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Gravel Road Investing

By Jim Parker, Vice President DFA Australia Limited

May 20, 2015

Owners of all-purpose motor vehicles often appreciate their cars most when they leave smooth city freeways for rough gravel country roads. In investment, highly diversified portfolios can provide similar reassurance.

In blue skies and open highways, flimsy city sedans might cruise along just as well as sturdier sports utility vehicles. But the real test occurs when the road and weather conditions deteriorate.

That’s why people who travel through different terrains often invest in a SUV that can accommodate a range of environments, but without sacrificing too much in fuel economy, efficiency and performance.

Structuring an appropriate portfolio involves similar decisions. You need an allocation that can withstand a range of investment climates while being mindful of fees and taxes.

When certain sectors or stocks are performing strongly, it can be tempting to chase returns in one area. But if the underlying conditions deteriorate, you can end up like a motorist with a flat on a desert road without a spare.

Likewise, when the market performs badly, the temptation might be to hunker down completely. But if the investment skies brighten and the roads improve, you can risk missing out on better returns elsewhere.

One common solution is to shift strategies according to the climate. But this is a tough, and potentially costly, challenge. It is the equivalent of keeping two cars in the garage when you only need one. You’re paying double the insurance, registration, and upkeep costs.

An alternative is to build a single diversified portfolio. That means spreading risk in a way that helps your portfolio capture what global markets have to offer while reducing unnecessary risks. In any one period, some parts of the portfolio will do well. Others will do poorly. You can’t predict which. But that is the point of diversification.

It is important to remember that you can never completely remove risk in any investment. Even a well-diversified portfolio is not bulletproof. We saw that in 2008–09, when there were broad losses in markets.

But you can still work to minimize risks you don’t need to take. These include unduly exposing your portfolio to the influences of individual stocks, sectors, or countries—or relying on the luck of the draw.

An example is those people who made big bets on technology stocks in the late 1990s. These concentrated bets might pay off for a little while, but it is hard to build a consistent strategy out of them. And those fads aren’t free. It’s hard to get your timing right, and it can be costly if you’re buying and selling in a hurry.

By contrast, owning a diversified portfolio is like having an all-weather, all-roads, fuel-efficient vehicle in your garage. This way you’re smoothing out some of the bumps in the road and taking out the guesswork.

Because you can never be sure which markets will outperform from year to year, diversification can help increase the consistency of the outcomes and help you capture what the global markets have to offer.

Add discipline and efficient implementation to the mix, and you may get a structured low-cost, tax-efficient solution.

Just as expert engineers can design fuel-efficient vehicles for all conditions, astute financial advisors know how to construct globally diversified portfolios to help you capture what the markets offer in an efficient way while reducing the influence of random forces.

There will be rough roads ahead, for sure. But with the right investment vehicle, the ride can be a more comfortable one.

Have Questions?

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. This content is provided for informational purposes, and it is not to be construed as an offer, solicitation, recommendation or endorsement of any particular security, products, or services.

Dimensional Fund Advisors LP (“Dimensional”) is an investment advisor registered with the Securities and Exchange Commission.

Copyright © 2014 by Dimensional Fund Advisors LP. All Rights Reserved

The Myth of the Rich Doctor

By Vicki Rackner MD, President of Medical Bridges

Are you in a financial position to do what you want to do when you want to do it? Could you afford to retire, care for ailing parents or reinvent your medical practice?

Healthcare Practice Management

Wealth buys the freedom to decide how you spend your days. My investments gave me the safety net to leave my conventional surgical practice and launch into a career as an author and speaker and consultant promoting better medical outcomes.

Here’s the dirty little secret. Most physicians are economic slaves to their practices. Our high incomes do not reliably translate to high net worth and the freedom wealth buys.

Income Vs. Wealth

Practicing physicians earn top dollars. The U.S.Bureau of Labor Statistics (http://www.bls.gov/oes/2012/may/high_low_paying.htm) culled data from tax records to conclude that nine of the top ten earners in the U.S. call themselves “doctor.”

Indirect evidence supports the assertion that physicians fail to build wealth. In a recent survey (https://www.amainsure.com/2013-report-on-physicians-financial-preparedness.html), half of physicians are behind where they would like to be in retirement planning. Professional medical associations are exploring how to assess competency in older physicians who continue to practice because they cannot afford to retire.

The Reasons Physicians Fail to Build Wealth

What keeps physicians from building wealth? Here are the reasons usually cited:

  • Medical school debt
  • Late start on earning and savings
  • Failure to protect assets against known and overlooked risks
  • Poor tax planning
  • Getting investment advice from the wrong people
  • Fraud and theft

This is like saying patients become obese because they eat too many donuts. It may be true, but it fails to tell the whole story. Further it fails to lead to sustained solutions that deliver different outcomes. Budgets work about as well as diets.

The Real Causes of Unrealized Wealth

I believe that physicians’ failure to build wealth is a symptom of a deeper financial ill: their dysfunctional relationship with money.

Physicians as a group are intelligent people who:

  • Tend to overestimate their ability to manage money, and underestimate the level of difficulty of the challenge.
  • Lack insight about what they do and do not know.
  • Turn to money to solve non-financial problems, like alleviating their guilt about spending so little time with their families.

The real barrier to financial freedom comes down to a conspiracy of silence around money. For physicians, money is the ultimate taboo topic. You cannot fix problems that you cannot talk about.

Here are three reasons physicians avoid conversations about money:

  • The culture of medicine Just as the government calls for the separation of church and state, medical ethics calls for a separation between the care a patient gets and a patient’s ability to pay. We physicians learn to avoid conversations about money to uphold this ethic. As a practicing physician I often thought that delivering medical services was like ordering a meal off of a restaurant menu without any prices. Small wonder health care costs spiraled out of control!
  • Lack of formal education Physicians get no courses in business or financial management in medical school or in residency
  • Awareness of their vulnerability Physicians experience themselves as financial prey. They turn to people they trust–their colleagues for financial advice. I include myself in the group of physicians who have fallen for “DDD’s”–dumb doctor deals.

The Path to Wealth

Physicians have the ability to build wealth.

As Einstein says, problems are not solved on the level at which they are created. The solution begins with physicians’ willingness to tolerate the discomfort when discussing money.

Here are three steps to help physicians achieve financial freedom:

  1. Coach physicians to proactively engage in conversations with patients about the costs of medical care.
  2. Explore –with compassion– the forces that drive spending. Here are some things that struggling physicians say to themselves.
    • “I deserve nice things.” You know the sacrifices you and your family made to answer this call to medical service. When physicians finally start earning their 6-figure incomes, they feel that it’s time to splurge.
    • “I can save lives and I’m smart; that means I can manage my own money.” You cannot see into your blind spot.
    • “There will always be more than enough money.” This physician fails to plan, trusting that there will be a bright financial future. Without a plan, money tends to wander off.
    • “You invested in a marijuana farm with a 200% return? Count me in!” Physicians can follow trusted colleagues into marginal investments.
    • “Look at me!” This physician wants to maintain the appearance of success at the cost of building true wealth.
    • “Sure, I trust you.” Physicians’ trusting nature makes them easy targets for embezzlement, fraud and ploys.
    • “I’m embarrassed.” Many physicians wonder how smart people like themselves could make such ill-informed choices. Disclosing mistakes can be painful.
    • “Mother Teresa took a vow to poverty; I should, too.” This physician does not feel worthy of wealth.
    • “Show me where to sign.” Physicians are often unaware of their power to negotiate contracts, or lack the skill and experience to execute.
  3. Replace wealth-eroding beliefs and habits with new wealth-building tools and skills. Just as we have mentors to guide us through the art and science of caring for patients, mentors and coaches helped me change my beliefs and behaviors around money. I offer my son– headed for medical school–basic financial literacy lessons I never got. I hope he aligns his spending habits with Einstein’s insight, “Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn’t pays it.”

Wealth-building is not a do-it-yourself job for most physicians. If you or a family member had a rare medical condition, you would not treat it yourself; you would seek the help of the expert. Manage your wealth with the same strategies you use when you manage your health.

Financial advisors know about the complexities of “referred financial pain” the same way you know about the association of right shoulder pain and an inflamed gallbladder. Could you acquire this knowledge? Absolutely. The real question is whether you want to invest the time and effort.

Physicians can achieve financial freedom. With the economic stresses posed by the Affordable Care Act, now is the time for physicians to take control of their financial destiny.

Have Questions?

Vicki Rackner MD, President of Medical Bridges, works with physicians who want to thrive. This surgeon, author, speaker and consultant offers a bridge between the world of medicine and the world of business.

The article and opinions contained herein are strictly those of the author. This article is not and should not be construed as an endorsement of or testimonial for Larson Financial Group, LLC

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 legal or tax advice or services. Please consult the appropriate professional regarding your legal or tax planning needs.

Copyright © 2015 by Vicki Rackner MD. All Rights Reserved

Leveraging Private Investments in the Healthcare Industry

Hospital syndications and ambulatory surgery centers are increasing in popularity since the implementation of healthcare reform. Outpatient surgery programs reflect the shift in healthcare away from a la carte pricing for medical treatments toward the bundled, value-based payments sought by insurers. Patients are also drawn to the convenience – and frequently lower prices – of the centers.

The best work environments establish principles that encourage responsibility, collaboration, continuous improvement and shared benefits. Vesting ownership derives from the belief that a broadly owned facility may enjoy greater utilization than a centrally-owned facility. Implementation of a plan to broaden physician ownership requires compliance with legal and regulatory guidelines, but vesting minority ownership in persons who can contribute to the entity and reap the profits has proven to be an effective business strategy.

Assessing the Opportunity

As a physician, your high net worth affords you the opportunity to consider investment options that are prohibited from being sold to the general public because they are considered to be too risky. Being an accredited investor isn’t always as advantageous as it sounds. However, your status as a credentialed physician (not your income) can often grant you access to investment opportunities such as surgery centers or other types of ancillary service centers.

Physician Practice Management

Ancillary services can generate additional revenue for physicians so that they are less reliant on seeing more patients to boost their income. The ancillary options available to you will depend on your specialty and how often you are referring patients elsewhere. When developing a strategy for which ancillary services to offer, you’ll want to assess what business you are referring out the door the most and make that the priority. Hospitals also consider physician practice ownership as a means of implementing a profit sharing plan among those with a direct effect on the outcome.

When considering ownership of ancillary services, these three questions should be evaluated during the decision making process:

  1. Does the opportunity have a business model that makes sense, and does the financial data support it?
  2. What is your exit strategy in the best-case and worst-case scenarios?
  3. Is the potential return worth the risk?

Weighing the Risks

To clarify the first issue, it is helpful to examine the historical income statements, balance sheets, cash-flow statements and any other historical financial records up front. Calculating the financial ratios for the service in question and comparing it to similar business will allow you to more accurately diagnose whether the physician practice management opportunity makes good business sense.

Your exit strategy is something to evaluate prior to entering any kind of business relationship. The best business opportunities are those that offer little risk in terms of how the exit strategy will impact you personally. For example, if you are selling your medical practice, will the buyer also want to acquire the ancillary business you have established? Taking this and other factors into consideration will allow you to determine how much flexibility you will have when the time comes to divest.

Finally, determine whether the potential reward is worth the risk. Generally, it is not worth the loss of liquidity on any of these services unless you expect 15% or more return on the investment. A surgery center that returns only 8% profit each year would probably not be worth the risk unless you have reason to believe that your group’s involvement would generate enough additional surgeries to increase the profit margin.

While the open market offers long-term opportunities to be rewarded for the risks that are taken, having direct access to additional revenue on the work you are already generating can also be profitable. Just like with any other investment, diversification remains paramount. As such, it is not recommended to tie up too much of your portfolio in any of these alternative investments. Every situation is unique, so it’s always a good idea to have the asset distribution of your investments reviewed by a qualified financial professional with knowledge of your individual circumstances.

Have Questions?

Information gathered from sources believed to be reliable but is not guaranteed. Any information or opinion contained herein should not be construed as an offer, recommendation or solicitation to invest. Information provided is not to be deemed tax or legal advice. Consult your legal, tax and investment professionals for personalized advice.

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

Protect Your Assets and Retirement with an Umbrella Policy

Few things can derail a retirement plan like a liability lawsuit. Accidents on the road and in your home can and probably will happen at some point in time, and when accidents occur they have the potential to put your assets at risk. The base policies on your home and automobile can have gaps in coverage and limits on payments. Supplementing your existing insurance with an umbrella policy may reduce the risk posed to your assets during a lawsuit.

Asset Protection for Physicians

If you are found to be legally responsible for injuring someone or damaging their property without a personal umbrella liability insurance policy in place, anything beyond the limits of your standard liability insurance coverage will have to come out of your own pocket, including attorney fees and court costs. Standard liability insurance generally includes homeowners, renters, automobile and watercraft policies. It’s not uncommon for jury awards and out-of-court settlements to run into the millions, and if you don’t have that kind of cash on hand your assets can be legally seized and future earnings can also be garnished.

How Much Coverage is Needed?

There are close to six-million car accidents each year causing 30,000 fatalities, so it is no surprise that 75% of personal umbrella claims are auto-related. Another large percentage of claims come from issues inside one’s home or property when visitors are hurt during a social gathering. A deck collapse during a social gathering, food poisoning, even a family pet defending its family. In fact, 40% of American households own a dog, and five million people suffer from dog bites each year.1

Even doctors that rent need high liability coverage. A candlelight dinner can quickly turn into tragedy if it creates a multi-unit fire. Your hobbies could also put you at potential risk. Do you enjoy golf? If your golf ball goes astray and strikes somebody in the head, that can fall back under the coverage of your home or renters “Personal Liability” coverage.

Last Line of Defense

For high-value households, high liability coverage is essential. “Umbrella” coverage, and its less comprehensive cousin, the “Excess Liability Policy” are some of the least known and most underused types of insurance. Liability policies will not only pay the monetary damage costs, but often, just as important, the attorney fees and other court costs. Better yet, a $1 million umbrella policy typically costs about a dollar per day.

Consult with your property and casualty agent with regards to your particular situation and state laws. Be proactive with your asset protection coverage, because you never know when that next rainy day is around the corner.

Have Questions?

References:

  1. Jacquelyn Connelly, “Top 3 Ways to Sell a Personal Umbrella.” Independent Insurance Agents and Brokers of America, Inc, (September 2015). http://www.iamagazine.com/markets/read/2015/09/14/top-3-ways-to-sell-a-personal-umbrella

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

Insurance services offered through Larson Financial Group, LLC, an insurance agency.

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