Forum Mailbag: Dow 20,000, Financially Savvy Physicians, Ethical Index Fund Investing, and more!

There is so much great information on personal finance forums. I regularly participate on several message boards, including Bogleheads, White Coat Investor, Mr. Money Mustache, and Reddit. This is a roundup of my favorite discussions happening around the internet.

1. Bogleheads: Dow 20,000, now what?

Question: Boglechu asks what his asset allocation should be now that the Dow has hit 20,000. He favors increasing his asset allocation from 60/40 stocks/bonds to 90/10 stocks/REITs.

WSP’s Take: You need to stay the course not only in down markets but also in up markets. In down markets, investors get scared and sell their stocks to buy bonds. In bull markets like today, people start chasing returns and looking for more aggressive asset allocations. Warren Buffett’s quote in a 2008 New York Times editorial is apt as the Dow passes 20,000:

Be fearful when others are greedy, and be greedy when others are fearful. – Warren Buffett

2. Bogleheads: Roth vs. Traditional 403b

Question: jcheyman asks a common question: should I invest in a Roth or traditional 403b? He is aware of the standard advice of choosing a traditional account when your retirement tax rate is less than your current tax rate. He wonders is if there are any scenarios when you would invest in a Roth even when your retirement tax rate is less than your current tax rate.

WSP’s Take: One scenario would be if you are a “super-saver.” A super-saver maxes out all of their retirement accounts. By doing so, they can expect to eventually build a giant nest egg for retirement. The problem is, you can save too much in a traditional retirement account. Starting at the age of 70½, you must withdraw a portion of your traditional retirement accounts each year as required minimum distributions (RMDs), whether you need the money or not. RMDs may push your retirement tax rate higher than you anticipated during your working years. By diversifying your retirement account contributions between traditional and Roth accounts, you may be able to reduce your eventual retirement tax rate.

3. White Coat Investor: How Rare are Financially Savvy Physicians?

Question: fatlittlepig has noticed that most of his colleagues know little to nothing about personal finance and investing. He doesn’t know anyone who is saving and investing in the way recommended by so many physician finance bloggers. He asked the forum to estimate the percentage of physicians who are financially savvy.

WSP’s Take: People who frequent physician finance blogs like to think that they’re really smart about their finances, and no question, we are savvy 🙂 I agree with White Coat Investor’s estimate that the percentage of financially savvy physicians is at best 20%. However, the number is certainly rising. Over the past few years, there has been rapid growth in the amount of money invested in index funds, showing that investors are making smarter decisions with their money.

Even though the principles I and others discuss about investing are very important, I also agree with Future Proof, MD’s post that asks if you’ve ever met a poor doctor. Despite their lack of “financial savvy”, most doctors I know live a comfortable life and are able to retire comfortably. While they may not maximize their lifestyle or happiness because of their financial decisions, most doctors are what I would consider wealthy.

4. White Coat Investor: Job Instability and Declining Income in Medicine

Question: As a radiology resident, Complete_newbie laments the declining job stability and income in his (radiology) and other medical specialties. He wonders whether his investment approach should change (be more aggressive) because of these negative trends in medicine.

WSP’s Take: Complete_newbie’s observations are absolutely correct. Physicians are working harder and harder for the same or less pay. The growth in healthcare costs does not come from increased physician salaries, but from increased administrative costs to meet regulatory and bureaucratic requirements. While doctors on the White Coat Investor forum are pretty happy, the rest of the internet doctor community is not.

The way to take control of the situation is to save money early as an attending. By doing this, you can achieve financial independence early and begin molding your job to your preferences. If you require the full doctor salary to meet your lifestyle needs, you will eventually begin to have feelings of discontent and burnout. By saving an appropriate amount for retirement, eventually you won’t need to work the extra shifts or take the extra calls that most physicians hate.

How should your investment approach change with a decline in job stability and income? Physicians should be less aggressive, not more aggressive. Don’t try to make up for a lower income by going after higher investment returns. This will backfire if the market underperforms.

5. Reddit: Age 25 and Never Held a Job

Question: chaoticredditor graduated college in six years and is currently living with his parents. He wishes he had worked the typical teenager jobs, but his father refused to let him work those jobs. He felt these menial jobs were beneath his son.

WSP’s Take: While they are in a different situation as chaoticredditor, many medical students would fit in this category. They go to college, attend medical school without taking any time off, and graduate at age 26 without ever earning a paycheck. I highly encourage high school and college students to get part-time or summer jobs. It’s not about the money — a retail job isn’t going to make a dent in your future medical school loans. It is about learning the value of hard work and how to interact with customers and bosses. This experience will prove crucial when you enter the wards in your clinical years. Grades are often determined by subjective evaluations, not by your clinical skills. It’s good to learn about the importance of office politics before you start working as a resident. Kudos to WCI’s kids who are already working and earning a paycheck.

6. Mr. Money Mustache: Ethics of Index Fund Investing

Question: liberteEgalite is concerned that by investing in index funds that include the entire stock market, he is investing in companies that act unethically or do not align with his personal values. He asks whether there is any way to invest in a more socially responsible manner.

WSP’s Take: liberteEgalite brings up a very valid concern, one that I have thought about as well. By investing in index funds, we purchase stock in companies that may go against our personal values. For example, as a physician, I am adamantly against investing in tobacco companies. So many of our patients suffer and die because of lung cancer caused by smoking. Unfortunately, I am implicitly purchasing Phillip Morris and other tobacco companies when I purchase my total stock market index fund.

However, index fund investing is not an endorsement of the individual companies within the fund. It is a vote of confidence in the American economy. When I purchase a U.S. total stock market index fund, I hope that the U.S. economy does well. Phillip Morris doing well does not appreciably change my index fund performance. Similarly, purchasing an International index fund is an investment in the global economy, not Big Oil.

Socially responsible investing is a new and growing area, with offerings such as the Vanguard FTSE Social Index Fund (VFTSX). With a 0.22% expense ratio, this would be an excellent alternative to standard index funds for those grappling with this issue. I plan on sticking with the three-fund portfolio, and my investment success will be linked to the success of the global economy, not to Phillip Morris or Exxon Mobil.

What do you think? Do you agree or disagree with any of my responses? What’s your take on the topics in this week’s forum mailbag?