March 28, 2024

Wealth Matters: Smart in Medicine or Law, but Not in Managing Money Money Advice for Doctors and Lawyers and the Rest of Us

But their attitudes toward money and investing can create financial challenges later in life.

And the years of education that got them to where they are, their financial advisers say, can also stand in the way of their financial decision-making.

As Greg Erwin, managing principal at Sapient Private Wealth Management who works with doctors, put it, “A lot of these physicians would like to believe that investing and savings is pure science, and that’s not true. It’s an art form.”

Over the last two columns, I have looked at the behaviors of some highfliers — athletes and people who make their living drilling and transporting oil and gas; and those who have built their wealth in volatile fields like technology and real estate.

In each of those cases, I asked financial experts to share their insights into the financial and investing mistakes that are often typical of these clients.

In this column, I’m going to look at what the rest of us can learn from doctors and lawyers.

DO NO HARM Doctors have a reputation among financial advisers for spending every bit of money they make. They earn a lot, after all, and figure they can work a long time. But doctors who engage in this type of spending can forget how hard it will be to maintain their lifestyle in retirement without millions of dollars saved.

“Doctors can have a sense of entitlement,” said Lewis Altfest, chief executive of Altfest Personal Wealth Management, who has a specialty in advising doctors.

“Doctors are highly respected in their communities. They have historically been among the most gifted intellectually and they’re not afraid to exercise it.”

(He has dentist clients as well, but said they generally acted more like accountants than doctors: conservative and more risk-averse.)

While doctors are certainly smart, their medical ability does not necessarily translate to financial acumen.

Mark Gurland, 59, a hand surgeon in New Jersey who is married to a psychiatrist, said he had a theory about doctors’ financial behavior. Since most do not finish their internships and residencies until age 32 — if they have gone straight through from college — they have been living cloistered existences even as their college friends have been working for at least a decade.

“When they’re done, my feeling is, there is this repressed self-sacrifice and when money appears, they’re living in huge houses and driving the fanciest new cars,” he said. “They have a lot of money they worked hard for, and they’re spending it.”

On the investment side, he said, doctors often believe that their knowledge of medical issues translates into something seemingly simpler, like investing.

Dr. Gurland, who has always been a saver, said he had been guilty of making investments on a tip or a hunch. A cardiologist friend persuaded him to invest in fiber optic cables a decade or so ago: he said he doubled his money and then lost almost all of it. When he invested in a company that was promoting a drug for hand surgeries, he thought he had a winner but lost money on that one as well.

Now, he said, he defers to his adviser on investments and thinks of some of his most annoying patients who try to tell him what’s wrong with them.

“Every day, we see patients in today’s world who seemingly know more about medical conditions than the doctor,” he said. “Why? Because they went on the Internet and read about this.”

Mr. Erwin, the adviser, said he tried to offer doctors a financial plan that dealt with their desire for rewards. At the same time, he lets his clients know about the risks inherent in not saving and in trying to fit in time for investing when they have an all-consuming job.

“They’re very methodical thinkers, but they’re also extremely busy,” Mr. Erwin said.

He said he spent time coaching his doctor clients not to get swayed by a friend who thinks they should invest in something they know nothing about or has an opinion about timing the market.

But doctors generally get two important things right. Doctors, particularly those with a unique specialty, buy disability insurance because they know that if they can’t work as a hand surgeon, for example, their income will plummet, even if they can still work as a doctor in a different capacity.

Article source: http://www.nytimes.com/2013/03/30/your-money/money-advice-for-doctors-and-lawyers.html?partner=rss&emc=rss

Wealth Matters: Investment Advice in Real Estate and Technology Industries

But the ways that these people become wealthy — and lose everything — are not that far apart. In both fields, after all, the money comes from a potentially volatile asset in a cyclical industry.

I spoke this week to financial advisers for both groups to learn how the executives in these fields think about risk, plan for the fallow periods and make sure that their good fortune lasts.

This is the second of three columns about what we can learn from the investment behaviors, good and bad, of people in a variety of well-paid industries. Last week, I took a look at the highfliers in sports and the oil and gas business, and next week, I plan to look at doctors and lawyers, the slow but steady earners.

Here are some lessons from executives in the high-tech and real estate worlds.

IT ALWAYS LOOKS GREAT ON PAPER Mike PeQueen, a managing director at HighTower Las Vegas, a wealth management firm, is a Las Vegas native who resisted the city’s long, strong property boom. He preferred stocks but felt, at times, as if he were the only one of his friends to believe in diversification.

Only now is the magnitude of their real estate losses sinking in for people who once talked about owning private jets. “Because of the long-term nature in real estate compared to the short cycle in the stock market, they don’t understand cycles exist,” Mr. PeQueen said. “For 25 years, Las Vegas real estate went up, and then it went down. They thought it would be a one-year down market. It’s been five or six years, which is normal.”

Mr. PeQueen said his clients and friends were, in the gambling parlance of the city, letting it all ride on real estate. Not only did they use properties to buy more properties, but they rarely thought of buying property elsewhere.

“Five real estate investments in Vegas is not diversification,” he said. “Any thought that they could buy rental houses in Phoenix seemed absurd. That location bias was very strong.”

Yet this strategy did not affect all investors equally. Owners who did not take on a lot of debt have been able to hang on. But Mr. PeQueen said that many real estate investors misunderstood or ignored the concept of total return.

“They thought the rent was their return, and not the rent plus the continued decline in the house’s value,” he said. “They can’t imagine that they made a fortune and lost it.”

Still, concentrated investments are how most real estate investors have made their money. In New York, for example, where the value of a single office building can reach $1 billion or more, even the wealthiest families own only a handful.

“They have concentrated risk, but they derive comfort in that they know it so well,” said Maureen K. Clancy, a managing director at Barclays Wealth. “There is a certain security that comes from that hands-on involvement.”

Ms. Clancy’s strategy for preserving wealth is to persuade real estate owners to put some of their money in safe investments that have nothing to do with real estate and to work with them on their level of debt.

“Many people would assume real estate means aggressive,” she said. “The underpinning of their wealth is based on this shared belief that conservative leverage gives you incredible staying power.”

Downturns, of course, are the best time to buy properties inexpensively. And Ms. Clancy’s clients, with lower leverage, have been able to undercut competitors who are struggling under greater debt.

LEARN FROM THE PAST Many of the people in the social media world who have gotten wealthy in recent years seem to have acquired their money in the opposite way: with only a tenuous link between time spent at a company and the size of their reward. But the ones who got truly wealthy spent years wondering if their idea was going to pan out.

Now that they have the money, they are acting more cautiously and diversifying their company stock in a way that technology developers did not in the 1990s boom.

“In the ’90s, the theme was companies didn’t want their employees to sell a single share of stock,” said Mark T. Curtis, a managing director at Morgan Stanley in Palo Alto, Calif. “Now, I’d say among our corporate relationships, they want us to help their employees with financial education. They say, ‘We’ve given them equity to reward them for the success of the company but help them not take all of this risk.’ ”

Article source: http://www.nytimes.com/2013/03/16/your-money/investment-advice-in-real-estate-and-high-technology-industries.html?partner=rss&emc=rss