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Medical training often does little or nothing to prepare young physicians to manage their personal finances, as guest columnist Dr. Ronald Dritz discovered soon after he began his private practice in anesthesiology. Now retired, Dr. Dritz invites young anesthesiologists to join him for a series of articles focusing on the lifecycle of financial health, from wealth accumulation to retirement planning. Buckle up!

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As I emerged from my anesthesia training and began my private practice, I felt comfortable and secure providing anesthetic care for most any surgical procedure up to and including complex cardiac surgical cases. And I began to be reimbursed for my provision of anesthetic care. But I quickly realized that financially I was naive. I didn’t know the first thing about investing, pension plans, tax strategies or portfolio management. When I saw an article about an IRA, I thought it was about the Irish Republican Army…really! A year later, when I enrolled in an adult education seminar at the University of California entitled “Investment Advice for Doctors and Dentists” I thought I was attending a class reunion. Of the one hundred or so attendees, close to thirty were from my medical school class. Apparently, we were all in the same boat.

Over the next several months I hope to provide you with an overview of the subject of Personal Financial Management. I will provide you with simple tools to understand and manage the various factors that affect your finances. We’ll look at how wealth can be accumulated, and I’ll explain how inflation and taxes interface with wealth formation. We’ll look at various retirement vehicles available through the tax code that enable you to best achieve your long-term financial goals. I’ll suggest how you can create a team of advisors to assist you in making the best financial strategies and course-correct throughout your financial lifetime as your goals and requirements inevitably shift and change over time. I’ll also suggest a tool to create a personal financial profile that will help you understand your own psychology as it interfaces with your investment risk and return.

Before we dive in, let me give you some full disclosure. I am not here to sell you any goods or services regarding financial management. Nor do I represent anyone else who might want to do that. From time to time, I may refer to certain experiences that I have had with a financial management firm. That firm is Charles Schwab & Co. To the extent that I refer to any teaching tools to illustrate certain points that are available through Charles Schwab & Co. I do so only because I am most familiar with their tools by virtue of my personal association with that firm as a client. I have investigated other financial management firms such as Fidelity and Vanguard as best I can without being their client. As best I can tell they seem to offer a similar array of products and services.

During these blog posts I may present certain investment strategies or particular investment products (e.g., target date funds). I will be using these examples to help illuminate possible options. However, in doing so, I am not suggesting or advocating for any choice. Any investment decisions belong solely to the reader.

Wealth

I will define wealth as that which enables one to acquire goods and services. While the vehicle that enables the transaction is almost always money, wealth and money are not the same. The factor that differentiates wealth from money is INFLATION. If you invest $10,000 and manage those funds such that your money doubles to $20,000 over some period while over that same time the cost of goods and services double in price, you will have twice as much money. But your wealth will have increased not at all. Therefore, the first rule of wealth accumulation is, “To increase your wealth you must beat inflation.”

So, can you beat inflation? The answer is “yes” and it’s not that hard. For instance, over any thirty-year period the average annual return on the S&P stock index has ALWAYS beat inflation. The S&P stock index was first compiled in 1927, so that is a ninety-seven-year history of the S&P stock index consistently outperforming the annual inflation rate over a period of thirty consecutive years. The important and essential factor here is TIME.

The rate of increase in your wealth is calculated by taking the annual rate of return on your investments and subtracting the annual inflation rate. Between 1994 and 2024 the average annual return on the S&P stock index exchange traded fund (ETF) was about 9.25%. The annual inflation rate over that same period was 2.6%. So, an investment in the S&P stock index in 1994 held until 2024 would increase your wealth at the rate of (9.25% minus 2.6% equals) 6.65% per year. What exactly does that mean?

A handy tool to understand rates of return is the “rule of seventy-two,” which states that if you know the annual rate of return of an investment, you can calculate the doubling time of that investment by dividing the rate of return into the number 72. So, for the above example, your investment would have doubled your wealth roughly every (6.65 divided into 72 equals) 10.8 years. That's roughly three doublings, so an initial investment in the S&P stock index ETF of $10,000 in 1994 held untouched for thirty years would be able to buy you almost $80,000 worth of goods and services in 2024 DESPITE inflation. Your “buying power” would be almost eight times greater!

Over the next few blogs, we’ll look at the second factor that affects your ability to increase wealth, TAXES. I’ll give you a simple overview of federal income taxes and discuss various tax advantaged retirement accounts, available through the tax code, that enable you to maximize your retirement savings.

Ronald Dritz, MD, FACA, practiced anesthesia for twenty-eight years in northern California. He held numerous positions of leadership including Chairman of Anesthesia, President of the Medical Staff, hospital and health system board membership and served as Finance Chair of an IPA medical group. He is happily retired and lives with his lovely wife in Emeryville, California.

The ASA Committee on Young Physicians is pleased to present this monthly article series on personal finance. These articles are not written by hedge fund managers or real estate tycoons but by practicing physicians. Some have business degrees and some do not – but every contributor is an anesthesiologist who has some guidance to offer the rising generation of attending physicians. It is not the intention of the committee to offer definitive financial advice, but rather some pearls of wisdom to consider while developing a personal fiscal plan.

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