We all know that times have changed.

This isn’t your grandfather’s optometry anymore. As the healthcare system and consumer values have evolved, we’ve been driven towards professional fees as our source of income.  Fees are now in a state of flux, as are materials. 

As a senior ER physician once said, “We’re going to have to revalue our cars, our homes, our vacations, our educations……….EVERYTHING.” 

Is it all so grim? It doesn’t have to be. We are still in control of our own personal finances, even in the face of student debt. This control comes in a couple of forms, namely, our own financial savings discipline, and the knowledge that long term investing is both productive and necessary. 

Let’s look at a couple of financial concepts.

On student loans: While no one is giving anyone financial advice here, let’s look at a sample calculation. Let’s say that you owe $100,000 in student loans, a 5-year note at 6%. Your payment schedule is $1933 per month, and you’ve read about the benefits of paying the loan back “early.” So, you dutifully add $100 per month in order to get ahead of the game. Depending on the lender’s calculation, you’ll retire the debt about 3 months early. Great, right?  (Source:  http://www.calculator.net)

Maybe, maybe not.

Our young colleague, Heidi Miller, OD of UC Davis Eye Center in Sacramento, CA has nailed the better approach to our example. Dr. Miller reports, “I am aggressively paying towards my student loan each month. However, I am also maximizing my Roth IRA and any match my employer provides each year.” Perfect! Let’s say you had the foresight to put that same $100 per month into a Roth IRA, instead. For our model, assume a 6% return on a Standard and Poor 500 index fund. At the end of those five years, you’d have about $7,000, but that’s not what any of this is about. It’s the balance you’d have in 30 and 40 years. Those funds from the five year point, with NO ADDITIONAL CONTRIBUTIONS, would generate balances of roughly $40,000 at 30 years, and $72,000 at 40 years. I’m willing to bet that after 30 or 40 years, you’ll be happy with the additional do-ray-mi, and not care about which month you buried your student loans. This, from an initial investment of $6,000.

Dr. Miller adds, “With strict budgeting and providing fill-in work on the weekends, I am on track to pay off my loan within the next three years.” She has also worked hard at minimizing payments through forbearance and refinancing methods.

Here is another notion on savings and investing. Standard and Poor’s investment service has put forth the concept of “yield on original investment.” Stock purchases outshine bonds, CDs, and treasuries if you have enough time to invest. I’ve got a block of McDonalds stock that was purchased in 1998, paying a 3% dividend. It pays the same 3% now, but the investment value has increased tenfold. The yield on the ORIGINAL investment is now about 30% per year! Try getting THAT from a 20 year bond! Common stocks are hard to beat if you have a long time horizon and invest conservatively.

On practice equity: There is a strong need for equity outside of your practice.

When was the last time you heard of a practice sale that completely funded the doctor’s retirement? I thought so. Many of you have discovered real estate, a great move that does include some investment, tax, and location risk. Many of us don’t have a clear path to the building purchase, so what to do? Getting back on the IRA theme, you pretty much HAVE to go towards the stock market for solid, tangible equity. Other forms like commodities, artwork, and bonds (which aren’t equity) have flaws like inconsistency, investment risk, and a host of other issues.

At this point, I’m going to tell you how I’ve done things.

It’s not advice or suggestion. I’ve maxed-out contributions to IRA, 401k, and Keogh to the point of sacrificing a bit on vacation, home, and auto. Basic stuff. Now, here’s the how-I’ve-done-it part. Conventional wisdom points towards mutual funds and annuities, as we’re told we couldn’t possibly spend the time to research individual stocks and bonds. 

Nonsense, it says here. Don’t spend your working life allowing investment companies to pick your pocket with annuities and managed funds. (“Lifetime” funds with targeted retirement dates may be the worst, in terms of return and expenses.)  Go “index” if you must, but I’ve got them beat in terms of cost by using a low-fee service like Fidelity or Schwab. I’ve looked at the stocks that make up the indices, and picked the top 20. Buy them individually over time via dividend reinvestment and small purchases.

FWIW, you can “control” almost 1/3 of the S and P 500 stock index by purchasing the largest 20 stocks in the index. Your performance won’t be materially different, and you’ll have moderately lower costs. (Since January 1, the S and P 500 index has returned about 11%, while the largest 20 stocks have returned about 10%. The index stocks are “weighted” so that the larger stocks have a larger influence on the average calculation.)

In summary, going through life debt-free and poor is no way to go!