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Where Is Your Money Right Now?

I know the exact whereabouts of my money. Even though I can’t tell you in detail how much I have in each account, all funds are deployed strategically. Each investment is doing something particular for me with respect to growth, risk, taxes, and passive income. Tracking my money prevents me from losing out on potential returns. 

We work too fucking hard as physicians, take on too much risk, and deal with far too much work drama to let our incomes slip through our hands. 

Most of us aren’t reckless or self-sabotaging. It’s just that we aren’t accustomed to mental accounting, falsely assuming that a $20k monthly income will stretch really far. 

With the blink of an eye, 5 years will have passed and the income from work may have been sitting around in cash collecting dust and losing value. The majority of those who correspond with me regularly have missed out on the massive market returns of the past 5 years.

With fewer working years as late-start professionals, we have fewer years for our investments to compound. We need to make the best of every dollar flowing into our bank accounts in order to make up for the loss of compounding. 

 

Macro → Micro

Tracking my money starts from a macro viewpoints and gets granular. My money is in held in both cash as well as in investments. That may sound basic but let’s start there and get more granular.

Cash/Investments

Many physicians have a lot of their money sitting around in cash. It’s partly because of fear of investing it and also because they don’t know exactly what to invest their money in. As in, they aren’t sure which funds are best.

Account Tax Types

The tax implication of accounts actually creates its own level as I’m outlining here. There are 2 types:

  • taxable account groups
  • tax-deferred account groups

Taxable accounts are checking, savings, and private brokerage accounts. Real estate investments fall into this category. Any realized profits in these investments require me to pay taxes.

Tax-deferred accounts allow my investments to grow without incurring tax events. But once I take that money out later in life then I will need to pay income tax on them.

Such accounts are often offered by employers or the gov’t. Though, you can establish your own tax-deferred retirement accounts such as an IRA or individual 401k.

Individual Account Types

On a slightly more micro level there are different types of accounts where I can invest in individual funds.

Where you hold your assets affects how much taxes you’ll pay and how easy it will be for you to access your money when you need to.

I have spent a lot of time planning this with the help of my financial adviser. It’s now on cruise-control with very little ongoing work on my part.

Investment Fund Groups

There are many fund groups which you can invest in – this is getting quite micro.

  • currencies
  • individual stocks
  • individual bonds
  • TIPS
  • ETF’s
  • mutual funds
  • index funds
  • note lending
  • crowdfunded real estate
  • real estate rentals

If you want to speculate then you might lean more towards individual stocks because of some insider information you might have.

If you are okay with lower returns at lower risk then you might choose to invest in index funds and profit from capitalism which states that capital markets appreciate.

Individual Investments

This is the micro-granular level of your money. It might be held in US dollars in a checking account or invested in an individual stock such as LUV.

  • LUV stock
  • AAPL stock
  • GNMA bond
  • VTI exchange traded fund (ETF)
  • VTSAX index fund (a mutual fund)
  • Synchrony CD’s

 

Where Is My Money?

I have $10,000 sitting in my checking account because I have my expenses budgeted out 3 months in advance using YNAB. This brilliant and intuitive budgeting software allows me to make the most of the money that flows into my checking account. 

$120,000 is invested in a Keogh account, in an all-in-one fund which is composed of a mix of broad market passive index funds. The Keogh is the ‘account type’ and the VTTSX is the actual investment fund.

$124,000 is an old 401k and 401a from Kaiser Permanente. The 401k/401a are types of retirement accounts. Within this account I hold a mix of small-cap index funds and total US index funds. Specifically, VSMAX and VTSAX.

$20,000 is invested in REIT’s and I hold those investments in a Roth IRA account. VGSLX is in the investment fund and the Roth IRA is the account which allows me to hold these funds in a tax-efficient manner.

$200,000 is invested in a private brokerage account at Vanguard. I invest this money in a mix of stocks and bonds index funds. The funds include VTSAX, VTIAX, VEMAX, and VMLTX. Why this mix? Because it’s what me and my financial adviser came up with, based on my future desires and risk profile.

$160,000 is invested in a traditional IRA where I invest in the same exact funds as above but with a slightly different asset allocation.

$50,000 is in a cash balance plan which grows at a fixed, guaranteed 4% a year.

$180,000 is the value of my current primary residence. It’s an asset which I will be turning into a rental income property shortly.

 

Debt

For entrepreneurs debt is a tool for making money. They take out a loan and use it in order to generate more income and build wealth. They turn debt into an asset.

Physicians use debt slightly differently. We take out a student loan in order to practice medicine. It’s sort-of an investment except that we cannot write it off on a schedule-C tax form and we have to trade our time 1:1 to earn money from it. It’s similar to paying to have a job.

Cars and houses are another place we take out debt. Here, we are getting a negative return on our investment. It’s a return, and it’s an investment, but a negative one.

By taking on a mortgage or an auto loan we are saying that we would rather have the depreciating asset rather than an investment such as a mutual fund which would appreciate.

Doubly Negative Compounding

If your money is tied up in debt then it means that instead of being able to invest that money in an index fund, you have to use it to pay a specific interest rate.

So you are losing access to that money in the short-term and you are preventing that money from accruing compounding interests in form of future returns.

 

Consolidating Investments

In this post I hopefully laid out the various locations our moneys can be located. If you have money then it’s critical that you restructure your holdings in order to maximize returns and minimize costs.

I don’t have a strong brain for keeping track of shit like this. I have spreadsheets and a financial adviser and I still feel like I have too many funds and accounts to keep track of.

Consolidating your accounts, whether debts or assets, will help you answer the “where is your money” question much easier. In my case I should be rolling over my old 401k/401a into my IRA and automating a few other investments.

Cash Holdings

As I did the research for this post I realized that I have around $2,000 worth of cash that’s sitting around in various accounts, uninvested.

If it sits around for 35 years then it’ll be pretty much worthless because of inflation. If I were to invest it then I might have $20k with that initial $2k, three decades later.

 

Start Investing Today

You don’t need to take on excess risk in order to realize healthy profits. The economy will keep growing at a steady pace whether you invest in it or not.

You can capture a small percentage of it by investing your money in passive, broad index funds such as I have done above. Or you can take a percentage of your money and use it to speculate on individual stocks, real estate, cryptocurrencies, or commodity futures.

Pick a single fund – something like VTSAX – and make sure that regardless of what account type you have, the money is invested in this fund instead of sitting around idly.

Take One Extra Step

It’s not as easy as telling someone to just pick an index fund and invest. Markets aren’t predictable and our personal lives are often just as erratic.

It’s helpful to take one extra step and educate ourselves on how markets behave, how they crash, and how they recover. Without this we would risk selling out of the above fund when the markets crash and lock in a major loss.

Paying a financial adviser $100-200/month to have them figure all this out with you and teach you the necessary investing skills is well worth the money.

 

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