Physicians with at least one retirement account (for example, an IRA, Roth IRA or 401k) and one taxable account will benefit from higher returns with comprehensive asset location. In asset location, all accounts supporting the same financial objectives (for example, providing income in retirement) are viewed collectively as a single portfolio. Asset classes (for example, U.S. stocks or government bonds) are preferentially placed in either retirement or taxable accounts.

In taxable accounts, high-yielding assets have a higher tax burden than in retirement accounts. These assets are prioritized for placement in retirement accounts. In contrast, tax-free municipal bonds bear no tax burden, so they are preferentially placed in a taxable account. The result is the risk-adjusted expected return from the sum of all accounts increases. This is particularly important for physicians who, by virtue of being in high tax brackets, pay a lot of taxes.

Consider what happens if you place a high-yielding investment in a non-tax sheltered account. You must pay 39.6% (top tax rate) on non-qualified distributions from that investment, as opposed to sheltering that high-yielding asset in a tax-deferred account. Clearly, your net returns are dependent upon more than just appreciation. Smart asset location matters, especially for high income earning physicians.

Think of it like a hospital – a complex entity separated into different wings and departments to maximize efficiency. Each department houses doctors and staff who are best equipped for their roles. Emergency room doctors are going to be dealing with people needing the most immediate and intense level of care. An ER doctor wouldn’t treat a patient with a sprained finger while someone who was just in a traumatic car accident sits in the waiting room. In much the same way, your aggregate investment portfolio can be separated into different accounts and investment vehicles. Inside each of those vehicles are investments and holdings that are suited for the particular account type.

A more efficient hospital will lead to greater outcomes and profitability. The same is true for your portfolio. Strategic asset location maximizes efficiency and leads to better outcomes and portfolio growth.

Medical technology (medtech) angel investments can be a great opportunity for physicians to engage as mentors with startup companies within their field of expertise. A cardiac surgeon, for instance, can offer expertise to an entrepreneur building a new stint. Typically the physician will make some level of investment and be heavily involved in the company, hopefully seeing it and their investment prosper.

Another route is to invest in multiple companies and be much less involved. Obviously, it would be difficult to offer day-to-day or even month-to-month mentorship for more than one or two companies as a busy physician. In this case, you need to be economical and look for resources to help you with your investment selection. Most major cities have angel investment groups that, for a nominal fee, will help you vet companies and offer other resources as you make your investment decision.

Your best option for plugging in to medtech angel investing in Seattle is WINGS.

Whichever route you take (mentor or passive investor), be aware of the risk and return. While not much has been written on the subject, the white paper “Returns to Angel Investors in Groups” by Robert Wiltbank and Warren Boeker does a nice job of setting the expectations.

Here are seven things you need to know when considering medtech angel investments:

• Risk. 30% of your investments will fail. 30% will return your money. 10% will go big. 20% will return something. To succeed, you must understand this and have the wherewithal (assets) and stomach (guts) to ride out the losses.
• Return. 27% IRR. Most of this coming from the 10% that are home runs. See Returns to Angel Investors in Groups.
• Time horizon. Companies that fail (lemons), fail faster than those that succeed (plums). Proper investment requires patience and the ability to reinvest over periods of time.
• Invest 5-10% of your portfolio assets. Your risk is concentrated and your return is dependent upon “home runs.” Subjecting more than 5-10% of your assets is just too risky.
• Diversification. Single company risk is big with these investments. Prudent investment requires investing in at least 15 to 20 companies.
• Involvement. If mentoring within your field of expertise is the desired path, how much time do you have to devote to it?
• Do your due diligence, or depend on a group such as WINGS to help you do it. Success rates and due diligence are highly correlated.

If you’re serious about becoming a medtech angel investor, learn the local landscape. Spend some time with local groups, such as WINGS. Figure out how much you want to invest and what role you want to take on. Most importantly, know your downside risk, be mechanical in your decision-making and limit your investment to 5-10% of your total portfolio.

The era of pension plans is by and large over. Enter defined contribution plans – 401(k)s, 403(b)s etc. Despite different alphanumeric combos (IRS code), all of these plans have, for the most part, the same recipe: Contribute up to a certain amount, get your employer match, invest. The ultimate goal of each is to accrue enough money through contributions and appreciation to comfortably carry you through retirement.

As pension plans fade into the past, how you manage and contribute to these plans becomes increasingly important. And, the responsibility in doing so is yours.

So, how much income can you count on from your 401(k) 30+ years down the road? Let’s start with three assumptions:

• You contribute the maximum IRS allowable amount – $18,000 plus a $6,000 catch up if you are over 50 years old
• You invest over a 30 year period
• Your investment grows at 7% per year

The output would be $2 million. Using the standard 4% distribution rule, this translates into $80,000 of income in retirement per year.

So, your 401(k) is worth $80,000 per year. But how much will you actually need in retirement? If you are a physician currently making more than $100,000 per year, $80,000 is not going to cut it and you should look for other savings opportunities.

Knowing what we know about stock markets, how can we achieve the highest possible return with the lowest amount of risk? This is the primary question driving the allocations that follow. It’s a simple question that’s packed with layers of complexity.

Here’s a brief review of how we broke down the complexity to make it simple for you to execute.

• Calculated risk
  • Stocks are riskier than bonds. History tells us you receive a higher return for taking this risk.
  • Certain stocks outperform other stocks – small cap and value stocks, for example.
• Controlled risk
  • Do not put all your eggs in one basket.
  • Use high quality bonds to offset stock market risk.
  • Be patient. The best way to capture stock market returns is to stay invested and keep investing with your periodic 401(k) contributions.

Of course, the biggest factor in all of this is YOU. While we know how to develop retirement plan portfolios, we do not know your specific goals, objectives and values. Specifically, I can’t tell you whether you should be in the 100% stock allocation, the 60% stock 40% bond, or some iteration thereof. Can I assume that a 32-year-old who recently became a physician should take more risk in light of a longer investment horizon? Sure. But that changes for a physician in his forties, and for one who wants to retire early.

If you have specific questions about which mix to choose, shoot me an email at lowell@merriman.com.

Likewise, if your 401(k) is not listed on our site, send me your available investment options and I’d be happy to provide my thoughts.

Physicians are stretched for time. Sleep and work alone can account for over 80% of the average physician’s day. Making the most of and stretching the remaining time is hugely important. A time budget can help. It will allow you to audit your current budget, get intentional about how you spend your time and find small chunks here and there – chunks that will add up quickly to stretch your day.

Start to create your time budget by outlining your day. Bucket each portion into categories: work, sleep, leisure, family time, etc. Next, identify holes in your time budget.

Typical holes come in the form of TV, social media, your daily commute, search engine rabbit holes and checking email. Naturally, these are the very same places you can find those extra chunks of time to make your day more meaningful.

• The best solution for TV is to create a strict budget. If you have a favorite show, limit your viewing time to just that one show.
• In the age of information, social media and email can be tough to manage. My advice is to allot time to each at the beginning and end of your day. It’s important to stay socially relevant, and checking in twice a day is more than enough to do so. Another helpful tip is to turn off push notifications. Doing so will ease the temptation of checking in.
• Avoid search engine rabbit holes. In other words, getting lured in by something on the Internet and realizing 10 minutes later you have no idea where you started. We’re all guilty of doing this. My only advice is to stick to the task at hand. If you catch yourself drifting, snap out of it and close your browser.
• Commuting is one of my favorite opportunities for picking up time. When I am walking to the bus, I listen to an educational podcast. This 15-minute chunk of time allows my first of two email checks for the day. I recently spoke with someone who read War and Peace over the course of a month on his daily walk to work. Talk about productivity!
• Subcategory of email – Unsubscribe. If you signed up for a newsletter or service you no longer use, unsubscribe. It will shorten your daily email checks and close potential rabbit holes.

These time saving tactics serve two functions – purpose and productivity. By becoming more productive with your time, you can create a more purposeful day. Once you have identified your baseline budget and patched the holes, you can start to live a fuller life.

Debt management is the increasingly larger elephant on the financial priorities list for a new physician. The average educational debt alone was $169,901 for the class of 2013 (Source: Association of American Medical Colleges). While it would be nice to focus exclusively on paying this down, you likely have competing demands – retirement savings and buying a home, for instance. Here’s a quick list of average figures and why you should manage all your financial demands:

• Student debt – Assuming a total of $225,000 in Federal Direct Loans at 6% interest, the monthly payment for a 10-year payoff is $2,497. The sooner you’re done paying this, the better. If rates were much higher, say 10-12%, you would want to be even more aggressive with your repayment schedule. If rates were much lower, like 3-4%, it would be just the opposite. A silver lining is that you can deduct the interest paid on your tax return.
• Mortgage – Assuming a $400,000 30-year fixed mortgage at 4.5%, the monthly payment is approximately $2,700. In this case, you’re borrowing against a real asset that’s going to have some level of appreciation – historically near the rate of inflation, which is 3%. An added benefit is that you can deduct the interest paid on your taxes, an important consideration for higher tax brackets.
• Pre-tax 401(k) – This is a $17,500 per year maximum contribution, or $1,458 per month. By starting to save early you leverage the growth of capital markets. For example, if you contribute $1,458 a month over the next 30 years at 8% annual interest, you’ll accumulate $2,172,944. If you wait five years, that figure drops to $1,386,596.
• Saving for your child’s education – This figure can vary widely. For example, do you want to fully fund? Private or public school? In state or out of state? For now, start by simply getting the ball rolling. Even if it’s $100 per month to start, get in the habit of saving now. In the not so distant future, you can reevaluate. If you start at birth, you have 18 years to set aside money in a tax-favorable investment. Just like with your 401(k), it’s an incredible opportunity to leverage the stock market. I think you’d agree it’s preferable to writing checks out of your bank account when your kids turn 18 and head off to college.

With an average first-year compensation of $224,693 (MGMA Physician Placement Starting Salary Survey, 2013), managing all four of these expenses should be financially feasible. If not, it might be a good time to review your budget. If you can continue to live like a resident for the first few years, saving money and reducing your debt, you’ll be able to retire earlier and with more financial security.