Wyatt Unger, M.D., M.B.A, is a 3rd year radiology resident at the University of Arizona. Wyatt earned a B.A in Economics from Northwestern University and an M.B.A. from the University of Arizona. Prior to pursuing a career in medicine, Wyatt has worked as an equity options market maker at the NYSE/ARCA options exchange and the Chicago Board Options Exchange (CBOE), as well as a proprietary equities trader at Great Point Capital. Wyatt has previously held Series 7, 55, and 63 certifications.
Through this “Wall Street to White Coat” interview series, Dr. Unger will share his first hand experience from Wall Street and his extensive education/ knowledge in finances and economics with his white-coat colleagues.
(We have no financial relationship.)
- I’ve never invested before, how and where do I start?
The best way to start investing is by doing it. I started investing when I was 10 years old when my grandfather gave me a check for Christmas and instructed me to invest in stock. I wish I could say that that stock is worth a lot of money today but it actually went to zero which taught me a really important lesson about investing and the risks of not being diversified.
It is important to realize when you’re starting investing that it is a risk and that you don’t always make money when you’re doing it. The best thing you can do is educate yourself as much as possible and start small with the understanding that a new investor is going to make mistakes.
- Should I invest with pretax or post tax retirement accounts or a taxable brokerage account?
You should invest with both retirement accounts and if you have extra cash flow also in a taxable brokerage account. It makes sense to max out your retirement account every year due to the tax savings but ideally you should save more than the allowed maximum in a retirement account.
That doesn’t mean all of your savings should be invested in stocks because having all of your savings in one instrument (stocks, bonds, CD, etc.) is generally not appropriate for the average investor. It is generally appropriate to have a portion of your savings invested in stocks, bonds, real estate and cash, depending on your financial situation.
- What is a general rule of thumb for asset allocation?
The general rule of thumb for asset allocation would be to take 100 and subtract your age and that would be the percentage invested in stocks. The remainder should be invested in bonds or other assets. Of course this also depends on your financial goals and family situation.
- What is spread, load, and price-to-earnings ratio?
There are a lot of complicated terms in investing that the general investor doesn’t understand. Fortunately there are many resources to help understand these terms. Some terms you might’ve heard before may include,
Spread: this is the difference between the bid and ask prices for a stock or fund.
Load: this is the fee charged by a fund or mutual fund for management. (Upfront?)
Price to earnings ratio: there are many financial ratios used to describe a stock’s financial performance. Price-to-earnings ratio is probably the most commonly cited one. This is the ratio of a stock’s market capitalization (total market value) to its after-tax earnings.
- What major principles should novice investor go by?
The best principal for novice investor is to follow is diversification. What diversification means is not having too much of your savings in any given asset. Assets include stocks, bonds, real estate, and cash. The reason for this is unexpected things happen frequently in the financial markets and by having your savings amongst a number of assets you minimize your downside risk when things start to go bad or if something changes in your life situation.
It also helps you sleep better at night. An excellent book for the novice investor regarding investing in index funds and the benefits of diversification would be A Random Walk Down Wall Street by Burton Malkiel.
- Which index funds do you recommend investing for retirement saving purposes?
Index funds are treated like stocks but represent a large number of underlying assets. There are literally hundreds if not thousands of index funds in the marketplace now. When selecting appropriate index fund it is important to find out its management fee which should be available in the prospectus.
A new investors should start with an index fund that is broadly representative of the market. There are funds that mimic the performance of the S&P 500 (SPY), the Dow Jones industrial average (DIA), the NASDAQ composite index (QQQ) the Russell 2000 (IWM).
- Where do I put my money if I’m saving for short-term expenses?
For short-term expenses where you need the money to be available, stocks are generally too risky. For example suppose you need your savings for a purpose five years from now and the market happens to be down substantially that year, you put yourself in a position where you might be forced to sell at a loss or at sub-optimal time. It is generally advisable to hold funds that will be needed in the near future in less risky investments such as investment-grade bonds, treasuries, municipal bonds, or CDs.
A second interview with Wyatt will be coming shortly. Are there any question you want to ask him? Comment below!