The Investment Scientist

Archive for April 2013

Retirement Nest EggI met with three prospective clients on my trip to Los Angeles last week. I did a quick financial review with each one of them and gathered some lessons learned as well.

Prospective client A is a physician in his late 60s. He has already reached retirement age but he needs to keep working since he has less than $1mm saved for his retirement.

All that money is in tax deferred accounts, meaning far less than $1mm is available for his retirement. This is NOT retirement security.

Client A is not an extravagant person, so why is he in such dire straits?

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Medicine is a profession fraught with legal risk. According to an AMA survey for the period 2007-2008, for every 100 doctors, there were 95 lawsuits.

The survey also reveals that physicians 55 years and older are eight times more likely to get sued than physicians 40 years and younger.

Not that they make eight times more medical errors, just that they are richer lawsuit bait.

That reminds me of a joke. Why won’t a shark attack a lawyer? Professional courtesy.

Back to the topic at hand, many physicians in solo or small practice simply use a SEP IRA as their retirement plan. It is very simple to set up, and the contribution limit is a generous 25% of earned income or an annual limit of $49,000. What is there not to like about it?

Click to get my white paper Wealth Management Guide for Physicians.

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Bullet train

Bullet train

I just came back from a long trip in China and Taiwan. During the trip, what impressed me the most was China’s bullet train. We rode the longest high-speed rail line in the world – Beijing to Guangzhou – which started services only a few months ago.

The train is futuristic, comfortable and extremely smooth. Zipping at speed of 300 km/h or about 190 mph, the water in my glass sitting on the table stayed still.

With such a speed, one could travel from New York City to Washington DC in one hour and 15 minutes, or from New York City to Chicago in three and a half hours. High-speed rail truly shrinks the country.

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New York Stock Exchange

New York Stock Exchange

The S&P 500 closed the first quarter at a record high. Should that worry investors? The short answer is, No.

When the market was 30% below the high three years ago, I did some research. I categorized all market conditions into:

1. Breaking a new high.

2. Less than 10% below historical high.

3. Between 10% and 20% below historical high.

4. Between 20% and 30% below historical high.

5. Between 30% and 40% below historical high.

6. More than 40% below historical high.

Then I calculated the one year forward returns of the six conditions.

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Author

Michael Zhuang is principal of MZ Capital, a fee-only independent advisory firm based in Washington, DC. He is also a regular contributor to Morningstar Advisor and Physicians Practice. To explore a long-term wealth advisory relationship, schedule a discovery meeting (phone call) with him.



You may also get his monthly newsletter, or join his Facebook page for regular wealth management insights. Michael's email is info[at]mzcap.com.

Twitter: @mzhuang

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