With market returns over the last few years among
the best ever, you should have cashed in big-time.
But did you?
I’ve reviewed hundreds of accounts and portfolios for many physicians over the past several years, and no matter what their age or whether they have financial advisors, I keep hearing the same complaint: “The stock market is at a record high, but my investment returns have been poor.”
The last several years of returns have been among the best ever. So, if you didn’t score returns close to those I describe, then grab a box of tissues because you’ll be sobbing by the end of this article.
Let’s see how you should have done. To keep this analysis simple and understandable, I’ll use just three investments: US stocks, international stocks, and bonds. I’ll also mix these different investments in three different portfolios for three different types of physicians: an early career physician (less than 10 years in practice, 100% stocks), a mid-career physician (10-20 years in practice, 75% stocks/25% bonds), and a late career physician (more than 20 years in practice, 50% stocks/50% bonds). The portion in stocks is equally split between US and international stocks.
First let’s look at investment returns since the bottom of the Great Recession from March 2009 through February 2014 — a period of 5 years — for our 3 docs: If you graduated from residency in 2009 and invested 100% in stocks you’d be up over 150% over five years. Even a late career physician should be up over 80% in the same time span (see graph 1).
But percentages don’t tell the whole story.
Let’s say you’re making $300,000 annual income and suppose you contribute $50,000 to your investment portfolio annually starting March 2009 (you are contributing that much, aren’t you? If not, shame on you!). I’ll assume the early career physician starts out with $0 portfolio value, the mid-career physician has $500,000, and the late career physician has $1 million. To see how their portfolios grew over the past 5 years, see graph 2.
What does that do for you?
If you’re early in your career, you should have built up wealth very quickly and reached half-millionaire status.
While the mid-career physician might still not have enough to retire, you shouldn’t feel the pressure to pick up those extra shifts. Better yet, pay someone else (maybe a recent residency grad?) to do your nights. If you continue saving and have a solid investment plan, you should be on track for a comfortable retirement.
The late career physician should have catapulted to his retirement goal, and remember that in this analysis I assumed the late career physician started with $1 million in 2009. Quite frankly, if you’ve been practicing emergency medicine full time for the past 25 years, your portfolio should be at least $2 million by that time -- or $4 million now. You should have won the game, and work should now be optional.
Oh, I can just hear your screams and howls already. Those numbers look outlandish, right? And it’s not fair to start at the bottom of the market, right?
OK, no problem.
Let’s do the same analysis again, except this time you are going to be the unluckiest investor on the planet. You invested your money in November 2007 right before the market crash, and you contributed your annual $50,000 at the beginning of November 2007. Again let’s start out with $0, $500,000, and $1 million for the early, mid, and late career physicians, respectively. Each physician has the same portfolio mix as before.
Where you should be now
What this means is that not only should you have recovered all of your losses during the market crash, but you should have gotten a decent rate of return even if you timed the market exactly wrong (see graph 3).
No matter which way you look at it or which part of your career you’re at, you should be strutting into your shifts with your head held high. The onslaught of patient satisfaction scores, ICD-10 codes, electronic medical records, increasing patient volumes, and other challenges we face in emergency medicine should not affect you as much because your financial fortress should be really strong by now.
You can cut down on your workload and live a little, or you can give it up altogether if you want. If you can’t, then figure out why you missed these returns that were offered to you. Common reasons why you or your financial advisor did not capture these returns include:
- You bailed out of the market as it crashed;
- You weren’t in the market for all of the huge upswing;
- You didn’t continue saving as the market dropped;
- You don’t have a solid investment plan;
- You made big investment mistakes managing your portfolio by yourself;
- Your financial advisor was “gambling” with your money not investing; and
- A combination of the above.
Setu Mazumdar, MD, CFP is the president of Physician Wealth Solutions.