The higher transparency that the internet brings to the field of finance is a welcome change and certainly one that has empowered many physicians to make better decisions about their money. Despite this, there are still some ways that the internet fails to render financial insight that is completely accurate. Here are five examples of ways the internet may actually be giving physicians bad financial guidance.
There is a growing movement of people rendering financial guidance called FIRE (financial independence retire early). These bloggers are usually not financial advisors by practice but rather a writer or high earning professional who has done well managing his or her own money. They tout the value of living a balanced life and supposedly have all the answers about how to get rich, be happy, and retire early without hiring a financial advisor or working too hard at your job.
Sounds good, but is this really practical?
Theory is one thing, and real life is another. Keep in mind that we are in the midst of a nine-year bull market. Itâ€™s easy for everything to smell like roses when thereâ€™s no 20% downturn for miles. Now take 2008 for example when financial advisors were, in some cases, the shoulders to cry on and the ones who saved people from massive financial devastation. Of course, there is no guarantee that any historical trend will continue into the future.
Many of these people have only invested for themselves which makes the premise of their ability to advise others entirely that â€“ a theory.
Talk to someone who has made financial decisions for other people for 20 years and they will have tons of stories to tell you about how theory and reality have failed to align on numerous occasions (painfully, I might add). Itâ€™s like the difference between getting advice about the gearshift in your car from someone who knows a lot about it and has successfully fixed their own versus someone who has been a mechanic for 20 years.
Also consider that when you read something on the internet, itâ€™s likely free. The writer has no personal accountability to you if it doesnâ€™t work out. In fact, you may not even remember which article you read. They will not have to suffer the reputational consequences of telling you to do something that didnâ€™t work out.
With internet blogging, the goal is generally to write content that gets enough views; it is usually not to provide personalized investment advice. The people writing the content arenâ€™t necessarily financial experts, in fact in many cases donâ€™t even hold industry designations. Their goal is to write about things that will get people to respond (share, like, and comment on the article.) So naturally the dry, boring details behind these financial concepts are neglected in favor of the more sensational. Â
Information about the way financial systems, products, and services work has been made available in abundance on the internet. While thereâ€™s nothing wrong with doing your homework, the facts and figures are only part of the equation.
Piecing together a financial plan one element at a time may seem logical, but in reality it can cause all kinds of issues. A plan should be designed holistically and take your personal goals, both short and long term, into account. Unless you are following some kind of holistic program, you run the risk of combining things that may not make sense together or leaving important things out.
For example, doctors have a high likelihood of being sued. Most financial products are discussed on the internet in terms of their investment features rather than their risk protection potential.Â Ask any financial advisor who puts together holistic plans for doctors for a living, and theyâ€™ll say that asset protection is just as important as, if not more important than, growing your wealth.
The insurance industry has earned itself a less than favorable reputation in the eyes of the consumer due to many instances in the past where agents have placed people into highly fed products that were not suitable and ultimately did not work out in the clientâ€™s best interest.
While nobody can dispute this fact, the effect has been that there is a great deal of skepticism around insurance products whenever they are discussed on the internet. So much so that the true merit of these products often becomes obscured.
There are many positive things that whole life insurance, for example, can do for a high earning physician, yet you rarely hear about that. Youâ€™re more likely to hear the disaster stories instead.
Letâ€™s take, for example, a medical practitioner earning $400K per year with approximately $1M in savings. As most medical practitioners tend to be in high-income tax brackets, this practitioner needs to find a balance between having reasonable after-tax return liquidity and having asset protection from possible lawsuits related to their profession.
Retirement accounts are the commonly cited option to help with taxes as well as provide protection against lawsuits. However, the liquidity of these accounts depends upon age of the practitioner. Withdrawing funds can increase the overall taxes for that year unless it is a Roth account. There are also annual contribution limits for both Roth and Traditional IRAs that prohibit investments over a certain amount into the accounts.
As long as there is an insurable interest, a properly-constructed whole life policy can be used for supplemental retirement funds. In some cases, the death benefit of a life insurance policy is protected from creditors. Protection varies by state and may be limited. Consult your tax and/or legal advisor for more information. There are no penalties to use the available cash that accumulates within such a policy, and no requirement to pay it back. As the policyâ€™s cash value accumulates, it can become a valuable resource that can be used whenever you need to borrow or withdraw money. Accessing the cash value will reduce the total cash value and total death benefit of your policy.
Whole life insurance could be a possibility as a retirement income supplement if other savings vehicles such as 401(k) account have been exhausted.
Although insurance products like life insurance get a bad rap from the internet, as you can see, there are times when they may offer the best option.
Recognize that content written for the internet is designed to appeal to the most people in a certain circumstance. It is not set up to address peopleâ€™s needs on a one by one basis.
Look at the inherent complexity of many financial products, namely life insurance. Life insurance policies can be very complicated and difficult to understand.
Some policies have various stipulations and provisions that may become triggered over the life of the policy. It requires practical knowledge and experience dealing with such policies to find the best course of action.
Life insurance is just one example – taxes and estate planning are others. For physicians who have a lot at stake, general advice is no substitute for the opinion of a professional who has experience evaluating a clientâ€™s specific situation.
What people may not understand is that a search engine is based on algorithms. It is not a human financial advisor whose job it is to provide you with the right information, to make a recommendation based upon your needs.
The internet is a business and those who are the best at optimizing readership using various techniques such as keywords, optimizing content to hit targeted key words, or even choosing topics that are the most provocative will get the most attention. Sometimes people game the system and use certain blog titles as â€śclick baitâ€ť or keyword load their blogs to get a higher ranking.
The end result? You may end up reading something that isnâ€™t answering the question you asked just because itâ€™s what a website served you.
For example, letâ€™s say you typed into a search engine, â€śHow should I invest my retirement money?â€ť You will get pages and pages of answers, but the top entries will talk about investing your money into the retirement accounts.
While a person doing the search will get a wealth of knowledge about various retirement accounts and how they work, it will not answer the most crucial question: Are retirement accounts the best option for this person to begin with? Â That answer may be buried on page five which youâ€™re unlikely to get to.
Hereâ€™s how this may hurt physicians. As discussed in example #3, a younger person making less money will benefit less from putting his or her money in a 401(k) plan than an older person who is in higher income bracket, because of the lower amount of immediate tax savings as well as the sacrifice of liquidity for a longer period of time.
However, some people wonâ€™t think past the information given to them and will be inclined to believe that the advice that the search returned is specifically applicable to them. It must be, itâ€™s right there on the screen!
The internet is a great source of financial knowledge and one that physicians should indubitably consult with when creating their financial plans. However, there are limits to its power, and in some cases basing decisions on the information you are given can do more harm than good. Just like their patients, physicians should follow their own advice: Learn as much as one can about the issue, but let a professional come in and execute the plan. Whether it is a plan of treatment or a financial plan, the success is more likely to come from the knowledge and experience rather than a random page on the internet.
This material is general in nature and is being provided for informational purposes only. It was not prepared, and is not intended, to address the needs, circumstances and/or objectives of any specific individual or group of individuals. For advice regarding your personal circumstances, you should consult with your own independent financial and tax advisors.Â Life insurance contains exclusions, limitations, and terms for keeping it in force.Â For costs and complete details, contact a financial professional.Â
Michael Pechersky, CFA
Financial Adviser, Eagle Strategies LLC, a Registered Investment Adviser
Registered Representative, NYLIFE Securities, LLC, (Member FINRA/SIPC), a Licensed Insurance Agency, 120 Broadway, 29th Floor, New York, NY 10271, 917-318-5504.
Agent, New York Life Insurance Company (NY,NY)
CA Insurance License #OI39424