The fee trap - you get what you don't pay for!

Posted by Alex Menzie on 21 November 2019
The fee trap - you get what you don't pay for!

We live in a world flooded with choice... think of any product you've purchased in the last two weeks. How many different alternatives were there? Depending on the product, potentially a significant number.

Think restaurants, cars, clothing, even peanut butter! Was there more than five? More than 10? Chances are there's more choice than you can handle.

In a world of so many alternative options and products, all purporting to do relatively the same thing, how do we determine the best option? All things being equal, I believe we're most likely to be influenced by price. After all, it makes sense to assume that the product with the higher price must be more reliable, have better materials, features or ingredients, will last longer.

Isn't it true that you get what you pay for?

Investment management beware of costs

In 2010 and again in 2016, Morningstar completed research into the impact of investment costs on overall investment return. Their research was compelling and I quote:

'If there's anything in the whole world of mutual funds that you can take to the bank, it's that expense ratios help you make a better decision. In every single time period and data point tested, low-cost funds beat high-cost funds'.

How can this be the case? Well, the data confirms what logically makes sense. Investing is a zero-sum game - for each investor buying there has to be an investor selling and so as one wins the other loses. What sets investors apart is not their ability to know the future and thereby pick winning stocks, but the costs associated with their investment.

Similarly, in 2016 Vanguard released a paper titled 'Vanguard's Principles for Investing Success'. The paper, which references a number of studies on the impact of costs on investor outcomes, included a hypothetical example where $100,000 is invested over a period of 30 years using both a high-cost and low-cost scenario. Assuming an average return of 6%, the low-cost scenario was over $110,000 greater than the high-cost scenario at the end of the period (interestingly more than the original investment).

The research is clear, when it comes to investments and especially when saving for retirement, you typically get what you don't pay for as every dollar paid in fees is a dollar less that is earning return.

Our role as advisers is to educate clients and help them to make informed decisions around important items such as investment cost and value, free from any advertising bias or industry hype. 

Have a read of our investment philosophy to understand our specific approach.

 

Posted in: Insurance Financial independence   0 Comments

Are you planning your journey to financial independence?

Posted by Sean O'Kane on 1 October 2019
Are you planning your journey to financial independence?

Upon finishing their years of training, many medical specialists make hasty financial decisions that they live to regret (and that get in the way of their long-term financial success).

In our whitepaper, "Are you planning your journey to financial independence?" we identified key financial challenges faced by medical specialists. Chief among these is that practitioners are either complacent about the fact that they're now earning good money and therefore don't feel the need to adhere to a solid financial plan, or they're eager to finally enjoy the rewards of all their hard work and want to spend money now!

A good friend of mine, who's very successful, coined the phrase 'toy fever' to describe the urgent desire to make impulse, often expensive, lifestyle purchases the second there's some extra cash lying around.

One of the doctors we interviewed for our whitepaper said, "It's very tempting when you're surrounded by people on good incomes, driving around in new sports cars and living in multi-million dollar properties. It can be tricky to keep it real and live within my own capabilities and with my personal financial goals in mind, without getting caught up in what others are doing."

First of all, it's important to keep in mind that as a doctor you're in training for almost half your working life - much more than most other professions - and this puts you well behind many others on your journey towards building wealth and gaining financial independence.

Committing to new cars and an expensive house too soon after finishing your training can add unnecessary pressure, especially while you're trying to establish yourself as a specialist or a GP. What we see is that it usually takes a year or so to build a good idea of how things look financially and what you can reasonably expect your income to look like ongoing.

Our advice
If you're not careful, you can easily go from a situation where you're tight for money because you're in training, to one where you're tight for money because of the financial decisions you've made.

However, if you delay these important financial decisions to a point where you understand your pattern of income, especially if you're setting up in private practice, then you'll be in a much better position to make those decisions with confidence. This removes the stress caused by over-commitment and strengthens your ability to achieve financial independence.

In order to help you enhance your financial future, our team of financial planners advise you to:

  • delay making any big financial decisions until you've established yourself as a specialist/in private practice;
  • understand what your goals are and what they will cost to achieve;
  • model different financial scenarios with realistic returns to see the bigger picture and assist with decision-making; and
  • develop a financial strategy to get you where you want to be over time.

We can't overstate the importance of this topic, which is why we're hosting a small event next month which will touch on some strategies to help you manage your money effectively once you're training is over. The session will cover financial planning, lending, and real estate and vehicle purchases and will be a chance for new doctors to get some practical tips that will set them up for success.

You can read more about the event here and register.

If this sounds like you or you know someone who would benefit, please pass on.

Posted in: Wealth Creation Budget Financial planning Financial independence   0 Comments

Making decisive decisions | Do you make decisions like a teenager?

Posted by Alex Menzie on 8 August 2019
Making decisive decisions | Do you make decisions like a teenager?

A few weeks ago, I made the decision to buy a bike and ride to work off the back of a desire to change my lifestyle to include more physical activity. So off to the shop I went to purchase a bike.

Walking in I was greeted by a friendly sales assistant who asked me what I would be using the bike for, how often I would be using it and whether I'd ridden that type of bike before. He then recommended a bike which would be suitable for me.

Decisions
This purchase has made me reflect on some of the discussions I've had with clients over the past few weeks. Should I buy a house or should I rent? Should I buy rooms to support my private practice? Should I establish a self-managed super fund?

The book 'Decisive' by Chip and Dan Heath walks through some of the common mistakes people make when making decisions. Chip and Dan suggest three decision pitfalls we encounter as well as suggesting some helpful ways to avoid these pitfalls:

  • We rarely consider more than two options - consider what you could do if your current solution was no longer available
  • We are blinded by short-term emotion - attain distance
  • We have a false sense of certainty - test your reality


An admission
When I decided I was going to buy a bike, the first thing I did was jump on my laptop and google 'entry level road bikes'. I 'knew' exactly the type of bike I wanted and after looking at a number of websites I finally found one telling me what I wanted to hear... a road bike was the best solution! 

Upon reflection, I'd made all the classic mistakes. I hadn't considered the various options available to me (I wanted a road bike), I was blindsided by emotion (the Tour de France was on television!) and went looking for data to support the decision I had already made (confirmation bias).

During our lives we'll each make a number of decisions, varying in both importance and impact. Financial decisions can have a significant impact on our lives and so it's important that we identify all the options (however improbable) and carefully consider the pros and cons of each so an informed decision can be made.

Often the mark of a good adviser is the questions they ask to help clients make smart decisions. That is why here at Medical Financial Planning we make sure we take the time to understand our client's individual situation and options and then help them to move forward with clarity and direction.

Posted in: Financial planning Planning   0 Comments

When the default is damaging | Is your life insurance policy set in stone?

Posted by Sean O'Kane on 18 June 2019
When the default is damaging | Is your life insurance policy set in stone?

Trivial pursuit question what does guaranteed renewable insurance mean?

Guaranteed renewable means that once you've taken up a life insurance policy and have been officially accepted and received your policy document, the life insurance company can't cancel your coverage for any reason. Providing you've been honest in your dealings with the life insurer, you've disclosed everything required by law, and you pay all future premiums when they fall due, guaranteed renewable means your policy is locked in.

Why is this important? Aren't all personal insurances like this I hear you ask?

Well no, actually, as all those people who have default QSuper income protection cover in place will have found out recently. For full details on all the changes click here, but two of the major changes are:

  • change in waiting period from accrued sick leave plus 14 days to 90 days or accrued sick leave, whichever is greater; and
  • reduction in benefit period from three years to two years.

On the plus side, this means the cost of the cover has reduced, but it's not hard to see from these two changes that for younger doctors with minimal sick leave the change puts them in a significantly worse position.

We wrote a blog in March about the problems of default cover in super, so this major change by QSuper is quite timely. What I think will surprise people is that QSuper can just automatically do this.

I've been advising clients on personal insurance since 1995 and have only ever recommended and put in place guaranteed renewable policies. The result being that the conditions of these policies can only ever be improved, benefits can never be taken away, and they can't be cancelled by the insurer, unless the premiums aren't paid.

If you haven't looked at your insurance for a while, or only have default cover in place, talk to an experienced financial adviser who can recommend and implement comprehensive guaranteed renewable insurance, to ensure you're always protected.

Posted in: Financial planning Insurance   0 Comments

Taxing times - why playing the long game is the key to surviving political uncertainty

Posted by Matt Connor on 22 May 2019
Taxing times - why playing the long game is the key to surviving political uncertainty

It's always an interesting time during election campaigns, when the country waits with bated breath to see what changes are going to be made (or not made) by the successful candidates, and how this will affect their day to day lives. Right now its nice to have a reprieve from the relentless advertising.

In the lead up to our most recent polls, there were many people (including lots of accountants) sweating on changes to tax law that didn't eventuate. It's a good reminder that when it comes to your finances, the best protection you can give yourself is to invest in some solid professional planning, so that you're prepared for circumstances where you don't know the outcome, and over which you have little control.

Similar to investment decision making, effective tax planning means playing the long game - putting in place long-term strategies that are based on more than knee-jerk reactions to political movements or personal whims. Making sudden changes to your affairs will have immediate effects - some you expect and some longer-term effects you don't.

It's important to remember that while media hype around party policy and commentary on the possible impacts of these changes is unavoidable, it's important to absorb all the information with a healthy layer of reason.

Political ideologies aside, contentious topics such as changes to negative gearing and capital gains discounts, for example, are inevitable the rules in Australia are quite different to other countries - so it's important to ensure your tax strategies have you covered for fluctuations in these areas.

Similarly, self-managed super funds have always been a moving target, and will continue to be so. The popular strategy for doctors to buy their medical premises within an SMSF will continue, and the lack of appetite for the banks to lend is driven more by the general property cycle than by tax law considerations.

So to ensure you're on the front foot when it comes to your tax planning, make sure you're getting advice from a tax professional you trust and dealing with knowledgeable lenders who understand the medical industry and are equipped to assist doctors with their business planning.

Posted in: Tax Financial planning   0 Comments
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The fee trap - you get what you don't pay for!

Posted by Alex Menzie on 21 November 2019
We live in a world flooded with choice... think of any product you've purchased i...

Are you planning your journey to financial independence?

Posted by Sean O'Kane on 1 October 2019
Upon finishing their years of training, many medical specialists make hasty financial...

Making decisive decisions | Do you make decisions like a teenager?

Posted by Alex Menzie on 8 August 2019
A few weeks ago, I made the decision to buy a bike and ride to work off the back of ...
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The information on this site is of a general nature. It does not take your specific needs or circumstances into consideration, so you should look at your own financial position, objectives and requirements and seek financial advice before making any financial decisions.

The financial planning services are provided by Medical Financial Pty Ltd trading as Medical Financial Planning (AFSL 506557)