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Make It Big, Start Early


The New Physician December 2000
So, you’ve recently finished your medical training and are now starting your career. Maybe you’ve taken an associate position, or even borrowed more money and have started your own practice. Things may be moving slowly at first and money is tight, but now is actually the time to start saving for your future, for your retirement.

This is an important time for you. You’ve just completed your medical training and have yet to establish yourself as a physician. It’s a period of instability and debt. Student loans have suddenly become real. You need a place to live and perhaps a new car, and you may want to start a family. Retirement is probably your last concern, but this is the time to start saving if you want to secure a comfortable living after age 65.

Start Early. The trick to becoming wealthy in the new millennium is the same as it was in the old one: Save money, invest savings and begin early. Starting early is by far the most important factor in this equation. For example, let’s look at two physicians (see chart). At 30 years old, physician A starts saving $3,000 a year. Physician B also saves $3,000 a year, but doesn’t begin to do so until she’s 37. If both physicians invested in the same mutual funds and earned an average annual 10 percent return on their investments, physician A would have $897,380 at age 65, and physician B would have only $445,893 at the same age. As you can see, there is only a seven-year difference in investing time, but a significant contrast in total savings.

Simply said, the primary reason for this considerable growth is “interest earning interest.” This example shows that the longer the investment compounds, the steeper the curve. For compounding growth to work best for you, start early, always reinvest your dividends and make regular investments.

Regular Investing. A sensible way to invest savings for the long term is to invest a set amount of money on a regular basis. A young physician may want to establish an account with a mutual fund where a fixed amount of savings is added to the account each month.

When the stock market is up and the price of the fund is high, that set investment may be limited to the amount of shares it can purchase, but when the market is low, the same amount can purchase more shares. This is known as “dollar cost averaging.” Over a long period of time, the investment grows along with the market. This type of investing is encouraged by financial planners, it can be made simple with electronic debiting from a checking account, and the initial minimum purchase is often less.

Roth IRA. Many young physicians qualify for a Roth IRA (individual retirement account). This plan allows you to invest money for retirement tax-free based on your household income. The major benefit of a Roth IRA is that while the invested money is already taxed, retirement withdrawals are tax-free. This is an excellent plan and should be part of every young qualifying physician’s portfolio. Always invest tax-free when you can.

Online Trading. Trading stocks online is similar to making a gambling trip to Las Vegas—it’s fine only if you have extra money that you can afford to lose. The stock market is unpredictable and perilous. As a young investor, you should avoid online trading until you’ve watched the market closely for a long period of time.

One excellent way to learn the stock market and to actually enjoy online trading at no risk is to enter online investment contests. There are a number of these that start you off with a sum of “e-money” or “fantasy money.” You buy and sell, take chances and try to hit it big. These contests run monthly and some offer cash prizes. Visit the “Virtual Stock Exchange” at www.virtual and “The Investment Challenge” on Yahoo at This is a fun way to learn the market and not lose your shirt in the process.

Checking Accounts. Checking accounts are convenient for check writing, but they are no place to keep any significant amount of savings. One reason people want money in their checking account is to have access to it; they want to keep it “liquid” for future purchases. But these checking accounts pay very low, if any, interest, from 0 percent to 2 percent on average. This is less than the cost of inflation, so you’re actually losing money annually with checking accounts. One way to keep your checking account and earn better interest is to open a second account, a money market account.

Money market accounts keep your money “liquid.” They allow you to write a limited number of checks per month and offer higher average interest rates ranging from 4 percent to 5 percent. The rate of interest is based on the stock market, but the risk is relatively low.

Live Humble and Save. One of the worst things you can do when you come out of residency and enter the “real world” is to overextend yourself with extra debt. It’s very difficult not to compare yourself to other, perhaps better established, physicians. Your friends set high expectations of your income, and patients always think you’re rich. When you see someone in a new car or a nice house, you can’t help but think that you’re doing something wrong. But you need to remind yourself that you’re an average person who must start out with modest beginnings. It’s important to develop a plan for repaying your student loans, saving for the future and living within your means.

So what should you do first? You should learn about the money market accounts available at your local bank or with your stockbroker. Next, you should use the professional guidance of an experienced and certified financial planner. He can help you establish electronic investments, start your Roth IRA and advise you on how to invest more aggressively when you become more established. When should you get started? Start early and make it big. The time is now.
Christopher Mueller is a podiatrist, lecturer and author. He practices in Nassawadox, Virginia.