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How to convince a co-resident to choose a passive fund over an active fund?

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  • #16
    You can bring a horse to water...


    • #17
      I only share market advice if I am asked and even then I don't like to. What if you convince him to change and over the course of residency FAGAX dramatically outperforms VTI?


      • #18
        The biggest concern I have with doctors making these types of financial mistakes is that that the same skill sets are being used in evaluating clinical studies: understanding statistics, probability, problems with multiplicity and bias in retrospective analysis, the risk/benefit ratio.

        I really wish we had more statistics in medschool and were required to take stats as premeds instead of calculus or even orgo.

        And someone needs to create a course that goes in depth on understanding and recognizing biases of all types.


        • #19
          Like above, I would avoid marriage.

          If you are talking about the same fund , it looks like the expenses are higher than you quoted.

          FEES & EXPENSES
          Front load 5.75%
          Deferred load N/A
          Max. redemption fee N/A
          Total expense ratio 1.06%
          12 b-1 0.25%

          The most important lesson in personal finance , do some research, figure out what you want to do , make a plan, and stick with it with out comparing yourself to others.


          • #20
            I think it's nice of you to be concerned about your co-resident, but agree with others there is no use in trying to "convince" anyone as it's a losing game.

            If you are adamant about trying to help, I'd focus on trying to educate as best you can and then hope they learn the lesson earlier in their career when less $$ is at stake. It depends on the person, but I'd explain the thought process for why you invest the way you do and let them come to their own conclusion. Here are some thoughts:

            1) Lay out fees - 1% AUM + 1%+ ER = Need to outperform by 2% every year just to breakeven.
            2) Show them the raw data on % of active funds that outperform their respective benchmark (SPIVA data is really a helpful study) - 87% of active funds in US equities underperformed over the past 15 years.
            3) Explain that they need to hope their active funds are one of the 13% of funds that beat their passive index and then hope that fund also outperforms by 2% ongoing.
            4) Say you prefer to stack the odds in your favor with investing especially given you're investing over a lot longer time periods than 15 years.
            Andrew Musbach, CFP® | Co-Founder & Financial Advisor at MD Wealth Management, LLC | Podcast Host - The Physician's Guide to Financial Wellness


            • #21
              Originally posted by sportsdoc12 View Post

              . One of my co-residents has been doing a great job saving but in addition to having his money with an advisor charging 1% AUM fee he is also has most of his money in FAGAX with ER of 1.060 (he apparently isnt paying any of the up front fees).

              I have been urging him to go the passive route with VTI. His argument is that the 15 year average return for FAGAX is 15 % while VTI is only 10.36. He knows that past performance doesn't dictate future performance. He is happy paying the 1% since FAGAX has a 4.7% greater return. What would you say to him to convince him that passive investing is the best way to accumulate wealth over the long term?

              As a resident he is doing a great job saving when many of your colleagues will spend every last penny on useless junk and have nothing saved. So what if he is paying 1% AUM and 1% ER. Luckily he has good returns t show for it.

              I did not have a financial advisor but I did buy some actively managed, front load mutual funds and lots of single stocks during residency, fellowship and many years as attending. My passive investment index fund did not start until 7-8 years ago. Those active funds were dogs but those stocks have had great returns. But what has made me wealthy is the savings mentality and living below my means.

              If he/she has that, he/she will go far in life. You should focus more on his impulse to buy Gamestop stock.


              • #22
                Originally posted by TXDoc21 View Post
                You can bring a horse to water...
                Someone has to clean up after the horses. Yep, stepping in it.



                • #23
                  When I was a resident one of the attendings was telling me about what I now realize is the back door roth. I was too dumb to listen and look into it. My excuse was that my loans were at 6.8% and I felt like my hair was on fire so all my money went towards that. Hindsight shows that I should have invested a little more and taken a little longer with the loans. I eventually found my way here and figured it out. Better late then never.

                  Give him a few good websites, WCI, Boggleheads, JLC, Etc. Recommend a book or 2. But if he is not ready you are not going to change his mind.


                  • #24
                    On the positive side, sometimes one comment can rectify systemic errors.
                    My MD-coworker visited hospital HR to complain about the high-ER retirement investment options. She mentioned "fiduciary responsibility" and potential liability.
                    Vanguard options were soon available.


                    • #25
                      I never realized how lucky I was that we had a Vanguard rep brought in to a course in dental school.

                      I thought everything they said was common knowledge, and this was in 2001. It's amazing that this battle is still being fought.