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The Hidden Costs that Delay a Dentist’s Retirement – Episode 61

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A few hundred here, a few thousand there. Overspending on insurance, loans, supplies, staff, benefits, and personal life may seem insignificant in the short run—a lot of dentists make enough money to cover the cost. But over the course of a career, those costs can add up to millions and downgrade the quality of what should’ve been a great retirement. In this episode of Dentist Money™, Reese and Ryan list the most common places where dentists overspend and how to make sure your hard earned money stays in your pocket.

Podcast Transcript:

Reese Harper: Welcome to the Dentist Money Show, I am your host, Reese Harper. This is the place where we help dentists make smart financial decisions. I am here with my co-host, Ryan Isaac. How are you doing, sir?

Ryan Isaac: Good morning. I am at 72% today.

Reese Harper: Dude, most of you probably don’t know that Sir Ryan Isaac is playing today on an injured vocal cord set.

Ryan Isaac: Yup.

Reese Harper: He has strep throat. We have placed him inside of a closet so he can’t get anyone sick, but we are recording live and we can see each other.

Ryan Isaac: It is self diagnosed, but I’m playing injured.

Reese Harper: You self diagnosed strep? That is not possible, son.

Ryan Isaac: Self diagnosed, yes. The game is too big.

Reese Harper: You are like the Falcon’s center that played in the Super Bowl on a broken leg: Alex Mack. You know him?

Ryan Isaac: Yes.

Reese Harper: I feel bad for him now that he lost. Tell us what we are going to do today, Ryan.

Ryan Isaac: We have a great show planned. We are going to do a financial home energy audit. That is probably the most exciting thing you’ve heard in a long time: a financial home energy audit.

Reese Harper: You better tell the folks out there what that is because it’s not really a thing as far as I know. It hasn’t been invented yet.

Ryan Isaac: Do you ever hear the ads for companies to come and check your furnace or air conditioner…

Reese Harper: {sings jingle}

Ryan Isaac: That’s McDonalds.

Reese Harper: Oh ya.

Ryan Isaac: So at dentist money HQ in Utah there is a Therm Wise guy. They do the commercials about having inefficient windows, furnace, or ventilation and tell you that you are leaking energy. You are leaking heat. They come out and check your house for leaking energy.

Reese Harper: I think I’ve seen them use one of those heat maps, actually. They show you where the air is getting out of the house. I wouldn’t know, my house is too old. Tell me about how you would interpret this type of data.

Ryan Isaac: Well, it’s a good set up for today’s topic. We are going to talk about how to do a financial energy audit. We will talk about all of the places money is seeping out of your financial house, so to speak. Where you are losing money in personal and business finance and what to do about it.

Reese Harper: Yes, and just to close the loop on your analogy, a lot of these holes or gaps that you are talking about are invisible. Just like the air that is leaving the actual house, nice work on that Ry.

Ryan Isaac: Ya, you don’t even know, it’s hidden. Hidden energy leaks. We are going to talk about the most common places dentist’s allow money to escape into the atmosphere. Let’s get started on these, we have a few to go through. Everyone loves talking about this one it’s a favorite word: budget. Money leaks when there is no budget for personal spending. This is someone who doesn’t know how much is being spent or where it is going. They allow it to do as they want as income and collections rise, spending rises, and there is no real understanding of what is happening in personal spending.

Reese Harper: Yes, and different studies show that people underestimate their spending by as much as 30% or more. In our practice, we try to ask people how much they think they spend each month and we find that it is between 20%-40% underestimated based on the actual numbers. It can be way worse. It is like 100% underestimated in some cases, but on average it is safe to say that whatever you think you spend, it is probably 25%-30% more. That practice account is kind of like a kiddy jar where you can just go back and drop at the end of the month when things are tight.

Ryan Isaac: Just grab some.

Reese Harper: Yes, just grab some when you need it. A few stats just for context that are really important to highlight. We are talking about small energy leaks. Take like $10,000.00 a year. Let’s say you can save that ten grand a year, at 5%, for twenty years, it turns into three hundred and thirty thousand dollars which is the equivalent of almost $1,000 a month in retirement. That is a big deal. Turning ten grand into a thousand dollars a month in retirement. If you can find twenty grand in leaks you will have over six hundred thousand almost seven hundred thousand dollars at retirement which is the equivalent of two thousand a month in retirement, indefinitely. That is the point today. If you can find an area in your financial life that can be tuned up, you are looking at several thousand dollars a month in additional retirement income forever.

Ryan Isaac: Ya and what you are saying is, if people are underestimating spending by 20%-40% we are talking about thousands of dollars a month. All we are saying is if you can find a way to free up eight hundred bucks a month, which is ten grand a year, that is a significant chunk of retirement income stream that you are adding to your future. It’s a big deal. People always ask, how do we get on a budget, ya know? Give us a spreadsheet, or software to help us get on a budget. Do you have any tips for helping people stick to it, Reese? I can think of ways that I talk to clients about it that is actually a little bit counterintuitive from what people would think about budgeting, but any tips you got?

Reese Harper: What are some of your thoughts, then I’ll add to that.

Ryan Isaac: When someone brings it up, then I say no one sticks to it. No one likes to micromanage their spouse or be micro managed themselves. The way I like to think about it is instead of really harping on that personal spending number too much every month, let’s pay attention to some other factors. Let’s look at your savings rate every month or year. Let’s look at where money is going towards taxes and towards debt payments. If your savings rate is a healthy portion of your income then..

Reese Harper: Which is what?

Ryan Isaac: Well, I would say, if you are making $250,000 or less, than I think if you can hit 15%-20% savings rate, probably a little bit closer to 15% depending on your debt load. If you could save 15%-20% of your income on income of $250,000 or less, than that is healthy. If you are above that number in income shooting for a 25%-30% savings rate is healthy. That is where we like to see our clients at. When you tell someone to budget that is just not something anybody is going to stick to for very long. So let’s instead just target a healthy savings rate and then you don’t have to micro manage the spending on the other side.

Reese Harper: I think it helps people feel less guilty about what they spend money on. If you focus on that budget item as the problem, and you think about how can I cut that number and then every time you go over you get mad at yourself, it just makes money be painful and you start to hate it. What we like to focus on is that savings number. If someone’s savings rate is at 20% and it is on auto draft and it is going out of their account every month and they have sustainably done that for several years, than there spending is inherently under control. If you have a savings rate North of 30% consistently, every year, you don’t really have a big spending problem. If your savings rate is 5%-8%, you probably have a spending problem. That is where, let’s say someone does have a spending problem, then I do think that’s where it makes sense to start saying, “ok, let’s get an automatic tracker.” You can use any website that has free budgeting and spending tracking. Connect to all your accounts, and figure out what your number is. You need to go three months and figure out what your spending number is, average the three months together maybe you will see that it is $8,000-$20,000 whatever your number is just know that’s where it is at. Every three months, I like to look back over my spending over that three months and pick one darling to kill. Pick one thing I’m not going to do as much of. I really wanted to upgrade my car last time, and I went and kind of pivoted to a truck, because it was like a place where I could go, “alright, I think that is going to save me like $25,000 by going with that, and it was something I really liked. It turned out I am actually stoked about my truck.”

Ryan Isaac: Well, you live in the mountain tops. I don’t know what else you are supposed to drive?

Reese Harper: It’s not like I’m not driving a decent rig. I’m getting through the snow. Im plowing around.
You have got to kill a darling though right? I don’t get to go to the luxury theatre, maybe I have to go to the normal ones. I think there is a darling or two you’ve got to kill every quarter or you end up just finding yourself justifying things because it’s for the kids, the kids need this.

Ryan Isaac: Everyone is sitting here thinking one thing in their mind right now, and that is Costco.

Reese Harper: She is a gem. I love that place. I’m a fan.

Ryan Isaac: Let’s move on to the next one. Another way money leaks out is not utilizing a long term retirement account that right way. This could be a few different ways. We will kind of go into a couple of them here. One of them will be like setting up a 401 K at the office, and then you don’t max it out every year. You fall shy a few thousand bucks or maybe you don’t add a spouse to payroll where it is applicable. Perhaps you don’t make your catch up contributions if you are over fifty. Perhaps you’ve implemented this plan and there are extra fees and costs to implement it and then you don’t take full advantage.

Reese Harper: No question. I was just with a client yesterday, and for the last three years they have had this 401 K plan in place. Both the doctor and the spouse are working in the practice and they are both getting paid salaries. One is the producing doctor and one is functioning off and on to help. This spouse was on payroll receiving income and it was just going into their personal checking account for like the last five years. They weren’t putting it into a 401 K that existed at the practice. It is there, right? That decision has cost them probably around $6,000-$7,000 in tax for the last five years. That is just one example, you gave a bunch of other ones, but that is a big deal. That is $35,000-$40,000. They have plenty of income, and they have plenty of opportunity to do that deferral, it was just something that they hadn’t gotten around to. Starting this year, we are changing that and they will be differing it every month. That will save them a ton of tax which adds up. It will probably be the equivalent of $200,000 of net worth change over the next twenty years.

Ryan Isaac: Yikes, that is the whole nature of the topic today. It is energy leaks.

Reese Harper: The leak!

Ryan Isaac: It is just a little leak, like you said, they had plenty of income so they didn’t really notice. The person who has enough income doesn’t really track spending because it is a leak. It is not pouring out of the budget.

Reese Harper: There is no pain.

Ryan Isaac: It is not an obvious pain.

Reese Harper: It is not like my cat. Who I need to take to the vet because it has a broken foot. That is a pain. You can’t let that go. So you just run it down to the vet because Tuck has a broken foot, ok?

Ryan Isaac: Did that involve the four wheeler?

Reese Harper: He might have been doing a little bit of, what do they call it, feral cat fighting in the alleys. I don’t know…

Ryan Isaac: America’s pastime.

Reese Harper: Rough and tough. Not consistently funding your retirement account causes grief.
What about having the wrong type of retirement account?

Ryan Isaac: Ya, we have seen this. A good example would be a new client we brought on a couple of years ago. His office had been running a retirement plan that caused him to give more to the employees every single year than he gave to himself in retirement contributions. It was to the tune of tens of thousands of dollars.

Reese Harper: Per year! Per year!

Ryan Isaac: Yes, per year! This was a leak situation, too. Collections are very high, income is very high, and personally financially very stable family and individual, so it felt like a benefit to the employees. Turns out most of the employees didn’t even know they were getting it. It wasn’t like they were relying on it. It didn’t keep them there in their jobs. There wasn’t this business purpose to have it around, it was just an inefficient plan that no one had really looked at before. We made a switch that allowed him to put away more for himself and made it a lot more efficient with the employees. He was able to work it out too where no one was mad at it. He kept bonuses and things in line so that they were happy. I mean it literally saved tens of thousands of dollars every year. The whole tax benefit he was getting for like a decade was wiped out by extra payments for employees. Just that wrong type of retirement plan can make a huge difference over time.

Reese Harper: Ya, and just to clarify that. In my opinion, some businesses have to have a robust employee benefits plan.

Ryan Isaac: For sure.

Reese Harper: In order to attract and retain key people because your industry requires you to be competitive in that way. If you are the type of company that we run then it is different than a dental practice. Our top talent is going to require health insurance, they require access to a 401 K, benefits packages are expected. If we are like, “sorry guys, no bennies.” That was like back for you and me in the good old days when there were no bennies. But these millennials, they are demanding! I can’t just be like, “no health insurance, no 401 K, no benefits, I’m sorry.” They are demanding free Chipotle, ok!?

Ryan Isaac: Online though, are they still paying extra for the guacamole?

Reese Harper: The guac comes out of their check.

Ryan Isaac: If you are a normal dental practice, meaning you are not a big DSL, you have got one to three locations, most of your employees are not expecting robust benefits because that is not the industry norm. I can think of a case of an orthodontist that I met six years ago. This person is still a client, and I remember looking at their qualified plan and thinking, “holy cow, we have got an $18,000 deferral here, and almost $100,000 of employee contributions being made.” There was no profit sharing being done for the doctor, there was an $18,000 deferral being done. Profit sharing had been done for years. It was almost 100 K of profit sharing that had been going on for five years and the doctor had been doing an $18,000 deferral. Most of these people had rotated through and been to a different practice by now, that particular benefit was not nearly as important to them as it was to the doctor. That $50,000-$70,000 of profit sharing… I can think of ten examples where this is the case. Not properly structuring your retirement plan to where you have 80% or more of the benefit going to you, that is a really important indicator. Anyway, we can move on from retirement plans.

Ryan Isaac: Ya, there is a lot there. Let’s talk about having the wrong type of entity structure.

Reese Harper: Nice.

Ryan Isaac: This feels like another really broad topic but a few examples that come to mind are a recent client who was filing his…well, he didn’t have an actual separate entity set up for his business. Everything was just being filed to his personal filings. This was happening for years, like fifteen years. With a simple switch in conjunction with his CPA and attorney, involves a few people to get this right and know what is best on an individual situation, but in conjunction with those people we made a simple switch that will save about $22,000 a year in payroll taxes by making that switch. He has got another decade to practice, so we are talking about, with no growth, $200,000 of savings.

Reese Harper: And at 5% growth you are talking more like $600,000, right? That is over twenty years.

Ryan Isaac: Ya it is almost $700,000, which adds about two grand to his monthly retirement just by making a small change to his entity structure.

Reese Harper: I can think of another situation like that as well. I have bumped into cases where I have noticed that they missed pretty large deductions that they could be taking on interest expense from loans. I can think of one case I saw recently where the interest expense was being paid out of a personal checking account on the debt. The CPA wasn’t privy to seeing the debt payments themselves. He didn’t really see the information flowing through. This person bought a large practice and had a large loan to buy out 50% of a practice and a lot of the debt payments, or all of them, were coming out of their personal checking account. For three years the interest expense from that debt was not being deducted. It was into the fourth year that they finally started, well actually, I came across it and was like, “where is the deduction that you are taking for this interest expense that you are paying on these loans?”. It just wasn’t getting written off. There was not an entity set up for that practice. It was crazy to look at that and in that situation we can go back and reclaim. You can amend returns at some level to make up for what had happened over the previous few years, but it is not always possible to go back and amend further than three years. Sometimes you lose out on big expenses that you could have picked up otherwise. There are a lot of cases when tax returns just aren’t filed as thoroughly and that is not always the CPA’s fault. Sometimes it’s just the communication between the CPA and the client, but man, people miss deductions a lot. Whether it could be that they had kids who weren’t on the tax returns, or you will see interest expenses not be there, you will see charitable deductions not be taken, you will see interest income be misclassified, tax free interest being reported as taxable interest, there are a lot of things that kind of surprise me that get done.

Ryan Isaac: Ya, I was just going to say on the other side of that coin, I had a recent conversation with a client who had attended a seminar and was pitched a really, really complicated entity structure. It was a single doctor, single practice, one location business. He was pitched this idea of multiple shell corporations and moving money from one to the other. So on the other side of this coin…

Reese Harper: Offshore trust.

Ryan Isaac: Ya, lot’s of offshore trusts. The other side of that is making things too complicated by trying to get tricky with the IRS. It ends up just costing a lot of money and filing returns and maybe even running the risk of an audit by doing something a little too sketchy.

Reese Harper: That is great. Let’s talk about financing on equipment or on student loans or on real estate or credit lines. Financing seems like an area where leaks come up quite often.

Ryan Isaac: Could be a big leak. This one is always interesting. Every year when we take time to go through our clients loans we are checking for things like, basic stuff, how many years are left on the loan and what is the rate at. What we want to do is just see if there is anything better. If you started at a ten year loan and you paid for three years you are now down to seven, are there seven year loans out there with a lower interest rate than your ten year loan. If so, let’s re finance that. Let’s change it. It is always fascinating to see that when we do it every year it is literally millions of dollars that people end up saving commutatively across all of our clients that do this when they make a simple switch. They might shave an extra year off of a loan or drop their rate half of a percent.

Reese Harper: I just saw a case yesterday where there was a thirty year home loan that was done at five and change, but that person was like really far into the Am. schedule. They were like at year eighteen, by moving to a fifteen year loan, which is where they were basically anyway, all they had to do was increase their payment by like fifty dollars a month and it dropped the rate to the low three percent. Over the next fifteen years that will be, just in pure interest savings, about $127,000. If you compound that over the next fifteen years and grow that money you are looking at $160,000-$180,000 net worth change. Every loan that you have between student, credit lines, houses, real estate, condos, equipment, practice by out, all of that stuff just needs to be evaluated because that is just an important step every year. It won’t happen where every year you are going to be able to change something, but maybe over a twenty year period you may be able to refinance three or four times and it will make a huge difference.

Ryan Isaac: Ya, and sometimes it is not only about the refinance you might just find that in conjunction with measuring things like spending and savings rate you might find that you have an extra bit of money every month to put at a loan, ya know? By analyzing that at least once a year you have a chance to realize that you have a thousand bucks to put on that loan and it pays it off a year sooner. Then you can snowball that into another one that pays it off two years in advance.

Reese Harper: Yes, assuming you already have a good savings rate and you are funding your retirement accounts and you’ve got a little extra. Let’s say you are at a 25% savings rate, but 20% is fine for your income level, just redirecting that 5% towards debt repayment could accelerate your multiple loan payoffs in a much shorter period of time. That is super important. Do you think we should talk e quick break for you to wet your whistle?

Ryan Isaac: Let’s do it.

Reese Harper: We’ll pick up where we left off.

{brief add}

Reese Harper: And we’re back. Ryan has wet that whistle and is ready to roll.

Ryan Isaac: Let’s do it.

Reese Harper: Let’s talk about insurance. It seems like one where people lose a lot of money with poor insurance decisions.

Ryan Isaac: What we are talking about and what we’ve discussed before is paying for expensive insurance that is not really suitable or necessary. An example would be paying for really expensive permanent life insurance when a term life insurance plan would be just fine for the situation. Annuities fall under this category. We meet new clients all the time that have previous annuities from other people that have sold them to them and they carry really high expenses every year. Investment options are really poor and they are very expensive. Insurance and loans are like the epitome of the leak. They are long term…

Reese Harper: Persistent.

Ryan Isaac: Yes, little expenses that last for a very long time, but man they add up. If you are spending a few thousand bucks extra on insurance every year that you don’t need to be that really makes a big difference. At the beginning of the podcast today you said freeing up eight hundred bucks a month can make a big difference retirement down the road.

Reese Harper: As your net worth increases, as you save money and pay down practice debt, and your practice appreciates in value, and your houses go up in value, all of these change your net worth or what could be your worth if you sold everything and put it into the bank. Your net worth is all of your assets minus all of your debts. As that increases, your need for life insurance and disability insurance also decreases. But a lot of people have maximum disability insurance coverage from day one through age sixty you. When someone carries between fifteen and twenty thousand dollars of disability insurance even as their net worth climbs and as they build liquidity. The trick is that you need that insurance to be there and you don’t want to be under insured at any point in time. You should always have enough disability to cover your monthly living expenses but never draw coverage beyond what you are spending. You have to take into account all of your assets and what that is all worth, however. Everything that you have is going to be able to kick off income if you started spending it down. If you needed to spend it down. If you were disabled and could not work anymore, the savings, retirement accounts, and equity you have in your practice and house have value. Those things can be used to offset your need for insurance. In a perfect world where insurance were free then we would never cut it, we would never recommend dropping insurance, but it is a big cost for a lot of people and by monitoring that cost and slowly reducing it over time and buying it right in the first place, you put yourself in a position where you can have a massive net worth difference from your peers. I recently saw someone who we made an adjustment to this person’s policy, they have been saving a lot, they are a successful practice that has been able to accumulate a lot of retirement assets over the last five years, and we have been able to slowly bring down their level of disability insurance. It has been interesting because I am really confident that that person wouldn’t have ever made any adjustments to their disability insurance until they retired had we not mentioned it. They would have had plenty of money. They would have just kept going on it forever and just let that auto draft continue. They had plenty of cash, right? It was a drop in the bucket, I don’t need to cut that. I don’t want to leave my family high and dry. The reality is that this person was financially independent or approaching it and they will be practicing for the next nine years. They just don’t need to have as much disability insurance as they had. That will save them over one hundred thousand dollars of premiums over the next eight or nine years, not to mention what that can grow to! The same thing as on life insurance, liability, a lot of health insurance policies, every insurance has an individual analysis that needs to be done to determine whether you are at the right level for your personal level of wealth. Some go up, like liability insurance, that goes up. Your personal umbrella goes up. If you are worth ten million dollars you cannot have a one million dollar umbrella. If you are growing and your net worth and your life insurance is still at seven million or six million or five million and you have one point five. Or you have insurance that is just four times as expensive as it needs to be. These are all really big issues that are a slow leak.

Ryan Isaac: Ya, they just amortize over a long period of time. I am glad that you brought up the liabilities. It is the inverse of life insurance and disability. As net worth grows, the need for life and disability can go down, as you self insure. The inverse is true with liability. We see that all the time where someone will kind of implement their liability insurance in the practice, and personal level early on, and then a few years later they are worth a couple million bucks and if they were sued they have got insurance coverage up to like $500,000 grand. That is really, really common.

Reese Harper: Let’s talk about overhead leaks.

Ryan Isaac: Ok, well, the ya know, biggest categories that tend to get the most bloated, and we have been seeing this a lot lately, especially when year end hits and people want to review how the year ended in profitability and things like that, are lab supplies and staff costs. Those are going to be some of your biggest ones.

Reese Harper: Staff costs are probably the biggest leak, though.

Ryan Isaac: For sure, yes, that’s the biggest. I am just thinking of a few cases in the last few weeks talking to some people where they are just shocked at where their supply costs have crept up to over the years. As a percentage of their revenue where it has gone from a normal range and they are now like 5%, 6%, 7%, over their normal range for supplies. They are seeing their profitability dip as their collections go up.

Reese Harper: Supplies are kind of like those home budgeting items too, it is easy to just kind of view them as a necessary thing. You just skim over how you practice and the waste that you produce and the things that you throw away and the negligence that maybe people have with how they look at trays and all the disposables. It seems like some people are really cautious about managing their inventory and others are just fine with it how it is. They also don’t manage the negotiations. You have two sides, the waste and the negotiating around how much things should cost. It is a really, really competitive market out there but only if you price it and make people compete. Supplies are not something that you don’t have competitive pricing if the vendors you are interacting with never feel like they have to be competitive, right?

Ryan Isaac: I was going to say too, a lot of that is that doctors off load the supply ordering and interaction with the supply vendors to someone else in the office. It often falls on an office manager or spouse.

Reese Harper: It is the classic Milton Friedman problem. You are spending other people’s money on other people.

Ryan Isaac: Yes, so what happens is that the person that is that far removed does not have the same incentive as the doctor does to save 1% or 2% on supply costs. It can get out of hand and then the hard part about it is once it is kind of a routine and it is off the doctors plate, it is hard to get back into it. It’s hard to go back to fix the problem. It is tough. Staff costs are a tough one too. The question is if you are 7% over on staff costs, do you go fire someone tomorrow? Do you go cut everyone’s pay next Monday morning? How do you fix that? How do you address that issue? Let’s move to leaks that happen when you spend time working on parts of the business or parts of your own life that don’t create revenue. We have talked a lot about distractions in the past. Spending time in places where it is not actually improving your business. One example I am thinking about, we have seen some clients who will spend six figure amounts every year on CE. Where the measurable difference in that extra knowledge or skill for the business actually made it stop creating more revenue and growth a long time ago, but it is still being spent every year. Let’s talk a little bit about the phrase time is money. Where you spend your time as a business owner will make a big impact on what actually happens in the business.

Reese Harper: I think this is a learned skill and you have to start respecting your time more and more if you are trying to grow a business. You will have to believe that your time is worth more than what you are getting paid today, and you will have to be really selective about how you use it, and that will help your practice grow. In the dentist’s case there is infinitely more ways to spend your time then you are probably spending it right now to create more revenue. A lot of that has to do with the type of procedures you are doing, the patients you are working on, the structure of your office, having more than one producer, making sure your hygiene department is producing efficiently, there are just a lot of things you can do with your time to make sure the business is maximizing its value. A lot of the things I see people working on surprise me. They will still be doing their own payroll processing instead of just approving it, they will still be doing their own data entry on book keeping, they will be evaluating routine decisions within the practice that really should be left to other people to decide. They are just involved in things that maybe they don’t take a lot of time, but when you look at them over the aggregate course of a year, it is a fifteen or twenty hour job annually. That means only ten minutes a day so they decide not to give that job to someone else. That may be true, you may not want to delegate it, but ten minutes a day over fifty two weeks is almost fifty two hours. It is a lot. I think it is really important to focus on things that actually generate revenue that no-one else can do. Don’t get side tracked with non practice production related activities. Especially when it comes to side businesses and side projects and side pursuits. I talked to someone yesterday who is knee deep in trying to work their way out of a big side business that they got involved in. It didn’t start out that way to be big, he thought he would be on the sidelines, like an advisory person. It is now sucking up four, five, or six hours a week right now. It just takes away from the productive capacity that you have to grow a practice. I think it is important for all of us to monitor our time and make sure we aren’t wasting it.

Ryan Isaac: Let’s hit one more. I think we have time for one more, let’s talk about expensive investment accounts. Maybe more broadly, where does money leak out of investment accounts?

Reese Harper: I feel like we have at least fifty of these. We have done quite a few today, but it makes me remember like another twenty. This is the short list people.

Ryan Isaac: This will be part one.

Reese Harper: Inside of your investment accounts there are a lot of different fees that are paid. It is just important to know what are my account fees, what are my trading costs, what are the expense ratios inside of the mutual funds or ETFs, are there any commissions to brokers or salespeople, are there any fees I’m paying to financial advisors, am I losing returns or efficiency, am I doing proper tax loss harvesting, am I doing charitable donations? If so, am I making them through my account or with cash because if I have gains in my accounts sometimes it is easier to pay charitable contributions through transferring gains over instead of writing a check out of your personal checking account. Do I have bad allocation? Is the lack of diversification in my account costing me in return? Investment accounts are massive, not to mention the behavior of someone. Am I consistently changing my strategy every three or four years to where I don’t really give myself a chance?
This is to give you some perspective. Over the last ten years, Europe and Asia stock markets have had a very poor period of returns. This same thing happened in the United States from 2000 from 2010, it was called the lost decade. A lot of people were frustrated by it, and if you look at that ten year period in the United States, the S&P 500 had only like a .5% annual return. It was one of the worst ten year periods in history. If you flash forward three or four years and you capture the returns that came in 2011,2012,2013,2014 and even 2015 and 2016, then the U.S. stock market returns look great. They look normalized. They are back to where they should be. If you take that whole period of time into account. Europe although it didn’t allow emerging countries did relatively well during the period where the U.S was not doing quite well, right now the European and Asian markets have not returned that well so from 2007-2017. If you are a reactive investor, someone who does not let their strategy play out, let’s say you happen to own European stocks and you just looked over the last seven or eight years at your ETF’s and mutual funds and see how they haven’t really returned that much so you make a shift. Decide to make a change, and switch things up a little bit. What if you did that at the end of 2008, or 2010 and looked back at the U.S. history and decided you needed to make a change. Europe and Asia had been doing really well, so they decided to shift to that market. If you were predominantly in the U.S. and shifted out of it to emerging European markets at the end of 2009 or 2010 because you are mad at the lost decade, then you are locking yourself up for another ten year period of bad returns in the European markets.
I have seen that with people’s portfolios. Whether it was because they weren’t patient and didn’t let their strategy play out or they just kind of bounced from sector to sector or from market to market. They end up having almost twenty years of really low returns, sub two percent! There is a lot of research done on this that shows that people make changes to their investment portfolios quite often and that creates a much lower return than the market is offering. If you are just holding it through the entire market, we are not just talking about the U.S., the whole world. It is a big leak in your life to have your investment portfolio be either too expensive or tax inefficient, not using it for charitable purposes, having too high of fees, bad allocation. All of these things are bad. It is a lot to keep track of, and it doesn’t have to be a genius portfolio, it just needs to be a well diversified portfolio that is reasonably priced. Doesn’t have to be the cheapest, just has to be reasonably priced and well diversified. That is a hard thing for a lot of people to achieve.

Ryan Isaac: It just needs to be built well in the beginning and then stuck to for a long time.

Reese Harper: It is a lot to keep track of. We have covered a ton of things. As a dentist you should be accountable for all of these things, but you shouldn’t be doing all of this analysis by yourself. You can get help with everything on the list we have talked about. There are a lot of service providers that can do these things for you, and I think people who delegate are more successful than those who try to retain it all on their own. There is not a lot of urgent stuff, just like you might not feel that urgency to call that home energy auditor to come out!

Ryan Isaac: Like we were saying, a lot of this plays out over a long period of time. It doesn’t feel particularly painful over the short term, but energy is leaking out your door.

Reese Harper: Anyway, like you have talked about, if you can build that financial house the right way and get rid of all of the leaks you are going to save a lot of money for a lot of years. It will be tens of thousands of dollars every year. That is the point of what a good financial advisor should be doing. They should be trying to identify those small leaks in your situation and making minor adjustments every year. If you try to do this all on your own, you neglect these things. If you have an advisor, you will have accountability to make sure you are moving the dial in the right direction. You can reach retirement years ahead of your peers if you get help and do it right.

Ryan Isaac: Thanks Reese, as always, we would love to hear comments about this. We would like to hear the questions that you think about when you hear these episodes. Go to, or Leave a comment on this episode. If you have questions for us directly you can call the number on our website, or at the top of the website you can click a link and schedule a time to speak with us. We would love to hear from you.

Reese Harper: Thanks, sir. Carry on.

Income, Getting Organized

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