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Leveraging Asset Location Strategies for Your Retirement

Provided By Matt Harlow, CFA, Chief Investment Officer at Larson Financial Group

As seen in the Georgia Medical Group Management Association’s Newsletter

Whether your retirement is right around the corner or several years away, it’s important to recognize how the assets in your portfolio are allocated to maximize tax efficiency. Tax efficiency is one of the more controllable aspects of investing, however it should not be the sole consideration when making decisions regarding your investments. A balanced portfolio will allow you to forecast your post-practice income with a greater degree of certainty.

There are 3 types of accounts that you can invest your money in from a retirement standpoint which are classified by how and when they are taxed. Understanding the different rules that apply for these types of accounts will allow you to develop a retirement plan that is commensurate with the desired level of risk that you are comfortable with undertaking.


Physician Retirement Planning


Taxable: Examples of this would be bank/brokerage accounts, trust accounts and holdings in stocks and bonds. Funds would be taxable based on interest, short-term gains, long-term gains and dividends. These type of accounts are preferable for short-term investments because of the liquidity that they offer.

Tax-Deferred: IRAs, 401(k)s and other pension plans are a few examples of tax-deferred accounts. Money in these accounts will grow tax-free but is taxed as ordinary income when withdrawn for retirement. Your tax bracket upon reaching retirement will largely be decided by the current tax rates set by the federal government if you hold the majority of your savings in a tax-deferred account.

Tax-Advantaged: Some examples of tax-advantaged accounts would be Roth IRAs, Roth 401(k)s and investment life insurance policies. Money in these accounts will grow tax free and can be withdrawn tax free during retirement as long as the guidelines for these accounts are followed.

Generally, we advocate that our physician clients keep no more than 50% of their retirement savings in tax-deferred accounts. There are a few different ways you can shift money from a tax-deferred account to a tax-advantaged account. One example is a Roth conversion, also known as backdoor Roth IRA, which allows you to fund a Roth IRA using money that is held in a traditional Roth account. However, in the case of a Roth 401(k), opening one of these accounts will disqualify you from having a traditional 401(k).

Research has shown that tax-efficient distribution of assets can add up to 0.75% to annual net returns. The primary objective of Larson physician financial advisors is to boost the after-tax returns of their physician clients by strategically investing specific asset classes in these different account types. Generally, we recommend holding broad-market equity investments in taxable accounts while holding taxable bonds within tax-advantaged accounts. Doing this generates higher and more certain returns by spreading the yield between taxable and municipal bonds.

Striking the right balance between assets in taxable, tax-deferred and tax-advantaged buckets should allow you to determine what tax bracket you want to fall in when you retire from practicing medicine. Several factors such as inflation, longer life spans and the rising cost of care lead to uncertainty when assessing options for physician retirement planning. However, maximizing the tax efficiency of your investments will allow you remove a major variable from the equation so that you can calculate your post-practice income with more certainty. Minimizing the total taxes paid will ultimately increase the longevity of a portfolio and allow you to keep a greater share of the wealth.


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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.

Connecting the Dots

April 16, 2014 | By Jim Parker

Human beings love stories. But this innate tendency can lead us to imagine connections between events where none really exist. For financial journalists, this is a virtual job requirement. For investors, it can be a disaster.

“The Australian dollar rose today after Westpac Bank dropped its forecast of further central bank interest rate cuts this year,” read a recent lead story on Bloomberg.

Needing to create order from chaos, journalists often stick the word “after” between two events to imply causation. In this case, the implication is the currency rose because a bank had changed its forecast for official interest rates.

Perhaps it did. Or perhaps the currency was boosted by a large order from an exporter converting US dollar receipts to Australia or by an adjustment from speculators covering short positions. Markets can move for many reasons.

Likewise from another news organization, we recently heard that “stocks on Wall Street retreated today after an escalation of tensions in the Ukraine.”

Again, how do we know that really was the cause? What might have happened is a trader answered a call from a journalist asking about the day’s business and tossed out Ukraine as the reason for the fall because he was watching it on the news.

Sometimes, journalists will throw forward to an imagined market reaction linked to an event which has yet to occur: “Stocks are expected to come under pressure this week as the US Federal Reserve meets to review monetary policy settings.”

For individual investors, financial news can be distracting. All this linking of news events to very short-term stock price movements can lead us to think that if we study the news closely enough we can work out which way the market will move.

But the jamming of often-unconnected events into a story can lead us to mix up causes and effects and focus on all the wrong things. The writer and academic Nassim Taleb came up with a name for this story-telling imperative: the narrative fallacy.

The narrative fallacy, which is linked to another behavior called confirmation bias, refers to our tendency to seize on vaguely coherent explanations for complex events and then to interpret every development in that light.

These self-deceptions can make us construct flimsy, if superficially logical, stories around what has happened in the markets and project it into the future.

The financial media does this because it has to. Journalists are professionally inclined to extrapolate the incidental and specific to the systematic and general. They will often derive universal patterns from what are really just random events.

Building neat and tidy stories out of short-term price changes might be a good way to win ratings and readership, but it is not a good way to approach investment.

Of course, this is not to deny that markets can be noisy and imperfect. But trying to second-guess these changes by constructing stories around them is a haphazard affair and can incur significant cost. Essentially, you are counting on finding a mistake before anyone else. And in highly competitive markets with millions of participants, that’s a tall order.

There is a saner approach, one that doesn’t require you spending half your life watching CNBC and checking Bloomberg. This approach is methodical and research-based, a world away from the financial news circus.

The alternative consists of looking at data over long time periods and across different countries and multiple markets. The aim is to find factors that explain differences in returns. These return “dimensions” must be persistent and pervasive. Most of all, they must be cost-effective to capture in real-world portfolios.

This isn’t a traditionally active investment style where you focus on today’s “story” and seek to profit from mistakes in prices, nor is it a passive index approach where you seek to match the returns of a widely followed benchmark.

This is about building highly diversified portfolios around these dimensions of higher expected returns and implementing consistently and at low cost. It’s about focusing on elements within your control and disregarding the daily media noise.

Admittedly, this isn’t a story that’s going to grab headlines. Using the research-based method and imposing a very high burden of proof, this approach resists generalization, simplification, and using one-off events to jump to conclusions.

But for most investors, it’s the right story.

Have Questions?

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

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.

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

5 Ways to Boost Your Security Against ID and Credit Card Theft

By Bryan Mills

A week hardly passes without news of credit card and identity theft. Here are some security measures you can take, including some you’ve not likely heard of before now.

About a year ago, I was sitting down to dinner with my family when I got a phone call from a department store inquiring about my new credit card and recent purchases. I knew right away I had a problem because I’d never shopped at that store.

I left my dinner and started my own investigation. I spent dozens of hours tracking the frauds and thefts. I soon learned that five different credit cards had been opened in my name; new debit cards had been issued from my bank; and money had been transferred from my savings and checking accounts.

Naturally, I was completely appalled. Now I’m on a mission to make sure people learn from my experiences and consider putting into place new security measures, many of which I’d never known about—and I’m in the financial services business.

Here are five ways you can improve your protection against fraud:

1. Create secret “verbal passwords” on your bank and credit card accounts

Verbal passwords on all your bank and credit card accounts will save you time, money, sanity, and future chaos. Everyone enters a numbers-based key-code password when withdrawing money from a bank account at the ATM. Some, though not all, retail stores request an ID when you make a credit card purchase at the register. So why don’t banks require a password when you make a transaction at the teller?

Most banks won’t tell you to request a verbal password or phrase to be placed on your bank accounts. This is the most important thing you can do to protect yourself from the fraudsters lurking out there. Here’s how to do it:

Walk into your local bank and ask to speak with the branch manager. When you meet with the branch manager, request to speak about your accounts in a private office. Once you are in a closed office, instruct the branch manager to place a “verbal passcode” on all over-the-counter and phone request withdrawals, newly issued bank cards, and even transfers.

If the verbal password or phrase is not given, no information or transactions may proceed. I had this type of protection on one of my personal bank accounts. Unfortunately, I didn’t do this on the other one that was scammed for thousands of dollars in cash with a teller at a bank in a completely different state.

Most bankers don’t even check the signature card when given an over-the-counter withdrawal request. The verbal passcode or phrase will be your guardian and savior. One last thing: when you are asked to give your verbal password, never say your passcode or phrase out loud at the bank. Ask the teller for a piece of paper when asked for your passcode. Write it down, pass it to the teller and then take the paper back, tear it up, and put it in the trash.

2. Shield yourself from the “magic wand” with an RFID-protected wallet.

While shopping in crowds at the mall can be fun, you can also unknowingly expose yourself to a fraud device known as the “magic wand.”

“Wanding” is the process by which all your credit card information can be stolen by a $20 device that is able to read, record, and save it all in an instant. This information is then illegally used to create multiple cards that will be sold without your knowledge and permission.

You can stop this scam from happening by shielding your credit cards with an RFID-protected wallet (that stands for radio frequency identification device). These wallets can cost from $30 to $200. These wallets have a built in shield that deflects any credit card reading/skimming devices. Another cheap, quick and useful fix is to wrap your credit cards in tin foil. Yes, tin foil. This may sound crazy but it works. I happen to like a product called the Flipside Wallet. You may check them out at www.flipsidewallet.com

3. Protect your credit file like a pro

If you really want to control you credit file, open an Equifax account at www.equifax.com. Equifax is the best way to examine the accuracies of your credit history and manage your credit future. This service costs approximately $17.95/month.

Equifax gives you the power to lock or unlock your credit file. It’s your virtual credit file switch. Once you lock your credit file, no one can open a new credit card account–not even you. If you want to open a new credit card account or receive a bank loan, you have to login to your Equifax account and unlock your file with one flick of a virtual switch. This service also notifies you via email or text when key changes occur to your credit profile and if there is suspicious activity on any of your important financial accounts.

4. Never let your credit card leave your sight

When you’re shopping or eating at a restaurant, think twice before you hand over your credit card for payment. When your card leaves your hands and is out of your field of vision, this is when it can have its information stolen via a smartphone camera or mini card-reader called a skimmer. This type of fraud can happen in the moments you are waiting to get your card back. The best defense is to be present when your card is swiped (funny word, huh?).

5. Avoid making in-store credit card applications

I love to save money, especially during the special promotions and the holidays. Most stores will offer immediate credit and an attractive discount on all new purchases with a new on-the-spot application and approval.

Who is handling your paper application once it has been given to the store clerk? This information can be exposed to many unsavory people. If you really want the credit and a special discount, you can call the company’s credit department or fill out an application online ahead of time.

This protects you in several ways: The information you have given is with the headquarters representative. The conversation is usually recorded and stored. Once your application is approved and processed, it’s mailed to your home address. This will help keep your information safer. You may have to call a company representative for any in-store or online promotions that may be used with your newly minted cards.

Copyright © 2014 by Horsesmouth, LLC. All Rights Reserved


Protecting Assets and Reputation in the Midst of a Malpractice Claim

Besides being healers and caretakers, doctors are also business owners, putting them at risk for additional lawsuits and claims. There are many assets at stake when a physician faces a medical malpractice lawsuit, and it’s not just the assets related to the medical practice that can be vulnerable. Even if there is a settlement out of court, a doctor’s reputation, medical record and credentials could all be tarnished in the process.

The implementation of the Affordable Care Act has led to speculation about the broader impact on medical malpractice claims. A 2014 study by the RAND Corporation theorizes a rise of up to 5% in malpractice claims (1). The theory is based on an assumed increase in procedures and patient interactions from a higher percentage of the population being insured. Consequently, higher medical professional liability insurance premiums may be expected. Certain factors could have a broader impact on the risk profiles of physicians.

Standards Are Changing

A primary concern for physicians is that the quality and standard measures of the ACA could cause a shift in how “standard of care” is evaluated in the courtroom. The fear is that plaintiff attorneys could use these approved guidelines from specialty boards as “rules” for the standard of practice and patient safety. This would essentially allow operational guidelines to take precedence over proven clinical research.

Medical Professional Liability Insurance

Just as healthcare has undergone reform, some entities such as the Center for American Progress have suggested that a reform of medical malpractice law is necessary as well (2). One potential solution would be a safe harbor for physicians with legally-defined criteria for standard of care. Patients who bring malpractice claims must show evidence that their physician did not follow guidelines and meet the standard of care when diagnosing or treating their specific conditions. The ability to show documented proof that the physician did indeed adhere to established guidelines and upheld the standard of care is an effective means for defending such claims in the early stages of litigation.

Physicians can document their adherence to clinical guidelines by using a qualified health information technology system. Research published by the Archives of Internal Medicine suggests that adoption of Electronic Health Records could lead to a reduction in malpractice claims (3). EHRs allow for more effective communication between healthcare providers and cuts down on the delay in receiving patient information. Also, the documentation provided by EHRs could improve the chances of a successful defense in the earliest stages of a malpractice lawsuit.

Preparing a Defense

Statistics indicate that the majority of physicians will be sued for medical malpractice at some point in their career. In fact, a study published by the New England Journal of Medicine found that 99% of physicians in high-risk specialties will be sued by the age of 65 (4). However, there are some pro-active steps that can be taken when facing this ordeal.

Insurance carriers generally require to be notified at the first hint of trouble if there’s reason to suspect that a patient is considering a lawsuit. The insurer usually assigns a claims representative to investigate the claim, gather information and act as a guide through the litigation process. To maximize the defensibility of a malpractice claim, thorough records should be maintained and organized. Missing records and poor documentation in general could harm the chances of a successful defense.

Further, physicians should be cognizant of their rights when determining whether a settlement can be reached. In most cases, carriers won’t settle a claim without the doctor’s consent. However, some policies have a “hammer clause” that allows the carrier to assert pressure on their insured on whether a case should be settled. Even if the medical facts were on the doctor’s side, a settled claim can show up in a physician’s professional history, affecting their professional reputation and potentially increasing their future risk of similar claims. Having a consent-to-settle clause in a medical professional liability insurance policy may allow a physician to retain a higher degree of authority in this critical decision, and maintaining confidentiality in the terms of any settlement can eliminate or limit the impact of a claim on potential future claims.

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

(2) http://www.americanprogress.org/issues/healthcare/report/2013/06/11/65941/reducing-the-cost-of-defensive-medicine/
(3) http://archinte.jamanetwork.com/article.aspx?articleid=1203517
(4) http://www.nejm.org/doi/full/10.1056/NEJMsa1012370

Seven Ways to Fool Yourself

April 8, 2014 | By Jim Parker, Vice President DFA Australia Limited

The philosopher Ludwig Wittgenstein once said that nothing is as difficult for people as not deceiving themselves. But while most self-delusions are relatively costless, those relating to investment can come with a hefty price tag.

We delude ourselves for a number of reasons, but one of the principal causes is a need to protect our own egos. So we look for external evidence that supports the myths we hold about ourselves, and we dismiss those facts that are incompatible.

Psychologists call this “confirmation bias”—a tendency to select facts that suit our own internal beliefs. A related ingrained tendency, known as “hindsight bias,” involves seeing everything as obvious and predictable after the fact.

These biases, or ways of protecting our egos from reality, are evident among many investors every day and are often encouraged by the media.

Here are seven common manifestations of how investors fool themselves:

#1 “Everyone could see that market crash coming.”: Have you noticed how people become experts after the fact? But if “everyone” could see a correction coming, why wasn’t “everyone” profiting from it? You don’t need forecasts.

#2 “I only invest in ‘blue chip’ companies.”: People often gravitate to the familiar and to shares they see as solid. But a company’s profile and whether or not it is a good investment are not necessarily correlated. Better to diversify.

#3 “I’m waiting for more certainty.”: The emotions triggered by volatility are understandable, but acting on those emotions can be counterproductive. Uncertainty goes with investing. Historically, long-term discipline has been rewarded.

#4 “I know about this industry, so I’m going to buy the stock.”: People often assume that success in investment requires a specialist’s knowledge of a sector. But that information is usually already in the price. Trust the market instead.

#5 “It was still a good call, but no one saw this coming.”: Isn’t that the point? You can rationalize a stock-specific bet as much as you like, but events or external influences can conspire against you. Spread your risk instead.

#6 “I’m going to restrict my portfolio to the strongest economies.”: If an economy performs strongly, that will no doubt be reflected in stock prices. What moves prices is news. And news relates to the unexpected. So work with the market.

#7 “Ok, it was a bad idea, but I don’t want to sell at a loss.”: We can put too much faith in individual stocks, and holding onto a losing bet can mean missing opportunities elsewhere. Portfolio structure affects performance.

This is by no means an exhaustive list. In fact, the capacity for human beings to delude themselves in the world of investment is never-ending.

But overcoming self-deception is not impossible. It just starts with recognizing that, as humans, we are not wired for disciplined investing. We will always find one way or another of rationalizing an emotional reaction to market events.

But that’s why even experienced investors engage advisors who know them, and who understand their circumstances, risk appetites, and long-term goals. The role of that advisor is to listen to and acknowledge our very human fears, while keeping us in the plans we committed to at our most lucid and logical.

We will always try to fool ourselves. But to quote a piece of folk wisdom, the essence of self-discipline is to do the important thing rather than the urgent thing.

Have Questions?

‘‘Outside the Flags’’ began as a weekly web column on Dimensional Fund Advisors’ website in 2006. The articles are designed to help fee-only advisors communicate with their clients about the principles of good investment—working with markets, understanding risk and return, broadly diversifying and focusing on elements within the investor’s control—including portfolio structure, fees, taxes, and discipline. Jim’s flags metaphor has been taken up and recognized by Australia’s corporate regulator in its own investor education program.

Diversification does not eliminate the risk of market loss. Past performance is no guarantee of future results. There is no guarantee that strategies will be successful.

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

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.

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