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Investing for Physicians

Distribution of US Market Returns

While no one can reliably predict the future, the past may offer perspective on recent market events and the long-term benefits of equity investing. The below chart shows the historical distribution of US market returns since 1926. The performance years are stacked in order of return range.

The graphic highlights that performance over the past two years has been extreme by historical standards, and that, over time, the market’s positive return years have outnumbered the negative return years, with positive performance more concentrated in the higher ranges of returns.

History shows that the stock market has rewarded investors who can bear the risk of stocks and stay committed through various periods of performance.

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CRSP data provided by the Center for Research in Security Prices, University of Chicago. The CRSP 1-10 Index measures the performance of the total US stock market, which it defines as the aggregate capitalization of all securities listed on the NYSE, AMEX, and NASDAQ exchanges. Indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results.

A Doctor’s Estate Plan

Add a Letter Covering These 13 Wishes

Having an estate plan is necessary for doctors, but there is a great deal of information the legal documents may not include. Here’s what to cover in a supplemental letter that specifies preferences, discloses critical logistic info, and will save your family significant stress during a difficult time.

A Doctor's Will & Testament

You might be surprised how many doctors die each year without an estate plan. There are numerous reasons for this major oversight, including those who cannot or will not think about death, those who believe talking about and creating an estate plan may cause problems with their partner or family members, and those who don’t want to spend the time with a lawyer.

Having a proper estate plan goes a long way to prevent family arguments. The guesswork is eliminated and the family is clear on your intentions. Furthermore, properly drafted estate planning documents may actually save money, time, and court costs.

Just as an estate plan brings a feeling of peace and comfort, so does an accompanying letter listing items sometimes not included in the estate plan. Here are several suggestions you may consider including in your or your loved one’s accompanying letter:

1. People to be notified at the time of death. Certain people and institutions need to be notified at time of death, including your lawyer, trustee, executor, and accountant, along with federal pension authorities. Relatives and special friends will want to know as soon as possible, so providing the names, addresses, and telephone numbers will make it easier for the person assuming this responsibility.

At the time of my father Jack’s death, my mother and family did not know who Jack’s closest colleagues at work were. As a result, a former coworker called after the funeral saying he would have appreciated attending. This oversight, which could have been prevented with a listing of people to be notified, caused much anguish for both the family and the friend who was left out.

2. Listing advanced funeral arrangements. Be sure you communicate his or her funeral arrangements and last wishes (e.g., body burial, type of casket, cremation, and music requests).

3. Location of personal papers. List the exact location of personal documents, including birth and marriage certificates, diplomas, military papers, and so on.

4. List of bank accounts and bank locations. List all bank accounts by name of institution, branch address, and type of account. Also give the location of canceled checks and bank statements with the number and location of the safety deposit box and key.

5. Listing of credit cards. List by issuer and card number.

6. Location of deed and mortgage papers. Indicate where the documents are located, the date for renewal, and the holding institution.

7. Listing of insurance policies. List life, auto, home, veterans, medical, and other insurance policies together with the responsible agent’s name and location of these documents.

8. Listing of vehicles, including registration and other papers. Provide the location of all keys and operating instructions.

9. Income and property taxes paid and owing. Provide the location of income tax returns for the past three years, record of property tax amounts, and due dates.

10. Investments, including mutual funds, stocks, and bonds. List all stocks, bonds, certificates of deposit, and other investments. Indicate the location of the investments and the name and address of the financial advisors. If owning any gold or silver coins or bars, provide the location and details.

11. Listing and location of valuables. List all jewelry and other valuables, including the names of those to whom the articles are to be given.

12. Record all loans and other accounts payable.

13. Special survivor benefits. List all possible sources of benefits not named in the estate planning documents —government pension, veteran’s pension, employee pension, fraternal associations, and so forth.

14. Website logins and passwords. List of computer and website login, pin, and password information, including for general computer login, email account(s), file hosting services, and online banking, retirement, and investment services.

Once you’ve completed a current estate plan and accompanying list of assets, document location, and burial wishes, you can feel more at ease knowing your final plans will be fulfilled. Let one or two other family members know where the estate planning documents and accompanying letter are stored and the name and address of your lawyer. Better yet, give a copy of the accompanying letter to one or more of the following: your spouse, a trusted friend, and/ or a family member. These trusted companions can begin the process of notifying family and friends and fulfilling the wishes named in the estate plan.

Copyright © 2012 by Horsesmouth, LLC. All Rights Reserved.

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Investment Advice for Doctors

Do Morningstar Ratings Matter?

A common misconception amongst doctor investors is that their portfolio should only be composed of 4 and 5 star funds. In reality, these ratings are based only upon past performance and have no bearing on future returns. Consider the following investment advice for doctors:

investing for doctors

This graphic shows that actively managed funds that achieve top performance in one period typically do not repeat their success in a subsequent period.

The stacked graph at left sorts the Five-Star funds by cumulative 10-year performance relative to each fund’s benchmark (includes only those funds with a complete return history for the period). As shown, the five-star category comprises 403 funds. The right box shows how these five-star funds performed relative to their benchmarks in the subsequent 10-year period. The arrows indicate the movement of these top funds across categories.

Only 11% of the five-star funds repeated their top performance in the subsequent 10-year period. 68% of the funds dropped to the four, three, two and one-star categories. More significantly, 21% of the original five-star funds did not survive the entire subsequent period. These top managers, who were perceived as the most skilled in the US equity market, showed no ability as a group to repeat their top-quartile performance. Indeed, 21% did not survive, and the funds that did survive were spread across the sorted universe.

The lesson of this illustration: choosing actively managed equity funds according to past success does not guarantee an equally successful investment outcome in the future.

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

The information provided is for informational purposes only and should not be construed as a recommendation or advice. Further, this is not an offer to buy or sell securities or other products and services of Larson Financial Group or its affiliates. Please consult an appropriate investment professional regarding your specific needs.

Understanding the Alternative Minimum Tax (AMT)

Each year, more and more physicians find themselves subject to the Alternative Minimum Tax (AMT). When asked, many don’t know how they got there or what, if anything, they can do about it.

The first year I owed AMT tax caught me by surprise. I’d run through tax projections with my accountant at quarterly intervals throughout the year. Why were our projections off by more than $10,000? Why are many physicians paying between $5,000 and $15,000 per year in taxes that they do not owe under our normal tax system? Enter the AMT.

This brief post will educate you on the AMT, some common triggering pitfalls for physicians, and finally, what might be done to minimize its impact on your taxes.

What is the AMT?

The alternative minimum tax was instituted back in 1969 when 155 American families earning more than $1 million dollars owed $0 in federal income tax. This was due to the way deductions were established at the time. Congress didn’t think these families were paying their fair share. Instead of changing the tax code for everyone, they decided to institute an entirely new tax structure to bring these families back into the tax-paying fold.

In its most basic form, the AMT is a totally separate way of calculating how much you owe in taxes. By examining line 45 of your personal tax return (2011 Form 1040), you’ll quickly see if you have been historically falling under this other tax structure. To simplify, think of AMT as a flat tax rate of approximately 28%. This is different than the effective and marginal tax rates you’ve already learned about. Under AMT, there are only two marginal brackets—a 26% bracket and a 28% bracket. The 28% bracket kicks in after $175,000 of income.

What causes you to be subject to AMT?

You’re subject to the AMT because you are eligible for deductions under our normal tax system that Congress has deemed inappropriate for the AMT system. Some deductions are safe under AMT, and don’t hurt you, while other deductions are not and can. Because of this, it’s not easy to look at someone’s income and know in advance if they will or will not be subject to AMT. A general rule of thumb is that you are more likely to be subject to AMT if your income is between $250,000 and $500,000 per year, but several families with incomes in excess of $1 million per year still owe AMT.

Following are two lists. First, the deductions normally considered safe under AMT. Second, a list of the deductions or other tax advantages that can often trigger AMT tax to be owed.

What physician tax deductions are typically safe under the AMT?

What deductions or tax-advantaged issues can commonly cause a physician to be subject to the AMT?

  • Property taxes
  • State and local taxes
  • Mortgage interest for certain home equity loans
  • Unreimbursed business expenses deducted on Schedule A
  • Professional fees deducted on Schedule A (including legal and investment advisory fees)
  • Realization of long-term capital gains
  • Interest from certain municipal bonds deemed “private activity bonds”
  • The exercise of incentive stock options (provided by an employer)
  • Use of the standard deduction

What are some ways to potentially reduce exposure to the AMT?

  1. Claim itemized deductions even if smaller than the standard deduction.
  2. Ask for a larger expense reimbursement account from your employer in exchange for a smaller salary.
  3. Increase contributions to retirement plans offered by your employer.
  4. Use a dependent care reimbursement arrangement through your employer to deduct your childcare expenses rather than claiming these deductions on your tax return.
  5. Consider timing state, local, and property tax payments to bundle them into an every-other-year payment structure.
  6. Reduce exposure to private activity municipal bonds.
  7. Have your investment advisor bill fees to your IRAs or 401(k) rather than your taxable (non-qualified) account. (if you fall under AMT, then you are not able to deduct investment advisory or other professional fees even if they exceed the 2% threshold)
  8. Consider converting traditional IRA funds to Roth IRA funds if you are comfortable with a 28% tax rate.

Each situation is unique. Even if you find you owe AMT, there may be ways to reduce or eliminate it. We advocate that physicians should have their accountant run a year-end tax projection each November. This way they can see if AMT is an issue and seek to reduce exposure if possible.

This information is provided for educational purposes only and should not be considered tax advice. Each individual’s tax situation is unique and you should consult your tax adviser prior to taking any action.

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Advisory services are offered through Larson Financial Group, LLC a Registered Investment Advisor.

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.

Physicians: How to Manage Your Financial Health

The demands on medical practitioners today can seem overwhelming. It’s no secret that  health-care delivery is changing, and those changes are reflected in the financial issues that health-care professionals face every day. You must continually educate yourself about new research in your chosen specialty, stay current on the latest technology that is  transforming health care, and pay attention to business considerations, including ever-changing state and federal insurance regulations.

Like many, you may have transitioned from medical school and residency to being on your own with little formal preparation for the substantial financial issues you now face. Even the day-to-day concerns that affect most people–paying college tuition bills or student loans, planning for retirement, buying a home, insuring yourself and your business–may be complicated by the challenges and rewards of a medical practice. It’s no wonder that many medical practitioners look forward to the day when they can relax and enjoy the fruits of their labors.

Unfortunately, substantial demands on your time can make it difficult for you to accurately evaluate your financial plan, or monitor changes that can affect it. That’s especially true given ongoing health care reform efforts that will affect the future of the industry as a whole. Just as patients need periodic checkups, you may need to work with a financial professional to make sure your finances receive the proper care.

Maximizing your personal assets

Much like medicine, the field of finance has been the subject of much scientific research and data, and should be approached with the same level of discipline and thoughtfulness. Making the most of your earning years requires a plan for addressing the following issues.


Your years of advanced training and perhaps the additional costs of launching and building a practice may have put you behind your peers outside the health-care field by a decade or more in starting to save and invest for retirement. You may have found yourself struggling with debt from years of college, internship, and residency; later, there’s the  ongoing juggling act between making mortgage payments, caring for your parents, paying for weddings and tuition for your children, and maybe trying to squeeze in a vacation here and there. Because starting to save early is such a powerful ally when it comes to building a nest egg, you may face a real challenge in assuring your own retirement. A solid financial plan can help.


Getting a late start on saving for retirement can create other problems. For example, you might be tempted to try to make up for lost time by making investment choices that carry an inappropriate level or type of risk for you. Speculating with money you will need in the next year or two could leave you short when you need that money. And once your earnings improve, you may be tempted to overspend on luxuries you were denied during the lean years. One of the benefits of a long-range financial plan is that it can help you protect your assets–and your future–from inappropriate choices.


Many medical professionals not only must pay off student loans, but also have a strong desire to help their children with college costs, precisely because they began their own careers saddled with large debts.

Tax considerations

Once the lean years are behind you, your success means you probably need to pay more attention to tax-aware investing strategies that help you keep more of what you earn. Unfortunately, substantial demands on your time can make it difficult for you to accurately evaluate your financial plan, or monitor changes that can affect it. That’s especially true given ongoing health care reform efforts that will affect the future of the industry as a whole. Just as patients need periodic checkups, you may need to work with a financial professional to make sure your finances receive the proper care.

Using preventive care

The nature of your profession requires that you pay special attention to making sure you are protected both personally and professionally from the financial consequences of legal action, a medical emergency of your own, and business difficulties. Having a well-defined protection plan can give you confidence that you can practice your chosen profession without putting your family or future in jeopardy.

Liability insurance

Medical professionals are caught financially between rising premiums for malpractice insurance and fixed reimbursements from managed-care programs, and you may find yourself evaluating a variety of approaches to providing that protection. Some physicians also carry insurance that protects them against unintentional billing errors or omissions. Remember that in addition to potential malpractice claims, you also face the same potential liabilities as other business owners. You might consider an umbrella policy as well as coverage that protects you against business-related exposures such as fire, theft, employee dishonesty, or business interruption.

Disability insurance

Your income depends on your ability to function, especially if you’re a solo practitioner, and you may have fixed overhead costs that would need to be covered if your ability to work were impaired. One choice you’ll face is how early in your career to purchase disability insurance. Age plays a role in determining premiums, and you may qualify for lower premiums if you are relatively young. When evaluating disability income policies, medical professionals should pay special attention to how the policy defines disability. Look for a liberal definition such as “own occupation,” which can help ensure that you’re covered in case you can’t practice in your chosen specialty.

To protect your business if you become disabled, consider business overhead expense insurance that will cover routine expenses such as payroll, utilities, and equipment rental. An insurance professional can help evaluate your needs.

Practice management and business planning

Is a group practice more advantageous than operating solo, taking in a junior colleague, or working for a managed-care network? If you have an independent practice, should you own or rent your office space? What are the pros and cons of taking over an existing practice compared to starting one from scratch? If you’re part of a group practice, is the practice structured financially to accommodate the needs of all partners? Does running a “concierge” or retainer practice appeal to you? If you’re considering expansion, how should you finance it?

Questions like these are rarely simple and should be done in the context of an overall financial plan that takes into account both your personal and professional goals.

Many physicians have created processes and products for their own practices, and have then licensed their creations to a corporation. If you are among them, you may need help with legal and financial concerns related to patents, royalties, and the like. And if you have your own practice, you may find that cash flow management, maximizing return on working capital, hiring and managing employees, and financing equipment purchases and maintenance become increasingly complex issues as your practice develops.

Practice valuation

You may have to make tradeoffs between maximizing current income from your practice and maximizing its value as an asset for eventual sale. Also, timing the sale of a practice and minimizing taxes on its proceeds can be complex. If you’re planning a business succession, or considering changing practices or even careers, you might benefit from help with evaluating the financial consequences of those decisions.

Estate Planning

Estate planning, which can both minimize taxes and further your personal and philanthropic goals, probably will become important to you at some point. Options you might consider include:

  • Life insurance
  • Buy-sell agreements for your practice
  • Charitable trusts

You’ve spent a long time acquiring and maintaining expertise in your field, and your patients rely on your specialized knowledge. Doesn’t it make sense to treat your finances with the same level of care?

Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, or legal advice. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. These materials are provided for general information and educational purposes based up on publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

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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.