treasury Inflation Protected Securities.

It’s not really relevant to compare quarterly returns on such a diversified portfolio to the Dow.

Instead, many professionals recommend a four-part method to evaluate your portfolio’s performance in a more meaningful way:

Take a long view.

The changes you see in a monthly or quarterly investment statement are purely the result of random movements in the market, what professionals call “white noise.” But you might be surprised to know that even one-year returns fall into the “white noise” category. It’s better to look at your performance over five years or more. It’s better still to evaluate through a full market cycle, from, say, the start of a bull market to the start of a new bull market.

However, you should remember that there are no clear markers on the roadside that say: “This line marks the start of a new bull market.”

Compare your performance to your goals.

Suppose your financial plan indicates that your investments need to generate 2% returns above inflation in order for you to have a good chance of affording a long, comfortable retirement. If that’s your goal, chances are your portfolio is not designed to beat the market.

Instead, it represents a best guess as to what investments have the best chance of achieving that target return, through all the inevitable market ups and downs between now and your retirement date. If your real returns are negative over three to five years, that means you’re probably falling behind on your goals—and you might be taking too much risk in your portfolio.

Recognize that some of your investments will go down even in strong bull markets.

The concept of diversification means that some of your holdings will inevitably move in opposite directions, return-wise, from others. Ideally, the overall trend will be upward—the investments are participating in the growth of the global economy, but not at the same rate and with a variety of setbacks along the way.

If you see some negative returns, understand that those are the investments you’re counting on to give you positive returns during times when other parts of your investment mix turn downward.

When you look at your portfolio statements – don’t focus only on the bottom line.

Remember that the account total is only a snapshot showing the value of the account on one given day and that value constantly fluctuates, sometimes slightly and sometimes more widely.

Instead, make sure the investments listed are what you expect them to be. Look at the longer time periods rather than monthly or even quarterly changes. Notice which investments rose the most and which were down and you’ll have an indication of the overall economic climate.

***

Assessment

Maybe your overall portfolio beat the Dow this quarter or over this year to date; maybe it didn’t. Either way, that variation probably only represents white noise!

Conclusion

OUR OTHER PRINT BOOKS AND RELATED INFORMATION SOURCES:

PRACTICES: www.BusinessofMedicalPractice.com
HOSPITALS: http://www.crcpress.com/product/isbn/9781466558731
CLINICS: http://www.crcpress.com/product/isbn/9781439879900
ADVISORS: www.CertifiedMedicalPlanner.org
FINANCE: Financial Planning for Physicians and Advisors
INSURANCE: Risk Management and Insurance Strategies for Physicians and Advisors
Dictionary of Health Economics and Finance
Dictionary of Health Information Technology and Security
Dictionary of Health Insurance and Managed Care

[Dr. Cappiello PhD MBA] *** [Foreword Dr. Krieger MD MBA]

Front Matter with Foreword by Jason Dyken MD MBA

***

Filed under: Investing | Tagged: Are your investment returns beating the market?, Rick Kahler MS CFP® | 1 Comment »

First Global “Holacracy” Forum

Posted on June 13, 2017 by Dr. David Edward Marcinko MBA

What is Holacracy?

By Rick Kahler MS CFP®

“Holacracy is not something to go beyond, it is beyond.” This statement from David Allen, author of the iconic book, Getting Things Done, illustrates the challenge of describing the Holacratic approach to operating an organization.

Allen was a speaker at the first Global Holacracy Forum, held in Amsterdam, which I recently attended. It was a chance for Holacracy thought leaders from around the world to network and learn more from each other.

What is Holacracy? One of its founders, Tom Thompson of Encode.org, calls it “a complete wholesale replacement for management hierarchy” and says,

“It’s exploring work in pursuit of purpose.”

Many of those attending the forum referred to Holacracy as a new operating system for organizations. Decision-making is taken from the “top” and distributed among clearly defined roles. The Holacratic structure is a highly disciplined way of working that invites everyone to become an entrepreneur in carrying out their role to achieve the purpose of the organization. Holacracy is not egalitarian or a democracy. Its goal is to serve the purpose of the organization by inviting people into conscious relationships with themselves and each other.

***

Behavior Change

As good as that may sound, not every company or every person is a good fit for Holacracy, as forum participants pointed out. “There is a lot of deep individual behavioral change that needs to happen to successfully transition to a Holacracy,” said co-founder Brian Robertson. Frank Klinkhammer, of NetCentric in Zurich, added,

“The personal development of every partner (employee) is now important to the whole group. Do not over-estimate a person’s ability to change, or even your own.”

Robertson said a significant number of companies claimed to have adopted Holacracy but soon dropped the system. “Most of those thought they were doing Holacracy but instead still maintained their management hierarchy and just ran the Holacratic meeting structure.” He noted that, in his experience, companies that make the leap and fully adopt Holacracy say they will never go back.

***

Case Model

One of those is David Allen, who discovered Holacracy six years ago when he was about to fold his company of 45 people. He found it the perfect organizational overlay to his system of Getting Things Done. “Holacracy is about optimizing an organization, Getting Things Done is about maximizing the productivity of an individual.” Allen also emphasized the importance of individual behavioral change, saying,

“People must know how to manage themselves first to exist in Holacracy.”

What is it worth to people to work in a Holacratic company? According to market research done by Michael DeAngelo, who works for the state of Washington, employees in the Seattle area must be offered 30% to 40% more a year to leave a Holacratic organization to work at a traditional company. He says a company using Holacracy “offers everything the workforce values: flexibility, a sense of purpose, autonomy, and personal and professional growth.”

When is a good time to adopt Holacracy?

“There is never a good time to start,” said Allen. I would agree. When I adopted it four years ago, we had just lost a key employee who did a little bit of everything. I wanted a system that required less management, had clear job descriptions, and would give my staff more personal responsibility and freedom. I found all that and more in Holacracy. I also under estimated people’s ability to change their behavior and flourish rather than flounder with the increased freedom and responsibility.

Assessment

Despite the challenges of implementing it, I do believe Holacracy is, as Robertson described it in his closing remarks, “a radical new way to organize power.” He believes Holacratic principles can fundamentally change the power structures of society.

Conclusion

OUR OTHER PRINT BOOKS AND RELATED INFORMATION SOURCES:

PRACTICES: www.BusinessofMedicalPractice.com
HOSPITALS: http://www.crcpress.com/product/isbn/9781466558731
CLINICS: http://www.crcpress.com/product/isbn/9781439879900
ADVISORS: www.CertifiedMedicalPlanner.org
FINANCE: Financial Planning for Physicians and Advisors
INSURANCE: Risk Management and Insurance Strategies for Physicians and Advisors
Dictionary of Health Economics and Finance
Dictionary of Health Information Technology and Security
Dictionary of Health Insurance and Managed Care

***

Filed under: Book Reviews, Practice Management | Tagged: David Allen, Getting Things Done, Global Holacracy Forum, NetCentric, Rick Kahler MS CFP® | 1 Comment »

The correlation between income and cognitive abilities as measured by IQ?

Posted on June 5, 2017 by Dr. David Edward Marcinko MBA

Is there a correlation between higher incomes and high cognitive abilities as measured by IQ tests?

By Rick Kahler MS CFP®

“The higher your IQ, the greater the probability you will earn more than average.”

Like many people, I have believed this common money script to be true. It seems to make sense that the smarter you are, the more likely you are to succeed financially. Many of us assume there must be a correlation between higher incomes and high cognitive abilities as measured by IQ tests.

The New Studies

I was surprised, however, to learn that this is not the case. A study published in November 2016 in the Proceedings of the National Academy of Sciences showed that a high level of innate intelligence is no indicator of financial success.

A December 2016 article in Bloomberg cited one of the co-authors of the study, economist James Heckman. When he asks how much of the difference between people’s incomes can be tied to their IQ’s, most people guess between 25% and 50%. The actual number is about one or two percent.

The study found that personality plays a much bigger part than IQ in financial success. The personality trait that was most strongly associated with earning a high income was conscientiousness.

Conscientiousness?

What, then is conscientiousness? One definition from the English Oxford Dictionary is “wishing to do one’s work or duty well and thoroughly.” A conscientious person is described as diligent, dedicated, perseverant, self-disciplined, meticulous, attentive, careful, studious, rigorous, and hard-working.

The article also warned to be careful not to confuse a high IQ with good grades. They are two very different things. It found that grades and the results of achievement tests were better than raw IQ scores at predicting success. Cognitive ability is only one factor in getting good grades. There are several non-cognitive factors that heavily influence grades, such as perseverance, good study habits, and the ability to collaborate. All of these, of course, are qualities of being conscientious.

The study also found that a secondary trait influencing financial success was curiosity. This is one of the nine traits commonly found in people with high emotional intelligence, according to Dr. Travis Bradberry, author of Emotional Intelligence 2.0.

In a November 2016 article titled “9 Habits Of Highly Emotionally Intelligent People”, Bradberry says that emotionally intelligent people are curious about everyone around them. “Curiosity is the product of empathy, one of the most significant gateways to a high EQ.” Bradberry says the more a person cares about other people and what they’re going through, the more curiosity they will have about them.

The bottom line in financial success is that personality counts, a lot.

This is good news for parents of young children. While you can’t do much to influence a child’s IQ, you can influence conscientiousness and curiosity. One way to do this is through direct teaching.

***

Direct Teaching

For example: Give them some responsibility for household chores. Provide work spaces and schedules to foster good study habits. Help them explore and learn about things they show interest in. Show them that you appreciate emotional intelligence and relationships. Encourage them to finish what they start, and celebrate and appreciate their successes when they persevere.

To teach financial conscientiousness, encourage kids to save for things they want. Allow them to experience the consequences of financial misjudgments like spending all their allowance the minute they get it. Involve them in family projects like planning and saving for a vacation.

Of course, just as with most behaviors and personality traits we would like our children to develop, the most effective form of teaching is by example. The best way to raise conscientious and curious kids is to let them see us being conscientious and curious ourselves.

Conclusion

OUR OTHER PRINT BOOKS AND RELATED INFORMATION SOURCES:

PRACTICES: www.BusinessofMedicalPractice.com
HOSPITALS: http://www.crcpress.com/product/isbn/9781466558731
CLINICS: http://www.crcpress.com/product/isbn/9781439879900
ADVISORS: www.CertifiedMedicalPlanner.org
FINANCE: Financial Planning for Physicians and Advisors
INSURANCE: Risk Management and Insurance Strategies for Physicians and Advisors
Dictionary of Health Economics and Finance
Dictionary of Health Information Technology and Security
Dictionary of Health Insurance and Managed Care

***

Filed under: Book Reviews, Career Development, Experts Invited, Research & Development | Tagged: Emotional Intelligence 2.0., EQ, IQ, James Heckman, Rick Kahler MS CFP®, Travis Bradberry | Leave a comment »

Holistic Financial Planning Specialists

Posted on May 9, 2017 by Dr. David Edward Marcinko MBA

Beyond “Primary Care Planning”

By Rick Kahler CFP®

I believe strongly in the value of financial planning and of working with a fiduciary planner who acts in your best interests. However, a planner is not necessarily the only money professional you may need to maintain your financial wellness. In many ways, a planner is similar to a primary care physician. Both these professionals know that providing the best patient or client service includes knowing when to consult a specialist.

When you see your doctor for an annual physical, the main purpose is to evaluate your health to find any potential problems before they become irreversible or life-threatening. This is important: most of us can think of someone who attributes being alive to “catching something early” because of a routine checkup.

While primary care physicians are skilled at diagnosing and treating many conditions, they are also trained to recognize health concerns that are beyond their areas of expertise. In these cases, they will often refer patients to an appropriate specialist for further treatment.

In similar fashion, a true financial planner is also a generalist whose role is to evaluate and maintain your financial health. This includes diagnosing financial threats and potential threats.

While the financial planner can address some of these conditions, others require referrals to specialists.

Here are a few examples of possible threats and a specialist whose help might be appropriate.

Critical gaps in insurance coverage. An insurance agent.
An inability to save for retirement. A financial therapist, if the financial planner has been unable to help the client resolve the emotional issues behind this behavior.
Potentially devastating issues in existing wills. An attorney specializing in estate planning.
Squandered tax-saving opportunities. An accountant and/or attorney with expertise in tax law and planning.
Lack of personal or business record-keeping and money management. A bookkeeper.
High-fee investment products that are draining retirement resources. This most often would be dealt with by the financial planner.

One of the many differences between doctors and financial planners is that most patients don’t have previous relationships with specialists, so primary care physicians often control the referrals they make. However, people often wait until they are in their 30s or 40s to engage a financial planner. This means they are likely to have existing relationships with attorneys, accountants, and insurance agents.

When a financial issue needing a specialist comes up, then, it’s common to assume one of the professionals you already know is the right person to deal with it. This may or may not be the case. For example, the attorney who handled your divorce or drafted your will is not necessarily an expert on real estate law or asset protection. Not every accountant understands the tax planning inherent in spendthrift trusts or life estates.

***

It’s often a better idea, if your financial planner recommends getting help from a specialist, to ask the planner to recommend someone who has the necessary expertise.

It might also be appropriate to ask for a recommendation from a current professional, such as your attorney or accountant. They may be glad to help, for two reasons. One, your relationship with them does not need to end because you engage a different professional whose particular skills you need. Two, they may well prefer not to take on a matter outside of their usual areas of expertise when a specialist could serve you better.

Assessment

Keep in mind, as well, that it’s your financial health at stake. Whether a professional is your generalist financial planner or a financial specialist, you need them to act in your best interests. This includes making sure they are professional enough to know and acknowledge what they don’t know.

Conclusion

OUR OTHER PRINT BOOKS AND RELATED INFORMATION SOURCES:

PRACTICES: www.BusinessofMedicalPractice.com
HOSPITALS: http://www.crcpress.com/product/isbn/9781466558731
CLINICS: http://www.crcpress.com/product/isbn/9781439879900
ADVISORS: www.CertifiedMedicalPlanner.org
FINANCE: Financial Planning for Physicians and Advisors
INSURANCE: Risk Management and Insurance Strategies for Physicians and Advisors
Dictionary of Health Economics and Finance
Dictionary of Health Information Technology and Security
Dictionary of Health Insurance and Managed Care

***

Filed under: Financial Planning | Tagged: Financial Planning, holistic financial planning, Rick Kahler MS CFP® | Leave a comment »

R.I.P. Richard Wagner JD CFP®

Posted on April 4, 2017 by Dr. David Edward Marcinko MBA

On the Life of “Dick” Wagner

By Rick Kahler CFP®

The financial planning profession lost one of its most significant figures this past week. Richard Wagner, my friend and mentor, died suddenly.

Dick, a longtime financial planner in Colorado, was one of the pioneers and thought leaders of personal financial planning. His visionary leadership and commentary were closely followed and highly respected by financial planners worldwide.

Dick’s influence on financial planning was profound. He was one of the early leaders to understand the emotional impact that money has on our lives and to believe that financial planning must include that emotional component in order to fully serve clients’ needs. We each have an individual relationship with money, which affects everyone in all facets of our lives. For this reason, Dick called money “the most powerful and pervasive secular force on the planet.”

He served as the President of the Institute of Certified Financial Planners and received the Financial Planning Association’s (FPA) highest honor, the P. Kemp Fain, Jr. He was a co-founder of the Nazrudin Project, a leaderless brain trust of 100 of the more forward-thinking planners, therapists, and coaches in financial planning. From this group emerged many FPA presidents, as well as scores of influential books and white papers. For its size, Nazrudin has had a disproportionate and continuing impact on the financial planning profession.

Dick also served on the founding board of the Financial Therapy Association. His keynote address at the group’s first conference eloquently laid the foundation for this embryonic movement of blending psychology and financial planning.

Dick’s life work, the beloved passion he carried for decades, was to see financial planning become a profession. In fact, he envisioned financial planning as the most important 21st century profession because of its focus on money. He challenged financial planners to give their best to their clients and their profession. Even further, he urged us to build an authentic profession—one he saw as dedicated to helping people manage intangible but essential functions, maintaining a responsibility to put clients’ interest first, and serving not only individuals but humanity and the greater good. One of Dick’s last contributions to the profession was the publication of the book he labored for 20 years to write, Financial Planning 3.0.

Anyone who knew Dick for more than a minute knew that he told it like it was—with gusto, clarity, and passion. He characteristically would sum up the essence of financial planning as:

“Save more, spend less, and don’t do anything stupid.”

Most importantly, I knew him as an immensely caring, passionate, wise, and conscientious soul. He was one of my valued mentors. The scope of his ideas and the depth of his creative vision challenged me to question my assumptions and expand my own views of what my chosen profession could become.

I had the privilege of spending many weekends with Dick as a member of a small group of financial planning pioneers who were trying to make sense of this union of emotions and money. I often equated listening to Dick’s visions of “what could be” to flying a commercial airliner at 45,000 feet. While he was soaring, I would spend most of my time trying to figure out if and where we could land the plane.

Wherever he may be now, I believe Dick is still soaring—once again, far higher and farther than those of us left behind. His passing leaves me shocked and saddened, with a sense of grief not yet eased by the gratitude I feel for having known him. The financial planning profession to which he devoted so much of his life was vastly enriched by his ideas and his work.

Publisher’s Note:

Although I never personally met Dick, I do consider him a friend and colleague. We emailed and spoke on the phone, often. In fact, he contributed to the first edition of our book: Financial Planning Handbook For Physicians And Advisors; now in it’s fourth iteration: Comprehensive Financial Planning Strategies for Doctors …

Rest in peace my friend. Robert Pine said it well when he noted,

“What we have done for ourselves is soon forgotten but what we have done for others remains and is immortal.”

-Dr. David Marcinko MBA

Conclusion

OUR OTHER PRINT BOOKS AND RELATED INFORMATION SOURCES:

PRACTICES: www.BusinessofMedicalPractice.com
HOSPITALS: http://www.crcpress.com/product/isbn/9781466558731
CLINICS: http://www.crcpress.com/product/isbn/9781439879900
ADVISORS: www.CertifiedMedicalPlanner.org
FINANCE: Financial Planning for Physicians and Advisors
INSURANCE: Risk Management and Insurance Strategies for Physicians and Advisors
Dictionary of Health Economics and Finance
Dictionary of Health Information Technology and Security
Dictionary of Health Insurance and Managed Care

***

Filed under: Financial Planning, iMBA, Inc., Op-Editorials | Tagged: financial planning association, financial planning for doctors, Nazrudin project, Richard Wagner, Rick Kahler MS CFP® | Leave a comment »

On Extreme Poverty

Posted on March 6, 2017 by Dr. David Edward Marcinko MBA

Known / Unknown to Health Professionals?

By Rick Kahler MS CFP®

Do you think the world is getting better, or worse, or neither?

Based on a recent survey by Max Roser of the University of Oxford, you probably said “worse.” That was the answer from about 95% of the survey respondents, who were from Sweden, Germany, and the US.

To be fair, it might have been good to put a time frame in that question. How would you have answered if the time frame was the last 70 years, 40 years, or 10 years? I suspect if people were asked if the world is getting better based on how it was 200 years ago, there may have been more positive answers.

The data time-line

In a recent article on ourworldindata.org, Roser noted that in 1820 only a miniscule slice of the elite enjoyed higher standards of living. Over 99% of people lived in extreme poverty, which the researchers measured as earning less than $1.90 a day. That number is adjusted for inflation, different price levels in countries, and currency differences.

Things really improved over the next 130 years. In 1950 (nearly 70 years ago) only 75% of the world was living in extreme poverty. In 1981 (nearly 40 years ago) that number was down to 44%. In the last ten years, the number of those living in extreme poverty dropped from 21% to 10%. That is amazing, especially when we consider that two-thirds of those in the US think extreme poverty has almost doubled in recent years.

As surprising as this data is, Roser adds another factor: the fall in extreme poverty is even more notable when we consider that the world population increased seven-fold in the last 200 years. Conventional wisdom may have assume such an increase in population would have had the opposite effect.

Change

What changed globally to produce such an incredible increase in the global standard of living in the light of exploding population growth? The world experienced an unprecedented period of economic growth and increasing productivity.

What was behind the economic growth?

My guess is that an experiment in democracy and free markets begun about 250 years ago with the founding of the United States had a lot to do with it.

It’s interesting that we’ve seen nothing about this trend in the media or from politicians. Wouldn’t a headline reading, “Extreme Poverty Rate Falls 50% in Ten Years” be noteworthy? Or how about “130,000 Fewer People A Day Are In Extreme Poverty Since 1990?”

During the same 200 year period illiteracy dropped from 88% to 15%. Global child mortality decreased from 42% to 4%. The number of those living in democratic societies rose from 1% to 53%. Even global income inequality as measured by the Gini coefficient, while still very high, fell by 5% between 2003 and 2013.

We have heard nothing about any of that. Our news and our politicians do not emphasize how the world is changing but rather what is wrong in the world. Roser notes that, “The media focuses on single events and single events are often bad.” Most of us know intellectually that sensationalism sells and a steady diet of sensationalism can cause us to lose perspective.

***

Assessment

The stories we hear of how financial well-being is in decline are not true. Such misinformation could be one of the biggest global threats we face. Believing that the poor are getting poorer and the rich growing richer on the backs of the poor polarizes and divides us. If the truth of the progress we’ve made became common knowledge, it could provide a foundation of collaboration and hope which would serve to unite us to continue the progress.

Conclusion

OUR OTHER PRINT BOOKS AND RELATED INFORMATION SOURCES:

PRACTICES: www.BusinessofMedicalPractice.com
HOSPITALS: http://www.crcpress.com/product/isbn/9781466558731
CLINICS: http://www.crcpress.com/product/isbn/9781439879900
ADVISORS: www.CertifiedMedicalPlanner.org
FINANCE: Financial Planning for Physicians and Advisors
INSURANCE: Risk Management and Insurance Strategies for Physicians and Advisors
Dictionary of Health Economics and Finance
Dictionary of Health Information Technology and Security
Dictionary of Health Insurance and Managed Care

***

Filed under: Financial Planning, LifeStyle | Tagged: Extreme Poverty, Max Roser, ourworldindata.org, poverty, Rick Kahler MS CFP® | Leave a comment »

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