Financial Puberty

crispydoc Uncategorized 2 Comments

In medicine, the Tanner scale of development uses physical characteristics to determine where an individual falls in their development from child to adulthood. Here’s my financial equivalent for newbie physicians (with minor modifications, it can apply to non-medical folks just as easily):
Tanner I:
Your sibling or parent gifted you a mediocre personal finance book in college, which you started but did not finish. During internship, you know enough go to H&R Block with your W-2. Contributing to a retirement account is not on your radar.
Tanner II:
Your big sib in residency turns you on to a personal finance website. You read a couple of blog posts. You’re vaguely interested, but on the sidelines, and perhaps begin contributing less than the maximum to your residency’s retirement plan.Tanner III:
You’ve started reading one or all of the holy trinity of doc investing books: The White Coat Investor, Bernstein’s Four Pillars of Investing, and The Bogleheads Guide to Investing. You feel ridiculous for having waited this long to get your financial affairs in order. You are simultaneously excited to understand how to run your finances and horrified at how many costly mistakes you’ve made.

Tanner IV:
You’ve read additional books, devised a simple asset allocation appropriate for your risk tolerance, and come up with a three fund lazy portfolio. But you can’t seem to execute for fear of getting it wrong. You write an email explaining your distress to an established blogger and feel like the world’s biggest special snowflake when the superstar writes you back.

Tanner V:
You are a DIY investor with all your assets at Vanguard. You are considering starting your own physician finance blog to convince others to do the

Time To Change
A recent post on the White Coat Investor highlighted the lack of confidence among newbie physician investors, most of whom would fall into the Financial Tanner IV stage. These are folks fresh out of training who have accumulated an adequate fund of knowledge but feel insecure about putting their newfound knowledge into action.I get it. The appeal of using a financial advisor or robo-advisor provides plausible deniability: you get to blame someone else if your investments go to hell. If the fancy expert couldn’t avoid this loss, at least you and your loved ones can take a measure of comfort knowing you gave it your best shot, right?By the time medical training ends, most folks are facing a mountain of debt, and many have added a spouse or kids to the list of reasons they can’t afford to screw up. Furthermore, this coincides with the precise moment when these folks suddenly quadruple their earnings. The stakes have increased: Mo’ money, mo’ dependents, mo’ problems.

Selling Your Kids For Scientific Experiments
Everyone fears the day the market correction will come, when they gather their kids (a la Monty Python) and say, “We’re destitute. I’ve got no option but to sell you all for scientific experiments.” The reality is that with a sound investment plan and a long time horizon the market will rebound and increase in value, and the intelligent investor will reap the rewards of staying the course.

Your objective cannot be to avoid the temporary losses when the market goes down, but rather to maintain the discipline to stick with your plan. You won’t feel better about your losses by putting an arm around your spouse and saying, “At least we had the extensive expertise of Bernie Madoff advising us before we lost everything.”

My Advice For The Tanner IV Investor
Keep saving and investing. Continue to max out your tax-deferred retirement accounts, and invest everything in a total market index fund like VTSAX. Do the same with your taxable investments. Make no other big investing decisions for a year.

During this year, read another 6-8 books on investing. Hang out on the Bogleheads forum and see what advice the experts offer in the “Help With Personal Investments” section. These activities will not necessarily add to your actionable fund of knowledge, but seeing the same good advice stated repeatedly by different people in different places will validate your knowledge and empower you to act.

Why a total market index fund like VTSAX? Because with few exceptions, most passive investing plans will use VTSAX as a cornerstone of the portfolio. Better still, VTSAX is tax-efficient in both taxable and tax-deferred accounts, so you won’t regret buying it in both spaces.

What happens if a market correction occurs and you are completely invested in stocks? First off, it’s only one year’s worth of investments. For a Financial Tanner IV newbie investor, you can ignore these paper losses, because you’ll presumably have one or more decades for the market to recover before you’ll need access to your investments.  In the meantime, keep investing during the downturn because, woohoo, stocks on fire sale!

I’ll conclude with the first and last lines of Rudyard Kipling’s If, a beloved poem of FI authors (for good reason):

If you can keep your head when all about you
Are losing theirs and blaming it on you…

Yours is the Earth and everything that’s in it,
And—which is more—you’ll be a Man, my son!

I can practically your chest hairs sprouting and (insert something unobjectionable and endearing about women coming of age, which I am ashamed I could not think of)!

Comments 2

  1. 1 something is better than nothing
    2 the right thing is better than the wrong thing
    3 what’s the evidence boggleheadism is the right thing?

    1. Post


      Fair critique. There’s a great deal of cookie cutter approach inherent to the Bogleheads lazy 3 fund, and your posts on the improvements along the efficient frontier realized using a 2 fund instead are completely valid. I’m looking for the easiest beginner vehicle to learn to drive to get that student driver to his destination.

      For most newbies, leanring to manage a Bogleheads 3 fund is superior to the paucity of experience they are willing to attempt – it’s the facial lac performed by the med student on the chronic inebriate in the ED.

      Can you find better vehicles with superior outcomes to get you where you need to go? Absolutely. But there’s a learning curve, and whether that student goes on to refine her suture skills through a career in plastics or rural family practice, odds are she’ll pass through an entry level phase suturing the inebriate in the ED at one point or another.

      For some it will be the baby steps before they learn to dance. For others that will be the apex of their coordination. Gets the job done either way, although I’d certainly hope they continue to learn about investing and finance beyond that level.

      I’m far from a pious Boglehead, but I’m grateful for the easy DIY starter kit to develop investor confidence represented by their community. I’m willing to accept it as good enough to do the job and non-threatening enough to allow beginners to learn, but I don’t mean to suggest this is an excuse to turn a blind eye to its shortcomings.

      Too many mixed metaphors, but I think I’ve said enough.



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