Forum Mailbag: Quitting Med School, Selling in May, Betterment and Roth IRAs, and More!

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

1. Bogleheads: Quitting Medical School

Question: Sandramjet has a friend whose son recently quit medical school after his first year. Some of the reasons he quit included his future debt load, decreased time with his spouse, and interest in a low-paying specialty (public health). He already has lined up another job, and the original poster wanted to get some insight from the Bogleheads community about this scenario.

WSP’s Take: Medical school is not for everyone. Given the grueling nature of medical school and residency, I’m surprised that more medical students don’t quit. Perhaps the future high salaries, the debt already accumulated, or the shame of dropping out is what keeps many medical students from quitting.

Despite the relatively low attrition rate of medical students, that doesn’t mean that all doctors are happy. Medscape publishes an annual compensation survey of physicians. While most of the questions are about money, they also ask if they “would choose medicine again.” Surprisingly, only 77% of physicians say yes. The percentage of physicians who say yes to this question varies between specialties from 71% for neurology to 83% for endocrinology.

Given that 23% of physicians end up saying that they would not choose medicine again, I applaud the original poster’s friend’s son for quitting medical school. He clearly had good reasons for not continuing with medical school, and it is possible, if not likely, that he would have ended up in that 23%. Good for him for making the decision early in medical school before he can accumulate a lot of debt.

2. Bogleheads: Sell in May and Go Away?

Question: Inbox788 wants to talk about the old trading adage of “sell in May and go away.” The premise is that most of the year’s market gains occur between September and April, and that the market is flat to down during the summer months. He wonders whether this old adage does not apply this year, as he found a paper which stated that this trading rule only applies in pre-election years.

WSP’s Take: I’ve heard this adage as well. The idea is that Wall Street traders basically stop working and vacation at their homes in the Hamptons during the summer months. Indeed, trading is lighter during the summer than the rest of the year.

In my opinion, these calendar anomalies are just that, statistical anomalies. Other calendar anomalies I’ve heard of over the years are the January effect and the Santa Claus rally. A lot of these correlations are found retrospectively, and its hard to to know whether they work after they are published in the media or in the financial literature.

3. White Coat Investor: Roth IRA vs. Savings Account for MS1

Question: Erbo94 is a 22-year-old college senior who will be starting as a first-year medical student in the fall. He has $8,500 in savings and was looking to invest $3,000-$5,000 in a Roth IRA. He is wondering whether he should invest the money or keep it in a savings account.

WSP’s Take: This question brought a wide variety of responses from the WCI community, with some forum members recommending that he keep the money in the savings account as an emergency fund and others recommending he invest it.

I believe that he should invest it, but not in a Roth IRA. As a 22-year-old medical student, he will not be making enough money to be paying capital gains on long-term investments. He may not even make enough to pay capital gains on short-term investments! Therefore, the benefits of a Roth IRA at his age are limited. By keeping the money in a taxable investment accout, he is able to get likely tax-free growth while maintaining liquidity in his account. If an emergency were to come up during medical school that he could not cover with his student loans, then he could sell his investments with minimal tax consequences.

4. Rockstar Finance: Betterment in a Roth IRA

Question: Dollardiligence is a teacher who is looking to begin investing in a Roth IRA. He wants something simple and hands-off, and was looking at Betterment or other robo-advisors.

WSP’s Take: One of the major benefits of Betterment is its tax loss harvesting services. They are able to tax loss harvest at a frequency that is difficult for do-it-yourself investors to replicate. However, tax loss harvesting is not relevant to a Roth IRA, as neither the gains (or losses) are taxed. Therefore, the 0.25% fee that Betterment charges is probably not worth it in Roth IRAs.

If he wants to be completely hands-off with his Roth IRA investments, there are many excellent target-date index fund options from Vanguard or Fidelity.

Wall Street Shares: 5 Articles I Enjoyed Reading This Week

Thank you to KevinMD for publishing my article, Doctors need to become informed physician investors, on his blog this week. On to the roundup:

1. Dads, Dollars, and Debts via Physician on FIRE: A Gap Year Away From Medicine: One Physician’s Experience — while Dads, Dollars and Debts took a gap year during fellowship, I could see other doctors taking a similar sabbatical in between jobs.
2. The First Habit: Money Can’t Buy Me Love (But It Can Buy Me Time) — if Time = Money, then Money = Time. A really nice perspective from a radiologist.
3. Mama Fish Saves via Budgets Are Sexy: What I Learned Working on Wall Street — I found another Wall Street-er who invests in low-cost index funds.
4. Chief Mom Officer: Six Figure, Breadwinning, Millionaire Moms – Hatton1 — one of the regulars on the White Coat Investor forums shares her story.
5. A Wealth of Common Sense: What If Other Areas of Life Operated Like Wall Street? — a funny take on some of the absurdities of the financial services industry.

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?