Sometimes life would be much easier if we had a flowchart to guide us with all of our decisions. Fortunately life can’t be dumbed down to a giant decision tree. No matter what our
I’ve gone through spurts of discipline and motivation throughout my life. I think that the first time wasn’t until high school when I was trying to get into a good college so that I wouldn’t be pan-handling off the freeway later in life. We all have had various productivity spurts in college, medical school, and in our job hunts. The gears are always moving.
Ironically, once we’ve settled down in a stable job life becomes much easier. You show up to work, you see patients, you go to some meetings, and you go home. Some nights we take call. Some weekends we spend at the hospital. But once the routine becomes established, life is easier.
Routine as a gateway to mediocrity
The danger in getting into a routine is simply that–life can get mundane and heaven forbid, your brain might start slowing down. The worse part about autopilot is not knowing that you’re in autopilot mode.
There are doctors who are the same way–they’ve “mastered” their profession, and just opt to expend their energies elsewhere, like venturing into financial education or living the dream on the beach. Are these doctors actually on the top of their medical game? As much as I believe that we have enough multitasking abilities to be great at many unrelated topics, medicine is a field where complacency does actually create mediocrity. I have friends who specialize in treating stroke victims through advanced revascularization techniques–look at it as high-risk unclogging of your plumbing system–they will be first to tell you that if they didn’t put in the hours on call and on emergency situations that they would not nearly be as good as they are.
Another prime example is Dr. Oz, the world-famous cardiothoracic surgeon turned celebrity medical expert. When I scrubbed into his hallowed operating room years ago, there was no doubt that he had expert dexterity with the vascular system. This came from years of long hours in the operating room and labs. If I needed a new heart valve today, I’d probably not want him to perform the high-risk sections of my surgery.
Reigniting the flame of ambition
Fortunately not all of us need to be world renowned surgeons or innovators within our profession. The rest of us mere mortals can still remain well-versed in our professions while running on autopilot. Likewise, it’s even easier to set your financial plans on autopilot. My financial game plan has been set on autopilot for a while now. I clean up a few investments here and there at the beginning of the calendar year, tax-harvest if I truly want some activity, and sit back and enjoy life. It sometimes gets a little stale to keep funding those index funds when Bitcoin offers so much excitement. Maybe I could trade some gold or buy some properties to flip or rent out.
I look for inspiration to remain motivated. Sometimes I’m able to see it every day. Other times inspiration only presents every few weeks. Several weekends ago, I attended an intramural basketball tournament for elementary school students. These kids probably ranged from five to ten year olds. They played essentially full-court games with ten-minute quarters!
These kids hustled down the court on every play, and fought for every point. One team was behind by twenty points, but still played hard until the final buzzer rang. It was refreshing to see that ambition is still alive and well. I high-fived some of the players afterward, went home, and was motivated to vacuum the living room.
What are your sources of ambition?
Seasoned investors know that market timing has historically been little more than a gambling move—try buying some Bitcoin right now in Q4 2017 and see where that takes you. You might still win big, but history has to have losers. But it’s human nature to want to be above average. This is especially true in finance. Everyone wants to have some alpha in the game. After all, you spend your free time reading finance literature, swear off the financial advisors, and even try to educate your colleagues.
I’ve certainly inadvertently “timed” the market when I bought shares of Berkshire B stock in residency. It was at a 52-week high at the time, and by market timing criteria it was too expensive to buy. Guess what? It’s grown by more than a five-fold since then (maybe more).
I came across an interesting article with infographics by Wes Moss (http://clark.com/personal-finance-credit/stock-market-record-high-invest-now/). He breaks down the effects of investing in the stock market at highs and lows. It seems like even if you invest right before a significant market correction, you still come out ahead over time. I remember William Bernstein in his e-pamphlet If You Can commenting about stocks:
“How risky are stocks? You’ve no idea. During the Great Depression, stocks lost, on average, around 90 percent of their value; during the recent financial crisis, they lost almost 60 percent.”
We all have to realize that not everyone can be above average, yet alone beat the market. For a brief while years ago I thought that I could do it, but then realized that I had no time or interest in delving into the financial world while I was inundated in the medical field. That is still the case for me.
I am still in the growth and investment phase of my career. Most of my passive investments are still going towards stocks and bonds while I decide how to diversify my earnings further. I still am working full-time in my medical career and have little time to hold my earnings in cash until the next big investment. Dollar cost averaging works for me, even though the market is perhaps at its relative high.
The following is a guest post by Don Wieczorek, who is the president of Purple Valley Capital. Don is a sponsor for this website. The views expressed in this article are solely his own.
In my opinion, if there is one subject in finance that everyone agrees on, it is that diversification can increase returns while also decreasing volatility and limit portfolio-wide drawdowns. Many investors think they are diversified because they own equities in different industries or countries, some bonds, and perhaps even have exposure to real estate, but true diversification should reach well beyond this standard portfolio. True diversification includes not only spreading capital across different asset classes, but time frames and methods of investing as well.
Some investors look to the industry known as “managed futures” to help fill this void. Managed futures is made up of professional money managers who are known as “Commodity Trading Advisors” (CTAs). CTAs are required to become registered with the U.S. government’s Commodity Futures Trading Commission before they can offer themselves to the public as money managers. The industry is large, with over 1,000 registered CTAs, cumulatively managing well over $100 billion.
CTAs generally manage their clients’ assets using a proprietary systematic trading system or discretionary method that may involve going long or short various futures contracts in areas such as metals (gold, silver, copper), energies (crude oil, natural gas), grains (corn, wheat, soybeans), equity indexes (S&P500, Nikkei 225), food//soft commodities (coffee, sugar, cotton, cocoa) as well as foreign currency and U.S. government bond futures. The majority of CTAs employ a trend following approach, which aims to capture the large trends, both up and down, in the various futures markets. By entering markets when they break out to either the upside or downside, systematically cutting losing trades very quickly, and holding onto winners, trend followers aim to skew returns and volatility to the upside. When market prices trend, often the result of trending fundamentals that are accentuated by the various psychological biases of market participants, trend following CTAs can perform well, but when markets are flat and choppy, they will perform poorly. The main advantage of allocating to a CTA is that it can implement all three pillars of true diversification: different asset classes, different holding periods, and different method of attempting to make money.
Although allocating to a CTA can be a fantastic diversifier if used properly, there certainly are risks in getting involved, and the use of such a strategy is not for everyone. First and foremost, CTAs buy and sell futures contracts, which are inherently leveraged products and carry with them a risk of large potential loss. Because trend following CTAs, almost by definition, aim to be positioned in the hottest markets (those hitting new highs or new lows), performance can be volatile and have deep drawdowns as well. Psychologically, this type of investment can be very difficult, because it can produce frequent small losses in exchange for infrequent but large gains. Drawdowns can be lengthy. Although this strategy can perform well during periods of trending markets (i.e. strong economic growth, crises, inflation, etc…), it performs poorly when markets are range-bound and flat. For example, the last couple of years have been meager for the trend following CTA industry due to zero interest rate policies (thus few large currency moves), subdued economic growth, and no inflation. Fortunately for the industry, this is finally starting to change, and many markets have started to trend again, however there is no telling if, or how long, it will last. Managers simply follow the market action and attempt to manage risk at all times. Success in futures trading requires an immense amount of psychological fortitude, discipline, and patience.
In full disclosure, I own and operate Purple Valley Capital, Inc., a CTA that has traded client (and my own) capital for over nine years, having started it in 2008 during my senior year of college. I originally just traded my own capital but became legally registered and incorporated when my family, friends, and outside investors began showing interest in my strategy in order to help them achieve further diversification within their portfolios. I built my trend following strategy from the ground up, and have seen, along with my investors, the benefits and risks of such a managed futures strategy. Whether it is with managed futures, or some other investment strategy, the idea of trying to achieve true diversification is an extremely important matter. Again, there are many ways to diversify, and CTAs are simply one way to try and go about doing so. Hopefully this article will help others think about diversification slightly differently than they had in the past, and perhaps stimulate an interest in looking for a diversifier that spans different asset classes, time frames and method of trading, whether it be with a CTA, or some other vehicle.
Purple Valley Capital, Inc.
FUTURES TRADING IS SPECULATIVE & INVOLVES A HIGH DEGREE OF RISK. IT IS NOT SUITABLE FOR EVERYONE. PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
The purpose of disability insurance is to ensure that your dependents are well-taken care of in case you are no longer able to work to support them. This is a real and unfortunately not rare situation. If you are a doctor and the sole breadwinner in your household, you have get disability. It doesn’t have to be much to begin with, but depending on your expenditures and net worth you still need some some coverage. I can only think of one reason why a doctor finishing her training would not need disability insurance:
You or your spouse is independently wealthy, and neither of your incomes are necessarily for you to sustain your living standards for the rest of your life.
I actually know plenty of people who are fortunate enough to be in this enviable situation. Most of these guys are pretty admirable too—many of them have taken financially unfavorable jobs for prestige, altruism, and other personal reasons. Chances are that you aren’t in this type of arrangement. If you ever (or when you do) reach financial independence, you can axe your disability because you are self-insured. You don’t have rely on anyone else for your existence. That’s a good milestone in your life to reach.
What should you do if both you and your significant other has a job? Can you and should you lower the amount insured? Should you just insure the spouse with the higher income? Can you scrimp by without disability insurance for either spouse? Let’s look through each scenario and weigh in the pros/cons.
Neither spouse buys disability insurance.
This is not advisable. Simple example: You take a family trip to ski. Everyone takes a tumble. Your husband, the orthopedic surgeon, breaks his wrist in five places and ends his short but storied career as the premier should specialist in your area. You break a leg and shred through your intrinsic hand muscles. Technically you could still practice as a radiologist but can only go a tenth of your speed before injury. You have to take a 90% pay cut. Junior has to withdraw from his private elementary school and you have to give up your SoulCycle membership.
The higher earning spouse buys disability insurance only.
If the higher income spouse exceeds her counterpart by several fold, then perhaps this makes sense. Take, for instance, a nurse practitioner and his wife, the neurosurgeon. The nurse could buy up disability insurance—this might cost about $1,000 annually—but it might not make a difference. The cost of a $1,000 annually to have some insurance would not truly impact the savings power of the family. The loss of his income would also not really impact the bottom line of the family. The neurosurgeon should, however, buy up to the maximum amount until the family becomes financially independent. If I were in this situation, I’d forgo disability for the nurse and purchase for the neurosurgeon.
You might also like: How To Maximize Your Finances As A Two Physician Household.
The tougher situation is if the difference in income between both spouses is similar. At this point, it’d depend on how much the insurance would impact the bottom line in the family. Would the additional cost of disability insurance otherwise prevent junior from attending tennis camp every year? Would it slow down the family’s financial goals significantly (I would hope not).
Both spouses purchase disability insurance, but at an adjusted rate.
In some ways a two professional household has it easy–there are two incomes which are hopefully sizable. Double the firepower. Double (or even triple) the savings. Double the job security as well. If a family like this plays its cards right, it will likely reach financial independence must more quickly than most single income families.
Maybe a front-loaded schedule of disability insurance would go like this:
A more complex schedule would include the earning velocity of the household. High-income and high expenditure families should still purchase a relatively higher percentage of their incomes in disability even as they approach financial independence, because they have a large delta even towards the end of the journey. Lower expenditure households can drop off their coverage at a much higher rate since they have a larger buffer.
How much of your income is covered in your disability insurance?