The Index Fund
In 1975 Jack Bogle founded the Vanguard Group. It was his belief that most actively managed mutual funds could not match the returns from the S&P 500 stock index. The S&P 500 represents the largest publicly traded American companies from each sector of the American economy. The companies are weighted based on their total market capitalization (the share price times the number of outstanding shares) and fluctuates based on the weighted share price of the 500 companies in the index.
Bogle showed that the S&P 500 outperformed the vast majority of actively managed mutual funds, especially when the management fees paid to the fund’s managers were deducted from earnings. He postulated that the best returns would be obtained if one could simply buy one share of each company in the S&P 500.
To achieve this end Bogle established the Vanguard 500 Index Fund which allowed individual investors the ability to purchase shares that mirrored the performance of the S&P 500. Because the Vanguard 500 was passively managed there were no fees paid to fund managers. Therefore, instead of paying management fees of 1-3% there was only an administrative fee of 0.04%. Though originally ridiculed as lazy and “UnAmerican” the fund became a favored investment vehicle. The fund’s total net assets as of September 30, 2025 was $1.37 trillion.
The Target Date Fund - Putting It All Together
Target Date Funds (TDFs) have become the preferred default investment vehicle for 401(k) plans. As of 2023 TDFs hold 38% of all 401(k) assets and garner 68% of all new contributions. Here’s how they work. The “target date” is the year you choose as the year you’d like to retire. Choosing your retirement year requires some careful thought and possibly some research. TDFs are offered by all the major investment firms and they can assist you by offering the services of certified financial planners (CFPs). This is where things can get real quickly.
How much will I need to live on when I retire? How long do I expect to live after I retire? How much can I put aside in my retirement portfolio and still maintain a reasonable lifestyle while I’m working? How much risk am I willing to take on in my portfolio? Addressing these questions is where CFPs are invaluable.
Answering the above questions will also be highly informative about your chosen target date. Is it realistic? Would I be more comfortable with my working life budget if I moved my target date back a year or two? And remember nothing is set in stone. Maintaining a solid ongoing relationship with your TDF financial management team will enable you to make the inevitable course corrections that occur during your working life.
The Glide Path
Built into all TDFs is the glide path. Early in your financial lifespan you can take on more risk in your investments because, given a longer time horizon, your portfolio can better navigate the inevitable occasional downturns in the economy. As you approach retirement TDFs move your portfolio towards less risky, but lower return, holdings to cushion you should an economic downturn occur close to your retirement year. Early on your portfolio might hold 80% equities (mutual funds, ETFs, etc), 15% fixed income (government, corporate and/or municipal bonds) and 5% cash. As you get close to retirement your portfolio might be 55% fixed income, 35% equities and 10% cash. This transformation is gradual over your working years and has been labeled “the glide path.” It is incorporated into TDFs.
Final Thoughts
I opened my first investment account almost fifty years ago. Here is a short list of what I have found worked for me in my personal financial journey:
- Know yourself. Each of us is different and knowing your personal psychology is an essential guidepost to a successful investment portfolio.
- Max out your 401(k) or equivalent employee contribution.
- Pay off your credit card balance in full every month.
- Keep your retirement accounts in a well-established investment firm.
- Consider opening a Target Date Fund with a balanced portfolio that reflects your personal risk tolerance and risk capacity.
- Managing your investments with a well-chosen team of advisors need not be complex and mysterious.
This completes my monthly Personal Financial Management blog. It has been a distinct pleasure to be able to offer this, hopefully helpful, advice. My thanks to Dr. Kayla Knuf for encouraging me to write the blog and to Emily Cowan at the ASA headquarters for her excellent work formatting and publishing the blogs. I wish you every success in your careers in the practice of anesthesiology and in your personal financial management.
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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