The “Perfect” Holiday Gift for your Favorite Doctor – YES REALLY!

http://www.CertifiedMedicalPlanner.org

Now, is the perfect time of year to consider one, or all, of these texts as the perfect holiday gift for your favorite doctor, or allied health care professional.

Also, may be used as a client-prospecting tool for Financial Advisors, Wealth and Practice Managers, and CPAs, etc.

Smile, learn and prosper with iMBA in 2016.

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Last Generation Holiday Gift for MDs

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Comprehensive Financial Planning Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners(TM)      

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What Did You Do When the Stock Market was Down?

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Investing Hero or Zero … On Market Timing or NOT!

By Staff Reporters

Here at the ME-P, we believe we have some of the most intelligent and savvy readers in the blog-o-sphere. And – why not?

Most are physicians, nurses and medical specialist of all stripes. Others are CPAs, financial advisors and wealth managers. And, some are medical management and HIT consultants with PhDs and MBAs, etc. More than a few more even have dual and triple degrees and professional designations, like www.CertifiedMedicalPlanner.com

The Question

Accordingly, our friends over at The Finance Buff recently asked:

Q: Do you remember those days last summer when the Dow went down 400 points one day and then it went up 400 points the next day, before it went down another 400 points the following day?

Going Granular

Well – if you do – what did you, or your clients do about it? Did you invest more, stay put, bail out or something else? Go granular on us and your fellow ME-P readers, subscribers and lurkers.

Assessment

Please tell us who you are, what you did during the “flash-crash” a few years ago, or last summer’s mini-meltdown, and how it turned out in hindsight?

Conclusion

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

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Doctors – Are You Ready to Retire?

Moneywise?

By Somnath Basu; PhD, MBA

For those of us between the ages of 45 to 54, the thought of retirement should be popping up a few times these days. And, for doctors between ages 55 and 64, the thought may be taking on urgent tones. Many of us are reconciling to the idea that it may be a fact that we have to either postpone our retirements or live a much simpler life during retirement. Whatever the thoughts may be, what’s driving them is our preparedness to retire.

Preparedness Components

So, we will now examine what the component (dos and don’ts) may be for physicians, and others, to assess whether they are on the right path in their preparations to retire. It is somewhat easier if we consider the preparedness issues of the expectant retirees along the two age groups we tagged earlier. It is possible that we may find that the proper components of our retirement plans may already exist for us and we need to give them a good and disciplined effort to carry us through in the retirement years. It is also important to note, in this vein, that as a nation, our savings rate has gone from -0.6% in 2006 to about 5% today. While most of the increase in savings is the result of people building back an emergency nest egg, we can also take heart in the fact that the savings habit has not become obsolete or even rusty, and given the proper motivation (e.g. a sub-standard retired lifestyle), we can alter our destinies by riding on the same savings wave.

The Possibilities

Let us begin by describing the possibilities for the younger group (ages 45-54) doctors and employees pondering their retirement moves. There are two aspects of retirement that needs consideration. First is the contemplation of the needs associated with retirement lifestyles and the corresponding financial requirements required to sustain such lifestyles.

The second is to consider our current lifestyles, living standards (consumption), our income and savings and to assess whether we are set to achieve our retirement lifestyle targets. To understand the many possibilities, we will examine some typical scenarios using data from the Employee Benefits Research Institute (EBRI). Note that all calculations are only approximations for a typical individual.

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Example:

If you are about 50 years of age, have worked and saved for about 20 years [401(k), or 403(b)] or other pension plan) and earn about $100,000 a year, you should have about $200,000 in your retirement account today. Assuming that Social Security (if the organization remains viable and makes its required payouts), covers about 27% of your needed retirement expenses. You could expect a Social Security payment of about $30,000 per year at age 65. This would mean that in about 15 years, you would need to generate an additional $80,000 per year from your own savings. While you may think that you are not consuming $110,000 worth of lifestyle today, it is useful to note that this estimate is in future (and inflated) dollar terms.

This brings us back to the second question of how much you may be consuming today. If you are paying about 25% as taxes and saving another 5%, then you are currently spending about $70,000 today. At a 3% inflation rate, in 15 years this amounts to a spending of $110,000 on an income of approximately $160,000.

Thus, if your 403(b) balance does not change from now till retirement and you estimate to plan for a 25 year retirement phase, then your 403(b) account will be equivalent to about an additional $8,000 per year, which itself will grow every year minimally at the inflation rate.

If you assume the 403(b) plan will itself grow at about 7% a year over the next 40 years (from ages 50 to 90) then at retirement (age 65) you’ll have about $550,000 and be able to withdraw about $50,000 per year. This will leave you with a shortfall of $30,000 per year. To be able to afford retirement to its fullest, you’ll need to save an additional $15,000 per year for the next 15 years. Before you begin thinking that is a doable task and start assessing which parts of current lifestyle to pare, note that many of the assumptions above may not hold true.

Average Rates of Return

For example, earning a 7% average rate of return over 40 years is no simple task; Social Security may not be able to deliver on its promise. Physician income and job security is a political issue. Paring current lifestyle is a bigger issue. Healthcare and leisure types of costs during retirement may increase by more than 3%, even as you consume more of these retirement lifestyle services.

Therefore, you may want to continue enjoying your current medical practice lifestyle and consider worrying about retirement about 10 years (or more) later or you may take stock of your current situation. If your situation is worse than the average portrayed above, a big issue for you is to keep your physical and mental health well balanced and not depressed and medicated; plan to postpone retirement and practice or work longer, albeit in good health.

Assessment

If you are about 60 years of age, have worked for about 25-30 years, earn $100,00 per year and have about $350,000 in your retirement accounts, your problems are more exacerbated and your fears (of postponing retirement, paring current or future lifestyle or not being able to make up shortfalls) are much more real. The strategies remain the same from earlier in that you have to make some urgent and difficult decisions. These are decisions that cannot be postponed any longer.

Note: First released “All Things Financial Planning Blog” on December 18, 2009.

Conclusion

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

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Take the Hospital Endowment Fund Management Challenge!

Calling all Financial Advisors – Are You CMP™ Worthy?

By Staff ReportersBecome a CMP

After conducting a comprehensive fundraising program, the Hoowa Medical Center received initial gifts of $50 million to establish an endowment. Its status as the community’s only trauma center and neonatal intensive care unit causes it to provide substantial amounts of unreimbursed care every year. This phenomenon, together with the declining reimbursements and an estimated 6% increase in operating costs, leaves the Center with a budgeted cash shortfall of $4 million next fiscal year. Although the new endowment’s funds are available to cover such operating shortfalls, the donors also expect their gifts to provide perpetual support for a leading-edge medical institution.

The Treasurer

Bill, the Center’s treasurer, has been appointed to supervise the day-to-day operations of the endowment. One of his initial successes was convincing his investment committee to retain a consultant who specializes in managing endowment investments. The consultant has recommended a portfolio that is expected to generate long-term investment returns of approximately 10%. The allocation reflects the consultant’s belief that endowments should generally have long-term investment horizons. This belief results in an allocation that has a significant equity bias. Achieving the anticipated long-term rate of returns would allow the endowment to transfer sufficient funds to the operating accounts to cover the next year’s anticipated deficit. However, this portfolio allocation carries risk of principal loss as well as risk that the returns will be positive but somewhat less than anticipated. In fact, Bill’s analysis suggests that the allocation could easily generate a return ranging from a 5% loss to a 25% gain over the following year.

The Committee

Although the committee authorized Bill to hire the consultant, he knows that he will have some difficulty selling the allocation recommendation to his committee members. In particular, he has two polarizing committee members around whom other committee members tend to organize into factions. John, a wealthy benefactor whose substantial inheritances allow him to support pet causes such as the Center, believes that a more conservative allocation that allows the endowment to preserve principal is the wisest course. Although such a portfolio would likely generate a lower long-term return, John believes that this approach more closely represents the donors’ goal that the endowment provide a reliable and lasting source of support to the Center. For this committee faction, Bill hopes to use MVO to illustrate the ability of diversification to minimize overall portfolio risk while simultaneously increasing returns. He also plans to share the results of the MCS stress testing he performed suggesting that the alternative allocation desired by these “conservative” members of his committee would likely cause the endowment to run out of money within 20 to 25 years.

The Polarizer

Another polarizing figure on Bill’s committee is Marcie, an entrepreneur who took enormous risks but succeeded in taking her software company public in a transaction that netted her millions. She and other like-minded committee members enthusiastically subscribe to the “long-term” mantra and believe that the endowment can afford the 8% payout ratio necessary to fund next year’s projected deficit. Marcie believes that the excess of the anticipated long-term rate of return over the next year’s operating deficit still provides some cushion against temporary market declines. Bill is certain that Marcie will focus on the upside performance potential. Marcie will also argue that, in any event, additional alternative investments could be used as necessary to increase the portfolio’s long-term rate of return. Bill has prepared a comparative analysis of payout policies illustrating the potential impact of portfolio fluctuations on the sustainability of future payout levels. Bill is also concerned that Marcie and her supporters may not fully understand some of the trade-offs inherent in certain of the alternative investment vehicles to which they desire to increase the allocated funds.

Key Issues:

1. Given the factors described in the case study (anticipated long-term investment return, anticipated inflation rate, and operating deficit) how should Bill recommend compromise with respect to maximum sustainable payout rates?

2. How should Bill incorporate the following items into his risk management strategy?

a. educating the committee regarding types of risk affecting individual investments, classes, and the entire portfolio;

b. measuring risk and volatility;

c. provisions for periodic portfolio rebalancing;

d. using tactical asset allocation; and,

e. developing and implementing a contingency plan.

3) What additional steps should Bill take to form a group consensus regarding the appropriate level of endowment investment risk?

4) What additional elements should Bill add to his presentation to target the concerns of the “conservative” and “aggressive” committee members, respectively?

Assessment

And so, financial advisors, planners and wealth managers; are you up to answering this challenge? We dare you to respond! Visit: www.CertifiedMedicalPlanner.com

Conclusion

And so, your thoughts and comments on this Medical Executive-Post are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, be sure to subscribe to the ME-P. It is fast, free and secure.

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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 Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com 

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Tax Efficient Investing

Friends and ME-P Readers,

By Sean G. Todd; Esq, M.Tax, CPA, CFP®

Summer is here for sure in Atlanta—90 degrees plus day after day. I’ve been enjoying the fresh sweet corn, a BLT and a large glass of sweet tea at dinner—now that is a fine meal. Why do I share this with you — because at mid-year, I think from time to time we have to step back from all that we are involved in, concerned with, and what we think is important to actually appreciate all that we have and not overlook the small things. Which brings me to the topic of this Medical Executive-Post and not overlooking the small things—like taxes. As a physician-investor, you have to keep an eye on the impact taxes have on your investment portfolio because it is what you keep after taxes that counts.

Of the Markets

During my last post—I indicated that I was not sure if the recent reprieve in the markets was sustainable. And, we did experience a mild reversal recently. But, did you know that doing nothing is actually doing something? I’m pretty certain that the past investment strategies are not going to work going forward and I share these with ME-P readers as to why I believe this is true; and how best to position your portfolio going forward. Other professionals agree—the rules have changed — have you changed anything? Let’s move on to the real reason you continue to read our posts: To be able to make the right long-term decision during these difficult times. In this post we need to focus on the importance of tax-efficient investing.  We are confident that you and your friends and colleagues whom you choose to share this ME-P will benefit from the information discussed, as well.

Why Tax Efficient Investing is Important

Physicians and all investors have experienced some turbulent times over the last 12 months and it appears more rough waters lie ahead. As a physician-investor, you are unable to control the markets but there are certainly things you can control and should. One of these is taxes. Given the level of government spending, additional tax revenues will be needed which equates to higher taxes. You cannot plan your taxes on April 15th but you have to implement a tax strategy plan during the year so you can capture the benefit on April 15th. With increased taxes on the horizon, tax-efficient investment is going to be more important than ever. Brokers or the 1-800 do-it-yourself brokerage firms are not licensed to give you tax advice, but CPAs and EAs, are. The old saying goes, “It’s not what you make, but what you keep after taxes that counts”. This statement will become even more important going forward.

Returns Lost to Taxes

Have you thought of the impact on your portfolio that taxes have on your investment returns? Good financial advisors should as these are still some of the most important decisions you face as an investor.

Take for example a physician-investor in the top tax bracket earned an average return of 15% on actively managed mutual funds in a taxable account from 1981 to 2001. After taxes, average return dwindled to roughly 12% – which means our investor lost an average of 2.4% in return to taxes (the numbers reflect a compound rate of return). Investment return lost to taxes don’t just affect mutual fund investors — you have to look at your entire holdings in your taxable accounts and how you manage your investments, because, investors in individual stocks and bonds are vulnerable too. Like I indicated, you do have a lot of control over your taxes and should actively control them given the significant impact on your total investment return. Something for consideration: Diversification and asset allocation are great tools for helping to reduce portfolio volatility, but we’re still going to be subject to the short-term whims of the market, no matter how diligent we might be in setting up our portfolios and selecting our individual investments. One of the areas that we have the greatest degree of control is the area of tax-efficient implementations. Doesn’t it make sense that where we can exercise the most control, we do so?

Tax-Efficient Investing is More Important than Ever

Work with me here. If we assume that over the next 20 years annual compound returns for the broad stock market average between 8% and 10%, and bonds average about half that, then average portfolio returns would be less than what we enjoyed over the last 20 years. What this actually means is that any return lost to taxes will be a much bigger deal. In other words, losing 2.4% per year to taxes may not have seemed like much if you were making 15-20% annual returns. But if you only expect to make 9% on your investments, keeping as much of that return as possible, can be vital to achieving your long-term goals. The real impact– 2.4% tax impact will cause you to lose 26% of your 9% gain. Thinking you got a 9% gain but your real after-tax gain is only 6.6%. This is a big annual difference and a significant compound difference.

The second reason tax efficiency is more important than ever is because of the changes to the tax rules in 2003. A notable provision: the 15% tax rate on qualified dividend income. Often a missed opportunity! Previously it might have made sense to hold dividend-paying stocks in a tax-deferred account such as an IRA instead of a taxable account. Either way, dividends were taxed at your ordinary income tax rate between 28% and 39.6% prior to 2001. The thought was the IRA offered tax-deferred potential growth.

Currently, qualified dividends in a taxable account are taxed at a maximum rate of 15%. Those save dividends would be taxed at the ordinary rate—currently as high as 35% when withdrawn from your tax-deferred account. As a result, the value of putting dividend-paying stocks in taxable accounts has grown significantly.

What Investments Go Where?

I need to speak in general terms here, investment that tend to lose less of their return to income taxes are good selections to go into taxable accounts. With that said the opposite should be true: Investments that lose more of their return to taxes could go into tax-deferred accounts. Here’s where tax-smart investors might want to place their investments.

Taxable Accounts Tax-Deferred accounts – Traditional IRAs, 401(k)s and deferred annuities
Ideally place…
Individual Stocks you plan to hold more than one year Individual stocks you plan to hold one year or less
Tax-managed stock funds, index funds, low turnover stock funds Actively managed funds that generate significant short-term capital gains
Stocks or mutual funds that pay qualified dividends Taxable bond funds, zero-coupon bonds, inflation protected bonds or high yield bond funds
Municipal bonds, I bonds Reits

DISCLOSURE: This assumes you hold investments in both types of accounts. A different set of rules would apply if you held all your investments in a taxable account or a tax-deferred account.

In general, holding tax-efficient investment in taxable account and less tax-efficient investment in tax-advantaged account should add value over time. It appears that the above serves as a simple set of guidelines to go by but there are additional considerations before making the above allocation.

Additional Considerations

Reallocation of your Portfolio

To maintain your strategic asset allocation will cause additional tax drag on return, to the extent you rebalance in taxable accounts. You may want to focus on your rebalancing efforts on your tax-advantaged accounts, including your taxable accounts only when necessary. Keep in mind, adding new money to underweighted asset classes in also a tax-efficient way to help keep your portfolio allocation in balance.

Active Trading

Active trading by individuals or by mutual funds, when successful tends to be less tax efficient and better suited for tax-advantaged accounts. A caveat: Realized losses in your tax-advantaged accounts cannot be recognized to offset realized gains on your tax return.

Liquidity Preference

If an investor wanted liquidity, then they might be holding bonds in their taxable accounts, even if it makes more sense to form a tax perspective to hold them in tax advantaged accounts. In other situations, it may be impractical to implement all of your portfolio’s fixed income allocation using taxable bonds in tax-advantaged accounts. If so, compare the after-tax return on taxable bonds to the tax-exempt return on municipal bonds to see which makes the most sense on an after-tax basis.

Estate Planning Issues

One cannot overlook the estate planning issues in deciding which account will hold a given type of investment. Also, what is the philanthropic intent of the doctor or investor? Stocks held in taxable accounts receive a step-up in cost basis at death (something heirs greatly appreciate) which is not the same for tax-advantaged accounts. Additionally, highly appreciated stocks held in taxable accounts more than a year might be well-suited for charitable giving.

Roth IRA

This type of account might just be an exception to all of the above. The rules are different when investors involve a Roth IRA. Since qualified distributions are tax free, assets you believe will have the greatest potential for higher return are best placed inside a Roth IRA, when possible.

Conclusion

And so, your thoughts and comments on this Medical Executive-Post are appreciated. Tell us what you think. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, be sure to subscribe to the ME-P. It is fast, free and secure.

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ME-P Marks Post Number One Thousand

Milestone Reached in Record Time

By Ann Miller; RN, MHA

[Executive Director]dave-and-hope2

I’ve had the great pleasure of working with Dr. Dave Marcinko and Hope Hetico since the launch of this Medical Executive-Post; 18 months ago. To watch its growth, and the momentum of their efforts and passion to share protean knowledge on behalf of the profession, serves as a personal beacon for me. And, our target market; medical executives, financial advisors and related management consultants seems to agree.

www.CertifiedMedicalPlanner.com

1,000 Posts

When we launched this companion blog to our institutional, 2-volume, print journal, Healthcare Organization [Financial Management Strategies], the attainment of one thousand posts seemed a long way off. We were not even sure we would still be “in-business” today. We are, and with post number 1,010 – time sure does fly.

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Definition of a Post

A post is a unit of knowledge. Think: knol. Our goal for each post is to offer industry essays, insider columnists, interviews, definitions, case models, expert opinions, news, gossip and investigative reportage and comments; all in a moderated business forum ecosystem. New-wave is good; so is professional expertise, as well as a short and pithy writing style; so is leading-edge and next-generation information with “fly.” 

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Congratulations

Dave and Hope deserve a huge Mazel-Tov as the ME-P marches on, connecting medical professionals, financial advisors and management consultants, nationally. Now, by my calculations:

1,000 post / 18 months = 55 post per month / 30 day / month = about 2 cognitive posts per day. Oh, by the way: we don’t include advertising or classified ads in our posting counts. And, let us not forget the support and efforts of our dedicated staff, as well.

Assessment

The motto of the ME-P matches the philosophy of iMBA, Inc:

“Seeking Solutions and Providing Essential Economics Information for Physicians, Business Executives and Financial Leaders of the Healthcare Enterprise” 

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Conclusion

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The Great Depression of 2008

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Understanding EESA

[By Staff Reporters]

On October 3, 2008, President Bush signed into law the Emergency Economic Stabilization Act (EESA).  It contained significant provisions that will not only impact the financial sector but is a truly “global” law aimed at establishing the stability and reliability of the American banking system and its posture to the world community.

While presenting a speech on the issue in Tampa, Florida, on Saturday, October 11, after a precipitous drop in the stock market the day before, President Bush at 8:00 a.m. (EST) held a press conference with the G-7 Finance Ministers behind him attempting to, once again, quell the fears of the global business community as to a concentrated global effort to “right the ship” of state.

Medical Professionals; et al

Physicians, healthcare administrators, financial advisors, iMBA firm clients, printer-journal subscribers to www.HealthcareFinancials.com and our Executive-Post readers seem to be all asking the same question: are we entering into another “great depression.” To answer this, one needs to review the events leading to this worldwide financial debacle.

Not the Same 

First, this is nothing like the depression of the 1930’s.  The institutions and causes are substantially different.  To prove this your self, just read the seminal work by the economist, John Kenneth Galbraith, “The Great Crash“, and the dissimilarities to the present global situation will be striking.

Second, a little known fact, but two prime catalysts were the principal culprits in this crisis.  One is a financial vehicle called credit default swaps (CDSs) and the other is a generally accepted financial accounting rule known as “mark-to-market”.

Investment Banking Meltdown

At the beginning of 2008, the United States had five major investment banking houses.  By October it had only two remaining.  What brought this major change was the so-called sub-prime debt problem.  But this is the deceptive label given it by naive journalists.  In reality, it was a worldwide market of 54 Trillion (this is not a typo – say again, 54 Trillion) dollar CDS market that collapsed.

Cause and Affect 

How could this happen?  Greed is the short answer but the business expediency of setting up a CDS is largely to blame.  Here’s how it worked.

Example: 

A party would by phone or email enter into a credit default swap contract with a bank.  This could be for an actual debt, e.g. sub-prime obligation or hedging on a non-owned instrument (cross-party) obligation.  Payment of premiums ensured the default.  In the event of default of the obligation, the bank, e.g., Lehman Brothers, would satisfy the contract.  It is a significant fact in these transactions that there was no federal or state regulatory body supervising them. Why?  Because these contracts were not per se securities and, thus, no oversight was necessary.  Of course, the facts belie this assertion — to the tune of 54 Trillion dollars!

Financial Accounting

Then there is the financial accounting rule that required businesses — including financial institutions — to mark their assets, i.e., sub-prime mortgages, to market value.  In a declining market this would require the creation of an unrealized loss on the bank’s books causing investors and others to view the bank as less solvent. 

Assessment

This accounting rule, endorsed by the International Accounting Board in London and enunciated in its International Financial Reporting Standards (IFRS), is also applied overseas.  French President Sarkosy stated that the rule is rescinded in France and the recent EESA of 2008 in the United States requires the SEC to decide whether to suspend it as well.

Conclusion

The DOW fell to 8,519 yesterday, the NASDAQ to 1,615 and the S&P to 896; all medical professionals are anxious. And so, are we entering into another great depression? Please vote.

And, subscribe and contribute your own thoughts, experiences, questions, knowledge and comments on this topic for the benefit of all our Medical Executive-Post readers.

Conclusion

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