Doctors and Financial Planning FOMO

By Katherine Vessenes, JD, CFP®, Ben Kirchner, AAMS© / Financial Advisor

Have you ever thought about FOMO, that fear of missing out? There is both good FOMO and bad FOMO. Today, Katherine sat down with Ben Kirchner, one of our Financial Advisors, for a Q and A about how to ignore the bad FOMO (like wishing you had invested in Apple 20 years ago) and embrace the good FOMO that can help build an incredibly solid foundation for the future.

Ben has helped hundreds of doctors, especially younger doctors, get a strong financial foothold and create plans for long-term wealth building success. 

Rich Doc. Broke Doc. Learn how doctors can use FOMO to avoid the Broke Doc quagmire, and how FOMO can keep some doctors broke.

Let’s get started.

K: First of all, how are you defining financial planning FOMO?

B: Financial Planning FOMO is really fearing that you're going to miss out on the things that only come around one time a year. We have a certain amount of opportunities that come around every year, some of the highlights I like to bring up to clients might be: Roth IRA funding, or perhaps if you're on a health savings account (HSA) plan, you can only fund that once a year. Similarly, there are some opportunities for Roth conversions where you could convert your pre-tax dollars into post-tax dollars. All these things are elements we want to take advantage of each and every year because we can't go and reverse the clock and fund that in reverse. So the best time to start is now!

K: How does this look mathematically?

B: I put together a chart here. This just highlights the power of compound interest, which is something you and I talk a lot about, Katherine; starting early and saving often.

What we have illustrated here is an example of financial planning FOMO. At a base level we can see your $7,000 per year IRA contribution (then using the Backdoor Roth Conversion Strategy to roll the money into a Roth IRA) and maximizing your (401K/403B/457) plan at work, which is usually going to be a $23,000 plan limit. If we take a peek here, that's $30,000 a year.

I want to show Doctor #1 here at age 35: they start funding their Roth IRA and 401K (work plan), and they fund that all the way until age 50 which is when they get to do a little bit extra as catch-up contributions. Now they're putting $8,000 a year into their Roth IRA. They're also putting $30,500 ($23,000 + $7,500 catch-up contribution limit) into their 401K. So we play this out to age 65. Then we're comparing it to Dr. #2 where they started at age 41. 

K: we see this all the time, don't we? 

B: We do. 

K: And what happens? What are those doctors thinking that are not starting till their early 40s?  

B: There can be a combination of factors, but mostly thinking too sequentially. They're thinking “I’ve got to pay off all my student loans”, or “I need to save up a big down payment for a home”, when there's other avenues to get into homes that could potentially free up some of that capital. There's just a lot of justification because you want to feel comfortable, feel like you're on solid ground, which we certainly want you to have the basic foundation in place. The power of time you'll see here in this table, is so crucial to helping you retire and in some cases, retire early. We really don't want to miss some of these key opportunities and this is why I wanna call this the Financial Plan Fear of Missing Out because you can't go back and redo those five years missed.

Back to our table: We run this scenario out from 35 to 65 which  totals  $1,066,000. We contrast that to Doctor #2 who started about 5-6 years later, they put in $916,000. So simply put, the $150,000 difference in contributions ended up with the Dr. #1 having $3.2 million and Dr. #2 having $2.2 million. That $150,000 difference ended up being a $1,000,000 difference when you run it out over the course of 30 years.

K: Almost every doctor could find enough in their budget to be able to do this and look at the $1,000,000 difference! Of course we'd all like an extra million. That can very often make the difference of can you retire on time or not? Let's say you want to retire at 65, or you're going to have to push your retirement out to maybe 72 because you're going to need those extra years at the end of your working career to make up that $1,000,000 difference. 

B: You said it right. Exactly. And not to mention that all of what we illustrated here is through tax-advantage savings. So there's some way. hether now,  in the present or in the future, that you're going to get this money in a tax advantaged manner, it's even more impactful than what can be illustrated just on this simple spreadsheet. 

K:Yeah, that's a great point is in this situation, if they were using their accounts at work plus their Roth IRA, this extra $1,000,000 is $1,000,000 tax-free. 

When it comes to FOMO, one of the things I've noticed is: I sometimes get doctors in their mid 40s to early 50s that haven't been saving enough. They’re starting to look at their colleagues and realizing their colleagues have a lot more money than they do and they're behind the 8 ball and want to take a lot of risks because they're trying to play catch-up. This is FOMO at its worst in my mind. 

I'm thinking very often what happens when they get into this situation is they feel like they've got to go for broke. Just put everything on black or red at the roulette wheel. They might come to us and say, “oh, I've got the stock, it's going to go to the moon. I've got some inside information or I think this is going to do really well” or maybe it's cryptocurrency. 

What happens in those situations where doctors want to invest in a single company’s stock or cryptocurrency? What do you suggest? 

B: Yeah, I again, I'm not a huge fan of that. I think we need to work with the information we have at hand and certainly there can be stocks that perform well and there are times when even cryptocurrency has  done outstandingly, but we have to emphasize the shield of diversification. Because you look back at some companies, for example, General Electric years ago back in October of 2000 their share price was around $300/share. Lots of their employees had shares in that stock and it was going up. You would never have thought it would go down. Well, it plummeted years later. People who had their retirement accounts stocked in that really felt the impact and never were the same (and still aren't to this day). The share price is worth $160 currently. When we're multiplying that by many, many hundreds of thousands of shares, that's a significant impact.

We want to utilize an approach that emphasizes academia, and emphasizes evidence. Holding thousands of companies at once means that even if a portion of your portfolio is not doing well, there's likely another portion that will be doing well. Which is what we do with so many of our doctors to make sure that they can get to that finish line and really have money when they need it.

To put it all on black, as you said, is way too risky of a strategy to be able to wake up tomorrow and have confidence that it will be there when you need it most. 

K: I will tell you in all my many decades in this business, I have never once ever seen this high-risk strategy work for a doctor.

Most of our clients have about 14,000 different companies in their portfolios. We use Exchange-Traded Funds (ETFs) primarily, some in some mutual funds, and sometimes that seems just a little bit too pedestrian for some of our clients. But it is a tortoise and hare situation.

What would you say to a doctor that feels that they can't take advantage of starting early and for whatever reason, they just can't do it? 

B: I think this is a huge fallacy I come across a lot with doctors and their families. They just feel like “I can't do this amount, so I'm not going to do it at all”. Well, a little is better than nothing! One hundred dollars today saved is worth, you know, $500 down the road. Even just several years down the road. As we saw in that table I shared, the earlier you can start, the better.

So maybe you can't maximize your 401K this year. Well, you better be sure to maximize it enough to get the match from your employer, because you don't want to leave any free money on the table. It doesn't have to be an all or nothing conversation, but it's “what can we reasonably save this year? We may not be able to hit the maximum in our accounts, but what can we do to continue to put our best foot forward?”. Then when times are more freed up with income, we put more money in. So when times become more lean, you're not as worried and you’re all ready. “Your past self helps your future self,” as my wife and I always say. 

K: This just reminds me of this wonderful couple we had–a couple of psychiatrists. They're both out of Texas. We've probably been working with them for 12, 13 years now. When we started, I thought to myself, this is never going to work. They were having babies, they needed a new deck on the house, and they bought another house. It was just  thing after thing after thing and they just couldn't get started [saving]. I really felt sorry for them; I liked them so much. They saved a little bit, and then over time as they got the deck done, they increased it. Here we are, like 10 years later, now they've got $1,000,000. And I would say good on them. That's what we want.

I've also found with doctors, If we take the money out of the account before they ever see it, that works really well for them and they don't stress about it. And low and behold, their subconscious seems to only spend the money that's left; that helps them get started right away so they don't miss out on anything. 

B: Yeah, you're speaking to two really key things: I think automating your savings strategy is key, and even automating your spending strategy so you know your bills are taken care of. They're going to come out of your account at a certain time of the month. That allows you to spend those other dollars freely.

I think you got to something really key, Katherine, which is just flexing that savings muscle a little bit. It's a lot like working out. You're probably not going to start out running 10 miles, but you may start out running 1 mile. You may just need to start saving a small, modest amount into an account, and then circle back. Ask, “does this even impact my monthly budget?” then tweak that over time so as time goes on you're saving subconsciously; your accounts are going to thank you.

That army of dollars is going to work for you whether you're awake or asleep.

K: Do you have any other examples or  ways you've seen this play out in real life? 

B: I would say when I think of the cases we've worked with over the years, Katherine, there's certain clients who just strategically put money away, and do the boring stuff we're telling them to do–versus the other peers in their profession.

For example, I'm thinking of two clients that are orthopedic surgeons. One has just consistently socked it away in the traditional diversified approach, and I've seen his net worth skyrocket. You know he became a millionaire in a matter of years as opposed to the other client that is chasing what I would call those “home run hits”. Trying to get into new startups, trying to get into more sexy, fun investment options, and I just can't say that I've seen the same results in that portfolio.

It's easy to think that you'll have enough time to overcome those bad mistakes, but you really don't know how long these working years will go, or  the amount of money you'll make in these working years. So you might as well live off of a healthy amount of your income, but still save a healthy portion doing something that's consistent, that's going to provide you the opportunity to retire (and retire well) instead of trying to do it as a coin flip. 

K: Yes, I like that. We don't want to use the coin flip! I know a lot of our clients do get very seduced by startups and some of these other things that they really want to invest in. I've got a family member who actually runs a hedge fund with a lot of cryptocurrency in the hedge fund. He said to me that out of the 25 companies that they put into each of their pools, they only expect one to make money. The rest are likely to go under. So when you're thinking about investing in “the next big thing”, be aware that you only have a 1 in 25 chance that this is going to be making money. You have 24 chances out of 25 that you're going to be losing money on this particular deal; it's very, very sobering.

What do you think is our main take away for our clients today? 

B: I want to keep it simple and just tell our clients: let's focus on what you can control. We're not going to be able to focus on what the stock market's doing. We have very little control over what our politicians are doing, but we can focus on your current savings rate.

What's your lifestyle look like? What can you save even if it's that minimum effective dose? Let's put something away so you know you're taking care of yourself in the future. Also, really focusing on the investment side, let's look at your asset allocation and the diversification as a whole. We want to make sure you have that shield of diversification where you are not going to be completely exposed in case something happens.

Let's just bring this back to the big picture of: what does it take to retire, can you retire on time, and what are the little tweaks we can do to get you further towards your goal?

K: I think that's exactly right. We have to boil it down to a couple things: consistency and controlling that which you can control.

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Katherine Vessenes, JD, CFP®, is the founder and CEO of MD Financial Advisors who serve 600 doctors from Hawaii to Cape Cod. An award-winning Financial Advisor, Attorney, Certified Financial Planner®, author and speaker, she is devoted to bringing ethical advice to physicians and dentists. She can be reached at Katherine@mdfinancialadvisors.com.


Ben Kirchner, AAMS© / Financial Advisor
After starting his career at two Fortune 100 companies, Ben joined MD Financial in May of 2018. Ben advises over a hundred doctor households, helping them achieve their financial goals. He is passionate about serving. Ben enjoys making sure all of our doctors thrive financially and have a great experience every step of the way.
He can be reached at Ben@mdfinancialadvisors.com.