- Money Matters
- Baseline Medical Stress
- Pandemic Panic
- Reason for Hope
- We Need You
- We Will Survive
- How to Master Money
- Debt Dilemmas
- This is An Emergency
- Flows Like Water
- Asset Allocation – Key to Avoiding Portfolio Panic
- Where to Put Your Portfolio Money
- Stocks Grow Your Portfolio
- Help the Flow
- CYA- Cover Your Assets
- Calm on the Inside
- Help Yourself & Others
- Take Action Now but Avoid Portfolio Panic
- The Sun Will Rise
This pandemic is causing panic. Don’t make it worse by letting the panic trash your portfolio.
For the first time in my career, I’m hearing worry and panic from my physician colleagues. Some of that is from increased stress levels. Many are fearful of their patients and for their health and the health of their family members.
Many fear being transferred to a dangerous and unfamiliar job area. If they raise safety concerns or if they refuse to transfer they know there is a very real risk of being fired.
Having your financial house in order gives you options. Financial independence removes the worry over job loss. If you haven’t gotten your money issues straightened out, now can be a great time to do so.
Not only will you have options about how and whether to work. You will enjoy your work more. You will feel less stress at home.
Many of you feel stressed by financial concerns. Please let me share my thoughts on how to survive and thrive during this time of financial stress.
I want to help you and I’m not here to make money off you. My employer asked me to present to our employed physicians. I’m sharing my thoughts with you now too.
Baseline Medical Stress
We are seeing more articles about physician burnout in journals and blogs. Burnout and stress are big issues, especially in medicine. Three-fourths of us have wanted to quit at some point. Two-thirds of us feel burnout now.
Those symptoms peak at 45-55 age. That is a common demographic range for practicing physicians. 80% of us will not seek professional help. Many factors contribute to physician depression. Money issues are the #2 contributor to MD depression.
So, physicians have hard, stressful lives and work. Burnout levels are high. And that is before the current crisis.
As you are aware, there is bad news everywhere. Hospitals and clinics canceled elective cases. Elective cases make the most money. They provide the high-margin cases hospitals depend on. Reduced volumes and profit margins produce financial strain on hospitals and physician practices.
Many doctors are being reallocated to unfamiliar environments. They don’t feel competent or comfortable. They worry about not being good enough. We worry about liability.
They worry about bringing home a deadly virus to their family. Homelife is more stressful with working from home and having kids at home 24/7. Financial markets are in turmoil. We entered a bear market. We are heading into a recession, and some predict it will be the worst one ever.
There is job insecurity in medicine for the first time in a generation. Many heard of physician pay cuts, furloughs, layoffs, and terminations.
Reason for Hope
Since you are still reading after all that bad news, let me reward you. There is plenty of good news to celebrate.
Physicians are still well-paid. Incomes are at the top 5% of U.S. households (>200K). Our knowledge and skills are in high demand. There is now a greater public appreciation of our value. Health care workers are now lauded for being the heroes they have always been.
Demographics, demand, and an aging population support forecasts of a physician shortage. Shortages strengthen future employment prospects for doctors.
Most hospital networks have enough cash on hand to cover months of expenses. The shutdowns cut many expenses. Revenue is flowing in from collections, ER visits, and telehealth work.
Furthermore, federal funds will help hospitals. Most hospitals and clinics will survive with prudent measures over the coming months.
We Need You
Health care needs your skills and work. Hospitals cannot provide their life-saving and life-enhancing services without you.
There are doom and gloom on TV reporting of financial markets. Fear not. Stocks will rebound. People will get back to work. Companies are as valuable now as last year; they are being offered at a lower price.
Yes, future cash flows may be lower. But people panic and overreact. Mr. Market has psychological problems and often isn’t rational. If you have money to keep investing, then do so. Guessing the short-term direction of the stock market is a loser’s game. Don’t play it.
We Will Survive
We will come out of the other side of this pandemic. Don’t take the following as gospel. This is a novel coronavirus and we don’t know a lot. Current facts may later turn out to be false. But based on what I’m currently seeing, we should survive as a people and as a nation. Our economy has a future life. That life will be bold and vibrant.
It is looking like the case fatality rate (CFR) of COVID-19 is currently hovering around 1%. It may end up higher or lower. There are likely millions of asymptomatic SARS-CoV-2 infected people. Herd immunity and vaccines are both in our future. We will survive and thrive again.
How to Master Money
If you haven’t already done so, this is a great time to master your money. Health anxiety is normal. Financial anxiety is normal. I tell myself and others to feel it and accept it. Don’t act on it. Control what you can. Accept the rest.
Pull out or create your financial plan or your investor’s policy statement (IPS). Understand the plan. Stick to the plan. This isn’t time to abandon it or make radical changes.
Stay positive. Remember our future is bright.
Understand your debt and debt plan. Check your debt and plan to attack bad debt. Drop any car loans, car leases, or credit card debt.
Review your student debt plan. The CARES Act provided 6 months of payments for PSLF participants.
If you have private student loans and are not going the PSLF route, then consider a ReFi. Refinancing private student loans can be a smart move due to the current low-interest rates.
This is An Emergency
If you don’t have money set aside for emergencies, then this is a good time to start. I recommend doctors have about 6 months of living expenses set aside. This is “dry powder” for living expenses. Or if things turn out well, invest the money. How much you need will vary. But it is a lot of cash. This may be $50K.
Some balk that it is too much to “waste” in cash. But having that cash in times of change like now provides peace of mind. I find that peace of mind is well worth any “lost” investment opportunities.
Flows Like Water
I sometimes use a bathtub analogy to explain money. The cash flowing in and out of your life is like water flowing into and out of the tub. Do you want it to drain and be empty? Isn’t that thought anxiety-provoking? I want my “tub” to “runneth over.”
We tend to focus on our salary. We may now worry about pay cuts, furloughs, or job loss. That’s all on the income side. There are things we can do. With our “free” time we can develop the value of our future income stream.
- Increase the value of your human capital. Improve your skills with CME/ Training.
- Consider a side income for you or your spouse. Telemedicine, grocery delivery service, etc.
- But don’t forget that outflow is part of the equation. Slow the draining out the bottom of the tub.
- Delay paying income taxes until July 15.
- Pause non-governmental 457(b) contributions to build up cash reserves.
- Review variable expenses. Many expenses are dropping naturally (reduced movies, dining out, vacations, etc.)
- Hold memberships. Good candidates are AAA, YMCA, Gym memberships, Audible, and Headspace. Headspace is now free for physicians for the 2020 year.
- Decrease taxes by TLH (tax-loss harvesting) in taxable investment accounts.
Asset Allocation – Key to Avoiding Portfolio Panic
Review your Asset Allocation. That is one of your most important financial decisions and should be in your financial plan. It represents your ratio of stocks to bonds.
If you have no idea how to even start, read a good Personal Finance Book. Then consider Jack Bogle’s Formula (founder of Vanguard). He suggested an “age in bonds” formula would get you into the right ballpark. So if you are 40 years old but 40% of your long-term investment money into bonds. The rest (60% in this case) goes into equity (stocks).
Over time your portfolio will get more “conservative.” It will fluctuate less and be less susceptible to a market decline. Market declines are more devastating later in life. There won’t be enough paychecks coming in to fund your rebound.
You should have more than stocks and bonds. I recommend 3-5 non-correlated assets. That provides enough diversification without a lot of costs and complexity.
Where to Put Your Portfolio Money
Most doctors have retirement accounts. Things like IRAs and your 401(k). Those tax-favored accounts are great for bonds and real estate. Stock index funds are fine for taxable investment accounts.
“Rebalance” if things get way out of whack but continue to invest. So, if you were 50:50 stocks and bonds. After a crash that may become 45:55. If stocks continue their downward spiral it will be time to rebalance. Future contributions should go into the stocks until the ratio is back to 50:50.
Review your financial and investment plan. Your asset allocation and rebalancing plan should already be in there. Make no major changes now. Or if you feel you must, don’t do it without talking to your spouse and/or a professional money manager. The voices in our heads can lead us astray in times of crisis and panic.
Also, consider this time to convert to a ROTH IRA while taxes are low and stock prices are down.
Stocks Grow Your Portfolio
Own equity for growth. The long-term trends are upward. It is hard to see some of those scary drops in stock prices.
Passive, low-cost investing is best. Our own behavior is our biggest enemy. Stay the course and keep your demons in check.
Help the Flow
This diagram is more complex than the bathtub analogy. Our jobs and income are important parts of our financial lives.
But we have some control over the other parts too.
Like assets, expenses, and liabilities. Cutting debt reduces expenses. Reducing expenses frees up more cash to invest. Investing allows us to build income-producing assets. Those assets allow less dependence on our jobs.
CYA- Cover Your Assets
These are the three insurance policies that most doctors should have.
Disability insurance protects your most asset: your Human Capital. A doctor’s lifetime earnings can be $5M – $10M. What if something prevents you from working?
A 20-30 year Term Life insurance policy will protect those dependent on you such as a spouse or children. It will protect them from the financial hardship of your loss of income to the household. Buy the insurance when you are young and healthy, if possible.
If you have children update your will. I’m often amazed to hear of physician parents out there with no will. That boggles my mind. Don’t let that be you.
Umbrella policies are an affordable way to cover liabilities not covered by your other policies.
Calm on the Inside
We need to work on our own health & wellbeing.
Limit COVID-19 and stock market bad news to scheduled times and sources.
Try not to obsess over daily/weekly fluctuations in stocks. It is Noise, not Signal.
Consider meditating. Headspace is free to those with an NPI number in 2020. I use it daily. It helps me reduce anxiety. It increases my gratitude and compassion.
Help Yourself & Others
Pray and/or visit online churches if you are so inclined.
I find giving to others time and money helps me feel more blessed. There are plenty of opportunities to help people in need now. I’m donating to food banks, sponsoring children, and helping first responders. That is what helps me and them. You need to make your own choices.
And remember the importance of physical fitness. A solid base of health, endurance, strength, and fitness helps us to be more resilient. Doctors are not robots. We need to care for ourselves to continue helping others.
Take Action Now but Avoid Portfolio Panic
So, what action steps will you put in place within the next two weeks? A few possibilities.
- Polish and improve your market value.
- Cut optional costs.
- Build your “dry powder” either to live on or redeploy in investments.
- Avoid PANIC.
- Optimize taxes.
- Reduce liability payments.
- Insure against catastrophic losses.
The Sun Will Rise
We will weather this storm and emerge out the other side. Indeed we will survive and thrive again.
Let’s see this as an opportunity to get our money straight and build a strong future of Financial Freedom.