Welcome to the 17th edition of Money Minutes for Doctors! As summer in Rhode Island winds down, we take a look at the basics of investing for physicians.

Investing does not have to be a riddle wrapped in an enigma…quite the opposite is true! Much like medicine, learning the world of successful investing is a lifelong exercise in learning, practice and patience. To help guide us off of the beach and into the ever shifting waters of investing is our professor of finance, Ms. Katherine Vessenes.

About Ms. Vessenes:

Ms. Vessenes works with over 300 physicians and dentists from Hawaii to Cape Cod. Her firm uses a team of experts to provide comprehensive financial planning to help doctors build their wealth and protect their wealth while reducing taxes now and in the future. Katherine is a longtime advocate for ethics in the financial services industry; and has written three books on the subject of investment strategies. She has received many honors and awards including: numerous tributes from Medical Economics as a top advisor for doctors, multiple 5-Star Advisor Awards, honored as a Top Woman in Finance, in addition to being selected to be on the CFP® Board of Ethics. Katherine can be reached at: Katherine@mdfinancialadvisors.com or 952-388-6317. Her website: www.mdfinancialadvisors.com.

QUICK SUMMARY:

Investment Basics for Doctors

1. Stock:

• Ownership in a publicly traded company

• Stocks - A tradable share of ownership of a corporation, with a variable value

• If the value of the stock increases then your shares go up

• Changes every day market is open

• Value is based on news

• Riskier than bonds

• Better returns than bonds

2. Bond

• Loaning a company or government money. An I.O.U. from a government or corporation for a loan, which results in interest payments to the holder and a fixed value to be repaid at the bonds end

• Less risky than stocks, but much lower returns.

• The interest on bonds taxed at ordinary income tax rates

3. Risk and return are related

4. You can buy individual stocks/bonds

• We don’t recommend this because it too risky

5. Investment styles:

• Conventional/old style Stock pickers—

i. Less than 17% of mutual funds that use this technique, actually beat their benchmark

ii. Expensive; lots of trading costs

iii. Emotions can take control

• Indexing

i. Seeks to match an index

ii. Cheaper model

iii. Takes a lot of stress strain out of process

• Evidence based approach

i. Used by MD Financial

6. Mutual Funds

• A company that owns many stocks/bond

• By law there must be at least 20 different represented

• Thousands of different mutual funds

• Lower risk as cannot lose all your investment (vs stocks)

• Good way to build wealth/reduce risk

• Index fund seeks to match an index, such as SP 500.

• We use Dimensional Fund Advisors (DFA)

  • How to pick a good fund?

    • Past performance does not predict future performance

    • Evidence based research