The Investment Scientist

Archive for September 2013

ImageMany middle aged Americans are caught between a rock and a hard place financially. They are the so-called sandwich generation, having to take care of both kids and parents at the same time.

This has recently been a subject of discussion with clients of mine. They are a self made millionaire couple. their parents however, are relatively poor. They have enough to live on by themselves, but if they ever got sick, they would be financially dependent on their children for care.

To that end, my clients have set aside $1m just in case.

I suggested they fork over a few hundred a year to pay for their parents’ gym memberships. If their parents actually use the memberships, my clients may never need to spend the million.

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ImageI visited Dr. Chu who is a family doctor with a solo practice. He told me EHR is killing him.

He is in his 60s, very comfortable with pen and paper, but now Medicare requires him to record all patients’ records electronically, or he will have to pay a stiff penalty.

So now, in addition to seeing patients for eight hours, he has to spend three hours inputting health records.

I sat down with him and we toyed around with a few potential solutions.

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ImageSeven years ago when I started my advisory practice, I used to call myself ‘The Investment Scientist’ to differentiate from those run of the mill financial advisors.

My blog was called ‘The Investment Scientist’, and in marketing materials, I highlighted my academic training and scientific approaches toward investing.

Then, for whatever reason, I stopped doing that. Even the title of my blog has been changed to ‘The Investment Fiduciary.’ (The word ‘fiduciary’ signals my intention to put my clients’ interest first, but few understand its true meaning.)

Over the past year, I’ve rarely heard people call me an investment fiduciary, but sometimes would come across a long lost contact who’d say, “Aren’t you the Investment Scientist?”

There is a lesson here for me. Don’t use obscure words people don’t understand in marketing.

So why am I reverting back to ‘The Investment Scientist’ again?

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images-17Last Monday I went to Philadelphia to visit a client. After the meeting, I thought I would give myself a break. I would go check out a storytelling contest organized by First Person Arts at the World Cafe.

When I got there, they asked me if I wanted to participate. Well, I did not have a story, but what the heck, I’d come this far already. I would make up one on the fly. It would be a thrill to take part in a contest totally unprepared.

I spent the next hour preparing a story, which is based on a real-life experience that I’ve kept a secret thus far.

I went on stage, and the crowd loved my story! There was laughter like every ten seconds. In the end, I won the contest hands down. Now, I am a top ten storyteller in Philadelphia! I will have to go back to contest for the title of “Best Storyteller in Philly.”

I was so thrilled by my win, the excitement didn’t even subside after a whole week. This was a seriously cheap thrill, since all in all I’d spent only $10.

Let me elaborate on exactly why I am so thrilled.

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images-16A client I visited shared with me that he is very burdened by his debts. He has a primary mortgage, a secondary mortgage and a personal loan. He asked me whether he should pay off the debts and in what sequence. That’s a fantastic question.

Here are the partial details of his debts (I’ve concealed the amounts).

  1. The primary is a 15 year fixed rate mortgage with a rate of 3%.

  2. The secondary is a 5 year ARM with a current rate of 2.5%.

  3. The personal loan has a rate of 5%.

Here are my recommendations to him.

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Image1. “The gross revenues for the financial services industry in 2010 were $1.129 trillion. That year, total US financial assets stood at $50.38 trillion, meaning that the financial services industry as a whole is skimming 2.25% a year out of everyone’s wealth.” This is an excerpt from a post on Wealthcare Capital entitled “Investment Expenses – The Other Millionaire You Make.” How about I help you cut those expenses by half?

2. Shocking! Shocking! Your elected representatives want the financial industry to continue ripping you off!

3. Ike Devji wrote a piece “Investment Fraud Red Flag for Physicians.” It is packed full of useful tips. I have one thing to add though, never work with a broker, regardless how clean his or her broker check record. These people are not legally obliged to watch out for your best interest.

4. A very succinct piece in Physicians’ Monday Digest about How Rising Interest Rates Would Affect You.

5. Taxpayers beware, AccountingToday has a piece on tax deductions expiring in 2014.

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images-11A physician client of mine called me the other day and asked my advice as to whether she should evict the tenant currently residing in her condo. This is advice I hate to give. Let me explain.

The tenant is a single mom with two young children, whose estranged husband just stopped paying child support because he is officially unemployed, but the tenant believes he is getting paid under the table.

My heart goes out to this tenant, I would never want her and her children to become homeless. But my head tells me that if my client lets her stay for free, she would most likely wind up staying for free forever and my client’s rental property would become a toxic asset.

So what should I advise my client?

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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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