Did You Go Into Medicine For The Money

[aaronjw]

Many nurses are made be paid somewhat well but hospitals are also limiting hours of their nurses to avoid paying benefits, essentially making them part-time employees.

 

 

[leviathan]

What would you invest in with compounding interest. 

It doesn't really matter. Put $200/mo into any sort of investment in your 20s and see what that does at 65 with a reasonable return. 

[leviathan]

Many nurses are made be paid somewhat well but hospitals are also limiting hours of their nurses to avoid paying benefits, essentially making them part-time employees.

^This. Plus, work the number of hours that an MD does in residency and do that in your 20s as a nurse, with OT you're easily pulling 6 figures. Solid investments means you're going to do pretty well.

[rmorelan]

It doesn't really matter. Put $200/mo into any sort of investment in your 20s and see what that does at 65 with a reasonable return. 

 

yup

 

average stock market return is about 8.5% percent after inflation. Your basic ETF should be a pretty good long term return as a result.

 

retiring well isn't rocket science, it is just planning and time.

[rmorelan]

What would you invest in with compounding interest. 

 

if young and not really care to be involved in things too much than a basic exchange traded fund or index fund (like a mutual fund except no management fees) on some board market index (like the Russel 1000 etc). Use the sheltered accounts like a TFSA or RRSP to avoid taxation. Rule of thumb invest at least 10% of income and take it right off the top (pay yourself first). You don't miss money you never see. Lock it in and just forget about it. Take the rest and live life.

 

later you can mix it up with some real estate, and later in life re-balance with bonds etc.

[rmorelan]

^This. Plus, work the number of hours that an MD does in residency and do that in your 20s as a nurse, with OT you're easily pulling 6 figures. Solid investments means you're going to do pretty well.

 

yup, very well. If they are aware and plan appropriately they become one of the "quiet rich". Most millionaires are actually quite normal looking. They don't do flash, they don't show off. They don't need to impress anyone - they already are winning.

[fugacity]

yup

 

average stock market return is about 8.5% percent after inflation. Your basic ETF should be a pretty good long term return as a result.

 

retiring well isn't rocket science, it is just planning and time.

 

Thread has already been derailed so many times that I don't feel bad for doing this.  What kind of trustworthy investment funds will get you 8.5% annually after inflation?  I am being completely serious and not sarcastic at all. 

[rmorelan]

Thread has already been derailed so many times that I don't feel bad for doing this.  What kind of trustworthy investment funds will get you 8.5% annually after inflation?  I am being completely serious and not sarcastic at all. 

 

ha, we at the 10 pages mark I would say evolved more than derailed

 

that is the average stock market return over the past 100 years. To basically any broad based sampling of the stock market would give you that over time. Not in any particular year mind you (only about 1/3 of the years the stock market return fall with in about -1.5 to 10 percent - the market is and has always been quite volatile).

 

that is what they are always saying about starting young, investing regularly, and being patient. You would expect over 30 years to get around 8.5% return etc.

 

Last few years though have been rather impressive and we are at an all time high. Being nice but of course it won't last forever

[medici]

ha, we at the 10 pages mark I would say evolved more than derailed

 

that is the average stock market return over the past 100 years. To basically any broad based sampling of the stock market would give you that over time. Not in any particular year mind you (only about 1/3 of the years the stock market return fall with in about -1.5 to 10 percent - the market is and has always been quite volatile).

 

that is what they are always saying about starting young, investing regularly, and being patient. You would expect over 30 years to get around 8.5% return etc.

 

Last few years though have been rather impressive and we are at an all time high. Being nice but of course it won't last forever

 

It's unfortunate that the 8.5% will only be average return though :/ you don't get the benefits of compounding that math teachers always talk about if it's not a consistent 8.5% every year.

[Dr. Octavius]

It's unfortunate that the 8.5% will only be average return though :/ you don't get the benefits of compounding that math teachers always talk about if it's not a consistent 8.5% every year.

I am a little tired so I could be thinking about this incorrectly, but if the latter years of those 30 are the impressive ones - exceeding the 8.5% average - then wouldn't it be possible to expect higher yields due to compounding than if it was a consistent 8.5%? The amount being compounded would be a bit lower, but a higher percentage could overcompensate, no? 

[ralk]

I am a little tired so I could be thinking about this incorrectly, but if the latter years of those 30 are the impressive ones - exceeding the 8.5% average - then wouldn't it be possible to expect higher yields due to compounding than if it was a consistent 8.5%? The amount being compounded would be a bit lower, but a higher percentage could overcompensate, no? 

 

Nope. Let's say you had three years of compounding interest, two of which earned you a 5% rate of return, one of which earned you a 10% rate of return.

 

Doesn't really matter which year that 10% rate is: 1.10 x 1.05 x 1.05 = 1.05 x 1.10 x 1.05 = 1.05 x 1.05 x 1.10 (= 1.21)

 

medici has a point in that more variable rates of return give less than constant rates of return if you take the simple average of those rates (one year of 9.5% growth with one year of 7.5% growth is less than two years of 8.5% growth), but it doesn't much matter where the good years of growth occur.

[rmorelan]

It's unfortunate that the 8.5% will only be average return though :/ you don't get the benefits of compounding that math teachers always talk about if it's not a consistent 8.5% every year.

 

oh you get compounding It just isn't as predictable. On the long term you definite get compounding effects.

[rmorelan]

Nope. Let's say you had three years of compounding interest, two of which earned you a 5% rate of return, one of which earned you a 10% rate of return.

 

Doesn't really matter which year that 10% rate is: 1.10 x 1.05 x 1.05 = 1.05 x 1.10 x 1.05 = 1.05 x 1.05 x 1.10 (= 1.21)

 

medici has a point in that more variable rates of return give less than constant rates of return if you take the simple average of those rates (one year of 9.5% growth with one year of 7.5% growth is less than two years of 8.5% growth), but it doesn't much matter where the good years of growth occur.

 

as long as it doesn't tank the moment you are trying to sell That is why an exit strategy is a good idea - which was what people in the 2009 that were trying to retire perhaps didn't have.

 

If they had bonds etc, the could have sold them (low interest anyway) and here we are 4-5 years later at almost triple what the overall market was in 2009.

[ralk]

as long as it doesn't tank the moment you are trying to sell That is why an exit strategy is a good idea - which was what people in the 2009 that were trying to retire perhaps didn't have.

 

If they had bonds etc, the could have sold them (low interest anyway) and here we are 4-5 years later at almost triple what the overall market was in 2009.

 

Absolutely - stocks are higher risk for higher reward. Worth it when you're taking that chance multiple times and the law of averages is on your side, not worth it when you're counting on that money in the next few years

[rmorelan]

Absolutely - stocks are higher risk for higher reward. Worth it when you're taking that chance multiple times and the law of averages is on your side, not worth it when you're counting on that money in the next few years

 

true!

 

Pretty much if you want to invest for retirement you are going to have to go either stocks or real estate to really get there. Given the long time frame that is ok! Bonds just don't have high enough return - you would be sacrificing too much income in the present to get there.

[fugacity]

ha, we at the 10 pages mark I would say evolved more than derailed

 

that is the average stock market return over the past 100 years. To basically any broad based sampling of the stock market would give you that over time. Not in any particular year mind you (only about 1/3 of the years the stock market return fall with in about -1.5 to 10 percent - the market is and has always been quite volatile).

 

that is what they are always saying about starting young, investing regularly, and being patient. You would expect over 30 years to get around 8.5% return etc.

 

Last few years though have been rather impressive and we are at an all time high. Being nice but of course it won't last forever

 

Okay I am still not convinced.  With no background in economics or investing, how can I trust myself to do better than the average investor?  Even if I am willing to invest over a long period to dampen out the volatility, is it as simple as "sample widely?".   I am skeptical because there are investors that spend all day on this and swear to me they can only offer me like 3.5% because they can't crack 7% for their more secure portfolio. 

[ralk]

Okay I am still not convinced.  With no background in economics or investing, how can I trust myself to do better than the average investor?  Even if I am willing to invest over a long period to dampen out the volatility, is it as simple as "sample widely?".   I am skeptical because there are investors that spend all day on this and swear to me they can only offer me like 3.5% because they can't crack 7% for their more secure portfolio. 

 

Simple - don't trust yourself to do better than the average investor.

 

Think of investing in the stock market like going to a casino - except you're the casino. Casinos don't make money off every person every time. There are winners and losers, but since on the whole there are more losers than winners, if the casino has enough people playing enough times, they'll make money (lots of it). Likewise, there are stocks than win and stocks that lose, but since on the whole there are more winners than losers, if you invest in enough stocks for long enough time, you'll make money (not quite as much as a casino though!)

 

People get themselves into trouble when they think they can beat the market. There are people who get exorbitant amounts of money who say they can do that but, in the long run, even most of them can't do that either. 

 

Invest a set amount of money at regular intervals in broad-based index funds with minimal associated fees. Don't try to pick winners or losers. Don't try to buy low and sell high. Just keep playing the game - the odds are in your favour, so you'll win in the long run.

 

As rmorelan pointed out, it's got to be in the long run. People get into trouble when they're about to retire and still have the bulk of their retirement savings in stocks, because stocks can unexpectedly go down. As people approach retirement, they should shift money from the volatile but profitable stocks to more reliable but less lucrative investment vehicles, like GICs, bonds, or high-interest savings accounts.

 

There are some financial advice books that spell out basic investment strategies - The Wealthy Barber's a reasonable place to start, especially from a Canadian perspective - but the basic idea in all of them is to invest wisely, not cleverly. You're not likely to outsmart the market, but you don't need to. Invest accordingly

[rmorelan]

Okay I am still not convinced.  With no background in economics or investing, how can I trust myself to do better than the average investor?  Even if I am willing to invest over a long period to dampen out the volatility, is it as simple as "sample widely?".   I am skeptical because there are investors that spend all day on this and swear to me they can only offer me like 3.5% because they can't crack 7% for their more secure portfolio. 

 

first you need to know that the efficient market hypothesis is to understand why it is so hard to "beat the market". Doesn't matter really how much you study it beyond a point.

 

interestingly it is kind of like carms - if you try to beat the algorithm you will lose statistically speaking.

 

People spend silly amounts of money on various investors who at best do a few percentage points better than the market and then immediately charge those gains back in fees for their services. It is a racket. None of them are going to tell you this of course because the entire industry depends on it. Oh it so confusing, oh pickings stocks requires all this expert level skills. Then why are all the mutual funds on average (well managed supposedly) actually doing below average returns (and THEN on top of that charging fees so you are always below average return).

 

I admit I am a pretty boring investor - I don't have time to use even what I have already been taught. I use just fire and forget index funds based on broad markets. Yet the returns I am quite happy about (over 8.5 percent above inflation over the past 10 years). My fees per year are less than 0.15% of the fund). You just have to love those registered fund (RRSP and my personal favourite TFSA) to dodge taxes. Over those ten years of course we had the worse recession since the depression. Who cares? Things just keep prodding along. This is going to be fun when I get my professional corporation and to get to take it up a notch.

 

Plus that isn't the only forum of investing - there is also real estate, which is more hands on but has excellent returns.  Started that awhile back, and pretty happy with how that worked out as well. 

 

educate yourself, look at the options, see how the system works, and learn how people gain and hold wealth. Knowledge is power - and this is the sort of power people were talking about. The biggest problem with all of this is just people don't talk about it. People just never explain how money really works.

[rmorelan]

Simple - don't trust yourself to do better than the average investor.

 

Think of investing in the stock market like going to a casino - except you're the casino. Casinos don't make money off every person every time. There are winners and losers, but since on the whole there are more losers than winners, if the casino has enough people playing enough times, they'll make money (lots of it). Likewise, there are stocks than win and stocks that lose, but since on the whole there are more winners than losers, if you invest in enough stocks for long enough time, you'll make money (not quite as much as a casino though!)

 

People get themselves into trouble when they think they can beat the market. There are people who get exorbitant amounts of money who say they can do that but, in the long run, even most of them can't do that either. 

 

Invest a set amount of money at regular intervals in broad-based index funds with minimal associated fees. Don't try to pick winners or losers. Don't try to buy low and sell high. Just keep playing the game - the odds are in your favour, so you'll win in the long run.

 

As rmorelan pointed out, it's got to be in the long run. People get into trouble when they're about to retire and still have the bulk of their retirement savings in stocks, because stocks can unexpectedly go down. As people approach retirement, they should shift money from the volatile but profitable stocks to more reliable but less lucrative investment vehicles, like GICs, bonds, or high-interest savings accounts.

 

There are some financial advice books that spell out basic investment strategies - The Wealthy Barber's a reasonable place to start, especially from a Canadian perspective - but the basic idea in all of them is to invest wisely, not cleverly. You're not likely to outsmart the market, but you don't need to. Invest accordingly

 

wealth barber was my first book I read about all this when I was 15 and started investing. I recommend the first edition - not the second one initially, and also not the US version. It is a bit dated by now - in fact the second book corrects a few things. Still the basics - pay yourself first, 10% made it fund, get a will, get the right insurance, be an owner not a loaner - yeah that sort of stuff. That stuff is gold.

[thsc]

yup, very well. If they are aware and plan appropriately they become one of the "quiet rich". Most millionaires are actually quite normal looking. They don't do flash, they don't show off. They don't need to impress anyone - they already are winning.

Hey rmorelan, sent you a pm a while back. Just wanted to give a heads up in case you haven't had a chance to respond yet

[Laika]

For anyone interested in investing, I would highly recommend A Random Walk Down Wall Street by Burton G Malkiel and 

The Four Pillars of Investing by William J. Bernstein (Bernstein's The Intelligent Asset Allocator is also great, but not the best introductory book and is a little heavy on math.)  Incidentally, Bernstein is an MD/PhD who practiced as a neurologist for years before developing an interest in investing.

 

I haven't read the entire thread, so apologies if these have been posted already.

[older]

.

 

As rmorelan pointed out, it's got to be in the long run. People get into trouble when they're about to retire and still have the bulk of their retirement savings in stocks, because stocks can unexpectedly go down. As people approach retirement, they should shift money from the volatile but profitable stocks to more reliable but less lucrative investment vehicles, like GICs, bonds, or high-interest savings accounts.

 

 

 

I don't think there are many readers here who approach retirement, but perhaps it should be mentioned that the above strategy, good in principle (less risk), is questionable in the present economic environment. With interest rates and bond yields as they are, retirees with average portfolios just cannot afford to live of this kind of investments.  The real danger of depleting a portfolio long before death makes this strategy more risky than continuing investing in stocks.

 

High-interest saving accounts? Show me one.

[rmorelan]

I don't think there are many readers here who approach retirement, but perhaps it should be mentioned that the above strategy, good in principle (less risk), is questionable in the present economic environment. With interest rates and bond yields as they are, retirees with average portfolios just cannot afford to live of this kind of investments.  The real danger of depleting a portfolio long before death makes this strategy more risky than continuing investing in stocks.

 

High-interest saving accounts? Show me one.

 

good luck

 

It is amazing to me that right now in Europe there are actually negative bonds from large institutions. You give them money and they give you less back in 2 years. The idea being that they think deflation is that likely.

 

Not exactly a great environment for earning nice returns on interest yielding vehicles.

[aaronjw]

I don't think there are many readers here who approach retirement, but perhaps it should be mentioned that the above strategy, good in principle (less risk), is questionable in the present economic environment. With interest rates and bond yields as they are, retirees with average portfolios just cannot afford to live of this kind of investments.  The real danger of depleting a portfolio long before death makes this strategy more risky than continuing investing in stocks.

 

High-interest saving accounts? Show me one.

 

His point, I think, was that by time retirement comes you should have accumulated enough of a retirement portfolio that you don't need to worry about depleting said portfolio by converting investments to those that are less volatile and subsequently less rewarding.

 

If after 25-30 years of practicing a Dr hasn't amassed at least a $1.5M nest egg with few liabilities (eg: mortgage, expensive car, etc) then they quite simply have pi$$ed away their earnings such that it really won't matter what they do at the end.

[ralk]

I don't think there are many readers here who approach retirement, but perhaps it should be mentioned that the above strategy, good in principle (less risk), is questionable in the present economic environment. With interest rates and bond yields as they are, retirees with average portfolios just cannot afford to live of this kind of investments.  The real danger of depleting a portfolio long before death makes this strategy more risky than continuing investing in stocks.

 

High-interest saving accounts? Show me one.

 

aaronjw is right in saying that a physician ideally should be building enough of a nest egg to make the prospect of depleting their savings very unlikely. Really, everyone should be planning for their retirement in that way, it's just easier with a physician's high salary.

 

More importantly though, volatility can deplete a person's savings faster than a lower rate of return. If the low-yield years come early, savings get drawn down so fast that there's nothing left when the high-yield years come. When building up, it doesn't matter as much when the high-yield years come, but when drawing down it absolutely does.

 

Let's say you wanted to live off $100k a year and knew for a fact you'd die in 10 years. It'd take $670k of savings to let you do that at 8% growth rate. But, if you had no growth in the first 5 years followed by 16% growth in the last 5 years, you'd be broke in about 7 years. If you took that same $670k and only got 4% growth, but got it each and every year, you'd make it 8 years before going broke.

 

More importantly, in the second scenario, you can predict you'd run out of money in 8 years and could adjust your spending accordingly - spending a bit over $80k a year would get you to the 10 year mark. In the first you can only adjust after-the-fact, changing your spending habits each year depending on how the market did, which is not an easy task for most consumers.

 

Admittedly, the current market is very poor for guaranteed investments - 4% would be an incredible find - in comparison to the stock market, which has been growing strong. However, the stock market did much worse than just hold still a few years back, it outright cratered. If you had that same $670k in 2008, where there was a drop of 50% followed by several years of near-20% growth, you'd be broke in 5 years by drawing down that $100k each year. Point is, counting on the stock market can easily leave you broke, and it can do it without warning. Guaranteed vehicles mean a lower standard of living, but you know you'll have the money when you need it.