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Applying the Time Value of Money Principle

Imagine a friend owes you $1,000. If you had the choice, would you rather have this money repaid to you right away in one payment or spread out over a year in four installment payments? The vast majority would prefer the former, and rightly so. This goes far beyond the instant gratification of receiving the money sooner rather than later. The simple truth is that money has greater earning capacity now than in the future, and $1,000 today is more valuable than $1,000 a year from now.

This concept is called time value of money, and is a fundamental principle in business and finance. This philosophy that states the earlier you receive money, the more earning potential it has. You can invest a dollar today with the potential to earn a return on that investment in the form of interest or dividend payments. Compound interest is always assumed in time value of money applications.

Physician Mortgage Loans

Compound interest measures the impact of the time value of money over multiple periods into the future, where the interest is added to the original amount. Therefore, you are not only earning interest on the principal amount invested, but you’re also earning interest on the interest. For example, if you invest $1,000 at 10% for 20 years, its value after 20 years will be $6,727, assuming you don’t withdraw the interest amount earned each year with the investment.

The opposite of compounding is discounting, meaning that it is essentially the inverse of growth. This determines the present value of money to be received in the future (as a lump sum and/or as periodic payments). The present value is determined by applying a discount rate to the sums of money to be received in the future. This methodology can be used to analyze any investment that has an annual cash payment and a terminal or salvage value at the end of the time period.

CEOs, investors and entrepreneurs use this theory frequently when dealing with loans, valuing companies and budgeting capital. However, there are several ways this concept can be applicable to the life of a physician as well, such as comparing investment alternatives and making decisions regarding your physician mortgage loans and medical school loan repayment.

Practical Applications

Let’s use purchasing a home as an example. One of the first decisions in this process is determining how large of a down payment to make and how much will be financed. Since there are several factors at play, there’s no one-size-fits-all answer.

In some cases, you can obtain a more favorable interest rate by putting more money down. However, you need to assess the economic component of this decision. Is the potential savings from a favorable interest rate more than the potential earnings if invested? Would you have adequate money for emergency expenses? Once this cash goes into a down payment, that money would have to be “loaned against” for future use.

This concept can also be useful to those who already have physician mortgage loans. You might find yourself in a position where you can liquidate your investments and pay off your home. But, is that the smart thing to do? Economic and asset protection factors may suggest that maintaining a mortgage makes the most sense, but the emotional toll of debt needs to also be assessed. Debt impacts us on a psychological level, and if you’ll sleep better at night with a house that is paid off in full, then that may be the approach that makes the most sense for your individual situation.

Time value of money could also influence your strategy for medical school loan repayment. It may be tempting to pay off these loans in full, however, if the interest rates on your student loans are favorable it may not be a priority. You could save this money for investment opportunities or pay off other debts with higher interest rates.

Time is Money

Since money has time value, the present value of a promised future amount is worth less the longer you have to wait to receive it. Real estate investors frequently calculate present value to estimate their profits on a deal. Future value is the amount that is obtained by forecasting the value of a present payment or a series of payments at the given rate of interest. We naturally expect the future value to be greater than the present value due to the time value of money. The difference between the two depends on the number of compounding periods involved and the interest rate. Suppose you invest $1,000 in a savings account that pays 10% interest per year. The future value of that investment would be $1,100 one year after the money was deposited.

The value of the money you have now is not the same as it will be in the future. There are several reasons why this is commonly accepted besides the accrual of interest or dividends. Inflation, for one, exacerbates this trend by decreasing the purchasing value of an amount of money. Receiving the money immediately also reduces the risk of default. As you can see, “time is money” is true in the literal sense.

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This article if for informational purposes only and should not be construed as tax advice. Advisory Services offered through Larson Financial Group, LLC, a Registered Investment Advisor. Securities offered through Larson Financial Securities, LLC, Member FINRA/SIPC.

Larson Financial Group, Larson Financial Securities, and their representatives do not provide legal or tax advice. Please consult the appropriate professional regarding your legal or tax planning needs.

Tax Season: 8 Questions to Ask Your CPA

By Debra Taylor, CPA/PFS, Esq., CDFA

Preparing tax returns is rarely fun, but it’s important. A good discussion with your tax preparer and financial advisor can help you manage your tax bill for both this year and next.

For many of us, meetings to prepare a tax return are like a trip to the dentist—we want to get in and out as quickly and painlessly as possible.

Physician Tax Deductions

However, there are many new rules to consider and questions to ask your tax preparer and your financial advisor to make sure you’re getting the best guidance possible. Use this list of questions to get the discussion going:

1. How will major life events and changes in my personal life affect my taxes?

Many people don’t realize how certain life events and milestones can affect their tax situation. That’s why it’s important to make your tax preparer aware of any life events or changes to your tax situation.

If any of your children matriculated to a college in 2014, they may qualify for up to $4,000 in deductions for education costs, the American Opportunity Tax Credit, or the Lifetime Learning Credit.

If you purchased a second home, you may qualify for a second set of home deductions for real estate taxes and mortgage interest.

If you got married this year, had a child, got divorced, or lost a loved one, your filing status may have changed as well as your deductions.

2. Should I have my employer make adjustments to my withholdings?

If you have had children, gotten married or divorced, or can no longer claim your adult children as dependents, consider making changes on your W-4 Forms to adjust your exemptions.

In addition, if you are receiving large tax refunds (or are saddled with a large tax bill in April), you may want to adjust your withholdings in an effort to smooth your cash flow.

3. Should I increase my retirement plan contributions?

Retirement plan contribution limits have been raised for 2015. Contributions to retirement plans and IRA’s accomplish two things. First, they may reduce your taxable income, thereby lessening your tax burden, and second, they can help you fund retirement and stay on track to meet your financial goals.

Retirement Plan Contribution Limits

Tax Deductions for Doctors

If you are changing jobs in 2015, coordinate with your new company’s human resources department to ensure that you do not exceed the maximum contribution to your 401(k) during the year due to making 401(k) contributions from both jobs.

Also consult with your tax professional regarding making contributions to a traditional or Roth IRA, in addition to your contributions to employer-sponsored plans. Contributions to an IRA are allowed regardless of income level and are not limited by contributions to an employer-sponsored plans (though the deductibility of contributions may be affected).

4. Should I consider a conversion to a Roth IRA?


A Roth IRA conversion allows you to move assets from a tax-deferred IRA to a potentially tax-free Roth IRA. You would incur a tax liability for the amount you convert in 2015. However, the assets held in a Roth IRA are not subject to a required minimum distribution and can eventually be withdrawn tax-free.

Ask your CPA to prepare a projection of the tax liability of a partial (or total) Roth IRA conversion. Roth conversions have tax, investing, and retirement considerations and the decision whether or not to convert should be made after a discussion with your tax professional and financial advisor.

5. How has the Affordable Care Act (ACA) affected my taxes?

Last year, you may have been subject to the 3.8% Medicare surtax on net investment income over $250,000 for those married filing jointly ($125,000 if married filing separately and $200,000 for all other filers). This year, you will need to provide proof that you were insured for the entire year, or pay a penalty.

If you secured coverage through a health care exchange, you will receive Form 1095-A. If your employer provides coverage, you will receive Form 1095-B or 1095-C (depending on whether the employer self-insures or provides a group plan).

For some individuals, the ACA may be a net positive when it comes to taxes paid. Small business owners may qualify for tax credits up to 50% of the premiums paid for their employees’ health insurance premiums. If you pay all, or part, of your employees’ health insurance premiums, consult with your tax professional to determine if you qualify for a tax credit.

6. Can you help me to estimate my 2015 tax bill?

Review your projected income, deductions, and planned sales of assets and other contemplated financial events with your tax professional. Ask your CPA to prepare a projection of your 2015 tax bill and help you strategize how to reduce your tax liabilities for the coming year.

If you are self-employed, ask your tax professional if your quarterly payments will fall within the safe harbor to avoid paying penalties and interest for any additional tax you may own in 2015.

7. How can I lower my tax bill for next year?

Taxes are on the rise. After you receive your projected 2015 income and tax liability, ask if there is anything you can do throughout the year to reduce your tax burden. Your CPA can help you maximize your deductions, properly manage (and hopefully maximize) your retirement plan contributions, and take advantage of any tax credits that may be available to you.

8. Is there anything that I should be reviewing with my financial advisor about my investments?

Various tax code changes including the 3.8% Medicare surtax, changes to capital gains tax rates, and compressed tax brackets for trusts are making tax considerations an increasingly important part of investments decisions.

Ask your CPA about the effectiveness of tax-loss harvesting throughout the year. Or if you have a large IRA, you may want to pay fees using non-retirement funds in an effort to maximize your deduction for investment management.

Don’t waste a good meeting!

Tax time is an opportunity to open the lines of communication between your tax professionals and your financial advisors. A good working relationship between all of your trusted advisors will help ensure you are getting tax-efficient management for all of your investments and financial affairs.

Have Questions?

Debra Taylor, CPA/PFS, Esq., CDFA, writes on tax and retirement planning for Horsesmouth, an independent organization providing unbiased insight into the critical issues facing financial advisors and their clients.

Debra Taylor is not affiliated with Larson Financial Group.

IMPORTANT NOTICE: This reprint is provided exclusively for use by the licensee, including for client education, and is subject to applicable copyright laws. Unauthorized use, reproduction or distribution of this material is a violation of federal law and punishable by civil and criminal penalty. This material is furnished “as is” without warranty of any kind. Its accuracy and completeness is not guaranteed and all warranties expressed or implied are hereby excluded.

Advisory Services offered through Larson Financial Group, LLC, a Registered Investment Advisor. Securities offered through Larson Financial Securities, LLC, Member FINRA/SIPC.

Copyright © 2015 by Horsesmouth, LLC. All Rights Reserved

Don’t Venture Too Far Without Adequate Insurance

Spring is in the air, and summer is right around the corner. Like many Americans, you might be planning a little relaxation time this year. Half the fun is planning the trip which could take weeks laying out details, and shopping for the best rates. It is possible that sickness or serious health issues can come up around the time you plan your vacation. A travel insurance policy can help protect your travel investments if any potential “what-ifs” become an unfortunate reality.

Let’s say you booked passage on a cruise and a week before the trip you receive a call that the cruise has to be cancelled due to mechanical failure. The cruise liner will probably offer a full refund and maybe even a discount on your next trip, but what about the plane ticket that cost you several hundred dollars? Without the protection offered by travel insurance, you could be stuck with the transportation expenses.

Asset Protection for Physicians

Avoiding Financial Hardships While on Vacation

Delayed or missing luggage, cancelled cruises, weather delays for flights and even medical care costs while you are out of network can all spell disaster. While the U.S. embassy or consulate can help find medical services and assist in the transfer of funds from home, they won’t pay for medical care or the cost of repatriation back to the U.S.

For many trips, it may be necessary to rent a vehicle while on vacation. Rules and regulations differ from state to state as well as from country to country. Be sure to have a conversation with your insurance agent before you make any incorrect assumptions, and ask about “loss of use”. This is when the rental car is damaged while in your care, and has to go to the shop for repairs. The rental company may charge you the rental-fee for each day the car is being serviced, and “loss of use” is rarely covered under a standard auto insurance policy.

If in doubt, check with your insurance company to make sure your vacation destination is within their territory. With most insurance policies, the difference between carriers is contained in the fine print and isn’t always easy to understand. Contact your insurance agent for clarification on what is covered by your policy so you aren’t surprised by any financial hardships that could occur during your vacation.

Have Questions?

Advisory services offered through Larson Financial Group, LLC, a Registered Investment Advisor. Securities offered through Larson Financial Securities, LLC, member FINRA/SIPC.

Larson Financial Group, LLC, Larson Financial Securities, LLC and their representatives do not provide tax advice or services. Please consult the appropriate professional regarding your tax planning needs.

How to Create Ultra-Secure Passwords That Keep Hackers Away

By Devin Kropp

With data breaches occurring more and more, it is important to protect personal information stored in online accounts with secure passwords. The majority of passwords do not pass the test. Learn how to create a password that will keep your data safe online.

Would you rather wash the dishes than create a new password for an online account? If you chose the dirty dishes, you are not alone. According to a study by Harris Interactive and Janrain, 38% of those surveyed would prefer doing household chores over creating a secure username and password combination. And when we finally sit down to create these passwords, we don’t seem to be that good at it.

According to Instant Checkmate, 73% of people use the same password for multiple sites. Even scarier, 33% of people use one password for every site they visit.

With weak passwords all over the Internet, researchers at Imperva found that it would take an expert hacker under 20 minutes to break into 1,000 different accounts. That doesn’t leave you with very good odds.

Doctor Financial Advisor

The number of identity theft cases is growing every day, and hackers can gain access to your life by breaking one password. A study done by Javelin Stategy found that one person becomes a victim of a hacked account every two seconds—a total of 13.1 million victims in 2013.

Chances are, once hackers gain access to one of your accounts, they will be able to gain access to many more accounts by trying the same password or resetting your password if they have broken into your email. Take Wired writer Mat Honan: Once a hacker got into his Apple ID account, his Twitter, iPhone, Mac, and Gmail accounts were all compromised. The hacker went so far as the clear Honan’s hard drive clean, deleting pictures of his child’s first year, which are now gone forever.

But there are steps you can take to make your passwords secure and keep the hackers out.

Password Don’ts

  • Avoid common passwords: Researchers at Instant Checkmate found that the most common password of 2012 was “password.” That doesn’t make a hacker’s job very hard. Protect yourself by avoiding passwords that are commonly used and first for hackers to guess, such as “12345” or “abc123.”
  • Avoid passwords that can be easily guessed. Next on a hacker’s list of possible passwords? Your name, your spouse’s name, you child’s name, your pet’s name, your birthdate, etc. Any information you share on social media acts as clues to your password for hackers. For that reason, it is important to stay away from details that could be found easily through your online presence. Even if you do not use social media, you should not use these details as passwords. Others may be able to gain access to this information through other means.
  • Avoid dictionary words. While there a millions of dictionary words to choose from, a simple lowercase word is not a secure password. Hackers know which words are used most often—and if you password is one of these words, it won’t be long before they break in.
  • Don’t use the same password for multiple accounts. By using the same password over and over again, you are making a hacker’s job easy. Once they gain access into one of your accounts, they will likely try that same password to get into other accounts you have. If the password is the same, they can easily wreak havoc on many different aspects of your life.

Now you know what not to do. So how do you create a secure password? Let’s say right now your password is “finance.” Let’s go through the steps to take that weak password and transform it into a safe and secure password you can use.

Password Do’s

  • Passwords should be at least eight characters long. Longer passwords are generally more difficult to hack. Instant Checkmate found that the average password is only six characters long—not enough characters to keep hackers out. Our example of “finance” is only seven characters long and at the moment is a weak password.
  • Use letters, numbers, and symbols. Using all three characters makes it more difficult for hackers, as there are more variables they have to get right. So instead of “finance,” your password could be: finance/8$. While that is better, we can still improve this password’s strength.
  • Use both uppercase and lowercase. Again, this adds security, as there are more details a hacker would have to guess. With this new rule, “finance/8$” could become: FiNance/8$. Better, but we can still do more.
  • Use a mnemonic phrase. As we discussed earlier, dictionary words are easier to hack. But passwords containing dictionary words are easier for us to remember. There is a way to create a password that is strong—and easy to remember. If you can remember a sentence, you can remember a secure password. Think of your favorite song, poem, prayer, or pledge. Take a line from that and use the first letter of each work to construct your password. For example, take the Beatles’ “Strawberry Fields Forever.” The first line, “Let me take you down, ‘cause I’m going to Strawberry Fields” is memorable and can be transformed into a secure password you can use. Taking the first letter of each word of that line your password becomes “LmtydcIgtSF.” Now, of course, we need to add some numbers and symbols. Your final password could look something like this: Lmtyd_cIgtSF/76. If you are a Beatles fan, this password will be easy to remember but hard for the hackers to break into.
  • Use two-factor authentication. Many sites now offer two-factor authentication when logging into accounts. For example, when logging into a site with two-factor authentication enabled, a code will be sent to your phone that you must enter after your password to gain full access. In order to log in, you must have your password and a special code that is changed every time. If a hacker successfully guesses your password but does not have your phone, they cannot get into your account. Currently, sites such as Gmail, Facebook, Dropbox, Twitter, and more offer this service. Many banks and credit card companies offer this service for online usage as well.

It is important that you apply these rules to all of your passwords and create new, unique passwords for all of your different logins. It is also suggested that you change your passwords at least twice a year.

Password Services

If the thought of creating multiple secure passwords and remembering them all seems daunting, there are services that can help.

  • 1Password is software you can download that will store your login credentials for each site. After downloading the program, you will be prompted each time you log in to a site to save that password into your 1Password account. Your 1Password account is protected by a master password (the only one you have to remember). In order to access any of your other passwords saved in the software, you must enter your master password to retrieve it.This program can also generate strong passwords for you, and since you don’t have to remember them yourself, they can be long and almost impossible to remember—making them extremely difficult to hack. All your passwords are encrypted, meaning that even 1Password doesn’t know what they are. If you forget your master password, you lose access to your password list. 1Password does not offer two-factor authentication at the moment, but your registered device is needed to access your password list, which does add more security. The program is available for Macs, PCs, smartphones, and tablets. 1Password for a desktop costs $49.99; it’s $14.99 for an iPhone/iPad. The app is free for Android phones and tablets.
  • LastPass also uses one master password to store all of your logins. Once you sign up, LastPass will begin to save your logins for each site that you browse. The next time you visit that site, LastPass will automatically log in for you. This service can also help you generate strong passwords. Your passwords are encrypted and then decrypted locally, so they are known only by you.The service also has a multifactor authentication option that adds an extra level of security to your passwords. You can download the basic service for free, or you can get the premium service for $1/month, which gives you unlimited access to LastPass on all your devices, including desktop, laptop, smartphone, and tablet. LastPass is compatible with iOs, Android, Windows Phone, and BlackBerry.
  • KeePass also protects all of your logins with one master password. The service also protects you from keyloggers. A keylogger is malware that a hacker can install on your devices that keeps track of everything you type, making it easier to hack your accounts. KeePass protects against this through its Auto-Type feature, which automatically pastes your password into the password box of a site. There is an additional plug-in you can install within KeePass to set up two-factor authentication to add more security. KeePass is available for PCs and Macs as well as smartphones and tablets. Best of all, this service is completely free to download and use.

An easy way to protect yourself from thieves looking to steal your identity is by creating strong, secure passwords for all of your accounts. Following these tips can help you transform an easily hackable password into a secure password, better protecting your identity and personal information stored online. Don’t let the hackers in—update your passwords today to stay safe.

Devin Kropp is a New York- based writer for Horsesmouth.

Devin Kropp is not affiliated with Larson Financial Group.

IMPORTANT NOTICE: This reprint is provided exclusively for use by the licensee, including for client education, and is subject to applicable copyright laws. Unauthorized use, reproduction or distribution of this material is a violation of federal law and punishable by civil and criminal penalty. This material is furnished “as is” without warranty of any kind. Its accuracy and completeness is not guaranteed and all warranties expressed or implied are hereby excluded.

Advisory Services offered through Larson Financial Group, LLC, a Registered Investment Advisor. Securities offered through Larson Financial Securities, LLC, Member FINRA/SIPC.

Copyright © 2015 by Horsesmouth, LLC. All Rights Reserved

Integrating Value-Based Payments in Healthcare

Healthcare reform has led many physicians to express concerns about the future of the industry. Change is difficult, and can often lead to stress. Stress is a heavy burden to bear as a physician and can unintentionally affect the treatment of patients.

The traditional fee-for-service payment system is under criticism for driving up the nation’s healthcare bill by rewarding over use. Under this model, providers are penalized for providing better care that keeps patients from repeatedly interacting with the health system. Various efforts to change productivity incentives for doctors and hospitals are being tested nationwide. One is a value-based payment model that offers bonuses to doctors delivering high-quality care that is cost effective. They would be compensated for the value of the care they provide, rather than the volume of services rendered.

Defining Value

There are various value-based care models for an organization to choose from and it’s up to the provider to determine which is the best fit for their healthcare organization. While most agree that the shift to value-based payments is a positive development for the industry, some healthcare systems simply don’t have the infrastructure in place to evaluate their population’s risk factors yet. Furthermore, there is no broad agreement as to what “value” means and how to measure it, as many value-based arrangements are largely still experimental at this point.

Medical Practice Consulting

For many, value is linked to patient satisfaction. This has led many to increase their focus on hospitality, food quality, décor and other factors conducive to a positive experience for the patient. However, patient satisfaction is not always indicative of quality healthcare and outcomes. There are still some areas of medicine that could lend themselves better to a fee-for-service reimbursement for quantifying productivity.

For value-based payment models to work there has to be a way to motivate patients into taking ownership of their health. In addition to eating well and exercising, patients need to take their prescribed medication and follow instructions from their doctor. Ultimately, value-based payment cannot address all the underlying causes of poor health and many have suggested that a broader public health strategy is necessary.

Decline of Private Practice

A number of employers and insurers are already paying health systems a yearly, all-inclusive payment for each patient regardless of their medical needs or how many tests are dispensed. Insurers have also become more aggressive in demanding lower rates from individual practices with little clout to resist. Providers also worry that the goalposts will always be in flux, and that insurers will simply offer less during the next contract if savings are achieved in the 1st year. Standardizing performance metrics and benchmarks across the many insurer plans and provider groups will be challenging and might require a legislative mandate.

Smaller practices are struggling to keep overhead low in this new era of greater regulations and declining reimbursements because they don’t have the leverage to effectively negotiate terms and fees with an insurer. As a result, the percentage of physicians in solo and partnership practices continues to drop. According to data from Merrit Hawkins, one of the nation’s leading physician placement firms, search requests for soloists fell from 22% of all requests in 2004 to 1% in 2012.

Other factors beyond the decline of government and private health plan payments have many doctors considering consolidation with major health systems, such as the need to invest in electronic health records. Medical systems are also increasing the number of doctors they hire as employees. Large hospitals have a reputation for not negotiating after they’ve made an initial offer, but signing and productivity bonuses can be increased by having a solid grasp of the market value for that area.

While remaining independent is a challenge, many small and solo practices improve their chances of survival by banding together in independent practice associations (IPAs) that share practice management services. These function similar to group practices but allow the physician the flexibility to set their own hours, hire their own staff and opt-out of certain insurers. However, hospital employment doesn’t mean a physician has to totally relinquish control. Many doctors receive leadership and director positions with their new employers that allow them a fair amount of input regarding critical decisions.

Have Questions?

Advisory Services offered through Larson Financial Group, LLC, a Registered Investment Advisor. Securities offered through Larson Financial Securities, LLC, Member FINRA/SIPC.