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Checking In With Financial Advisor – March 2017

Quarterly Meeting With Financial Advisor

It’s been 2 years since Andrew Mohrmann and I have been working together. He is the founder of Modern Dollar Planning and is a very hands-on financial adviser. He works out of St. Louis, MO and handles clients all over the US.

I found out about Andrew through XY Planning Network, a site which advertises CFP’s who have met certain minimum criteria of competence and who offer fee-only services.

I did some research on a few other financial advisers and I’ve had plenty of experience with others in the past, but Andrew stood out because I really enjoy talking to him, he communicates very effectively and is a genuine human being.

His wife is a clinician as well. I believe that healthcare providers have a unique positions in the economy and our high income is both a curse and a blessing. Andrew understands this and therefore works well with his physician clients.

Andrew also offers an AUM model, which is asset-under-management where he charges a specific percentage every year based on how much of your money he is managing. This is quite beneficial because it incentivizes him to make your assets grow. The more you have invested, the more money he makes.

The AUM model is similar to an earning model for a doctor more based on how healthy her patients are, how little medications she prescribes, how positively the patient perceives their health and the doc’s patient longevity:quality-of-life ratio.

I work with Andrew on a fee-only model where I pay a monthly fee of $125 on a month-to-month basis. I keep joking with Andrew that I am getting a steal and that as my financial adviser I hope he doesn’t raise fees because it would adversely affect my finances.

Okay, enough about Andrew! Geez, what is this, advertisement for him?! Let’s talk about what he did for me, let’s put the man to work!!

Our March 2017 Check-In Call

Andrew and I communicate via email every 1-2 months. However, he likes to do a quarterly check-in with his clients which is a more official phone call, lasting anywhere from 30-60 minutes.

His common phrase to me is “I want to be the first person you go to for any of your financial decisions!” Therefore, I emailed him for a green light and guidance before buying my condo, before cutting back my hours and finally, before retiring. 

During our routine emails, I update him on any changes or ask his advice on certain financial changes. The last one I recall was about whether it would be wise for me to get an individual 401k and aim for a 1099 instead of the W2 I was getting from Remedy.

Before that, we discussed health insurance options since I was exiting Kaiser Permanente. We discussed HSA options and he had great insight for me. He reviewed my healthcare plan in detail to make sure I’m adequately covered – that’s some valuable shit, right there. 

Andrew spends quite a bit of time looking through his notes from our previous conversations, reviews my portfolio on a secure portal that only him and I have access to and then comes up with a few topics to discuss.

My to-do list after our 67-minute session today is as follows:

  • put some of the excess cash towards investments
  • convert more of my income to 1099
  • open an HSA due to my HDHP
  • lean slightly more towards small-cap funds if I can tolerate the risk
  • increase my position in emerging markets

See, a financial adviser focuses on the big picture and dives into just enough detail. Their purpose isn’t to get you 25% returns or speculate on whether the market is about to correct or crash. 

There is a place for those kinds of advisers as well. They are called investors and rarely will touch your shit unless you are one liquid mofo. 

Excess Cash Holdings

I have around $50k in cash which is 2.7% of my net worth. Because of my long-term investing horizon, it’s better for me to be invested in the market rather than stay on the side-lines.

If I was to retire in the next 5 years, I wouldn’t be putting any cash in securities at this time. Wall Street has too much volatility in the short-term and inflation isn’t gonna chew off much from your cash in such a short time. 

I do like having some cash in case a non-traditional investment opportunity comes up. Such opportunities come around when you are looking for them. A local cafe that wants you to buy in for $50k. A horse trainer who needs $2k a month to train and raise it for sale. A real estate developer who needs buy-in of $20k to buy a commercial property in cash. 

I believe that mega wealth is created through non-traditional investments, wealth is created through steady traditional investing and poverty is assured when you have no plans with your money.

I will continue keeping some cash aside and invest the rest. In my infant stages of being an entrepreneur, I don’t need much more than $10-20k, the rest is better off invested in the market, earning me dividends or appreciating.

Shit, even if my investments depreciate, I am still getting a return – it’s called experience. I have learned a lot over the years both from my failed investments and from those which have made me money.

Convert W2 income To 1099 Income

I discussed the 1099/W2 debate in length in this previous post. In summary, for a doctor in the wealth accumulation phase with a high income, a W2 still makes a lot of sense.

However, I don’t want to show a whole lot of income because that means I will have a higher tax burden. By having more 1099 income, I would be able to open an individual 401k and therefore decrease my taxable income.

Why am I earning income if I’m retired? Because I enjoy practicing medicine. A side effect of practicing medicine is income. And though I could donate that money to an organization, I haven’t yet found a worthwhile charity.

Docs are often worried about not having enough income if they cut back on clinical hours to pursue another interest. However, the amazing things about the US economy is that if you love what you’re doing and you get good at it, you will be remunerated for it, whether you like it or not.

HSA For My HDHP

I purchased my private health insurance a couple of months ago and it went into effect just 2 weeks ago. It’s costing me $228 for health and $34 a month for dental.

I had an HSA when I was employed by Kaiser Permanente and have accumulated $2,700 in there already, continuing an HSA would be wise since my health plan meets the criteria for a HDHP (high deductible health plan).

The IRS has set the 2017 HSA maximum contribution for a single person at $3,400 and for a family at $6,750. This is a healthy sum of money to set aside for those who are accumulating wealth and it’s a great way to decrease your taxable income for those like myself.

Emerging Markets And Small Caps

My asset allocation is set to around 90%/10% in my tax-deferred accounts and more conservatively, at 70%/30%, in my taxable brokerage since I will be accessing this money sooner.

Andrew and I decided on leaning slightly more towards small cap since there is some data showing that these subgroup of securities tend to have healthier returns.

He mentioned that the famous DFA funds follow a model that leans towards small caps. I need to research this further, he explained it to me and I caught most of it but he is a lot more well-versed in the DFA model.

I have done some research on Emerging markets. And though my international portfolio has about 18% currently invested in emerging markets, the future might look better for this sector.

 

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