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One of the biggest gifts that was given to me was on October 14, 2007.  It was the day that Imtiaz finally persuaded me into saving money for my future. I had scraped together some limited funds and handed it over to my newfound financial advisors.  I was using Mercer Advisors at the time and they did a masterful job for me and have managed through proper investment and the sheer miracle of compounding growth to grow that paltry sum into a significant savings for my family and I.

Through thick and thin, market ups and downs, through the crash of 2008, I kept saving and adding to my initial sum.  Many times I wondered if there was a short cut- a better way.  Many times I was approached with alternative investment advice promising low taxes, high returns and the safety of a guaranteed return.  While I’ve changed my investment advisors to someone local in Scottsdale, UMB Bank, my philosophy has remained the same – to stay away from get rich schemes and just save baby save!

When you choose an investment advisor, if you decide you need help, my recommendation is to choose a company that is a fee-only advisor, which means that they charge a percentage of your investment account to manage your money.  Typically this percentage is from .5-1% of your account.  So if you have one million in investable assets, they charge 5-10k a year to manage the funds. 

Now we can get into the debate of why you would want to pay someone 10k or more a year for something that you can theoretically do on your own. If you are disciplined enough and know enough about investing, then by all means do the investing yourself and save money. An incredible resource if you want to do your investing yourself is https://dentistmarketalert.com. This website run by a fellow dentist, Dr. Ernie Johnson, is a must read for any do it yourself investment guru.

I can just tell you that in my case, the returns that were generated with the help of an advisor far outweighed the fees charged.  Not that I likely could not have generated the results on my own, but more because of time. I felt my time would be better served running my own business rather than trying to be an investment expert through the school of hard knocks.

When searching for an investment advisor, what I would suggest you run away from is someone who tries to disguise investment advice in the form of trying to sell you insurance.  This is a particularly profitable venture but unfortunately it is for the insurance agent through the commissions generated by the sale of the insurance policy.

A popular insurance product that insurance salesmen try sell to would be investors is whole life insurance.  There are many forms of this insurance with different names but the sales pitch is the same:. You have guaranteed returns so when the market is bad, you still make money. You have permanent insurance.  You can take a loan from your insurance policy tax free. All these promises sound great but lets talk about each one of these in detail.

Now I am sure somewhere for some individual these types of insurance policies might make sense.  For the vast majority of individuals, they make no sense whatsoever.  Simply put there are high commissions associated with these policies.  I’ve heard of up to 16% commissions on the value of the policy.

So if your “investment advisor” sells you a million dollar whole life policy, the commission to the agent is $160,000.  Now I am all about people making a good living for work rendered. This is not my issue with the massive commission. Good for the insurance salesman for making money.   The issue I have is if this is sold as an investment, the moment you buy it, your one million dollar investment is 840k.  How’s that for a return?

Guaranteed Returns

One tactic used to sell these policies is the allure of guaranteed returns, normally in the 4-6% range.  Listen, if you absolutely cannot stomach any market volatility and don’t mind paying a premium for the peace of mind that a guaranteed return provides, then by all means go ahead and buy a whole life policy.

But lets look at facts for a second.  The S&P 500 from 1928 to 2016 returned an average of 11.42%[1].  The return on average from 1967 to 2016 was 11.45%.  That’s fine and dandy you say but that doesn’t apply to me because my investment was destroyed by the 2008 crash.  Yes, the market crash of 2008 resulted in a -36.55% rate of return.  But 2009 saw things bounce back and we had an increase of 25.94%. 2010 had equally impressive returns of 14.82%. In fact if you look at the average of returns from 2007-2016 the return was 8.65%.  You may not trust the market, you may claim the market is rigged, you may say its all in favor of the fat cats on wall street who manipulate the market.  Yes, all of this may be true. But the fact remains that if you invested $100 in the stock market in 1928, that $100 would be worth $328,645.  That same $100 invested in bonds would be worth $7110.65 in 2016.

As an example let me share with you a sales pitch that was given recently to a friend of mine. She is in her mid 30s with a very successful practice. Her “investment advisor” gave her a pitch for an alternative investment that she was intrigued with. She sent me the email below asking for advice.

“I met with my financial advisors yesterday and they proposed an investment strategy that sounded great but almost too good to be true so I was curious if you have heard anything about it.

To make it work you have to be a business owner and have a take home income of over $350,000. The basis of the strategy is I would take a loan from a bank for $1mill to purchase an Executive Retention Plan (Life Insurance Policy). This loan would have a static interest rate of 3.6%. The first draw from the loan would be $250,000 which is what the cash surrender value is of the life insurance policy at day 1. The insurance policy value compounds interest at an average of 6.5% over the last 30 year history with a floor of 0% and a ceiling of 10.5% following the S&P Index. I would take the additional loan money out in amounts of $250,000 as the cash value of the policy increases so there is no risk. The collateral of the loan is only against the insurance policy, not my practice. The practice takes out the loan, I take a loan personally for the practice and the insurance policy is then mine personally. 
 
The end goal is at age 55, I can start to draw off of this account monthly as non-taxable income at $150,000/year. It is essentially taking out a loan against the policy but no penalty to pay it back, it just takes away from the death benefit. It is high enough that at age 90 I will still have about $1Mill remaining in the policy. Because it is all collateralized against the insurance policy they are saying this will not affect my practice financials if I need to make any additional purchases, etc. “

 

Now I am a simple man with a simple rule.  If I don’t understand the investment, I usually don’t invest money in it.  Frankly I don’t understand what they are trying to do above but I think I see a couple of things they are trying to accomplish.  They want her to buy an insurance policy for 1 million dollars. That insurance policy will return on average 6.5% (recall the average rate of return for the S&P 500) and it will allow her to withdraw 150k tax free.

Lets do some basic math shall we.

The premiums for this policy for 20 years is 45k/year.  That is $900,000 in total payments for the 1 million dollar insurance policy.  If we were to take the same $45000 payment and save it and every year for 20 years add $45,000 to our savings instead of paying an insurance premium and were able to garner on average a 9% rate of return, we would end up with a little over 2.7 million in the bank.

 


[1] http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html

​

 

 

 

 

Now if I was to say trust the market and instead of 9% rate of return we estimate that we might get 11% rate of return, well, that gives the individual a bit over 3.5 million in their account.

 

So if the individual is 38 years old with a desire to retire at age 55 – if for the sake of math we bump up the retirement age up to 58 so we get a full 20 years of 45k investments, that individual has over 3.5 million in savings if they didn’t invest anything else.    I would assume that if someone was going to make insurance payments of 45k a year, likely they would save more money for their retirement so if we just assume that this doctor was going to pay in one scenario 45k for investments and another 45k for insurance premiums, and instead they put the full 90k a year towards their retirement, now we have over 7.1 million in savings.

With 7.1 million in savings, anyone can quickly see that this is a way better return than buying an insurance policy and then taking a “loan” against your policy to fund your retirement

But lets play along with the insurance agent and humor them.  Lets just assume we have the original 3.569 million saved up.  Will this amount be able to match the 150k tax free the insurance policy would give?

 

If we were to take the 3.569 million and assume a rate of return at 11% (historical rate of return for S&P is 11.42% for over 90 years) and every single year take out 224k what would happen to our money?   224k because that allows you to pay 74k in taxes and you have the same 150k or MORE that the insurance policy would give.

Here are the numbers for an 11% rate of return.  Every year starting at age 58 you take out 224k and invest the rest.  Assume you pass away at age 85.  Well, then you leave a measly 30million plus to your heirs. If you purchased the insurance policy, well, you get your death benefit passed on to your heirs minus all the money you have already taken out as a loan to yourself.

 

Ok I get it, you don’t trust the market- then lets be more conservative and only calculate a 9% rate of return- here is what you get from age 58-85:

​​

 

 

You still leave 14 million plus to your heirs, you still take out the 224k a year. 

Fine you really don’t trust the market- lets use then 6.5% - the same your insurance policy was going to pay you. You die and leave over 4 million to your heirs and you still had the luxury of taking out 224k a year.

 

 

Bottom line is no matter how you slice it, instead of paying premiums for an insurance policy, if you just invest the money instead, you come out ahead. Way ahead.

Life insurance should never be used for investing.  Well, never say never cause as I stated there might be some person out there for whom this investment strategy might make sense but for the vast majority of individuals using insurance as an investment does not make sense.

Well, then if you hate whole life insurance so much Sam, what kind of insurance should I buy?  Buy term insurance folks.  Cheap, cheap, cheap. One million in term insurance for a healthy 35 year old is less than $1000 a year. [1]  Term rates are cheap- you get more insurance for you money and frankly you need insurance so that the family you leave behind has enough money to continue their lifestyle.  That’s it. 

Permanent Insurance

But Sam, after 20 years the term policy will run out and I will be old and getting more insurance will be too expensive.  Whole life insurance is permanent insurance in that it can never be taken away.

Think back to the scenario where you are getting an 11% rate of return- you die with 30 million in the bank. Why do you need insurance in this scenario?  You are self-insured. Your heirs for generations can live off this money.

Take a loan from your policy

With 4 million to 30 million saved depending on your discipline of saving through thick and thin, why would you need to take a loan from yourself?  This is another selling point of the whole life policy correct?   To me, just withdrawing my own money instead of taking a loan sounds a heck of a lot better.

The bottom line guys is don’t get sucked up into fancy investments. The best thing you can do is buy cheap term life insurance for the amount your family needs to live if something were to happen to you.  Insurance is to be used for insurance, not as an investment. The only people that profit from this are the insurance agents.

I hope this paper was able to generate some information for you and arm you with a rebuttal when someone tries to sell you insurance and disguises it as an investment.

 

 


[1] https://www.goodfinancialcents.com/how-much-does-a-million-dollar-term-life-insurance-policy-cost/

 

 

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Wow. Great advice!
I think this is a topic that is good to discuss. I don't have much to add besides SAVING.
I am by nature a saver. If course I have my fun stuff that I blow money on... but if i had any advice it would be to set a monthly amount and consider it a bill. You invest that every month no matter what. Good month or bad month. I know that advice sounds a little bit "elementary " and obvious... but my feeling is that most don't do it.

I agree with Sam to stay away from risky investments. I have been successful and I have been burned... in the end I don't do it much anymore.
What Ernie does is unique, but he is a great person to run by your personal strategy for advice.... i.e., come to Scottsdale more because he is always here ;)


Wow thanks Sam for taking the time to put that together. Some of that I've heard before, much of it I haven't. I've started to realize recently that the one commodity we have that is truly finite is time. I am trying to delegate more and more, even though it may cost me more in the short term, in order to maximize my productive time, my family time, my fun time.....this is another great example. So absolutely, unless you're cut from the same cloth as Ernie, delegate this very important task and listen to the advice of guys like Sam and Mike who have been through it.

Mike, what you said about paying a bill is something that Tony Robbins said to us that stick with me; I've not been as good about it as I'd like, but it's on my mind and I'm getting more consistent with it.
Great topic

J


Great post and advice...it is too easy to keep spending what we earn, so make sure to pay yourself(save) first!


Index funds. Vanguard 2045. Boom.


Holy crap Sam!  Thanks for putting so much time into this!  It's a lot to digest....take home message is loud and clear.  Start saving...now!


On 7/19/2017 at 8:18 pm, Joel Jahimiak said...

Index funds. Vanguard 2045. Boom.

Index funds are great. They start out with more equities and over time get more bonds into the mix as you get closer to retirement.  I do not invest in them for one reason. I dont want a high percentage of bonds in my portfolio.  I may change my feelings over time but the average rate of return of bonds from 1928 to 2016 is 5.18%.  Equities are 11.42%.

This is to be expected as there is less volatility with bonds but over the long term if I can average twice the rate of return, I want to do that to reach my goal number faster.

I know this is controversial what Im doing as there is more risk involved but Im on a long term horizon so Im willing to tolerate the risk.  Like I said ,this may change over time for me but for the time being, Im keeping a minimum of bonds in my portfolio.  More aggressive investing = higher rate of return.  It also means more risk and you could lose more in a market turndown.

At this time Im wiling to take that risk.  Maybe in 10 years, my mind may change.


On 7/19/2017 at 8:32 pm, Sameer Puri said...
On 7/19/2017 at 8:18 pm, Joel Jahimiak said...

Index funds. Vanguard 2045. Boom.

Index funds are great. They start out with more equities and over time get more bonds into the mix as you get closer to retirement.  I do not invest in them for one reason. I dont want a high percentage of bonds in my portfolio.  I may change my feelings over time but the average rate of return of bonds from 1928 to 2016 is 5.18%.  Equities are 11.42%.

This is to be expected as there is less volatility with bonds but over the long term if I can average twice the rate of return, I want to do that to reach my goal number faster.

I know this is controversial what Im doing as there is more risk involved but Im on a long term horizon so Im willing to tolerate the risk.  Like I said ,this may change over time for me but for the time being, Im keeping a minimum of bonds in my portfolio.  More aggressive investing = higher rate of return.  It also means more risk and you could lose more in a market turndown.

At this time Im wiling to take that risk.  Maybe in 10 years, my mind may change.

Not all "index funds" have bonds in them or increase a bond percentage over time. Index funds can follow any one of thousands of indexes including the S&P 500 which have 0% bonds in them. I believe that what Joel is referring to is actually the Vanguard Target Retirement 2045 Index Fund which currently has a 10% bond holding and won't increase it's bond percentage for many more years. It's my opinion that "index funds" are fantastic investment vehicles . . . depending on which ones you choose. While I'm not currently investing in Vanguard 2045, the data shows it's a solid choice. Great topic with many great points!


https://www.whitecoatinvestor.com/debunking-the-myths-of-whole-life-insurance/

This website is with out a doubt the best website on the web discussing any and all issues related to personal finance.
The comments section are the most entertaining with life insurance salesmen weigh in with their "expert" opinions.

Also, one comment on financial advisors.....fee only is key. Some will try to slide by with the term fee based....in Sam's example paying a percentage of assets under management (which I would NEVER do) can be a way of paying for expert advice but one had better be damned sure that the advisor isn't slamming you into high expense mutual funds such as the American Funds family and is instead placing you in low cost index funds. If the advisor is taking his .5-1% off the top and still placing you in non index funds he is generating yet more income and you are generating less returns on your investment.


Here are a couple more links that expand on Sam's post

https://www.whitecoatinvestor.com/mutual-fund-expenses-back-to-basics/

https://www.whitecoatinvestor.com/the-impact-of-mutual-fund-fees/

And here is a link to what I think is the most interesting article on his site
https://www.whitecoatinvestor.com/active-mutual-fund-managers-not-getting-any-better/


Great advice!  And in contention for longest cdocs post ever!  Well worth it!  Thanks Sam. 


When I started my practise 25 years ago I told myself I was going to add money each month...like a bill as Mike said.  I found myself hit and miss depending on the month I was having.  My financial adviser told me to set up auto pay.  Best advice I was ever given.  For the last 22 years I have never missed a month. 


On 7/20/2017 at 2:49 am, Mark Kleive said...
On 7/19/2017 at 8:18 pm, Joel Jahimiak said...Not all "index funds" have bonds in them or increase a bond percentage over time. Index funds can follow any one of thousands of indexes including the S&P 500 which have 0% bonds in them. I believe that what Joel is referring to is actually the Vanguard Target Retirement 2045 Index Fund which currently has a 10% bond holding and won't increase it's bond percentage for many more years. It's my opinion that "index funds" are fantastic investment vehicles . . . depending on which ones you choose. While I'm not currently investing in Vanguard 2045, the data shows it's a solid choice. Great topic with many great points!

Mark,

you are absolutely correct. I should clarify that what I meant was "Target Date Index Funds" increase their bond allocation the closer you get to retirement.  Index funds are great- I have a ton of them in my portfolio.  I just am not doing target date funds.  Nothing wrong with them and in a future time I might change my mind and get more into them but just for my personal philosophy, they dont fit.  But they are great for many.

 

sorry for the confusion.


On 7/20/2017 at 4:07 am, Douglas Anderson said... https://www.whitecoatinvestor.com/debunking-the-myths-of-whole-life-insurance/ This website is with out a doubt the best website on the web discussing any and all issues related to personal finance. The comments section are the most entertaining with life insurance salesmen weigh in with their "expert" opinions. Also, one comment on financial advisors.....fee only is key. Some will try to slide by with the term fee based....in Sam's example paying a percentage of assets under management (which I would NEVER do) can be a way of paying for expert advice but one had better be damned sure that the advisor isn't slamming you into high expense mutual funds such as the American Funds family and is instead placing you in low cost index funds. If the advisor is taking his .5-1% off the top and still placing you in non index funds he is generating yet more income and you are generating less returns on your investment.

Doug,

you are correct that AUM (assets under management) is not right for everyone. Its the method I have used with great success but yes, I know Im paying a premium. At this point, Im ok with that. When I have more time to manage my portfolio, I may change my mind.  


This has been something I have been thinking about a lot lately. My wife and I both started saving about 10 years ago with Northwestern Mutual through Whole Life and Variable Life plans. I'll be honest: I didn't really understand it then and I still have a hard time understanding it now, but I wanted to make a good decision and start putting money away right out of dental school and I felt like "Hey, at least I'm doing something constructive." I literally had just got off the phone leaving a message with my financial adviser to schedule a call with him when I saw this post. Perfect timing. Thanks for taking the time and effort to write this up, Sam.


Fire them ray and cash out your policies and invest in the market.  Insurance is for insurance. Not for investing. What you have is not a financial advisor. You have an insurance salesman.  A true financial advisor would never suggest whole life and variable life insurance as an investment.


Sam,  what has been the average percentage your advisor has returned?  Isnt 9 - 11% exceptional for something you dont have to put any effort into?


I am definitely considering it, Sam. This post really helped answer a lot of the questions I have had over the last few years and thank you again for writing it. The one thing it doesn't really factor in is the difference between being taxed now (Whole Life) vs taxed later, but considering the financial ramifications of being taxed now (deductions, etc) I am not sure being taxed later is the big scary monster it is made out to be either.


On 7/20/2017 at 4:07 am, Douglas Anderson said... https://www.whitecoatinvestor.com/debunking-the-myths-of-whole-life-insurance/ This website is with out a doubt the best website on the web discussing any and all issues related to personal finance. The comments section are the most entertaining with life insurance salesmen weigh in with their "expert" opinions. Also, one comment on financial advisors.....fee only is key. Some will try to slide by with the term fee based....in Sam's example paying a percentage of assets under management (which I would NEVER do) can be a way of paying for expert advice but one had better be damned sure that the advisor isn't slamming you into high expense mutual funds such as the American Funds family and is instead placing you in low cost index funds. If the advisor is taking his .5-1% off the top and still placing you in non index funds he is generating yet more income and you are generating less returns on your investment.

+1

Like Ray, 15 years ago I was advised to fund a whole life policy. I cashed out just 1 year later and thank God it only cost me $5K. The initial investment deposit was $10K so a smart person can figure out what the commission was.


Great thread and perfect timing on the post, had tomorrow scheduled to review all my (semi) existent investment strategies. So easy for us dentist owners of falling in the trap of just spending our earnings and using our practice as our "retirement" strategy... Great reminder and advice to be way smarter about it.


Yes Sam.  But in your situation you spent $6,079,000 for your home, which changes the numbers, plus the 229,000 a year you pay for aquarium fish maintenance.  Plus the expense of your pot party when everyone gets very hungry and eats all the fish, requiring a restocking of the tanks, ..... just sayin.  sometimes the numbers do not turn out as expected.

as an aside, Eric and Laura Prouty  came  and spent a weekend with us in Atlanta.  Eric is doing well, great prognosis, and we saw 2 of the 3 games when the Braves took 3 from the ariz. boys.  Great to see him, we even played catch which was a lot of fun.  Eric is a real miracle

great topic.  thanks for posting.

tk


On 7/20/2017 at 9:51 am, Thomas Kauffman said...

Yes Sam.  But in your situation you spent $6,079,000 for your home, which changes the numbers, plus the 229,000 a year you pay for aquarium fish maintenance.  Plus the expense of your pot party when everyone gets very hungry and eats all the fish, requiring a restocking of the tanks, ..... just sayin.  sometimes the numbers do not turn out as expected.

as an aside, Eric and Laura Prouty  came  and spent a weekend with us in Atlanta.  Eric is doing well, great prognosis, and we saw 2 of the 3 games when the Braves took 3 from the ariz. boys.  Great to see him, we even played catch which was a lot of fun.  Eric is a real miracle

great topic.  thanks for posting.

tk

the house was 5.9 million but the fish tank maintainance is 250k a year!  big grin


BTW- good to hear about eric! Glad he is doing well.


On 7/20/2017 at 12:17 pm, Sameer Puri said...
On 7/20/2017 at 9:51 am, Thomas Kauffman said...

Yes Sam.  But in your situation you spent $6,079,000 for your home, which changes the numbers, plus the 229,000 a year you pay for aquarium fish maintenance.  Plus the expense of your pot party when everyone gets very hungry and eats all the fish, requiring a restocking of the tanks, ..... just sayin.  sometimes the numbers do not turn out as expected.

as an aside, Eric and Laura Prouty  came  and spent a weekend with us in Atlanta.  Eric is doing well, great prognosis, and we saw 2 of the 3 games when the Braves took 3 from the ariz. boys.  Great to see him, we even played catch which was a lot of fun.  Eric is a real miracle

great topic.  thanks for posting.

tk

the house was 5.9 million but the fish tank maintainance is 250k a year!  big grin

$250K a month fish tank service aint bad!

Have two tanks in the office. Check out these cool Australian Look Down's I got last year 


On 7/20/2017 at 8:10 am, John Daw said...

Sam,  what has been the average percentage your advisor has returned?  Isnt 9 - 11% exceptional for something you dont have to put any effort into?

This post from earlier this year may be helpful to understanding if Sam's returns are exceptional, average, or subpar.

https://www.cerecdoctors.com/discussion-boards/view/id/54433

I am mentoring Level 2 (what else is new?) all day today or I would take the time to respond more fully, but I'll be sure and chime in again when I get a chance!

I'm always up for a discussion, have great references for folks who want to work with a professional, and hope you will stop by the website to learn more. Thanks for the shout out Sam!


On 7/20/2017 at 8:10 am, John Daw said...

Sam,  what has been the average percentage your advisor has returned?  Isnt 9 - 11% exceptional for something you dont have to put any effort into?

John I'll have to go back and look at the numbers but I know off the top off my head we have been at or above the market every year.

you don't necessarily need an advisor.  Ernie is proof. But my level of knowledge and time to execute the details is limited.  As someone can do they own taxes, I use an accountant.  Some people manage their own money, I use an advisor.  Not right or wrong here-  it's just be consistent, save early and often and avoid schemes such as whole life as an investment.


when you have been investing in the second longest bull market in history its easy to measure performance , talk to me after yoiu have experienced a few bear markets and see if you want to manage your own money or have a professional to blame


On 7/21/2017 at 5:09 pm, Marc Kaufman said...

when you have been investing in the second longest bull market in history its easy to measure performance , talk to me after yoiu have experienced a few bear markets and see if you want to manage your own money or have a professional to blame

Long term investments - bear or bull market.  Doesn't matter.  Invest consistently.  Save early, save often.


Great Post Sam. Thank you for taking the time to help us all. 


On 7/21/2017 at 5:09 pm, Marc Kaufman said...

when you have been investing in the second longest bull market in history its easy to measure performance , talk to me after yoiu have experienced a few bear markets and see if you want to manage your own money or have a professional to blame

Stop by the website Marc, and read about the system I am sharing with those that want to avoid EXACTLY what you are talking about.  If you use an advisor, consider it just as a "check up" or "second opinion" when they have never used the word "SELL" in their entire investing life to ask them to prune back your holdings when conditions are ripe for a possible downdraft in the market.  If you have any questions, feel free to PM or e-mail me at info@dentistmarketalert.com.


On 7/21/2017 at 5:09 pm, Marc Kaufman said...

when you have been investing in the second longest bull market in history its easy to measure performance , talk to me after yoiu have experienced a few bear markets and see if you want to manage your own money or have a professional to blame

It's funny you mention this.  I had a friend bet me a dollar last year that the market was going to crash to 1300.  It was around 17000 I think at the time.  A friendly wager and obviously I won the bet.

here is the sad part- he "felt" the market was going to crash.  Pulled out all his money.  Then at 18000 he thought it was too late to get back in.  Same at 19k.  Same at 20k.  And he missed a massive run up.

very difficult to time the market so I stay invested through thick and thin.  But i will be giving Ernie's technique a try in the future with a portion of my holdings.



​Sam 

Great post......early in my practice I did whole life and realized on my own that I coulkd do bettter in long term if I was invested in investments so I switched all but 10 percent to investments 10 years ago........wish I saw this post 25 years ago this is an excellent topic..........hope all the younger dentist read this..........


Hey Sam if you had put up this post 25 years ago I would be retired by now!
Great advice.


Fortunately I still love dentistry most of the days


I hear you.  My parents got screwed by this as well.  20/30 years ago- I forget when, a family "friend" sold them a bunch of whole life policies.  Even convinced them to take out policies on my brother and I.  I was in my 20's.  My mom proudly told me that she took out a policy and I could take a loan against it when I get older. 

fast forward when I took control of the policy, I cancelled it.  I knew it was a scam when the insurance agent would not stop calling- trying to convince me to reinstate the policy.  I kept avoiding his calls.  Literally must have called a 100 times.

saw the jerk at a wedding- chewed his ass out for trying to screw my parents!!!  Hate that guy to this da.


I have a small policy which have some cash value. I called the company and told them I want to take the cash out. They told me it would be 7% interest. So they want to charge interest on my own money. Tomorrow i will cancel it.


And here you are.  These are a rip off.  Glad you are getting out Zahir!


I had a "family friend" try to sell me life insurance as investments. Then he died and turns out he didn't have any life insurance himself...whole or term...


Great topic and well written Sam. I have also always put money away every month into my retirement plan for over 30 years and yes it has grown. I am with my 3rd investment advisor and have made profit. But by far reality has been my best investment from buying my first two buildings to now 12 rental properties. You have monthly income and presently all properties have doubled in value with 0 management fees. It is nice to go to work because you want to not because you have to.


Cliff-  that sounds fantastic.  Agree- diversity is great.  We have some rentals but have a management company helping.  Again- you can do it on your own and at some point in the future I might but for now- professional help makes sense for us.


On 7/23/2017 at 4:12 pm, Sameer Puri said...

Cliff-  that sounds fantastic.  Agree- diversity is great.  We have some rentals but have a management company helping.  Again- you can do it on your own and at some point in the future I might but for now- professional help makes sense for us.

What is accepted as generally riskier? Real estate or stocks? Real estate has seemed to have the biggest rate of return on investment (behind a dental practice) for me. Watching my stocks perform very well but not as well as if I bought another rental building or another practice is very hard but I try to stay diversified. I was ready to liquidate some stocks for the purchase of another practice a few months ago. The deal fell through bc the seller changed her mind on selling her building and land and wanted only to sell the practice w promise to sell building and land at a later date due to taxes. I left the table for now.

Jake,

i think it's not and either or question.  You do both.  You have some real estate that makes sense.  You have some money in the market.  You take some calculated risks, but don't leverage your self too much or expose yourself to risky investments.  

Be smart and question every deal. That's just he are minimum.

but the whole life insurance thing is just a scam pure and simple.  Stay away from junk "investments" like these.

be smart with your money and if anyone promises you a homerun, be skeptical.  Your goal should be lots and lots of safe singles instead of trying to swing for the fences and striking out.

 

great to meet you btw-  I hope you enjoyed the workshops.

 

 


On 7/23/2017 at 6:13 pm, Sameer Puri said...

Jake,

i think it's not and either or question.  You do both.  You have some real estate that makes sense.  You have some money in the market.  You take some calculated risks, but don't leverage your self too much or expose yourself to risky investments.  

Be smart and question every deal. That's just he are minimum.

but the whole life insurance thing is just a scam pure and simple.  Stay away from junk "investments" like these.

be smart with your money and if anyone promises you a homerun, be skeptical.  Your goal should be lots and lots of safe singles instead of trying to swing for the fences and striking out.

 

great to meet you btw-  I hope you enjoyed the workshops.

 

 

I agree. Its just human nature to be tempted by the home runs and seems like it's also human nature that we learn best from mistakes but hopefully not too expensive mistakes. Yes sir, the pleasure was all ours getting to meet you, Mike, Flem and all the mentors. Thanks a lot for everything, you treated us so great. Trip was perfect until the Haboob hit at 7pm. My direct to Charlotte got canceled, got put on different flight that got delayed by 2 hours so I went ahead and got a hotel room and a direct for 5am and just saw on flightstats that it just left after a 50 min delay smh. Oh well. Not everyone can say they've seen a real live Haboob.

Oh man!!! Sorry to hear.  I ended up going to a movie with a friend.  Spider-Man .  ðŸ˜Š


A new post is up at dentistmarketalert.com.  Just a little market commentary and a few questions you need to ask yourself at this point in the investing cycle.  Stop on by!


Love Sameer's bad ass attitude towards the creep that tried to screw his parents. My Dad (who was one of the greatest guys, warrior, friend and Dad that anyone could ever have)
Was taken advantage of and ripped off by some financial thugs years ago. I would at a minimum rip their heads off if I ever confronted them! Maybe my last day on earth I'll become John Wick.😎

He didnt try to screw my parents- he did screw my parents!!

My mom and dad were first generation immigrants here.  They just have never been super financially savvy.  The allure of being able to "take a loan" from your own friggin investments made them sign up for these ridiculous financial vehicles.

Never did they realize that the rate of return is so bad and it never hit them that why the hell should you ever need to take a loan from your own money!

 


Smart. Marking it for future thinking. 


Very smart advice here to start early. What if you start late? Lets say you are 50. Would you take more risk in your investments or just make the best of it until you can't practice anymore?


On 7/26/2017 at 8:17 am, Judson Connell said... Very smart advice here to start early. What if you start late? Lets say you are 50. Would you take more risk in your investments or just make the best of it until you can't practice anymore?

Great question.  As always, the answer is "it depends."

My first advice:  find a good financial advisor, disclose ALL your financial and life goal information to them (don't hold anything back thinking you are being smart), and run a retirement analysis on your assets.  What is your current and future projected net worth and can you sustain your life goals with a spend rate of 4-5% of your net worth annually?  [by the way, 4-5% withdrawl rate is considered the "norm" for most investments to remain self-sustaining.  Pulling out more carried a higher risk of running out of money before you pass away or suffer an adverse market event.]

Example:  You have $1M net worth.  Can you live on $40-50k per year in "income" from your net worth?  Do you have a mix of assets that allows you to "sell off" or "income produce" that $40-50k per year?  If you only own your home, you can't sell $40-50k of your home each year, but you could sell $40-50k of stocks, bonds, or receive dividend income from those to produce the needed cash to spend annually.  And you have to be REALISTIC about what you are going to spend each year!

What are your current assets producing each year now?  Are you maximizing your current retirement plan(s) that are in place?  For example, for those of us in our 50's, we can set aside an extra $6k into a qualified retirement account (e.g., 401k) on top of the normal annual limit of $18k in 2017 (provided you don't run afoul of top heavy and other limitations that your plan advisors and TPA should be able to figure out for you).  That is one way to "catch up!"

What about saving outside of a retirement plan once they are maxed out?  Granted, you don't get the benefit of tax deferred compounding that retirement plans are so blessed with, but hey, saving money to spend later and investing it wisely isn't such a bad deal and will help you reach your "number" that has been determined from the discussion you had with the financial advisor!  Plus, you might be able to spend that money FIRST and allow the tax deferred growth continue on your retirement funds for a few years longer.


This is a great thread.  This may not apply to sam or others in groups, but for us solo guys, I think it important to have an in place, current, updated practice appraisal ready to go with clear directions for your spouse in a worse case scenario.  this happened to a good friend last christmas  whose wife did not have a clue including the combination to the safe that contained all the important documents needed to sell the practice after he died suddenly on the tennis court at age of 63. also, if one becomes disabled this planning may also be the kindest thing you could do for yourself.  Normally these appraisals need to be updated quarterly, or at the minimum every 6 months.

this is normally something we rarely if ever do, but should.


I'm 35 and doing exactly what TK said above. My guy who is a dental cpa and true life/financial planner is making sure I have this in place along with the partnership having all this in place. Having someone help is a big deal.


Any advise on future savings if you make 60.000 a year ( 30.000 after tax)? Besides earning more money 😂...


On 7/30/2017 at 7:15 pm, Jeffrey Gregson said... I'm 35 and doing exactly what TK said above. My guy who is a dental cpa and true life/financial planner is making sure I have this in place along with the partnership having all this in place. Having someone help is a big deal.

Jeffrey,

You are doing what is the best way to protect your practice asset.  I am now in a transition planning stage, with additional appraisal documents.  I am looking for a buy in partner to begin that process to create a more predictable future.  I am assuming that your partnership would include key man life term insurance if either partner is deceased.  what , if any, provisions have you made in the event of a disability, beyond pesonal DI insurance?


On 7/31/2017 at 1:11 am, Gregor Sonin said... Any advise on future savings if you make 60.000 a year ( 30.000 after tax)? Besides earning more money 😂...

Read the Millionaire Next Door by Stanley and play awesome "defense."  There are Millionaires that never made more than 50k and there are pro athletes in bankruptcy court that made $10M+ a year.  How you spend your after tax income is all that matters.  If you can only make 30k to spend, then make sure you save some of it and live off less than 30k.  Just add a zero and it is exactly the same advice:  Make 300k, then make sure you save some of it and live off less than 300k!

Defense = spending habits.  Offense = Income.  You can become a wealthy family by using either method, but as with all championship teams, they play good defense FIRST and play offense SECOND.

As an aside, I realize Gregor you are in Europe, but are there really no opportunities you would pursue to make more income?  Are you limited by family or another factor from moving to a new locale to earn more?  When folks are young and free is the time to explore and find the right place to set up shop.  I moved after 7 years in practice as an associate to a new location to become an owner.  If I had to do it now, wow, that would be really tough!


I decided to pare back most of my life insurance as I am 56 and have accumulated enough of a net worth that it was no longer necessary.
I dropped a bunch of term, but left in place some term to cover my building SBA loan as required. The rest was whole life which had enough of a dividend to let the dividend cover the premium.

What you find out right away, is that this major selling point 30 yrs ago, was a bit of a sham. Once the premium is paid by the dividend, the death benefit of the policy plummets. Also, if I take a loan from the cash value, I pay 8%. If it let it ride, the borrowed amount comes out of the death benefit and there are tax consequences.

I also dropped some disability that had the highest cost to benefit ratio.

At the end of this, my NWML agent, who had been a patient for 20+ years, bailed out of my practice. I had taken the gravy off of his train, and he did not like it one bit.

Whole life is truly a scam. We are all now or eventual high net worth individuals who can shit can life insurance at some time in our 50's. There is no need for permanent life insurance.

Hi All,

I wrote up a new REAL last will and testament a few years ago, all bases covered. And like you all sold my whole, B.S. life policies. We actually did have enough equity to cover my husband's policy and majority of mine. One bad advice my dear dad gave me was this horrible insurance. Sweet talking advisor, I called every year when I had to pay the premium, got sweet talked by secretary. My advisor wasn't there anymore, wouldn't put me through to the guy in charge. I finally got fed up with the price of the whole life insurance. Bad decision, hope this post helps others to stay clear. 

Carrie


So the Dow just crossed the 22000 mark.  Who here would have thought that we would be up 3.4x since the market crashed in 2008?  How many of you remember the doom and gloom predicted by the pundits on TV?  Now Im sure many of us thought the world was ending as our insurance salesmen crawled out of the woodwork to sell us "guaranteed" returns because you know, hey, this time its different.  We will never see the historical returns that we have seen in the past and that you have to protect your future.  Well, its not different.  Its the same. Invest in the market long term and you come out ahead. The last 10 years prove it.

Lets say we panicked in 2008 and put 100k worth of premiums in a whole life type policy because you fear the future is never going to be the same and the historical returns of 11.4% aren't guaranteed if you just do regular investing. So what the hell, you buy into the sales pitch where the agent says Ill guarantee you 6% with my whole life policy.  So you take whatever little cash you had sitting around and instead of buying more at the market lows of 6594.44 on March 5, 2009 you instead take out a whole life policy with the promise of a guaranteed return.

Fast forward 9 years, today that 100k would be worth a hypothetical 168,947.90 with those 6.0% guaranteed returns.  I say hypothetical because that isn't the actual cash value.  See Brian's post above- there are fees, taxes, surrender charges all to consider.  But hey- you have insurance and you have guaranteed returns, likely far less than the 168k  at a 6% return for 9 years but its something.

Now had you ignored the hype and had you ignored the sales pitch and had you taken emotion out of your investments, and realized that its not different this time, its the same as it always has been.  Markets have corrections, markets have ups and downs.  But in the long run, the trend is up.  So instead of investing with emotion and fear that 6594.44 wasn't going to be the bottom but the stock market was going to -zero- you realized that what goes down, must come up and you invested 100k and bought into the broad market.  Since the crash in 2008, from 2007-2016, the market has returned 8.6%, less than the 11.4% average returns since the 20s but that is taking a 30% or so loss in the market in 2008.   That 100k 9 years later would be worth 210,992.77.

And guess what- no surrender charges like whole life, no commissions like whole life, no penalties like whole life.  If you figure in the massive run up that we have had in 2017 and add one more year to the returns, that 210k comes closer to 236k.  All this through probably the worst economic downturn we have seen in our lifetime and likely wont ever see anything like this again.   How do I know?  I dont, but I do know that if we crash again, Ill buy more and stay the course as my investment outlook is long term.  im so confident on this that Im betting my life savings by staying invested.

Stay the course folks, and dont get caught up in fancy alternative investments. If you need insurance, buy term until your net worth reaches a point where you dont need insurance anymore.  You should have enough insurance that if you were to pass unexpectedly, you leave enough money to your heirs to allow them to continue their lifestyle.  If you have enough saved up, cancel the insurance.  But if someone is selling you something that appears too good to be true- its probably is.  


At the time of that crash I was given the book "How to become your own banker" by a "financial adviser" peddling this whole life insurance idea. Thank god it sounded too good to be true so I passed.

The biggest mistake I made though was not to buy CITI or AIG stocks when they were $1 each or 50 Cents each. Big Brother will never let these type of companies or the stock market crash long-term...Unless of course we have an alien invasion that takes out Big Brother.

Farhad


On 8/2/2017 at 11:51 am, Farhad Boltchi said...

At the time of that crash I was given the book "How to become your own banker" by a "financial adviser" peddling this whole life insurance idea. Thank god it sounded too good to be true so I passed.

The biggest mistake I made though was not to buy CITI or AIG stocks when they were $1 each or 50 Cents each. Big Brother will never let these type of companies or the stock market crash long-term...Unless of course we have an orange-skinned alien invasion that takes out Big Brother.

Farhad

 


On 8/2/2017 at 11:51 am, Farhad Boltchi said...

At the time of that crash I was given the book "How to become your own banker" by a "financial adviser" peddling this whole life insurance idea. Thank god it sounded too good to be true so I passed.

The biggest mistake I made though was not to buy CITI or AIG stocks when they were $1 each or 50 Cents each. Big Brother will never let these type of companies or the stock market crash long-term...Unless of course we have an alien invasion that takes out Big Brother.

Farhad

I remember staring at AIG.  that was a missed opportunity for sure.


AIG at 65 today.  :)

 


I agree with joel
no argument cleverly live assurance packages are pants but advising to pay an advisor 1% of your fund is not much better.
depending on your risk tolerance get a low cost world market etf and have min risk for max long term benefit.
less than 2% of fund managers beat the index
don't pay them 1% which is a fortune over time

On 8/3/2017 at 10:41 pm, Patrick Oconnor said... I agree with joel
no argument cleverly live assurance packages are pants but advising to pay an advisor 1% of your fund is not much better.
depending on your risk tolerance get a low cost world market etf and have min risk for max long term benefit.
less than 2% of fund managers beat the index
don't pay them 1% which is a fortune over time

This is certainly a good debate to have Patrick but I think you are misunderstanding what a financial advisor does. They are there to provide guidance on finances, taxes, estate planning and much more.   Certainly you can do it your self.  I choose not to as I feel the money Ive paid has been well worth it as my returns have been at or above the general index even after considering the fees Ive paid.

At this point in my career I choose to get professional guidance. Others may find that investment not necessary. Its ok. This doesnt change however the basic premise of the blog- invest wisely and dont buy investment vehicles that generate a massive commission for the agent thereby sucking into your returns.


I continue to be amazed at the number of people that continue to use or recommend insurance as an investment. This is one of the most expensive ways you can invest for your future. Lets not even get into the fact that its also an expensive way to insure your family. 

I know Im beating a dead horse here but i feel I need to provide whatever encouragement I can to folks to invest for the long term and don't buy into sales pitches for expensive insurance policies. As I've stated before, we have close to 10,000 dentists that come to our center in Scottsdale for seminars and workshops every year. This doesn't even include all the people that are online in our various communities. I get the joy and privilege of interacting with many of the docs that come on campus for education. And too many times now I have had to sit down with a doctor who is struggling with their practice or struggling financially. It made me realize how financially illiterate many dentists and physicians are. 

The constant talk on this forum espousing the benefits of insurance as an investment reinforces that view. I hate to see dentists struggle. We have an incredible profession. There is no reason that dentists should struggle. There is an opportunity to make a great living but bad investments lead to a poor financial outcome. Investing in a cash value insurance policy certainly doesn't help yet over and over again, this form of "investment" is given as an option for doctors. 

I've repeatedly asked for examples of where buying a cash value makes any sense for a typical dentists and not once has anyone given a single scenario where it makes any sense to buy an expensive insurance and an expensive investment. This is not just me saying this. Go spend some time on White Coat Investor. Or spend some time listening to Dave Ramsey. These policies have high commissions which I have no issues with people making money but these high commissions eat into the return for the doctor. If I invest 500k and the commission is 15% - that's 75k that the doctor is in the hole. 

This is precisely why the returns are so low for these policies. Yet these are being pushed again and again to doctors who don't know any better. The biggest reason these are promoted is because you know, we have a rough few years coming up as we are constantly being reminded. Things cant always go up we are told, so these policies are guaranteed - of course the guarantee caries a lower rate of return. Much much lower. 

The crash of 2008 is used as a warning that buyer beware and one should be careful of investing in the market. You will potentially lose all your money if another crash like 2008 happens. 

Lets do some math shall we and see what happens if we invest for the long term and don't let emotions get in the way of bad judgment. I've attached a link here of the S&P return since 1989 - that's the year I graduated from high school and that's the time-frame I will use to demonstrate how bad of an investment cash value life insurance like whole life is. Please know that if we use even longer periods, the rate of return from the S&P from 1926 to 2016 is 11.42% - that's taking into account all the wars, all the recessions, all the depressions, all the bad things that happened in this world. Here is the link if you want to verify the return rates that Im using. 

https://ycharts.com/indicators/sandp_500_total_return_annual

So if I was to start investing in a low cost S&P index fund that has little to minimal commissions the year I graduated high school in 1989 and calculated the returns till the end of 2017, my average rate of return would be 11.67%. Wait just a minute Sameer! Didn't the market totally tank with the internet bubble around 2000 or so? And didn't it tank again with the Great Recession in 2008? 

Yes. Yes it did and if you take the -22.1% return of 2000 and the -37% return of 2008, you still come out ahead at 11.67% from 1989 to 2017.

But I had no money graduating from high school so if now look at the scenario of investing from the year I graduated college in 1993 to 2017, my return rate would average 10.9%. 

Ok you got me, I was still a poor student going into dental school so lets take the year I graduated dental school in 1997 and calculate the rate of return till 2017 and I get a return of 9.62%. 

But Sameer, you are cherry picking the numbers. What if you started investing and saving in 2006, just a few years before the crash of 2008 and calculated the rate of return till 2017? That rate of return would be 9.78%.

And if you were really unlucky and started investing in 2008- the year we had a meltdown and the market lost 37% of its value and calculated the return till 2017 - your rate of return would still be 9.63%

On the other hand if you were lucky and graduated from school and became super disciplined and started putting money away in 2009- your average rate of return would be 14.29%.

So worst case scenario for me, in my adult life the worst Ill do by investing in the market is 9.63%. Again, knowing that close to a 100 years the market has returned 11.42% since 1926, the longer I stay in the market, the bigger the rate of return. 

But whole life is guaranteed. Whole life is safe. Right? You can look at it that way but its expensive and a lower rate of return. If I take 25k a year and invest it for 20 years adding 25k every single year and get a 5% rate of return, I end up with a touch over 934k. If I take the exact same money but instead get a 9% rate of return, my balance is roughly 600k higher at 1.534 million. If I calculate an 11.67% rate of return, the rate of return from when I graduated high school, my balance pre tax is