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Personal Financial Management after Your Residency

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Personal Financial Management after Your Residency. Chris Lamoureux, PhD. Head of Finance ... Personal Finance for MDs. 3. Congratulations! ... – PowerPoint PPT presentation

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Title: Personal Financial Management after Your Residency


1
Personal Financial Management after Your Residency
  • Chris Lamoureux, PhD
  • Head of Finance
  • Estes/Neill Professor of Finance
  • University of Arizona

2
First Foremost Do No Harm
  • Finance is a toolnot an end unto itself.
  • Most Financial Advisors are selling
    somethingyour interests are not in mind.
  • Develop a plan of conservative management, and
    stick with it.

3
Congratulations!
  • By becoming an MD you have already made the best
    investment I know of education (human capital).
  • The returns on this investment far outweigh any
    risks, and I encourage you to support education
    throughout your lives. Make this an on-going
    investment.
  • (Can you tell Im a university administrator?)

4
Whats Easiest
  • Avoid debt!
  • Credit Card debt is worst. Never use credit
    card for borrowing.
  • Interest Paid is not tax deductible, interest
    earned is. If youre in a 40 tax bracket,
    consider the effect of paying off 12 credit card
    debt. Its equivalent to earning 20 on a risk
    free investment. (Not bad when 2-Year Treasury
    Bills are yielding 2.)

5
The Easy Stuff 2.
  • Payoff student loans as soon as possible.
  • Never speculate. A reporter asked me the other
    day With the stock market so low, shouldnt we
    borrow as much as we can and buy stocks?
  • I was aghast.
  • Avoid hedge funds.

6
The Easy Stuff 3.
  • Fully insure. (This is a corollary of the last
    point.)
  • Try to diversify. This is often violated
  • Dentists investing in equipment.
  • Farmer buying Caterpillar stock.
  • You buying Merck (youve heard about a promising
    new drug, . . .)

7
The Easy Stuff 4.
  • Buying a house has been historically an excellent
    investment.
  • Mortgage interest and property taxes are
    deductible expenses.
  • Mortgage is a collateralized, standard loan so
    rates are reasonable.
  • 30 year mortgage is paid off before
    retirementaffording reduced housing costs at a
    good time.

8
Buying a house? (Contd.)
  • Housing prices have risen steadily over time.
  • But
  • House is an illiquid asset.
  • Current concern about asset price bubble.
  • So I prefer to think of buying a house as more
    of a consumption decision rather than an
    investment decision. (Buy a house if you want
    to. Dont blame me when you figure out the
    maintenance costs!)

9
The Easy Stuff 5.
  • Start saving for retirement.
  • Probably dont want to count on social security.
  • Contributions to (qualifying) retirement plan are
    pre-tax (i.e., you can avoid paying taxes on that
    income).

10
The retirement spreadsheet
  • Compounding has big effect over time.
  • Base case 200,000 annual income, 4 earning on
    portfolio (My recommendation TIPS), monthly
    contributions of 14 of gross salary.
  • Amount in account on retirement
  • Over 2,247,000.
  • This would require a lump sum of 533,000 today
    under the same market conditions.

11
Retirement
  • Dont count on partnership value to insure your
    retirement
  • Arthur Andersen.

12
How to Contact Me.
  • Chris Lamoureux
  • Head of Finance and Estes/Neill Professor of
    Finance
  • Eller College of Business
  • University of Arizona
  • Tucson, AZ 85721-0108
  • www.bpa.arizona.edu/finhome/lam/lamhome.html
  • (520) 621-7488
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