Investment portfolio

investment

My investment portfolio is stupid simple and passive. I buy the US stock market and hold for at least 3 decades. 100% stocks for now, will re-balance as my risk tolerance decreases with age/nearing retirement. I know of an financially savvy attending who holds 100% stock with a stash of liquid funds on the side (to buy MORE stocks whenever the market dips) even though she plans to retire in 10 years. I might end up doing the same 🙂 Only time will tell.

Before I became full-hearted believer of passive/boring investment, I experimented with Robinhood (iphone-based, completely free brokerage) and picked a few stocks including Apple, Google, Hains, Yahoo and a couple other less well known companies.

I picked these stock with <5% of my total portfolio and soon learned that I was wasting much time and losing money, at least in the short term. The #1 lesson I learned from my stock picking experiment was that investment portfolio need not be exciting. Boring and passive can work really well. Additionally, low costs and tax efficiency (my only fees for my investments are 0.04%, 0.05% and 0.08% expense ratio) can accelerate the growth of one’s nest egg.

I only have 3 funds I put post-tax/ROTH dollars into. Fund I/II are institutional funds under 403 ROTH at work, contribution are automatically subtracted from my pay check every 2 weeks. It’s convenient and build automatic savings throughout the year without me thinking about it other than when I did the math to decide how much contribution I wanted per check.

Fund III is my ROTH IRA, which I contribute to whenever time is right with the goal of maxing it out annually. Time is right is a combination of stock prices went down + I happen to have some extra cash/roll over from last month/additional work or moonlighting.

A co-resident with great business sense and an MBA recommended that I look into Russell 2000. I will look into it more, but if the fee is much more than 0.08%, I probably will just stick with my current holdings and consider adding some riskier Vanguard  index funds. Although I will experiment with my risk tolerance by selecting different index funds, what I will not alter is my minimum saving rate and NOT pick stock (index funds only). There are infinite number of ways to achieve financial freedom and innumerable number of investment portfolios (check out the 150 listed by WCI),  but the habit of saving AND the discipline to stick to An investment plan (never sell low) are probably the most critical components to financial freedom.

ps. the net assets below are not my personal numbers, they represent ALL the investors holding the said index funds. I’m surprised to see that for Fund I/II, there aren’t very much net assets (which means people at my work are either not saving much OR choosing other Fidelity retirement holdings that cost much more, e.g. higher expense ratio.)

Fund I (57% of my portfolio):

Vanguard Institutional Index Fund Institutional Shares

Performance

AS OF 10/31/2015

Average Annual Returns
YTD (Daily)* 1 Yr 3 Yr 5 Yr 10 Yr
YTD(Daily)*+3.74% 1 Yr+5.19% 3 Yr+16.17% 5 Yr+14.31% 10 Yr+7.85%

Quarter-End Average Annual Total Returns

AS OF 9/30/2015; FUND INCEPTION 7/31/1990

EXPENSE RATIO (GROSS): 0.04% AS OF 4/28/2015

1 Yr 3 Yr 5 Yr 10 Yr Life
Vanguard Institutional Index Fund Institutional Shares -0.63% 12.37% 13.31% 6.80% 9.21%
S&P 500 -0.61% 12.40% 13.34% 6.80% 9.20%
Large Blend -2.48% 11.28% 11.68% 5.97% —

Details about this fund:

Morningstar Category Large Blend
Fund Inception 7/31/1990
NAV

11/6/2015

 $192.14
Exp Ratio (Gross)

4/28/2015

 0.04%

($0.40 per $1000)
Exp Ratio (Net)

4/28/2015

 0.04%

($0.40 per $1000)
Turnover Rate

12/31/2014

 4%
Portfolio Net Assets ($M)

10/31/2015

 $197,700.37
Share Class Net Assets ($M)

10/31/2015

 $105,428.26
12 Month Low-High

10/31/2015

 $171.18 – $195.16

Top 10 Holdings

AS OF 9/30/2015

17.13%

TOP 10 HOLDINGS

Apple Inc 3.71%
Microsoft Corp 2.09%
Exxon Mobil Corporation 1.83%
Johnson & Johnson 1.52%
General Electric Co 1.50%
Wells Fargo & Co 1.41%
Berkshire Hathaway Inc Class B 1.36%
JPMorgan Chase & Co 1.33%
Facebook Inc Class A 1.20%
AT&T Inc 1.18%
% of Total Portfolio 17.13%

Fund II (1% of my portfolio):

Vanguard Extended Market Index Fund Institutional Shares

Performance

AS OF 10/31/2015

Average Annual Returns
YTD (Daily)* 1 Yr 3 Yr 5 Yr 10 Yr
YTD(Daily)*+1.07% 1 Yr+1.25% 3 Yr+15.50% 5 Yr+13.28% 10 Yr+8.63%

*AS OF 11/6/2015; Value is cumulative

Quarter-End Average Annual Total Returns

AS OF 9/30/2015; FUND INCEPTION 12/21/1987
EXPENSE RATIO (GROSS): 0.08% AS OF 4/28/2015

1 Yr 3 Yr 5 Yr 10 Yr Life
Vanguard Extended Market Index Fund Institutional Shares -0.18% 12.94% 12.99% 7.77% 7.99%
S&P Completion (TR) -0.27% 12.83% 12.90% 7.63% —
Mid-Cap Blend -2.41% 11.74% 11.19% 6.39% —

Details about this fund:

Morningstar Category Mid-Cap Blend
Fund Inception 12/21/1987
Share Class Inception 7/7/1997
NAV

11/6/2015

 $66.73
Exp Ratio (Gross)

4/28/2015

 0.08%

($0.80 per $1000)
Exp Ratio (Net)

4/28/2015

 0.08%

($0.80 per $1000)
Turnover Rate

12/31/2014

 6%
Portfolio Net Assets ($M)

10/31/2015

 $43,783.37
Share Class Net Assets ($M)

10/31/2015

 $8,728.87
12 Month Low-High

10/31/2015

 $60.90 – $72.07

Portfolio Data

Glossary definition opens in new window.30-Day Yield 4

1.43%

10/30/2015

Top 10 Holdings

AS OF 9/30/2015

4.66%

TOP 10 HOLDINGS

Liberty Global PLC Class C 0.67%
Illumina Inc 0.62%
Tesla Motors Inc 0.59%
LinkedIn Corp Class A 0.54%
Incyte Corp 0.45%
Biomarin Pharmaceutical Inc 0.42%
Twitter Inc 0.38%
Las Vegas Sands Corp 0.34%
Charter Communications Inc Class A 0.33%
SBA Communications Corp 0.33%
% of Total Portfolio 4.66%

Total # of holdings: 3379 as of 9/30/2015

Fund III (43% of my portfolio):

Vanguard Total Stock Market Index Fund Admiral Share

Created in 1992, Vanguard Total Stock Market Index Fund is designed to provide investors with exposure to the entire U.S. equity market, including small-, mid-, and large-cap growth and value stocks. The fund’s key attributes are its low costs, broad diversification, and the potential for tax efficiency. Investors looking for a low-cost way to gain broad exposure to the U.S. stock market who are willing to accept the volatility that comes with stock market investing may wish to consider this fund as either a core equity holding or your only domestic stock fund.

EXPENSE RATIO (GROSS): 0.05%

Equity sector diversification

  Total Stock Mkt Idx Adm
as of 09/30/2015		 CRSP US Total Market Index
as of 09/30/2015
Basic Materials 2.30% 2.30%
Consumer Goods 10.30% 10.30%
Consumer Services 14.10% 14.10%
Financials 19.50% 19.50%
Health Care 13.70% 13.70%
Industrials 12.30% 12.30%
Oil & Gas 6.40% 6.40%
Other 0.00% —
Technology 16.00% 16.00%
Telecommunications 2.20% 2.20%
Utilities 3.20% 3.20%

Sector categories are based on the Industry Classification Benchmark system.

Characteristics as of 09/30/2015

Number of stocks 3809
Fund total net assets $371.5 billion
Net assets of ten largest holdings 14.5%
Foreign holdings 0.1%

Month-end ten largest holdings
(14.5% of total net assets) as of 09/30/2015

1 Apple Inc.
2 Google Inc.
3 Microsoft Corp.
4 Exxon Mobil Corp.
5 Johnson & Johnson
6 General Electric Co.
7 Berkshire Hathaway Inc.
8 Wells Fargo & Co.
9 JPMorgan Chase & Co.
10 AT&T Inc.

Portfolio holdings may exclude any temporary cash investments and equity index products.

  • What is your investment portfolio? Rationale?
  • How has your portfolio evolve over the years?
  • Do you have a favorite index fund? Why?

Physician Debt and Net Worth Report 2015

This reports surveyed nearly 20,000 doctors across 26 specialties with margin of error <1%.*

Two slides I found particularly informative are:

Physicians’ Net Worth by Age

“Over 90% of physicians younger than 28 years of age were worth less than $500,000. Net worth increased with age; by age 50, less than a quarter (23%) had a net worth under $500,000. By then, over half (55%) were worth $1 million or more. By age 65, nearly half (49%) had accumulated over $2 million.”

In my age group 28-34, 85% of the young docs have <500k net worth; 9% have 500k-1 mil net worth; 1% have 1-2 mil. In fact, I won’t be surprised that majority of the 85% with <500k net worth have NEGATIVE net worth in age 28-34.

By age 34, I will have conservatively speaking 85k (without accounting for the potential 8-10% growth of my ROTH accounts and the potential annual gain of 2-3% in my home value). My net worth will be behind the top 10 percentile of my age group of physicians’, but I’ll be doing fine.

When many young docs are making big attending paychecks at age 30, I’ll still be in training, making pgy5 income. If I can max out ROTH retirement accounts available to me, build home equity, and be student loan free, many people my age should be able to do better.

My goal is to help the 85% who has <500k build as much positive net worth as possible. If we even use just 3% of the brain power that’s required to get into and survive medical school to our personal finances, we can all easily build positive net worth much sooner instead of the being part of the prevalent trend of massive negative net worth in our later 20’s and mid-late 30’s.

 

 

Paying off Student Loans by Age Group

“It is not surprising that the percentage of school debt falls steadily with age. According to the AAMC, medical school debt has increased by 6.3% since 1992 compared with a 2.5% increase in the Consumer Price Index.[5] The AAMC also has reported that the median 4-year cost to attend medical school for the class of 2013 was $278,455 at private schools and $207,868 at public ones.[6] Given these high tuitions, resident debt has risen much more rapidly than inflation or resident compensation. According to the Medscape survey, 20% of physicians 50 and older are still carrying this liability. Even more physicians may owe money on college in mid-life as the current younger group of physicians age, and their higher debt continues into later life.”

In my age group 28-34, 67% of us young docs are still carrying/paying off student loans. 

My goal is to help the 67% of us who are still carrying (likely massive 200k-500k) student loans to get rid of this noose around the neck ASAP. Paying interest at 6.8% is a pretty bad guaranteed loss… why not find ways to lower such as high interest rate?

While refinancing was not available to those without attending income just a few months ago, residents and fellows can actually refinance now (DRB and Earnest have rolled out programs allowing pgy’s/yet-to-be-attending to refinance their student loans to a lower rate.)

If you do the math, you’d recognize that the student loan burdens are massive because of the HIGH Interest combined with LONG TIME the principle is compounding. Many students who graduate with 400k student debt, only borrowed 330k in the first place. 50-75k of the total debt at graduation ares simply Interests+ origination fee accrued during medical school alone, not to mention the interest that will accrue during pgy training as it’s compounded on ever growing principle debt balance.

So the best 2 things one can do is: 1) minimize taking out student loan/high interest loan (be frugal, creative, and live within your means). 2) DELAY and AVOID debts with high interest rates (take on a debt with lower interest rate such as credit card balance transfers w annual interest rate 2-3%, utilize home equity loans, or better still use 0% APR promotional rate for 18 months on your living expenses/tuition. Then either pay it off when the 0% APR is up with readily available student loan or simply balance transfer to 2-3% interest rate deal.)

If the damage is already done, ie, you already have quite some high interest debt. Then, convert your debt to a lower interest by refinancing, or taking advantage of low interest credit card deals, home equity loans, or personal loans @ a lower interest rate to pay off your high interest rate student loan ASAP.

*You can see the full Medscape report here.

 

  • What financial moves have helped you tackle your student loans?
  • Did you look into student loan refinancing? Were you happy with the rates/terms that were offered to you? What was your experience with the refi companies such as DRB or Earnest?
  • Any other student loan refi companies you recommend?

Employer Match! Great news for UA residents and fellows.

UA used to only match retirement contribution for attending physicians, but starting 7/1/2016 when Banner takes over UA residency, residents and fellows may now get 4% Banner employer match to their retirement accounts, specifically 401k pre-tax account.

To get this bonus 4% pay into your retirement savings, there are a few requirements:

  1. You have been working for UA/Banner since 7/1/2015. So if you are staring employment with Banner on 7/1/2016, you will have to wait 1 year before you can get the match.
  2. You must make pre-tax contribution to 401k. Your ROTH 401k contribution WILL NOT be matched. Attending physicians who are offered and elect to contribute to 403b and 403 ROTH do not get match either. ONLY 401k pre-tax contribution from you will get a match up to 4% of your salary by Banner.

 

So what do these requirement means?

  1. You no longer can max out your 403 ROTH at 18k like you could with UA IF you want to get the bonus 4% pre-tax contribution from Banner. Banner does not offer 403 to residents/fellows anyways.
  2. You will need to contribute 4% pre-tax dollars to 401k to get the 4% pre-tax match from banner, beyond this amount, you can make post-tax 401 ROTH contribution up to an aggregate of 18k. Banner’s match will NOT count against your 18k limit for 401k/401 ROTH aggregate.
  3. This means for the 18k limit of 2016, you will have ~2-3k in pre-tax 401k contribution, you may still contribute up to 15-16k in POST-tax 401 ROTH contribution. Banner’s 4% match will not take up your precious ROTH space but will add to your nest egg in the pre-taxdollars.
  4. I say our training years are golden for maximizing ROTH (be it 401 ROTH, 403 ROTH, or ROTH IRA) for 2 major reasons: 1.) we likely will be paying taxes on 100k+ in retirement instead of the 50-70k resident income we pay taxes on now. Training years are sweet from the life-time lowest taxes perspective. so whenever possible, we should contribute POST not PRE tax. 2.) Training years are early years of our retirement savings, allowing contribution during these years to compound for much longer than money put away later on. The combination of cheapest taxes AND time value of money make ROTH/post tax ideal in training.)
  5. If you are not close to maxing out the 18k 401k/403b limit, there is no question that you will contribute 4% pre -tax into 401k first so you can get the 4% match from Banner, then anything beyond that, you can do 401 ROTH. There’s nothing like getting 100% instant growth on the dollar you contribute to your retirement. 
  6. One more caveat is, since the transition to Banner starts 7/1/2016 and say you budgeted 9k for retirement savings for year 2016, you must be sure to pace yourself, so that you are contributing at least the 4% during the 2nd half of 2016 when you are a Banner employee. In other words, if you contribute all your budgeted 9k during the first half of the year while still a UA employee and you stop contributing after 7/1/2016 as a Banner employee, you will not get a Banner match.

 

What I plan to do:

  1. Contribute as much as I can to ROTH 403 while still UA employee (first half of 2016) while making sure I pace myself and have money left for contribution second half of 2016 to get the Banner 4% match.
  2. Contribute 4% pretax to 401k so I can get 4% match from Banner after 7/1/2016.
  3. Then as soon as possible, I will convert the 8% of pre-tax 401k contribution to POST Tax/ROTH dollars by paying taxes in my lowest income years, like NOW (i.e. likely the same year or the following year following IRS ROTH conversion rules.)
  4. By this strategy of contributing pre-tax to get pre-tax match and then CONVERTING to ROTH by paying taxes, I can combine the best of many worlds.
    1. Get the 4% match= bonus pre-tax pay from Banner.
    2. Pay cheapest taxes I can in my life time NOW.
    3. Allow my nest eggs to grow tax free as I originally planned.
    4. Since post tax retirement accounts have NO minimum distribution requirement, this can be a very good legacy fund for my kid(s) and grand-kids.

 

Outside of banner, you may have a more straight forward situation where you can contribute to ROTH AND get your employer’s match in a separate pre-tax account. Then you can just decide if you want to convert the pre-tax match to post tax at some point (ideally at times of your life when you have lower income= lower taxes, such as now in training or a future time when you cut back on work/income/taxes.)

 

  • Does your employer offer a match for your retirement contribution? If so, how does it work? Are you taking full advantage of your employer match?
  • What other perks/ fringe benefits does your employer offer?
  • What alternative benefits/ net worth building assistance did you look for in your contract?

Save 10-15% on your annual grocery bill AND fund your ROTH IRA!

Sprouts Farmers Market is selling gift cards at 90 cents on the dollar this coming Wednesday 11/4/2015 (traditionally this promotion happens once a year on the first wed. of November.)

So let’s say your household grocery bill is $400/month, you can open a new credit card, buy 5k of Sprouts gift card for the year’s grocery. While you pay for your grocery throughout the years with the pre-paid AND Discounted (10% off) gift cards, you can funnel that $400/month towards a ROTH IRA!

Pros of buying a year worth of grocery NOW on a credit card include,

  1. Your grocery is automatically discounted at 10% with the gift cards you buy on 11/4/2015 (once a year promotion).
  2. If you use a card like citi double cash back, you make additional 2% cash back, which means you really are getting approximately 12% discount on all your shopping at Sprouts.
  3. During the 0% interest rate promotion of a new credit card, you only pay 1% of the revolving balance per month. Let’s say you buy 5k worth of gift cards on citi double cash back. You get to ride the 5k balance interest free for 15 months while only paying about $50/month minimal payment.
  4. Each month, instead of paying $400 for grocery, you only pay $50 towards the minimum payment. This frees up $350 cash flow each month to fund your ROTH IRA. Remember, ROTH space in your training years are incredible deal because it combines the power of TIME VALUE of money & low tax brackets.
  5. You can even utilize other cards that have rewards that better suit you. For instance, certain cards such as SimplyCash® Business Card American Express gives you $300 cash back after first $1000 spent and at least 12-15 months interest free too. You an see how much additional cash back/benefits/mileage etc. you can rack up with buying your grocery a year ahead!

 

Cons of buying your grocery using gift cards pre-paid with a interest free credit card.

  1. You do need to make minimum payment to your credit card monthly, generally 1% of your revolving balance on that card.
  2. If your credit card limit is about 5k and you carry a balance around 5k, this may ding your credit score a bit.
  3. You do need to come up with the funds in 15 months to pay the credit card off. (It is quite easy though. Balance transfer checks are coming in the mail weekly offering 1.3-2% interest when you pay off a credit card with one of these checks.)

 

I’m definitely heading to Sprouts to buy my annual worth of groceries. How about you?

 

Net worth building steps in residency Part II

For the super savers, as you have managed to get your 4% employer match, max out your 18k annual contribution limit to 401k/403b, AND max out your 5.5k ROTH IRA. Here are some more steps you can take to build your net worth.

STEP 5: HSA (Health Savings Account) “TRIPLE TAX FREE, BETTER THAN ROTH when it comes to medical expenses.”

How to get a HSA?

Both UA and Banner have HSA. Contact the HR and you can sign up during open enrollment period. UA has open enrollment now until 11/13/15 for year 2016.

What are the benefits?

You can put money into an HSA tax-free. In other words, you can deduct the amount you put into HSA on your tax return.

You can withdraw money from an HSA for medical expenses at any time without paying taxes. If you withdraw from an HSA for non-medical expenses prior to age 65, you will be subjected to a 20% penalty AND the taxes on the amount you withdraw.

After age 65, withdrawal for non-medical expenses only costs you the taxes on the amount you withdraw. HSA withdrawals after age 65 for non-medical expenses are basically withdrawals from 401k, IRA (tax-deferred retirement accounts). But again, if you withdraw from HSA for medical expenses, you do not pay any taxes (when you first contribute to the HSA, when the money grow in stocks or other investment, when you withdraw: hence triple tax free.)

Limits:

Currently the contribution limit to an HSA plan is $3,350/individual or $6,750/family per year. If you are over age 55, you can contribute an additional $1,000 a year as catchup contribution.

Even sweeter:

Your employer may contribute to your HSA on your behalf too. This is effectively analogous to employer match for 401k contribution. For instance, UA currently will put $120/month into HSA for employee with family. This means UA is giving you $1440 additional pay per year, to be saved for your medical care expenses, now or in the future. Our programs’ residents and fellows are transitioning to Banner employees 7/1/2016, I’m in contact with Banner HR to find out how much banner will contribute to Banner HSA.

 

STEP 6: 529 Educational savings for kids, yourself and beneficiaries of your choice. “ROTH’s COUSIN, for Education.”

Benefits:

  • Investment grow tax free and withdrawals for educational expenses are tax exempt. So pay taxes when you put the money away, and don’t have pay another penny of taxes if the money is spent on education. (Just like ROTH, only earmarked for education).
  • Even less tax than ROTH because many states will allow income-tax deduction of your contributions. So you pay the federal taxes, but only part or none of the state taxes when you contribute.
  • You own the funds, and you kids among many others will be your designated beneficiaries. You can transfer the benefit easily.
  • No income or age limitation.
  • This next consideration will likely be useful AFTER training years when you make the big bucks as attending physicians. High ceiling for contributions – you can contribute over $300,000 per beneficiary in most plans.  Although your contributions are considered gifts so will be subjected to federal gift tax rules.

 

 

Any other ideas? Comment below!